Three Scenarios of American Decline

Tuesday, March 25, 2008

posted under , , by Unit for Criticism
Written by Jan Nederveen Pieterse, Sociology

The question now is not whether the US is declining but what form decline will take and whether it will be mild or severe. Does it refer to the economy, to hegemony or to overall decline? Decline isn’t necessarily negative. It’s a relief for Americans who feel besieged by war prone government and incessant marketing, for two-earner households who work harder without seeing their prospects improve; yet recession spells trouble and won’t stop marketing. Decline offers the United States a chance of becoming a “normal country”. But this will happen only if the upset is big enough to surrender the claim to world hegemony and shrink the defense industries and the military. Upon reflection decline becomes a riddle, a glyph to decipher. Arguably the main scenarios of American decline can be narrowed down to three: a crash landing, the Phoenix, and a new New Deal.

1. Crash landing. According to Clyde Prestowitz, “In many respects it resembles the Titanic, a magnificent machine with serious and largely unrecognized internal flaws heading at full speed for icebergs, armed with knowledge and assumptions significantly at odds with reality” (Three Billion New Capitalists, 2005, 21). The Titanic in this passage refers to the global economy, but according to the gist of the book it mainly applies to the US. This script may be too catastrophist. Yet deflation has been ongoing for some time, financially the US already depends on the “kindness of strangers” and bargain basement America already exists. Significant course corrections are unlikely because ongoing trends mortgage future options and “Permanent Washington” is well entrenched. In financial markets there is no greater reflexivity than in 1929; new credit instruments such as derivatives are out of control, transparency is in question because the rating agencies malfunction.

Yet, endings are also beginnings. As a crash landing unsettles elites and closes paths it opens new ones so Uncle Sam’s journey may take several directions. First, it may simply be decline. This doesn’t mean total breakdown but a climb down from the top—the dollar losing its role as world money, foreigners less keen to hold dollar assets, hence the need to raise interest rates, further slowing the economy. Even then the US remains a substantial economy. If it’s true that the US suffers from spleen deficit, a crash landing may generate requisite spleen—greater thoughtfulness could remedy many American ailments. A trend break might curb Pentagon expansion and Wall Street excesses and restore fiscal sanity. Thus American decline may lead into two possible scripts of decline-as-hope.

2. The Phoenix. Britain carried the day during the turn of the 18th century commercial-maritime cycle (“Britannia rules the waves”) and the 19th century industrial cycle (“workshop of the world”). British hegemony declined and then rose again and the same may happen to the US. The US rose with industrial mass production, underwent deindustrialization during the late 20th century and may climb back in the 21st century riding the wave of new economy technologies.

Pros and cons of this script are that the US economy is large and diverse but import dependent. Its higher education system is enviable but the cost of education is rising. The infrastructure is good but old fashioned and energy inefficient. The US leads in services from software to Hollywood and is attractive to immigrants, but on the downside it has low social solidarity, an aging population, dysfunctional health care, unsustainable consumption patterns, a dysfunctional political system, oversized military, self seeking elites, corporate welfare and is headed for fiscal catastrophe. Prima donna narcissism and laissez-faire don’t help rising from the ashes.

So a Phoenix option is possible, but not in the short run. During the Clinton-Gore years this might have been—a smart way forward on the information superhighway with innovation, research and development, ecological sustainability; though already then innovation also meant deregulating telecoms and energy, opening the way to Wall Street financial engineering and Enron creative accounting alongside triangulation, welfare reform, Nafta and WTO. With the Bush administration the smart option was definitively off the program; the America of neo/conservatives is authoritarian, militarist, brawn over brain, the opposite of the smart way forward—another American century built on war and fear, “Americans are from Mars,” channeling innovation into future weapons systems, Star Wars, Total Information Awareness and surveillance, e-espionage rather than e-clever, a fear economy rather than a smart economy. Merge the propensity to war with the ideology of small government and tax cuts and the outcome is a $1.6 trillion credit card bill. War and tax cuts, deindustrialization and imports, consumption and deficits mortgage American futures and reinforce outsourcing and offshoring, so for years smart America has been leaving America and has not been betting on the dollar. The key American problem, by comparison to Europe and Japan, is underinvestment in productive assets. Instead of innovating American companies have tapped and tweaked old value streams, bilked cheap labor offshore and a sheltered home market—quite different from Nokia, Siemens, BMW, Toyota. Thus the foundation and resilience of a Phoenix are lacking. American deindustrialization doesn’t merely foster industrialization in emerging economies but off shores research and development. American specialization in military power and technology is too slim a basis for resurgence. The attempts to gain control of the world’s major oil and gas reserves involve such massive spending in political and military energies, resources and legitimacy that they endanger rather than enhance American futures. Sovereign wealth funds have started buying up American assets and futures. A future smart America may well hinge on corporations owned or part owned by Chinese, Indian and European enterprises. An American Phoenix is possible down the road but is already mortgaged and sold off to outside interests to pay for the debts of the Titanic as it is heading to its rendezvous.

3. New Deal2. Decline may be a source of hope also if it leads to rebalancing the relations between government, corporations and society so social stakeholders (workers, consumers, communities) play a greater role, in other words if it ushers in a new New Deal and a turn to the social market. This script runs, after crisis (via Hoover), Roosevelt and the New Deal.

Many American economists advocate Keynesian demand-led growth with greater public investments, higher wages, stronger unions, overall regulation, full employment, corporate social responsibility and smart consumerism. Progressive cities adopt measures of economic populism. The laissez-faire consensus among American economists has begun to fray at the edges and economic heterodoxy, though still marginal, has been gaining points.

What are lacking are not alternatives but the mobilization of political will and momentum around alternatives. Deep down the key problems are not policies but politics and institutions—undemocratic, old-fashioned and aged political institutions. But declining empires tend toward the “idolization of institutions” as people seek to restore the conditions that had made their rise possible, so the prospects are dim. The economy slouches from crisis to crisis—savings and loan, LTCM, dotcom crash, Enron, subprime and credit crisis. The reasons why the subprime crisis emerged are no different from the reasons why the new economy bubble popped years earlier: deregulation to the point of anarchy. The years pass and ailments are not fixed but deepen and meltdown draws nearer. “The housing bubble was a reaction from the effort to protect us from the collapse of the tech bubble. What’s the next bubble going to be as a consequence of trying to protect us against this?” (M. Darda, New York Times, January 13 2008). A turn toward labor is now much less likely than it was in the thirties. Corporations are much stronger and dispersed in their operations and headquarters, technology is more advanced, large corporations control the public sphere, trade unions are weaker and less organized, political parties are closed to substantial alternatives, the public is socialized in complacency and the utopian imagination is a faint and distant memory. The very meaning of “American” has become dispersed—American as in Halliburton’s headquarters in Dubai, as in IBM and Intel’s investments in India and China, as in tax havens in Bermuda and the Bahamas? Elites have learned from the Depression and can anticipate and block a social turn. Recession turning into crisis might as well bring deepening authoritarianism, extending the fear economy, deftly mobilizing disaster for yet another round of predatory enrichment—Las Vegas capitalism teaming up with disaster capitalism.

Decline is rich with opportunity and danger, which is ordinary by historical standards. A problem specific to the US is that a savvy national conversation about these dilemmas is not within reach. Which script of decline materializes depends largely on reactions to economic upset and electoral options. Decline follows 35 years of backlash politics and culture as the dominant American mood. What began as backlash against the sixties and defeat in Vietnam has hardened in an all-round angry mood, now bashing globalization, free trade, China, immigrants. A turnaround in corporate media is unlikely. Parties remain closed to alternatives. Riots in the streets are unlikely; barricades in the suburbs don’t make sense and would interfere with shopping. So what is likely is muddling through and deepening decline.

Leadership matters but American culture overestimates leadership and underrates structural trends, so which leadership emerges from elections matters but not nearly as much as most talk and media make it out to be. To address Uncle Sam’s problems of growing inequality and economic decline it takes not just more public investment but also private investment, which has been lagging for decades and doesn’t lend itself to an easy political fix. It requires a fundamental turnaround not just in policies but in philosophies—in short, reregulating Wall Street and cutting the Pentagon. Yet Wall Street and the Pentagon, America’s luxury liners, don’t easily change course. Political and corporate unaccountability are structurally entrenched and public forums to address them barely exist. Consider the constants of American policy—in short, support for Wall Street, the Pentagon, and Israel—and there is barely variation among elites across the political spectrum, regardless of party affiliation. There are policy variations but no change in fundamentals.

So I don’t think significant self correction is in the cards in the foreseeable future. The minimum reforms that Uncle Sam should undertake are not particularly fancy or extraordinary. They are commonsense by international standards and most Americans would probably agree. They include, following Chalmers Johnson, “reversing Bush’s 2001 and 2003 tax cuts for the wealthy, beginning to liquidate our global empire of over 800 military bases, cutting from the defense budget all projects that bear no relationship to national security and ceasing to use the defense budget as a Keynesian jobs program” (Le Monde diplomatique, February 2008). Yet by the standards of American politics these are extreme measures for which a congressional mandate is far off. As long as commonsense changes are unfeasible in American politics, the US cannot self correct. Then Uncle Sam will muddle through and problems will get worse until economic decline will get so bad that elites are unseated and an overhaul finally takes place. In the intervening years correction will come from outside by the actions of external forces that cease to follow the US or invest in the US.

(This is part of a book Is there hope for Uncle Sam? Beyond the American Bubble, London, Zed Books, forthcoming August 2008. See homepage URL http://netfiles.uiuc.edu/jnp/www/)

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5 comments:

Anonymous said...

Thank your for this depressing, and dialectically speaking, also upbeat analysis. I have one questioln, though - speaking as a post Shoah German, that might come as pathetically inevitable - but nonetheless: where in this secnario of things is the forth option: all out fascism (eve, as we all know, it would then have to take a different shape). is there anything inherent in the discourses and social practices of US hegemony and the way that the system has been running itself that would necessarily prevent that option? I do think that it would be different from the other scenarios in that it would not be just more of the same, until some turn around point to the better. A new NEW DEAL is not the automatic outcome of crisis, as well as both of these other options do not necessarily say anything about who is going to pay the price for any of them.

Pete Murphy said...

I'd like to inject an entirely new perspective into this discussion about the root cause of America's economic decline.

I have recently published a book titled "Five Short Blasts: A New Economic Theory Exposes The Fatal Flaw in Globalization and Its Consequences for America." To make a long story short, this new theory proposes that, as population density rises beyond some optimum level, per capita consumption begins to decline. This occurs because, as people are forced to crowd together and conserve space, it becomes ever more impractical to own many products. Falling per capita consumption, in the face of rising productivity (which always rises), inevitably yields rising unemployment and poverty.

This new theory has major ramifications for U.S. policy toward population (especially immigration policy) and trade. The implications for population management may be obvious, but why trade? It's because these effects of an excessive population density - unemployment and poverty - are actually imported when we attempt to engage in free trade in manufactured goods with nations that are much more densely populated than our own. Our economies combine. The work of manufacturing is spread evenly across the combined labor force. But, while the more densely populated nation gets free access to our healthy market, all we get in return is access to a market that is emaciated by over-crowding and low per capita consumption. The result is an automatic, irreversible trade deficit and loss of jobs.

Per capita consumption data from around the world and across a wide range of products bears out this theory. And one need look no further than the U.S.'s trade data for proof of the trade implications. Using 2006 data, an in-depth analysis finds that, of the top twenty per capita trade deficits in manufactured goods (the deficit divided by the population of the country in question), eighteen are with nations much more densely populated than our own. Even more revealing, if the nations of the world are divided evenly around the median population density, with the half of nations that are less densely populated the U.S. had a trade surplus in manufactured goods of $17 billion. With the half of nations more densely populated we had a trade deficit of $480 billion!

Throughout most of human history, population growth was in the interest of both business (corporations) and the common good. We needed sufficient labor to man our factories to produce the products we needed to improve our quality of life. This translated into growing sales volume for business. Everyone was happy.

But, once an optimum population density has been breached, where people crowd together and conserve space and per capita consumption begins to decline, the interests of corporations and the common good begin to diverge. It is in the interest of the common good to rein in population growth and to avoid the importation of the effects of over-population. However, it continues to be in the interest of corporations to pursue policies of never-ending population growth and pursuing markets in over-populated nations because, even though per capita consumption goes into decline, total consumption still grows.

Capitalism is a wonderful thing, but during the 20th century we found it necessary to establish boundaries within which it must operate. In the first half of the century, we established boundaries regarding the treatment of workers. In the 2nd half of the century, we established boundaries regarding care for the environment. I believe that, in the first half of this century, two additional boundaries will be necessary: (1) A balance of trade must be maintained and (2) population growth may not be pursued as a source of sales volume growth.

For the first century-and-a-half of our nation's history, we relied upon tariffs to protect our domestic industries and, as a result, America grew into the world's preeminent industrial power. But, in the belief that we could do even better through the supposed benefits offered by Ricardo's principle of comparative advantage - the economic theory upon which free trade is based - we abandoned tariffs, signed the Global Agreement on Tariffs and Trade in 1947, and led a global drive toward free trade. By 1976 our trade surplus was gone forever. Since then, our cumulative trade deficit is now approaching $9 trillion. We find ourselves trapped in a host-parasite trade relationship with over-populated nations and the lifeblood of our economy is slowly being drained away.

Nothing is going to improve until we acknowledge that the foundation of free trade - the principle of comparative advantage - is fatally flawed because it does not take into consideration the role of population density and what happens in a trade relationship when one nation is much more densely populated than the other. While free trade in natural resources and free trade between nations of roughly equal population density is indeed beneficial, just as Ricardo predicts, it is a sure-fire loser when attempting to trade freely with nations that are grossly over-populated, tantamount to economic suicide.

If you're interested in learning more about this new theory, please visit my web site at OpenWindowPublishingCo.com where you can read the preface for free, join in my blog discussion and, of course, purchase the book if you like. (It's also available at Amazon.com.)

Thank you for the opportunity to offer this new perspective. Please forgive the "spammish" nature of this reply. I just don't know how else to inject this new perspective into the discussion without drawing attention to the book.

Pete Murphy
Author, Five Short Blasts

Michael Rothberg said...

I really like Jan's idea of "decline-as-hope." This strikes me as an important problematic for intellectuals situated in the US (and especially US-American intellectuals) to think through.

While Jan's concerns are primarily with issues of political-economic structure (and rightly so), I'm also fascinated with the epistemological and affective side of this issue. That is, I think it's always important for those of us situated in the belly of the beast, as it were, to be self-reflexive about the implications of our location in the "center" and about the ambivalent affects that tie us to it despite our critical perspectives on empire. For that reason, I've always been especially fond of the following citation from Fredric Jameson's The Geopolitical Aesthetic, although it seems to call upon the same binary structure I've approached skeptically in the past: "What the First World thinks and dreams about the Third can have nothing whatsoever in common, formally or epistemologically, with what the Third World has to know every day about the First. Subalternity carries the possibility of knowledge with it, domination that of forgetting and repression--but knowledge is not just the opposite of forgetfulness, nor is domination the opposite of oppression" (199). Too often we conflate the privileges of wealth and power with epistemological privilege. But, Jameson suggests in a modified version of Lukacs's standpoint epistemology, it is the subaltern position that is the privileged one from the point of view of knowledge (although it's important to note the key qualifier "possibility"--there is no direct line from subalternity to knowledge).

So, decline-as-hope: hope for politico-economic transformation and for the new forms of knowledge that would accompany it.

Jan Nederveen Pieterse said...

Response to first comment:

The original blog argues that an authoritarian turn is more likely than a second New Deal. But I think muddling through and further decline is far more likely than ‘all out fascism’. Fascism American style, i.e. in Brooks Brothers clothing, is what we’ve had during past eight years and has become unsustainable and has brought the US to the brink of disaster. In the era of accelerated globalization, fascism is a very costly option with a low rate of return. In fact, to what extent is reference to all out fascism itself a lack of imagination recycling the past?

Response to Michael Rothberg:

Quite, but this assumes a stable relationship between center and periphery and the point of ongoing trends is precisely that the US is losing its central status, not in a total reversal of fortunes but sufficient to produce over time major changes in epistemologies and cultural hierarchies.

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