By Ahmad Faruqui
THE global financial crisis, triggered by the meltdown on Wall Street, continues to dominate the headlines. It has rekindled debate about America’s global standing.
The crash, triggered by the sub-prime mortgage crisis, was seen by some as a short-lived event. Early in the crisis, it was argued that that 99 per cent of the drop in stock prices was driven by emotions. For a few months prior, Senator John McCain, the Republican presidential candidate, had been saying that the fundamentals of the US economy were sound. McCain’s view was echoed in The Wall Street Journal.
However, as the crisis deepened, the tide shifted and beached McCain. What appeared to be a lack of liquidity problem had morphed into an economic problem. The ‘R’ word loomed on the horizon, and not just in the writings of the Bush administration’s critics, prominent among whom was Paul Krugman, who recently won the Nobel Prize in economics. The new conventional wisdom is that the US has already entered a recessionary period. The only question is, how deep will it be?
The pessimists are drawing parallels with the Great Depression of the early 1930s. In a sign of the times, the economist John Kenneth Galbraith’s classic depiction of that period in American history has been reissued.
The optimists are saying this is just a periodic phenomenon that will last between six and 16 months. They have dusted off the iconoclastic work of Joseph Schumpeter, Capitalism, Socialism and Democracy. In that, the Harvard economist spoke of how “creative destruction” stimulated progress in capitalistic societies.
Bret Stephens is typical of the optimists. Writing in The Wall Street Journal, he finds comfort in that “Constantinople fell to the Ottomans after two centuries of retreat and decline. It took two world wars, a global depression and the onset of the Cold War to lay the British Empire low.”
But has he forgotten that the Byzantine and British empires had lasted for centuries before their decline set in? The US empire is largely a post-Second World War phenomenon, with a half-century of existence. And the other major empire of the 20th century, the Soviet Union, lasted for just seven decades.
Stephens notes wistfully that the fall in the price of oil is weakening Iran, Russia, and Venezuela — countries that pride themselves as being global counterweights to the US — while alleviating economic pressure on Americans. But the world price of oil won’t continue falling. In the long run its price will be governed by the laws of demand and supply.
As long as India and China continue to grow at a torrid pace, and as long as there are no viable substitutes for petroleum, oil prices will continue to gravitate upwards toward the hundred-dollar mark.
No one would dispute the presumption that the US is the world’s colossus. With only five percent of the world’s population, it accounts for a quarter of the world’s economic output and nearly half of its financial wealth. American universities remain the primary institutions of higher learning around the globe and its communities are the primary destination of choice for immigrants.
However, there is little doubt that American influence is waning. Even though the US spends more on its military than the next 20 nations combined, victory against rag-tag bands of militants in Iraq and Afghanistan remains elusive. The Israeli-Palestinian problem defies solution despite numerous visits by American officials from President Bush on downwards.
And Pakistan, despite billions in American aid, is on the brink of bankruptcy. Terrorists have seized not just the commanding heights in Waziristan but have set its future agenda.
Against this backdrop, the US government’s top intelligence analyst, Tom Fingar, has compiled a remarkable assessment of global trends. He leads the ‘2025 Project’ which is scheduled to produce its report soon after the November elections.
In a recent speech, Fingar argued that the US will remain the “pre-eminent” power globally, but its global dominance will be much diminished in the next decade and a half. Taking a long view, Fingar said that the post-Cold War period of overwhelming US dominance in the globe was “anomalous” and never constituted a long-term trend. In his view, America’s elevated status on the military, political, economic and possibly cultural fronts “will erode at an accelerating pace, with the partial exception of the military.”
Others, such as Harvard historian Niall Ferguson, have long argued that American power has peaked and decline has set in. Ferguson has authored two leading books on the decline of the British and US empires. Another historian, Paul Kennedy, currently with the London School of Economics who authored the classic study The Rise and Fall of the Great Powers, traces imperial decline to strategic overreach, of which clues can be found in the current American deployments.
What is driving America’s decline? One simple reason is that America’s infrastructure is decaying. It will take trillions of dollars to upgrade it to world standards. This and other domestic priorities (such as improving the standard of education in America’s elementary and high schools, providing universal health care and shoring up social security) will seriously impair America’s ability to fund economic development in foreign countries. Foreign aid, never a popular item domestically, will be hit hard.
Another reason is that during the past two decades, China and India, the world’s two most populous countries, have been growing at rates that are twice and thrice those of the US. China is expected to become the largest economy in the globe by 2030, two decades ahead of prior projections.
No wonder that Fareed Zakaria, a former editor of Foreign Affairs magazine and who has launched the newest Sunday morning talk show on US TV, envisions a post-American future in his new book. But while accepting that premise, Zakaria says that the end of dominance should not be a cause for alarm among Americans.
He is right. The citizens of Canada and the Scandinavian countries score higher on many indices of happiness than Americans. In the year 2025, the American cowboy may not be able to call the shots on the world stage. But back home, Americans will have the opportunity to find contentment and good health.
The author is an associate of the Pakistan Security Research Unit at the University of Bradford.
Source: Daily Dawn, 27/10/2008