Editor's Note: Simon Johnson, a former chief economist of the IMF, is co-founder of a leading economics blog, BaselineScenario.com, a professor at MIT Sloan, a senior fellow at the Peterson Institute for International Economics, and co-author, with James Kwak, of 13 Bankers. For more, visit Project Syndicate or follow it on Facebook and Twitter.
By Simon Johnson, Project Syndicate
According to Voltaire, the Roman Empire fell “because all things fall.” It is hard to argue with this as a general statement about decline: nothing lasts forever. But it is also not very useful. In thinking, for example, about American predominance in the world today, it would be nice to know when it will decline, and whether the United States can do anything to postpone the inevitable.
Contemporary commenters despaired of the Roman Empire for several hundred years before it finally collapsed. Could America find its way to a similar extension?
In terms of providing an essential structure for discussion of this problem, Arvind Subramanian’s new book, Eclipse: Living in the Shadow of China’s Economic Dominance, is a major contribution. (Full disclosure: Subramanian and I are colleagues at the Peterson Institute for International Economics, and we have worked together on other issues.)
In particular, Subramanian develops an index of economic dominance that should become a focus of conversation anywhere that people want to think about changes in world economic leadership. There is no need to know any economics in order to be fascinated by this book: it is about power, pure and simple.
The basic facts are incontrovertible. The United Kingdom was the world’s dominant economic power from the rise of industrialization in the early nineteenth century. But it lost its predominance and was gradually eclipsed by the US, which, at least since 1945, has been the undisputed leader among market-based economies.
The US surpassed the UK in terms of industrial production as early as the end of the nineteenth century, but that was not enough to tip the balance. Economic predominance shifted only when the UK ran large current-account deficits during World Wars I and II – the country had to borrow heavily in order to finance its war effort, and imports were significantly higher than exports. Much of the world’s gold reserves ended up in the hands of the US.
This helped undermine the role of the British pound internationally and catapulted the US dollar to the fore – particularly after the Bretton Woods conference in 1944, at which it was agreed that countries would hold their reserves in dollars as well as gold.
More recently, however, it has been the Americans’ turn consistently to run large current-account deficits, buying more from the rest of the world than they earn by selling goods and services abroad. On this dimension, the US seems destined to repeat the mistake of the British.
At the same time, emerging-market countries’ per capita income has risen – as has their international role. In particular, China has followed a strategy in the past decade or so that entails running large current-account surpluses and building up foreign-exchange reserves, which are now reported to be in excess of $3 trillion. Indeed, Subramanian’s most provocative argument is that China has already surpassed the US in terms of economic dominance – but we have not yet woken up to this new reality.
The story is fascinating and well told; but there is still a great deal worth arguing. For example, did the British decline because the US could not be stopped, or because of problems within the British Empire and at home?
A few years ago, some regarded Japan as having overtaken the US. Europe also was supposedly vying for global economic dominance. Now any such claims would seem preposterous. In both cases, the credit system got out of control, with too much lending to the private sector in 1980’s Japan and excessive government borrowing during the 2000’s in the eurozone.
Similarly, it remains unclear that the Chinese development path will remain smooth. Fixed investment in China is close to 50% of GDP – which must be a world record. Credit to state firms and to households continues to grow rapidly. Isn’t this a version of exactly what derailed Japanese growth?
On the key issue of being able to issue a “reserve currency” that investors and governments want to hold, Subramanian is correct that China has many of the prerequisites in place. But it still lacks some key elements, including fully-fledged property rights. If you worry about getting your money out of a country when times turn tough, China is not an attractive place to hold your reserves.
External challenges do sometimes bring down states. But, more frequently, the big problems are internal – the regime cannot deliver growth, its legitimacy fades, and people start to head for the exits (or at least get their money out).
If the US is eclipsed any time soon, this will more likely be due to its loss of social cohesion and its dysfunctional politics. China might well step in to fill that vacuum, but that is quite different from being able to elbow America aside.
Copyright: Project Syndicate, 2011.
© 2011 Cable News Network. Turner Broadcasting System, Inc. All Rights Reserved.
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You are obviously wrong! The USA is still barely holding on, of course just slightly behind the world's greatest democracy and its only remaining super duper power, India. Here in Mumbai, there in Delhi, and there in Pune, India shines while the world declines.
India is the world's largest and greatest democracy; it positions India in a totally different league compared to other countries. India is, always has been and will be the only remaining super power in economics, international politics, and military strength. Pax Americana will end, and Pax India will rule supreme in the planet earth. Indian democracy has given India the most effective government, the largest military industry, the highest literacy rate, the most free-from-all media, the most advanced weaponry, the highest unhunger rate, the most extensive road networks, the best high-speed rail network, the most efficient airports, the highest GDP and GDP per capita, the most educated work force, the most skilled IT industry, the cleanest cities, the most content slum dwellers, the most uncorrupt politicians, the most equitable society in the world, the roundest moons, the greenest painted grass, and even the most beneficial monsoon each year!
It's funny because it's sarcastic.
You had me chuckling at the most uncorrupt politicians, but the greenest painted grass, roundest moons and the superbeneficient monsoon season put me on the floor. Way funny, dude.
The global economy is an aggregate of macroeconomies of the whole international community. The GDP in 2010 was over $74 billion. The U.S. made up of only one fifth and China one seventh of the total, the E.U. slightly higher than the U.S.
America has enjoyed six decades of dominance and sees itself threatened by China. Of course out of patriotic point of view both countries want to outshine each other. Yet none of the two is dominant enough to stand on its own. Both need each other and furthermore the rest of the world. So stop that clamour about who's leading und who's legging behind. It doesn't help solve the global crisis!
Correction, please read $74 TRILLION.
@joti: You guys must be producing the world's best drugs as well because you seem to have been quite high when you wrote your note about India's "accomplishments".
i think this "drug" is called sarcasm
You all are wrong. America is and will continue to be world super power. It can easily pay 14 trillion dollars in debt because it has chainsaws and black material required for ink.
America's might is evident everywhere...Americans continue to buy huge SUVs and Hummer to show their might.
Americans cant thank enough to VISA and Amex and their military power is clearly evident in Afghanistan and Iraq where they have been accomplishing mission for last 7 years.
More and more Americans are getting richer and their health care is world class...you dont pay nothing to visit a hospital and nothing gets billed to you . America has never before a better land of opportunity in history then right now!
As an Australian, I share the basic sentiment of our Indian friend Joti in welcoming the end of the American empire.
Apart from the insufferable arrogance of the U.S in continually putting up self serving reasons for its hegemony and compliance of the world to its diktats;( pretending to save the world, false superior morality, God given manifest destiny to instruct mankind – do they really believe this claptrap etc), its annoying too to hear from Americans the specious 'resons' such as their technical capabilities and their alleged 'benificence' (another overused word they've latched onto) for the gifts they've bestowed on the world.
Those of us in science internationally, know that for decades indeed since 1945, so called American scientific pre-eminence is really as a result of plundering Nazi Germany of everything it desired and then transplanting that bounty (without facing up to the morality of American profitting from the sufferiing inflicted by the Nazi's) to the U.S post war which was use as a foundation for its future technical development via large fnding by virtue of being untouched by war at home and being the 'last man standing' as a result of the war. eg the space programme is a good example starting with V2 rockets and the Von Braun team, but who speaks for the 26,000 slave workers who died in horror in the mittelwerk and whose fruits America reaped without any moral considerations?.
Since then the U.S has kept he same basic policy of plundering the world for any science or idea it desires, either by co-opting, curbing or stopping foreign developments it sees as threats (and then once stopped gathers up the disbanded foreign programme experts etc and again transplants then to the U.S and pretents its 'traditional yankee knowhow'.
Its a cynical and dishonest policy that has enabled it to skim the cream of the world's talent and deny other nations the benefits of their own nurtured talent.
It amuses me to see other nations now fed up with U.S plunder, fighting back and plundering the U.S, copying that whch is useful and giving them an advantage so to aid their own growing confidence and fresh ideas. I say good luck to India, China and others seeking freedom from American tyranny as its about time the American bully got a taste of its own medicine.
I myself refuse all overtures from the U.S as I stay loyal to my own nation, Australia.
I don't know Australia at all. It's a vast continent with approx. 25 million inhabitants? If you would have ten times more people, you stood a chance to challenge the U.S.! I would like to see it in my life time!
How sad that you have never been to Australia – and you probably have never been to Canada.
Australia is wonderful – sydney, a world class city...Australia, like Canada, is rich in commodities.... both economies are doing well.
The countries are similar – good education, low crime, stable economies, rich in commodities, healthy immigration policies, health care... could go on and on....It's not bad at all being a 'middle' nation – you can try and hold onto your no. 1 spot....
And, quite frankly, j. von hettigen, who cares to challenge the US...perhaps if you challenged yourselves, your country would be in better shape.
My last post. Where is it ? Oh well
Although your points about American arrogance may have some basis, my experience with Australians is that they have their own issues to deal with. Perhaps being a small nation population wise they always seem to need to prove something, whether its how good their cricket or rugby team is, or how good their beaches are, or how just they're the best anti-Americans around. I personally find that just as tiresome as the American arrogance you disparage.
And I'm not sure that holding out "Yes Minister" as a "classic" tv show does your argument much good. Benny Hill perhaps...
Fiona:
you nailed it beautifully; it's a wonderful encapsulation of why americans are loathed despite their peculiar insistence that they are the grandest, most benevolent, noblest and most altruistic people on earth (like you, the dishonesty of this stance makes me gag). No other nation (well, at least in the western world) is quite so eager to cling to militarism as a means of getting what it wants: the americans invade more nations – and under false pretenses – and threaten to invade more nations and kill more unarmed foreign civilians than anyone else; in fact, they kill more unarmed foreign nationals than the rest of the world combined (just look at Iraq or Afghanistan). They insistently tell us how wonderfully inventive they are – when, as you rightly point out, they have basically stolen ideas, creativity, people and overall talent from other lands. The most horrifying thing about the excited states, though, is its actual belief that it has some god-given right to rule the world and to destroy lives in foreign lands: US foreign policy is a malignancy and, however much americans piously insist that they just want a better world for everyone, it remains an imperialistic malignancy. Finally, the incessant worshipping of its military prowess – which mostly involves killing the unarmed, the under-resourced and the vulnerable in developing or poverty-stricken parts of the world – is gag-inducing. The Excited States can't topple fast enough.
Dear Blaine,
Thank you very much for your perspective and kind support for mine.
Another interesting point too is this military fetishism the American's display where 'supporting the troops' is almost a national religion as they put them on a pedestal, yet how many notice (including amongst American's themselves) just how manyof their military veterans are homeless on the streets, drug and booze addled, after they are injured or retired and then disposed of?.
Here in Australia, even we have heard of the disgraceful conditions that were revealed in the 'Walter Reed' hospital (as I recall) with rats on the loose in wards and the hospital supposedly there to care for its veterans, in a right sorry mess!.
You never hear about it now, but we heard about it in Australia in recent years, which suggests a real double standard that idolises the soldier as an ideal, but quickly discards the very same people if they no longer serve a purpose.
Also, yes many people internatonally are fed up with their fatuous claims of superiority, which tacitly suggests actually a national overcompensating inferiority complex, where they must continually try an puff up their chests and tout their capabilties, in the face of other older societies with real achievements to their name.
Notice they've never produced any great art, music, philosophy or literature for example and the less said about their noxious 'culture' the better.
I can't watch the telly here in Australia with any commerical channels as on any given night just flicking channels one invariably sees sarcastic Americans with guns in their hands pointing them at other people and screaming at them or fighting in some manner..... and the women are just as bad and more like men!.
Their 'culture' is traumatising (note the proper english spelling ladies and gentlemen) and simple unwatchable mass produced pulp which is then exported at low cost globally as cultural propaganda that undermines the culture in nations too weak to resist their arm twisting or entangled in 'free trade' agreements- like Australia.
Fortunately more and more are turning off too, certainly in my home, we'd be lost without DVD's showing classic English shows, from 'The Good Life to Yes Minister.
Suffice to say, their poisonous American culture is a fair indication of the rot that exists within and explains why they're now thankfully in terminal decline- our job in other nations though to to cut that cord between us, lest they drag us off the cliff to our doom with them.
I wish you well Blaine and kind wishes from Australia
you're just jealous you half-breed dingo
Fiona: "Notice they've never produced any great art, music, philosophy or literature for example and the less said about their noxious 'culture' the better." Are you serious? Take a moment to consider the fact that perhaps, as an Australian, you simply haven't had the opportunity to be exposed to American culture that isn't McDonalds or Hollywood. I have never been to Australia. All I know about Australian culture is Crocodile Dundee and didgeridoos, but as a rational and considerate person I know that of course there is more to Australian culture than is represented to me by the media. Just like Australia, America has over two hundred years of cultural and artistic heritage. Just because it isn't profitable to export to the masses overseas doesn't mean it doesn't exist. For you to assume as much is insulting and illustrative of your ignorant and petty preconceived notions of what is an extremely diverse and dynamic nation. I agree with you even as an American that American pop culture is undesirable, but that is a matter of our individual tastes rather than national cultural superiority. For you to be upset about American culture being crammed down your throat is understandable, but this is not a phenomenon exclusively reserved for America. I admittedly don't know a great deal about your nation, but I do know that your culture was immensely influenced for a long time by that of Great Britain. If China in the future becomes the next global power, you'll be watching Chinese programming on your television. If Australia became a global power, I'd be watching Australian television. It is a phenomenon based on money and power, not on the cultural merits of an individual nation. To your other points, certainly the United States government is pursuing many terrible policies, but to say "America" is doing these things is to lump together a dynamic and diverse population. I and millions of others are very vocally critical of my government. While it is true many Americans are nationalistic and jingoistic, many are not. Of course America needs to change its ways; I too hope too see an end to the imperialistic games America is playing. But for you to call for the downfall of my nation is extreme, considering America is politically, socially and culturally far more similar to Australia than say China, where human rights are an afterthought. I'm glad you're loyal to your homeland of Australia, but please think a little harder before so broadly attacking a people to make a political point.