American Decline: Causes and Consequences
To review briefly some of the relevant history: During World War II, US planners recognized that the US would emerge from the war in a position of overwhelming power. It is quite clear from the documentary record that “President Roosevelt was aiming at United States hegemony in the postwar world,” to quote the assessment of diplomatic historian Geoffrey Warner. Plans were developed to control what was called a Grand Area, a region encompassing the Western Hemisphere, the Far East, the former British empire – including the crucial Middle East oil reserves – and as much of Eurasia as possible, or at the very least its core industrial regions in Western Europe and the southern European states. The latter were regarded as essential for ensuring control of Middle East energy resources. Within these expansive domains, the US was to maintain “unquestioned power” with “military and economic supremacy,” while ensuring the “limitation of any exercise of sovereignty” by states that might interfere with its global designs. The doctrines still prevail, though their reach has declined.
Wartime plans, soon to be carefully implemented, were not unrealistic. The US had long been by far the richest country in the world. The war ended the Depression and US industrial capacity almost quadrupled, while rivals were decimated. At the war’s end, the US had half the world’s wealth and unmatched security. Each region of the Grand Area was assigned its ‘function’ within the global system. The ensuing ‘Cold War’ consisted largely of efforts by the two superpowers to enforce order on their own domains: for the USSR, Eastern Europe; for the US, most of the world. By 1949, the Grand Area was already seriously eroding with “the loss of China,” as it is routinely called. The phrase is interesting: one can only ‘lose’ what one possesses. Shortly after, Southeast Asia began to fall out of control, leading to Washington’s horrendous Indochina wars and the huge massacres in Indonesia in 1965 as US dominance was restored. Meanwhile, subversion and massive violence continued elsewhere in the effort to maintain what is called ‘stability,’ meaning conformity to US demands.
But decline was inevitable, as the industrial world reconstructed and decolonization pursued its agonizing course. By 1970, US share of world wealth had declined to about 25%, still colossal but sharply reduced. The industrial world was becoming ‘tripolar,’ with major centers in the US, Europe, and Asia – then Japan-centered – already becoming the most dynamic region.
Twenty years later the USSR collapsed. Washington’s reaction teaches us a good deal about the reality of the Cold War. The Bush I administration, then in office, immediately declared that policies would remain pretty much unchanged, but under different pretexts. The huge military establishment would be maintained, but not for defense against the Russians; rather, to confront the “technological sophistication” of third world powers. Similarly, they reasoned, it would be necessary to maintain “the defense industrial base,” a euphemism for advanced industry, highly reliant on government subsidy and initiative. Intervention forces still had to be aimed at the Middle East, where the serious problems “could not be laid at the Kremlin’s door,” contrary to half a century of deceit. It was quietly conceded that the problems had always been “radical nationalism,” that is, attempts by countries to pursue an independent course in violation of Grand Area principles. These policy fundamentals were not modified. The Clinton administration declared that the US has the right to use military force unilaterally to ensure “uninhibited access to key markets, energy supplies, and strategic resources.” It also declared that military forces must be “forward deployed” in Europe and Asia “in order to shape people’s opinions about us,” not by gentle persuasion, and “to shape events that will affect our livelihood and our security.” Instead of being reduced or eliminated, as propaganda would have led one to expect, NATO was expanded to the East. This was in violation of verbal pledges to Mikhail Gorbachev when he agreed to allow a unified Germany to join NATO.
Today, NATO has become a global intervention force under US command, with the official task of controlling the international energy system, sea lanes, pipelines, and whatever else the hegemonic power determines.
There was indeed a period of euphoria after the collapse of the superpower enemy, with excited tales about “the end of history” and awed acclaim for Clinton’s foreign policy. Prominent intellectuals declared the onset of a “noble phase” with a “saintly glow,” as for the first time in history a nation was guided by “altruism” and dedicated to “principles and values;” and nothing stood in the way of the “idealistic New World bent on ending inhumanity,” which could at last carry forward unhindered the emerging international norm of humanitarian intervention.
Not all were so enraptured. The traditional victims, the Global South, bitterly condemned “the so-called ‘right’ of humanitarian intervention,” recognizing it to be just the old “right” of imperial domination. More sober voices at home among the policy elite could perceive that for much of the world, the US was “becoming the rogue superpower,” considered “the single greatest external threat to their societies,” and that “the prime rogue state today is the United States.” After Bush Jr. took over, increasingly hostile world opinion could scarcely be ignored. In the Arab world particularly, Bush’s approval ratings plummeted. Obama has achieved the impressive feat of sinking still lower, down to 5% in Egypt and not much higher elsewhere in the region.
Meanwhile, decline continued. In the past decade, South America has been ‘lost.’ The ‘threat’ of losing South America had loomed decades earlier. As the Nixon administration was planning the destruction of Chilean democracy, and the installation of a US-backed Pinochet dictatorship – the National Security Council warned that if the US could not control Latin America, it could not expect “to achieve a successful order elsewhere in the world.”
But far more serious would be moves towards independence in the Middle East. Post WWII planning recognized that control of the incomparable energy reserves of the Middle East would yield “substantial control of the world,” in the words of the influential Roosevelt advisor A.A. Berle.
Correspondingly, that loss of control would threaten the project of global dominance that was clearly articulated during World War II and has been sustained in the face of major changes in world order ever since.
A further danger to US hegemony was the possibility of meaningful moves towards democracy. New York Times executive editor Bill Keller writes movingly of Washington’s “yearning to embrace the aspiring democrats across North Africa and the Middle East.” But recent polls of Arab opinion reveal very clearly that functioning democracy where public opinion influences policy would be disastrous for Washington. Not surprisingly, the first few steps in Egypt's foreign policy after ousting Mubarak have been strongly opposed by the US and its Israeli client.
While longstanding US policies remain stable, with tactical adjustments, under Obama there have been some significant changes. Military analyst Yochi Dreazen observes in the Atlantic that Bush’s policy was to capture (and torture) suspects, while Obama simply assassinates them, with a rapid increase in terror weapons (drones) and the use of Special Forces, many of them assassination teams. Special Forces are scheduled to operate in 120 countries. Now as large as Canada’s entire military, these forces are, in effect, a private army of the president, a matter discussed in detail by American investigative journalist Nick Turse on the website Tomdispatch. The team that Obama dispatched to assassinate Osama bin Laden had already carried out perhaps a dozen similar missions in Pakistan.
As these and many other developments illustrate, though America’s hegemony has declined, its ambition has not.
Another common theme, at least among those who are not willfully blind, is that American decline is in no small measure self-inflicted. The comic opera in Washington this summer, which disgusts the country (a large majority think that Congress should just be disbanded) and bewilders the world, has few analogues in the annals of parliamentary democracy. The spectacle is even coming to frighten the sponsors of the charade. Corporate power is now concerned that the extremists they helped put in office in Congress may choose to bring down the edifice on which their own wealth and privilege relies, the powerful nanny state that caters to their interests.
The eminent American philosopher John Dewey once described politics as “the shadow cast on society by big business,” warning that “attenuation of the shadow will not change the substance.” Since the 1970s, the shadow has become a dark cloud enveloping society and the political system. Corporate power, by now largely financial capital, has reached the point that both political organizations, which now barely resemble traditional parties, are far to the right of the population on the major issues under debate.
For the public, the primary domestic concern, rightly, is the severe crisis of unemployment. Under current circumstances, that critical problem can be overcome only by a significant government stimulus, well beyond the recent one, which barely matched decline in state and local spending, though even that limited initiative did probably save millions of jobs. For financial institutions the primary concern is the deficit. Therefore, only the deficit is under discussion. A large majority of the population favor addressing the deficit by taxing the very rich (72% for, 21% opposed). Cutting health programs is opposed by overwhelming majorities (69% Medicaid, 79% Medicare). The likely outcome is therefore the opposite. Reporting the results of a study of how the public would eliminate the deficit, its director, Steven Kull, writes that "clearly both the administration and the Republican-led House are out of step with the public's values and priorities in regard to the budget…The biggest difference in spending is that the public favored deep cuts in defense spending, while the administration and the House propose modest increases…The public also favored more spending on job training, education, and pollution control than did either the administration or the House.”
The costs of the Bush-Obama wars in Iraq and Afghanistan are now estimated to run as high as $4.4 trillion – a major victory for Osama bin Laden, whose announced goal was to bankrupt America by drawing it into a trap. The 2011 military budget – almost matching that of the rest of the world combined – is higher in real terms than at any time since World War II and is slated to go even higher.
The deficit crisis is largely manufactured as a weapon to destroy hated social programs on which a large part of the population relies. Economics correspondent Martin Wolf of the London Financial Times writes that “it is not that tackling the US fiscal position is urgent…. The US is able to borrow on easy terms, with yields on 10-year bonds close to 3 percent, as the few non-hysterics predicted. The fiscal challenge is long term, not immediate.” Very significantly, he adds: “The astonishing feature of the federal fiscal position is that revenues are forecast to be a mere 14.4 percent of GDP in 2011, far below their postwar average of close to 18 percent. Individual income tax is forecast to be a mere 6.3 percent of GDP in 2011. This non-American cannot understand what the fuss is about: in 1988, at the end of Ronald Reagan’s term, receipts were 18.2 percent of GDP. Tax revenue has to rise substantially if the deficit is to close.” Astonishing indeed, but it is the demand of the financial institutions and the super-rich, and in a rapidly declining democracy, that’s what counts.
Though the deficit crisis is manufactured for reasons of savage class war, the long-term debt crisis is serious, and has been ever since Ronald Reagan’s fiscal irresponsibility turned the US from the world’s leading creditor to the world’s leading debtor, tripling national debt and raising threats to the economy that were rapidly escalated by George W. Bush. But for now, it is the crisis of unemployment that is the gravest concern.
The final ‘compromise’ on the crisis – more accurately, a capitulation to the far right – is the opposite of what the public wants throughout, and is almost certain to lead to slower growth and long-term harm to all but the rich and corporations, which are enjoying record profits. Few serious economists would disagree with Harvard economist Lawrence Summers that “America’s current problem is much more a jobs and growth deficit than an excessive budget deficit,” and that the deal reached in Washington in August, though preferable to a highly unlikely default, is likely to cause further harm to a deteriorating economy.
Not even discussed is the fact that the deficit would be eliminated if the dysfunctional privatized health care system in the US were replaced by one similar to other industrial societies, which have half the per person costs and at least comparable health outcomes. The financial institutions and pharmaceutical industry are far too powerful for such options even to be considered, though the thought seems hardly Utopian. Off the agenda for similar reasons are other economically sensible options, such as a small financial transactions tax.
Meanwhile, new gifts are regularly lavished on Wall Street. The House Appropriations Committee cut the budget request for the Securities and Exchange Commission, the prime barrier against financial fraud. The Consumer Protection Agency is unlikely to survive intact. And Congress wields other weapons in its battle against future generations. In the face of Republican opposition to environmental protection, “A major American utility is shelving the nation’s most prominent effort to capture carbon dioxide from an existing coal-burning power plant, dealing a severe blow to efforts to rein in emissions responsible for global warming,” the New York Times reports.
The self-inflicted blows, while increasingly powerful, are not a recent innovation. They trace back to the 1970s, when the national political economy underwent major transformations, bringing to an end what is commonly called “the Golden Age” of (state) capitalism. Two major elements were financialization and offshoring of production, both related to the decline in rate of profit in manufacturing, and the dismantling of the post-war Bretton Woods system of capital controls and regulated currencies. The ideological triumph of “free market doctrines,” highly selective as always, administered further blows, as they were translated into deregulation, rules of corporate governance linking huge CEO rewards to short-term profit, and other such policy decisions. The resulting concentration of wealth yielded greater political power, accelerating a vicious cycle that has led to extraordinary wealth for a tenth of one percent of the population, mainly CEOs of major corporations, hedge fund managers, and the like, while for the large majority real incomes have virtually stagnated.
In parallel, the cost of elections skyrocketed, driving both parties even deeper into corporate pockets. What remains of political democracy has been undermined further as both parties have turned to auctioning congressional leadership positions. Political economist Thomas Ferguson observes that “uniquely among legislatures in the developed world, U.S. congressional parties now post prices for key slots in the lawmaking process.” The legislators who fund the party get the posts, virtually compelling them to become servants of private capital even beyond the norm. The result, Ferguson continues, is that debates “rely heavily on the endless repetition of a handful of slogans that have been battle tested for their appeal to national investor blocs and interest groups that the leadership relies on for resources.” The post-Golden Age economy is enacting a nightmare envisaged by the classical economists, Adam Smith and David Ricardo. Both recognized that if British merchants and manufacturers invested abroad and relied on imports, they would profit, but England would suffer. Both hoped that these consequences would be averted by home bias, a preference to do business in the home country and see it grow and develop. Ricardo hoped that thanks to home bias, most men of property would “be satisfied with the low rate of profits in their own country, rather than seek a more advantageous employment for their wealth in foreign nations.
In the past 30 years, the “masters of mankind,” as Smith called them, have abandoned any sentimental concern for the welfare of their own society, concentrating instead on short-term gain and huge bonuses, the country be damned – as long as the powerful nanny state remains intact to serve their interests.
A graphic illustration appeared on the front page of the New York Times on August 4. Two major stories appear side by side. One discusses how Republicans fervently oppose any deal “that involves increased revenues” – a euphemism for taxes on the rich. The other is headlined “Even Marked Up, Luxury Goods Fly Off Shelves.” The pretext for cutting taxes on the rich and corporations to ridiculous lows is that they will invest in creating jobs – which they cannot do now as their pockets are bulging with record profits.
The developing picture is aptly described in a brochure for investors produced by banking giant Citigroup. The bank’s analysts describe a global society that is dividing into two blocs: the plutonomy and the rest. In such a world, growth is powered by the wealthy few, and largely consumed by them. Then there are the ‘non-rich,’ the vast majority, now sometimes called the global precariat, the workforce living a precarious existence. In the US, they are subject to “growing worker insecurity,” the basis for a healthy economy, as Federal Reserve chair Alan Greenspan explained to Congress while lauding his performance in economic management. This is the real shift of power in global society.
The Citigroup analysts advise investors to focus on the very rich, where the action is. Their “Plutonomy Stock Basket,” as they call it, far outperformed the world index of developed markets since 1985, when the Reagan-Thatcher economic programs of enriching the very wealthy were really taking off.
Before the 2007 crash for which the new post-Golden Age financial institutions were largely responsible, these institutions had gained startling economic power, more than tripling their share of corporate profits. After the crash, a number of economists began to inquire into their function in purely economic terms. Nobel laureate in economics Robert Solow concludes that their general impact is probably negative: “the successes probably add little or nothing to the efficiency of the real economy, while the disasters transfer wealth from taxpayers to financiers.”
By shredding the remnants of political democracy, they lay the basis for carrying the lethal process forward – as long as their victims are willing to suffer in silence.