From a longer term perspective - say, from the middle of the century and beyond - I am starting to have my doubts. My pause for thought has been caused after reading two books by Edward Luce - 'Time To Start Thinking: America And The Spectre Of Decline' and 'The Retreat Of Western Liberalism'. The first book makes a fairly good case for American decline, even if it is a bit off in terms of timescales.
'Time To Start Thinking: America And The Spectre Of Decline' outlines a model of American decline. It starts with the relative impoverishment of the American middle class. In addition to the question of growing inequality and social ossification, it makes the fairly innocuous point that the middle class is also the consuming class, and that falling middle class incomes imply falling rates of middle class consumption. We now know that since the dot com crash in 2001, US levels of consumption had been maintained by growing levels of debt. The liquidity crisis of 2007 exposed just how vulnerable American consumers had been. To stylise Warren Buffet, the tide went out and an awful lot of them were swimming naked.
In itself, this might not be a cause for concern. However, it does have a consequence that could have been reasonably foreseen. Growing inequality, the loss of manufacturing jobs overseas, and slow economic growth have all contributed to a squeeze on the American tax base, which has served to squeeze the American education system. This education squeeze has caused the stagnation of productivity growth in the US. Improving productivity is the key to improving salaries, and is underpinned by improving educational standards. In fact, the reverse has happened. Falling educational standards (at an international level) have led to falling productivity, which has brought about the sluggish growth that has restrained wage rises.
The consequence of this vicious circle is that innovation rates in the US have fallen as well. In this sense, America has started to lag behind more dynamic economies, especially those of East Asia. Reduced innovation rates have been compounded by the development of a governmental bureaucracy that the author claims is stifling American competitiveness. The Asian economies are outcompeting the US, which is why American companies have shifted their production to Asia.
Within American society, the winners are looking to cement their gains - with the result of tax cuts further eroding the tax base upon which the American educational system rests - whilst the losers (the people left behind) becoming far more angry. This is polarising American society and is making America more ungovernable, particularly through the rise of the Tea Party in Congress. Mr Luce finally caps his model by drawing attention to the sheer corruption of Washington, at all levels, which ensures that nothing significant will change. The model is now set in concrete.
In itself, this might not be a cause for concern. However, it does have a consequence that could have been reasonably foreseen. Growing inequality, the loss of manufacturing jobs overseas, and slow economic growth have all contributed to a squeeze on the American tax base, which has served to squeeze the American education system. This education squeeze has caused the stagnation of productivity growth in the US. Improving productivity is the key to improving salaries, and is underpinned by improving educational standards. In fact, the reverse has happened. Falling educational standards (at an international level) have led to falling productivity, which has brought about the sluggish growth that has restrained wage rises.
The consequence of this vicious circle is that innovation rates in the US have fallen as well. In this sense, America has started to lag behind more dynamic economies, especially those of East Asia. Reduced innovation rates have been compounded by the development of a governmental bureaucracy that the author claims is stifling American competitiveness. The Asian economies are outcompeting the US, which is why American companies have shifted their production to Asia.
Within American society, the winners are looking to cement their gains - with the result of tax cuts further eroding the tax base upon which the American educational system rests - whilst the losers (the people left behind) becoming far more angry. This is polarising American society and is making America more ungovernable, particularly through the rise of the Tea Party in Congress. Mr Luce finally caps his model by drawing attention to the sheer corruption of Washington, at all levels, which ensures that nothing significant will change. The model is now set in concrete.
'The Retreat Of Western Liberalism' continues the theme outlined in 'Time To Start Thinking', which is not just the decline of America, but expands to include the decline of the whole notion of Western Liberalism. There is definitely a theme developing.
The book is an easy read, consisting of an introduction to frame the issue, and then four arguments on the theme. The first argument - the demise of the 'Washington Consensus' and the rise of the 'Beijing Consensus' - is the one that I warmed to first. It continues the argument of the previous book in holding that the political classes in America and Europe have failed their constituents, allowing for the rise of the easy populism of the Brexit and Trump varieties. In the view of the author, they are both likely to damage the prosperity that underwrites the liberal order, making things worse rather than better.
This is the argument of the continued decline of the Western order. Counter-balanced against this is the rise of the rest of the world - mainly of Asian nations, with the primus inter pares being China. How should the West - principally America - accommodate the rise of China? This is the question addressed by the second argument, and it provides an uncomfortable experience for Westerners. The main conclusion is that a confrontation between America and China is inevitable. Sadly, the direction of policy is heading in that direction.
This theme is developed further in the third argument, which is all about how to avoid springing the 'Thucydides Trap'. "How does the established power react to the rise of a potential challenger?" (p,156). The Athenians went to war, and lost. Mr Luce believes that a similar result will be obtained if America violently confronts China. The answer, according to the author, is the reinvigorate Western Liberal Democracy. To reverse the direction in which it is heading.
Mr Luce presents his ideas on this in the fourth argument. The main contention is for the West to renew it's main strength - Liberalism. The belief is that free markets deliver prosperity, which is what underpins a liberal democratic order. It provides a counter against the protectionism and mercantilism that currently has hold of us. It counters the nationalism and xenophobia from which we currently suffer. In order to achieve this, we need to combat the chumocracy and cronyism in which we live. By developing a more open society, we will enhance our prosperity and renew our democracy. The book ends with a rallying cry that could serve as a call to action.
One question that the reader might have is whether or not action is needed? The main premise is the decline of America and Europe and the rise of China and Asia. What happens if that doesn't occur? It may be the case that China becomes old before it becomes rich. It may be the case that China falls in on itself under the pressure of it's own internal contradictions. It may be that there is a confrontation between China and America, and China loses. There are many working parts that might cause this vision not to happen.
The book is an easy read, consisting of an introduction to frame the issue, and then four arguments on the theme. The first argument - the demise of the 'Washington Consensus' and the rise of the 'Beijing Consensus' - is the one that I warmed to first. It continues the argument of the previous book in holding that the political classes in America and Europe have failed their constituents, allowing for the rise of the easy populism of the Brexit and Trump varieties. In the view of the author, they are both likely to damage the prosperity that underwrites the liberal order, making things worse rather than better.
This is the argument of the continued decline of the Western order. Counter-balanced against this is the rise of the rest of the world - mainly of Asian nations, with the primus inter pares being China. How should the West - principally America - accommodate the rise of China? This is the question addressed by the second argument, and it provides an uncomfortable experience for Westerners. The main conclusion is that a confrontation between America and China is inevitable. Sadly, the direction of policy is heading in that direction.
This theme is developed further in the third argument, which is all about how to avoid springing the 'Thucydides Trap'. "How does the established power react to the rise of a potential challenger?" (p,156). The Athenians went to war, and lost. Mr Luce believes that a similar result will be obtained if America violently confronts China. The answer, according to the author, is the reinvigorate Western Liberal Democracy. To reverse the direction in which it is heading.
Mr Luce presents his ideas on this in the fourth argument. The main contention is for the West to renew it's main strength - Liberalism. The belief is that free markets deliver prosperity, which is what underpins a liberal democratic order. It provides a counter against the protectionism and mercantilism that currently has hold of us. It counters the nationalism and xenophobia from which we currently suffer. In order to achieve this, we need to combat the chumocracy and cronyism in which we live. By developing a more open society, we will enhance our prosperity and renew our democracy. The book ends with a rallying cry that could serve as a call to action.
One question that the reader might have is whether or not action is needed? The main premise is the decline of America and Europe and the rise of China and Asia. What happens if that doesn't occur? It may be the case that China becomes old before it becomes rich. It may be the case that China falls in on itself under the pressure of it's own internal contradictions. It may be that there is a confrontation between China and America, and China loses. There are many working parts that might cause this vision not to happen.
However, the trends exposed by the two books do give us a great deal to think about. Each one has the potential to give rise to an interesting set of scenarios. For example, one on which we are currently working is the possibility of an implosion of China. I may comment further on this in a future post. It certainly does provide some interesting material. My point is that American decline is not inevitable, and that renewal is a distinct possibility.
Of course, that does mean moving away from the fatalism that wants to 'Make America Great Again!'
Stephen Aguilar-Millan
© The European Futures Observatory 2017
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