The Post-American World: Release 2.0 (7 page)

In the meantime, the scale of the financial crisis has had the effect of delegitimizing America’s economic power. The crisis of 2008 was different precisely because it did not originate in some developing-world backwater; it emerged from the heart of global capitalism, the United States, and coursed its way through the arteries of international finance. It did not, despite the opinions of some pundits, signal the end of capitalism. But it does contribute to ending a certain kind of global dominance for the United States, and hastening the move to a post-American world.

Before 2008, whatever people thought of American foreign policy, they all agreed that the United States had the most modern, sophisticated, and productive economy in the world—with the most advanced capital markets. As a result, it held hegemony not just in military power and diplomacy but in the realm of ideas. Central bankers and treasury ministers around the world studied the basics of their profession at American schools. Politicians developed their economies by following the advice prescribed by the Washington consensus. The innovations of Silicon Valley were the envy of the world. New York’s deep, lucrative capital markets were admired and imitated on every continent except Antarctica.

As Brad Setser, a fellow at the Council on Foreign Relations, has noted, globalization after World War II was almost synonymous with Americanization. “Foreign borrowers looking to raise funds tended to issue bonds denominated in dollars, made use of New York law, and met the Securities and Exchange Commission’s standards for disclosure,” he writes. American ideas and institutions were made all the more attractive by the country’s economic success.

The collapse of Wall Street significantly eroded the legacy of that success. The American economy has emerged from the recession, but it will potentially grow slowly for years to come, burdened by debt. Most of Europe is in the same boat, and some countries, like Greece and Ireland, are far worse off. Naturally, economic activity everywhere has been affected by this collapse of the first world. But the economies in the big emerging markets—China, India, and Brazil—are now large enough that they have significant economic activity of their own (domestic demand) that does not rely on exports to the West. As a result, the International Monetary Fund says that 100 percent of global growth in 2009 came from emerging markets. While the financial markets of these countries are coupled with that of the United States, their actual economies are, for the first time in history, beginning to gain some independence from it. Goldman Sachs originally projected that the combined GDP of the four BRIC economies—Brazil, Russia, India, China—could overtake the combined GDP of the G-7 countries by 2039. These days, they say it could happen by 2032.
¹¹
The current global recession makes them more, not less, confident.

Global power is, above all, dominance over ideas, agendas, and models. The revelation that much of the financial innovation that occurred in the last decade created little more than a house of cards erodes American power. Selling American ideas to the rest of the world will require more effort from here on out. Developing countries will pick and choose the economic policies that best suit them, and with growing confidence. “The U.S. financial system was regarded as a model, and we tried our best to copy whatever we could,” said Yu Yongding, a former adviser to China’s central bank, in late September 2008. “Suddenly we find our teacher is not that excellent, so the next time when we’re designing our financial system we will use our own mind more.”

The Last Superpower

Even before the financial crisis, many observers and commentators looked at the vitality of this emerging world and concluded that the United States had had its day. Andy Grove, the founder of Intel, put it bluntly. “America is in danger of following Europe down the tubes,” he said in 2005, “and the worst part is that nobody knows it. They’re all in denial, patting themselves on the back as the Titanic heads straight for the iceberg full speed ahead.” Thomas Friedman describes watching waves of young Indian professionals get to work for the night shift at Infosys in Bangalore. “Oh, my God, there are so many of them, and they just keep coming, wave after wave. How in the world can it possibly be good for my daughters and millions of other Americans that these Indians can do the same jobs as they can for a fraction of the wages?”
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“Globalization is striking back,” writes Gabor Steingart, an editor at Germany’s leading news magazine,
Der Spiegel
, in a bestselling book. As its rivals have prospered, he argues, the United States has lost key industries, its people have stopped saving money, and its government has become increasingly indebted to Asian central banks.
¹³

What’s puzzling, however, is that these trends have been around for a while—and they have actually helped America’s bottom line. Even as globalization and outsourcing accelerated dramatically over the last twenty years, America’s growth rate averaged just over 2.5 percent, significantly higher than Europe’s. (Japan averaged 1.2 percent over the same period.) Productivity growth, the elixir of modern economics, has been over 2.3 percent for over two decades now, a full percentage point higher than the European average. Even American exports held up, despite a decade-long spike in the value of the dollar. In 1980, U.S. exports represented 10 percent of the world total; in 2007, that figure was still almost 9 percent.

The United States’ share of the global economy has been remarkably steady through wars, depressions, and a slew of other powers rising. With 5 percent of the world’s population, the United States has generated between 20 and 30 percent of world output for 125 years. There will surely be some slippage of America’s position over the next few decades. This is not a political statement but a mathematical one. As other countries grow faster, America’s relative economic weight will fall. But the decline need not be large-scale, rapid, or consequential, as long as the United States can adapt to new challenges as well as it adapted to those it confronted over the last century. In the next few decades, the rise of the emerging nations is likely to come mostly at the economic expense of Western Europe and Japan, which are locked in a slow, demographically determined decline.

America will face the most intense economic environment it has ever experienced. Some of its challenges are internal, legacies of the 2008 rupture and the pressures that caused it. The American economic and social systems know how to respond and adjust to such pressures. The reforms needed are obvious. Households, for instance, should save more. The U.S. government offers enormous incentives to consume (the deduction of mortgage interest being the best example), and it works. If we were to tax consumption and encourage savings, that would also work. The government must, moreover, ensure that Wall Street becomes more stable and secure, even if that means it is also less profitable. But because such reforms mean some pain now for long-term gain, the political system cannot make them.

The more difficult challenge that the United States faces is international. It will confront a global order quite different from the one it is used to operating in. For now, the United States remains the most powerful player. But every year the balance shifts.

For the roughly two decades since 1989, the power of the United States has defined the international order. All roads have led to Washington, and American ideas about politics, economics, and foreign policy have been the starting points for global action. Washington has been the most powerful outside actor on every continent in the world, dominating the Western Hemisphere, remaining the crucial outside balancer in Europe and East Asia, expanding its role in the Middle East and Central and South Asia, and everywhere remaining the only country that can provide the muscle for any serious global military operation. For every country—from Russia and China to South Africa and India—its most important relationship in the world has been the relationship with the United States.

That influence reached its apogee with Iraq. Despite the reluctance, opposition, or active hostility of much of the world, the United States was able to launch an unprovoked attack on a sovereign country and to enlist dozens of countries and international agencies to assist it during and after the invasion. It is not just the complications of Iraq that have unwound this order. Even had Iraq been a glorious success, the method of its execution would have made utterly clear the unchallenged power of the United States—and it is this exercise of unipolarity that provoked a reaction around the world. The unipolar order of the last two decades is waning not because of Iraq but because of the broader diffusion of power across the world.

On some matters, unipolarity seems already to have ended. The European Union now represents the largest trade bloc on the globe, creating bipolarity, and as China and then other emerging giants gain size, the bipolar realm of trade is becoming tripolar, and may even become multipolar. In every realm except the military, similar shifts are underway. In general, however, the notion of a multipolar world, with four or five players of roughly equal weight, does not describe reality today or in the near future. Europe cannot act militarily or even politically as one. Japan and Germany are hamstrung by their past. China and India are still developing. Instead, the international system is more accurately described by Samuel Huntington’s term “uni-multipolarity,” or what Chinese geopoliticians call “many powers and one superpower.” The messy language reflects the messy reality. The United States remains by far the most powerful country but in a world with several other important great powers and with greater assertiveness and activity from all actors. This hybrid international system—more democratic, more dynamic, more open, more connected—is one we are likely to live with for several decades. It is easier to define what it is not than what it is, easier to describe the era it is moving away from than the era it is moving toward—hence
the post-American world
.

The United States still occupies the top spot in the emerging system. It remains, in the words of the German writer Josef Joffe, “the default superpower.” But, as such, it is also the country that is most challenged by the new order. Most other great powers will see their role in the world expand. That process is already underway. China and India are becoming bigger players in their neighborhoods and beyond. Russia has ended its post-Soviet accommodation and is becoming more forceful, even aggressive. Japan, though not a rising power, is now more willing to voice its views and positions to its neighbors. Europe acts on matters of trade and economics with immense strength and purpose. Brazil and Mexico are becoming more vocal on Latin American issues. South Africa has positioned itself as a leader of the African continent. All these countries are taking up more space in the international arena than they did before.

Consider just a few examples. Over the last decade, the United States has expanded its influence into what was for centuries the Russian sphere of influence. In the post–Cold War era of American dominance, Moscow acquiesced. It needed Washington for cash and support. But by 2008 Russia was a revived power. In mid-February 2009, the Kyrgyz Republic finalized its decision to close Manas Air Base, a U.S. base providing essential air support for operations in Afghanistan, which was particularly important after the 2005 closure of another air base in Uzbekistan. The motivation was money. The Russian government, inimically opposed to the idea of a semipermanent U.S. military presence in its backyard, offered a $2.3 billion aid package that dwarfed the American financial support and included $180 million in debt cancellation, $150 million in aid, and a $2 billion loan to complete the construction of a hydroelectric power station. (In the end, it turned out that Kurmanbek Bakiyev, then president of Kyrgyzstan, was playing both sides off each other. After extracting the deal from Russia, his government renegotiated a much higher rent from the Americans and agreed to let Manas remain open as a “transit center.”)

Even a new American ally like India maintains its independence from the United States. New Delhi is grateful to Washington for its support in legitimizing India as a normal nuclear power, but it still pushed back on core security issues. Despite much American pressure, India simply does not see Iran as the threat that the United States does. India agreed to vote once with the United States at the International Atomic Energy Agency but continues to have extensive contact with Iran, including the conducting of joint naval exercises. India sees Iran as a commercial partner and refuses to isolate it in any way. In April 2008, President Mahmoud Ahmadinejad’s pilots requested a refueling stop in New Delhi as the Iranian leader was returning home from a visit to Sri Lanka. The Indian government immediately issued a formal invitation and turned the six-hour stop into a state visit.

The current state of the IMF and the World Bank also provides a useful lesson. These institutions, dominated by U.S. ideas and money, have long been seen as vehicles for American influence. And today, Setser writes, “emerging economies like China, Russia, India, Saudi Arabia, Korea, and even Brazil not only do not need the IMF; they increasingly are in a position to compete with it. Saudi Arabia already backstops Lebanon. Venezuela helped Argentina repay the IMF. Chinese development financing provides an alternative to World Bank lending.”

For an even better example of just how profound the changes associated with the rise of the rest will be, reread the coverage of the November 2008 G-20 summit in Washington, D.C., which took place during the tensest days of the global financial crisis. Every prior crisis had been handled by the IMF, the World Bank, or the G-7 (and, later, the G-8). In past crises, the West played the part of the stern schoolteacher rebuking a wayward classroom. The lessons the teachers imparted now seem discredited. Recall that during the Asian financial crisis the United States and other Western countries demanded that the Asians take three steps—let bad banks fail, keep spending under control, and keep interest rates high. In its own crisis, the West did exactly the opposite on all three fronts.