Wednesday, August 17, 2011

The World Consequences of U.S. Decline

Immanuel Wallerstein
Fernand Braudel Center for the Study of Economies
Binghamton University, New York

A decade ago, when I and some others spoke of U.S. decline in the world-system, we were met at best with condescending smiles at our naivety. Was not the United States the lone superpower, involved in every remote corner of the earth, and getting its way most of the time? This was a view shared all along the political spectrum.

Today, the view that the United States has declined, has seriously declined, is a banality. Everyone is saying it, except for a few U.S. politicians who fear they will be blamed for the bad news of the decline if they discuss it. The fact is that just about everyone believes today in the reality of the decline.

What is however far less discussed is what have been, what will be the consequences worldwide of this decline. The decline has economic roots of course. But the loss of a quasi-monopoly of geopolitical power, which the United States once exercised, has major political consequences everywhere.

Let us start with an anecdote recounted in the Business Section of The New York Times on August 7. A money manager in Atlanta "hit the panic button" on behalf of two wealthy clients who told him to sell all of their stocks and invest the money in a somewhat insulated mutual fund. The manager said that, in 22 years of doing his business, he had never had such a request before. "This was unprecedented." The newspaper called this the Wall Street equivalent of the "nuclear option." It went against the sanctified traditional advice of a "steady-as-you-go approach" to swings in the market.

Standard & Poor's has reduced the credit rating of the United States from AAA to AA+, also "unprecedented." But this was a quite mild action. The equivalent agency in China, Dagong, had already reduced U.S. creditworthiness last November to A+, and now has reduced it to A-. The Peruvian economist, Oscar Ugarteche, has declared the United States a "banana republic." He says that the United States "has chosen the policy of the ostrich, hoping thereby not to scare away hopes [for improvement]." And in Lima this past week, the assembled Finance Ministers of the South American states have been discussing urgently how best to insulate itself from the effects of U.S. economic decline.

The problem for everyone is that it is very difficult to insulate oneself from the effects of U.S. decline. Despite the severity of its economic and political decline, the United States remains a giant on the world scene, and anything that happens there still makes big waves everywhere else.

To be sure, the biggest impact of U.S. decline is and will continue to be on the United States itself. Politicians and journalists are talking openly of the "dysfunctionality" of the U.S. political situation. But what else could it possibly be but dysfunctional? The most elementary fact is that U.S. citizens are stunned by the mere fact of decline. It's not only that U.S. citizens are themselves suffering materially from the decline, and are deeply afraid that they will suffer even more as time goes on. It's that they have deeply believed that the United States is the "chosen nation" designed by God or history to be the model nation in the world. They are still being assured by President Obama that the United States is a "triple-A" country.

The problem for Obama and for all the politicians is that very few people still believe that. The shock to national pride and self-image is formidable, and it is sudden as well. The country is coping very badly with this shock. The population is seeking scapegoats and lashing out wildly, and not too intelligently, at the presumed guilty parties. The last hope seems to be that someone is at fault, and therefore the remedy is to change the people in authority.

In general, the federal authorities are seen as the ones to blame - the president, the Congress, both major parties. The trend is very strong towards more arms at the level of the individual and a cutback of military involvement outside the United States. Blaming everything on the people in Washington leads to political volatility and to local internecine struggles, ever more violent. The United States today is, I would say, one of the least stable political entities in the world-system.

This makes the United States not only a country whose political struggles are dysfunctional, but one unable to wield much real power on the world scene. So, there is a major drop in the belief in the United States, and its president, by traditional U.S. allies abroad, and by the president's political base at home. The newspapers are full of analyses of the political errors of Barack Obama. Who can argue with this? I could easily list dozens of decisions Obama has made which, in my view, were wrong, cowardly, and sometimes downright immoral. But I do wonder whether, if he had made all the much better decisions his base thinks he ought to have made, it would have made much difference in the outcome. The decline of the United States is not the result of poor decisions by its president, but of structural realities in the world-system. Obama may be the most powerful individual in the world still, but no president of the United States is or could be today as powerful as the presidents of yesteryear.

We have moved into an era of acute, constant, and rapid fluctuations - in exchange rates of currency, in rates of employment, in geopolitical alliances, in ideological definitions of the situation. The extent and rapidity of these fluctuations leads to an impossibility of short-run predictions. And without some reasonable stability of short-term (three years or so) predictions, the world-economy is paralyzed. Everyone will have to be more protectionist and inward-looking. And standards of living will go down. It is not a pretty picture. And although there are many, many positive aspects for many countries because of U.S. decline, it is not certain that, in the wild rocking of the world boat, other countries will in fact be able to draw the profit they hope from this new situation.

It is time for much more sober long-term analysis, much clearer moral judgments about what the analysis reveals, and much more effective political action in the effort, over the next 20-30 years, to create a better world-system than the one in which we are all stuck today.

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