On the American decline debate

My Perspective column for this week’s issue of Fund Strategy looks at the debate about American decline. For a complementary view, which looks at the same subject from a different angle, it is worth reading the piece by Sean Collins on spiked. His focus is more on America itself whereas I look at the topic from an international and economic perspective.

One of the most heated and important themes of the American presidential campaign has gone little noticed on this side of the Atlantic. Can America maintain its position as the world’s leading power?

The subject was central to Barack Obama’s state of the union address to Congress in January, when he derided the ignorance of all those who point to American decline:

“Anyone who tells you that America is in decline or that our influence has waned, doesn’t know what they’re talking about. That’s not the message we get from leaders around the world, all of whom are eager to work with us. That’s not how people feel from Tokyo to Berlin; from Cape Town to Rio; where opinions of America are higher than they’ve been in years.

“Yes, the world is changing; no, we can’t control every event. But America remains the one indispensable nation in world affairs – and as long as I’m president, I intend to keep it that way.”

Obama was reacting to Mitt Romney, his Republican challenger, who had accused him of losing faith in American power. “Our president thinks America’s in decline,” said Romney. “It is if he’s president, it’s not if I’m president. This is going to be an American century.”

Romney’s criticism evidently stung Obama. Just before his state of the union address the president reportedly received off-the-record briefings on the subject with leading news anchors. Obama reportedly leaned heavily on an article in the the New Republic by Robert Kagan, an historian and foreign policy commentator, on “the myth of American decline”.

It is a delicious irony that Kagan is a special adviser to Romney. Both the president and his main opponent are drawing on the same expert’s arguments to substantiate their cases that American decline is not inevitable.

Since then many other big-name experts, such as Joseph Nye of Harvard and William Russell Mead of Bard College in New York, have weighed in to put their own arguments on whether America can remain number one. Generally, perhaps not surprisingly, most have taken the view that America can maintain its leadership position. Although some of their arguments are questionable, they make some important points.

America’s advocates often point to the indisputable fact that it is still the world’s largest economy, substantially bigger and more advanced than its closest rival, China. They also highlight its lead in key technological sectors such as biotechnology and nanotechnology. A parallel argument is that America still leads the world in “soft power” – it is a leading cultural force thanks to its values and institutions, such as Hollywood and the internet.

Arguments about the resilience of the American economy are extremely important, although they often fudge a key distinction. The discussion of American decline is really two debates rather than one – absolute decline on one hand and, on the other, the related but distinct relative decline.

The discussion of absolute decline focuses on whether the American economy is likely to grow significantly in coming years or, in the worst-case scenario, shrink. There is no definitive answer to this question. It depends on whether politicians and business leaders can restructure the economy so that it can generate a new round of durable growth

In that sense, both Obama and Romney are right. The future of the economy will largely depend on the actions the country’s political leadership will take in the coming years.

But relative economic decline, America’s fall relative to the rest of the world, is a different question. In one sense it is a foregone conclusion. America’s share of global economic output has fallen from nearly 50% after the Second World War to about 20% today. Admittedly, its share after 1945 was artificially inflated by the destructive impact of the war, but the figure has steadily fallen from about 25% in 1989.

The question then becomes, can America maintain its leading political and cultural role given its falling share of the global economy? In many respects, America has done well to manage its decline over many years but it is not a given that it will continue to do so into the future.

America’s defenders point out that other leading nations have proved less resilient than America. The Soviet Union, once seen as a rival for global leadership, has collapsed. European states are caught in the eurozone crisis. Japan, once seen as a contender for global leadership, has a stagnant economy.

These points are all true but, in some respects, they confirm the reality of American decline. America has maintained its leadership largely because of the failures of others. Also, no single country, not even China, is anything like as powerful as America is now.

Nevertheless, America’s ability to influence events in the world is on the wane. Nor can the failure of others to take up the mantle of leadership in the past guarantee that it will not happen in the future.

A final set of arguments relates to the complexity of decline. For instance, although Britain lost its global leadership position to America, the two countries were allies for much of the twentieth century. Both nations joined forces to fight wars against Germany, rather than battling each other.

Once again the point is true, although its consequences are not as straightforward as its proponents suggest. Over the long term, given its substantial relative decline, it is hard to imagine America maintaining its leadership position in the world. Working out how the transition process will pan out is a different matter.