The obituary of the American century has been written, but there are very good reasons to believe that the USA will continue to play a dominant role in the 21stcentury. This is the second of 2 pieces that examines the resilience of American economic power.
America’s continued dominance is based on its ability to project both hard and soft power.
The US remains a formidable military power. America spends around 40% of the total amount spent globally on defence, around six times second placed China. The technical and economic capacity to maintain, integrate and operate up-to-date complex defence systems provides America with a significant advantage.
The strategic shift to stand-off and remote weapons systems, such as drones, as well more technologically sophisticated weapons systems enhance its capabilities to protect its interests. Whatever the moral and legal implications of drone strikes against its enemies, America’s ability to project power in support its interests remain unsurpassed.
America’s political and economic interests increasingly dictate withdrawal from military engagements such as Iraq and Afghanistan. Reduced reliance on foreign energy supplies may allow the US to reduce its commitment to guarding crucial sea lanes such as the Straits of Hormuz and Malacca Straits.
In the post-cold war era, America has served as the “indispensable nation” (a phrase suggested by former Secretary of State Madeline Albright) policing the world’s conflicts. But America is increasingly wary of “entangling alliances” (Thomas Jefferson) and overseas adventures “in search of monsters to destroy” (John Quincy Adams).
Many developed countries have spent too little on defence, preferring to piggyback off US capability. The reliance on US military resources was highlighted during the 2011 European military action led by France and Britain in Libya. As former US Defence Secretary Robert Gates pointed out in an acerbic speech, European air warfare capabilities were dependent on American target identification systems, US Air Force air-to-air refuelling, drones, stocks of smart bombs and American experts: “The mightiest military alliance in history is only 11 weeks into an operation against a poorly armed regime in a sparsely populated country… Yet many allies are beginning to run short of munitions, requiring the US, once more, to make up the difference”.
American isolationism would have a double effect. America’s costs would be reduced, improving its budget deficit and reducing its borrowing requirement. It would also require other nations to increase defence spending, reducing funds available for other activities.
America remains a leader in science and technology. While the quality overall of its educational systems is far from exceptional, most studies rank elite US universities as among the best in the world.
While other countries are investing heavily to bridge the difference, American innovation remains strong. US research and development (“R&D”) expenditures are around four times greater than say China, where the government has decreed that by 2020 R&D expenditures will constitute 2.5% of GDP. While difficult to accurately measure, the quality of scientific output in the US remains superior. A strong venture capital system supports fledgling businesses.
These factors underpin America’s leadership in high technology products, with competition coming from only a few nations such as Germany and Japan.
The labour market remains flexible, albeit at high human cost.
The US has favourable demographics, although the financial crisis has diminished its advantage. It still has high population growth relative to other industrialized countries, which have below-replacement fertility rates. Over the next 40 years, United Nation studies forecast that its working age population will grow by 17% while that of all the other major countries (except India) will decline.
The US also has higher levels of immigration, remaining a magnet for immigration attracting talent and additional labour to supplement it domestic resources.
Although not as dominant as in earlier decades, American entertainment, fashion and style remain influential.
America’s pre-eminence is based on complex and subtle systems and processes, which are difficult to replicate. A World Bank study estimated that 80% of its wealth derives from intangible assets, such as property rights, judicial system, skills, knowledge and trust embedded within it society.
America’s ability to tolerate failure is crucial. Few countries consider bankruptcy merely a step in the evolution of an entrepreneur or innovator. There is also America’s ability to admit a mistake, at least tacitly if not explicitly. It lies at the heart of resolving problems. US actions in dealing with its financial problems stand in sharp contrast to Europe’s approach to resolving its debt crisis.
America’s ability to reinvent itself and change is important. Many of America’s economic competitors find it difficult to embrace change.
Faced with massive problems of low growth, a lack of competitiveness and excessive debt levels, European countries have struggled to agree and implement the required far reaching reforms.
In November 2012, Chinese President Hu spoke about the need for economic and political reform. But the President simultaneously cryptically cautioned against taking the “evil road of changing flags and banners”. Circulated widely on Weibo, China’s Twitter like micro-blog, the reluctance to make the necessary changes drew the following derisory comment from one user: “So we will walk in place until we die.”
People throughout the world still aspire to an American way of life. In the 2004 documentary Control Room about the Arabic news channel Al Jazeera, a journalist is highly critical of American foreign policy as well as American ethics and morals. Yet, he confesses if he had a chance to work in America, he would accept the opportunity.
There remain serious risks and challenges, any one of which could damage America’s position. To paraphrase Clayton Williams, a Republican who lost the 1990 Texas gubernatorial race after a series of gaffes: [Americans] shot ourselves in the foot and reloaded.
There is an urgent need to address America’s deteriorating public finances, especially unfunded social welfare obligations, such as Social Security, Medicare and Medicaid. State and municipal finances are poor and need urgent attention. Pension schemes, both in public and private sector, are in urgent need of reform.
The taxation system is complex, inequitable and creates undesirable distortions. America’s infrastructure is dated and needs urgent renewal.
Labour force policies need reform. High structural unemployment and elevated youth unemployment, exacerbated by the recession and lack lustre recovery, pose social and economic problems. Employment opportunities for low skilled workers are limited due to the effects of technology and globalisation. Rising income inequality and the lack of wage growth are major concerns.
There is a need to improve productivity. Recent productivity growth, achieved mainly through the elimination of many low to moderately skilled jobs and adoption of technology, is not sustainable.
Crucially, the political process remains dysfunctional and gridlocked, impeding progress on vital policy issues. As that astute observer of America Alexis de Tocqueville noted: “There are many men of principle in both parties in America, but there is no party of principle”.
On 30 October 1974, Muhammad Ali, the former Champion of the World, fought the incumbent George Foreman for the Heavyweight Boxing Championship.
Having served a 3 ½ year suspension from boxing for having refused the draft to fight in Vietnam, Ali was past his prime. His previous attempt to regain the title had ended in a bruising defeat to Joe Frazier. The younger heavier punching George Foreman was expected to win easily. Ali’s fans hoped he would not be humiliated, hurt or worse. But Ali unexpectedly won, knocking out the undefeated champion in the 8th round.
The aging Ali’s victory was the result of a clever strategy. Early in the contest, Ali used unconventional (and provocative) right-hand leads to disorient the champion. Then, Ali deployed the famed rope-a-dope. His trainer Angelo Dundee allegedly loosened the ropes around the ring enabling Ali to lean back and cover up, letting Foreman punch himself out in the stifling heat of Kinshasa in the Republic of Congo (then Zaire). Ali was ultimately able to knock out a tired and dispirited Foreman to regain the title.
The Rumble in the Jungle showed Ali’s ability to absorb ferocious punishment and his shrewd tactical thinking, adjusting to his aging body and negating his opponent strengths.
US economic strategy resembles the famed rope-a-dope. America absorbed ferocious punishment in the current economic downturn. Despite weaknesses, it remains capable of dominance. US strategic superiority may allow it to maintain its geopolitical and economic advantage.
Asian American Century…
Predictions about American decline are not new. Former US Secretary of State Henry Kissinger observed: “[T]he US cannot afford another decline like that which has characterised the past decade and a half….[O]nly self-delusion can keep us from admitting our decline to ourselves”. That was in 1961.
Unlike previous empires which have declined, such as Great Britain, the US has crafted a unique position built on its advantages in economic power, global finance, military capability and geopolitical role. While it faces significant challenges, America’s position is underpinned by strong material advantages as well as the export of its attitudes and values. For better or worse, it shapes global economic, financial and political agendas, influencing the choices of other nations. America may be able to extend its dominant role for some time to come.
Otto von Bismarck once said: “I am firmly convinced that Spain is the strongest country of the world. Century after century trying to destroy herself and still no success.” He might well have been speaking about the USA.
But the Rumble in the Jungle offers a cautionary postscript. Ali might have won against Foreman but he was permanently weakened as a result of the punishment sustained in that fight and his previous bouts, especially against Joe Frazier. The victory and regaining of the World Championship marked a final highlight in his career and the beginning of a drift into irreversible decline.