(This is the third in a series of posts on globalization and American decline.)
American decline, increasingly obvious across the nation's landscape, remains controversial. Is the United States declining absolutely, as the Roman Empire did? Is it only declining relatively -- that is, it's strong but other countries are catching up? Is this decline only temporary, something that will disappear when the recession ends and we get our mojo back?
These are important questions. The recession certainly will end. No country can remain the sole superpower forever. So will everything be OK, so long as we keep America strong and vital?
The truth is that American decline is neither temporary nor relative. It doesn't have anything to do with the recession and not much to do with China. Yes, the recession will end and China could collapse, as some pundits predict. Neither will affect the reality of American decline.
This decline can be measured in two basic ways. Both are happening now. There is no sign that either will be reversed.
First is the decline in the nation's ability to create a structure of economic decency, to enable the majority of its people to enjoy a decent standard of living.
Second is the decline in the nation's ability to project power. Being a superpower is expensive. More than any other nation, America has had the means -- military, diplomatic, economic, cultural -- to get its way abroad. The world still looks to America for leadership, but this is a leadership we can no longer afford.
Examples at home? Have a look at official statistics showing decades of stagnating or falling median wages and household incomes, the growing number of children living in poverty, the loss of the kind of manufacturing jobs that supported Americans through most of the nation's history, especially the growing gap between the super-rich and the rest.
If the only true purpose of an economy is the well-being of the people who live within it, the American economy is declining.
Examples abroad? Two unfunded wars in Afghanistan and Iraq have led to most of the fiscal deficit and, as the most recent Chicago Council on Global Affairs poll showed, to declining public support for an active foreign policy. Globalization itself has tied our hands in many areas. The U.S., for example, is still committed to defending Taiwan against a China that could bankrupt us with the flick of a mouse. Obviously, it's a commitment we'll never keep.
For all our flag-waving and our Vietnam-sized mistakes, American power has been the key to global stability for sixty years. A world that often resented American strength should fear American weakness.
Earlier posts have described the role of globalization in this decline. Global markets have led to the wave of outsourcing that eliminated many of the jobs, skilled and semi-skilled, that employed much of America's middle class. Lower wages abroad have forced down wages here, or have led to job-killing automation. Especially, as the economy goes global, so do the people -- financiers, CEOs -- who run that economy. Many still carry American passports, but their priorities are global. No longer dependent on the American, they have literally lost interest in American society and feel no responsibility to it.
Americans are taught that a free market economy creates a healthy society. It's important to note that the global market now is actually working the way a market should work. As Michael Spence, the Nobel Prize-winning economist wrote in Foreign Affairs:
"Faced with an undesirable economic outcome, economists tend to assume that its cause is a market failure....But the effects on the U.S. economy of the global economy's structural evolution is not a market failure: it is not an economically inefficient outcome. (If anything, the global economy is generally becoming more efficient.) But it is nonetheless a cause for concern in that it is creating a distributional problem in the advanced economies."
For a classical economist, this is heresy. Spence is saying that globalization enables capital to be invested where it can be most efficiently used -- that is, where it produces maximum profit. Theoretically, this investment, plus free trade, should raise the overall economy. In fact, this is happening: the global economy is definitely growing. But as Spence said, it's producing "distributional problems," which means it's creating winners and losers. The losers happen to be in "advanced economies." In other words, here.
If Adam Smith wrote the rules for a market economy, American economists -- especially at the University of Chicago -- refined them. If markets are good, American-style free markets are better: so this thinking went. Mixed economies, as in Europe, are "rigid" and semi-capitalist economies with heavy state ownership, as in China, couldn't possibly work.
This theory was easy to promote so long as the American economy demonstrably out-performed the rest of the world. It's harder now that this economy has stopped performing for the majority of Americans.
Robert Gordon, the Northwestern University economist, has written that there have been three bursts of innovation, two of which led to long periods of economic growth. The first (1750 to 1830) gave us steam engines and railroads and created the Industrial Revolution. The second (1870-1900) gave us electricity, communications, chemicals and the like, and produced the immense expansion of the 20th century.
The third, starting in 1960, gave us computers, the web and space-age communications. This has indeed led to growth, both absolute and per capita, in former Third World countries. But it had "a damaging effect on the nation with the highest wage level, i.e., the United States."
The American winners are corporate CEOs who can operate globally, Gordon has written. The losers "are those not only whose jobs are lost to imports and outsourcing, but those whose incomes are beaten down as foreign investment flocks to southern states with lower wages, and as corporations like Caterpillar are successful in extracting concessions on wages and benefits from their employees."
There are three things to note here. First, this is an epochal shift in the economy, ending 250 years of Western growth: Gordon doesn't even mention the current recession. Second, China plays a role as the destination of jobs but, if China collapses tomorrow, the process would go on, since it's based on technology that isn't going to disappear.
Third, there's no reason to think things will go back to the good old days.
Some economists dispute Gordon, arguing that innovation will come to the rescue. But this sounds like wishful thinking: no one knows where this innovation will arise. And even if it does, there's no reason to think that it will alight here or change the structure of inequality that bedevils the nation: the latest wave of innovation that Gordon cites has only made this inequality worse.
No wonder the subject of American decline has not even been mentioned in the presidential election campaign. No candidate ever won votes by talking about American weakness. And both candidates know perfectly well that, powerful though the office may be, no American president has the power to reverse what is a permanent decline rooted in a global tide that rises far from American shores.