The Sun is Sinking in the West

Article by Chris Waller
Mensa emblem

If the financial pundits are to be believed, then the worst of the global financial crisis is now over. However, I suspect that, to borrow from Winston Churchill, this is "not the beginning of the end but, perhaps, the end of the beginning." Having saved the financial edifice from total collapse, we still have an enormous mess to clear up.

What is of greater long-term interest is the global political change that will result from the financial crisis. The countries broadly defining themselves as 'the West', and all, to a greater or lesser extent, wedded to the principals of free-markets and financial laissez-faire, have been deeply damaged.

There is an irony in the situation in which America now finds itself. As a condition of receiving American support during the Second World War, Britain agreed, albeit with great reluctance, to relinquish its status as global hegemon. From Wellington's triumph over Napoleon at Waterloo until the outbreak of the First World War, Britain had imposed the Pax Britannica upon the world, ushering in a period of prosperity, for Britain at least, of unprecedented magnitude. Britain's efforts to maintain its maritime superiority drew heavily on the nation's coffers, in addition to which, the Great War devastated an entire generation.

In 1851, the Great Exhibition, mounted at the behest of Prince Albert, demonstrated to the world the massive industrial might of Britain, which underpinned its imperial reach. Yet even then, there were signs that all was not well; Britain was becoming complacent. By 1865, under Bismarck, Germany was rapidly gaining ground industrially and economically - and indeed, militarily. By 1881, Edward Sullivan, the British economist, was moved to write:

"Thirty years ago England had almost a monopoly of the manufacturing industries of the world; she produced everything in excess of her consumption, other nations comparatively nothing. The world was obliged to buy from her because it could not buy from anywhere else. Well, that was thirty years ago; now, France, Belgium and America have got machinery, our machinery and our workmen and our capital and they are sending us a yearly increasing surplus that is driving our goods out of our own markets; and every year they are more completely closing their markets to our goods...".

It sounds familiar, doesn't it? I have heard almost that same sad song every decade since the nineteen-fifties. By 1898, a writer in The Times was lamenting:

"British merchants have failed to adapt themselves to competition. It surprises them to find that the goods they offer, though acknowledged to be superior, are not preferred by the foreign purchaser to the inferior goods offered by their upstart rivals. The purchaser humbly suggests that the article they are offered is not exactly to their taste. "Take it or leave it", they haughtily answer, "if you don't know a good British article when you see it, that's your lookout," and the foreigner too often suits the action to the words - and leaves it."

One can read in this the consequences of the same attitudes that sounded the death-knell for the British ship-building industry and the volume car industry seventy to eighty years later.

What does emerge from this is that the economic decline of a nation, and thus its eventual political decline - in the sense of its global political influence - is a protracted process, so slow that one is barely aware of it. In its way it is almost like a geological process, so slow that it passes largely unnoticed until punctuated by a catastrophe such as an earthquake - at which point we become sharply aware of what is happening.

It can be argued that America is now going through the same process that Britain experienced during the third quarter of the twentieth century: economic decline followed by loss of international standing and prestige. It can further be argued that even as America emerged victorious from the Second World War, the seeds of its current decline had already been sown. The Korean War, fought to a stalemate, exposed the limitations of American power.

Despite this, America was the dominant power during the 1950s and 1960s, both militarily and culturally: these were the decades of 'American know-how'. Indeed, even though the Soviet Union was first into space in 1957 with an artificial satellite and then four years later with a man, America developed its lunar mission and placed men on the Moon within less than a decade.

Though the Cold War was very much a military stand-off, underpinning the American stance was an equally important economic imperative, that of free markets and trade. By the nineteen-sixties, the Chicago school of economics was marshalling its legions to challenge the received post-war wisdom of J M Keynes and Bretton Woods. While much of America was looking towards the Moon, its inner cities were cauldrons of disaffection and dissent; the Civil Rights movement was gaining support and momentum. Inner-city America was, at times quite literally, going up in flames.

During these same two decades, Britain saw the last of its imperial possessions achieve independence and its influence in the world diminish, yet economically, Britain had actually relieved itself of a great burden. Bernard Nossiter, writing in 'Britain - A Future that Works', quotes a study conducted by John Strachey, a Marxist writer of the nineteen-thirties and, after the Second World War, a Labour Minister. Strachey set out to prove that Britain benefited economically from its empire by buying cheap and selling dear. Researchers from The Economist, commissioned by Strachey, ploughed through mountains of economic statistics and concluded much to the surprise - and dismay - of Strachey, that the British empire ran at a loss, and never more so than at the peak of its Victorian might. The terms of trade for the British Empire, that is, the quantity of imports bought by one ton of exports, were at their worst when Britain seemed, on the face of it, to be in rude imperial health. The terms of trade improved markedly just after the war when the former colonies went their own ways. To quantify it: if the terms of trade in 1913 were given a value of 100, then in the 1880s, they stood at 83 - a seventeen percent deficiency - while by 1958, they stood at 125. Seeley contended that Britain acquired its empire 'in a fit of absent-mindedness'; it seems that we ran it in a similarly fuddled state of mind!

In the post-war period, while the rest of Europe was using Marshall Aid to rebuild its shattered industries, Britain was using it to write down its national debt, while simultaneously trying to retain its world status by developing an independent nuclear deterrent, another expensive folly.

The irony is then that America, while believing that its insistence upon Britain's relinquishing its empire would weaken it, actually did us a favour - economically, at least. In addition, America took on the role of global hegemon and all the economic burdens which that role entails. Indeed, America is finding that being embroiled in Iraq and Afghanistan is proving to be vastly more expensive than originally projected.

There is nothing new in the rise and fall of empires; Gibbon's mind was exercised by this very same issue in the eighteenth century. However, while the decline and fall of the Roman Empire was acted out over centuries, that of the British Empire took about one hundred years; the decline of America will be measured in decades.

While Korea ended in stalemate, Vietnam ended in the ignominy of defeat and an undignified scramble from the embassy in Saigon even as Viet Cong were advancing down its streets.

Unemployment, by one official measure, now stands at 9.8 percent, but that headline figure does not include those who have been unemployed for so long they have disappeared 'off the radar' and those in casual, part-time work. By other measures, unemployment in America is around 17 percent. Real wages in America have been stagnant since the 1970s. The full extent of America's decline is exemplified in the fortunes of what was once its fourth largest city, Detroit, one of the former industrial powerhouses of the eastern United States. The city that provided the major part of the vehicles, including the famous Sherman tank, for the invasion of Europe in 1944, and which became known as the 'arsenal of democracy' had a population which numbered 2 million in its heyday. Detroit can now only muster 900,000 residents - over half have gone in a slow mass exodus. What were once the prosperous suburbs of 'Motown' are being abandoned, leaving an area the size of San Francisco effectively derelict, with crumbling houses succumbing to the encroachment of weeds and rampant shrubs. Unemployment in the city has reached 29%, while the price of an average house is a mere $7,500. Of 9,000 houses repossessed by the mortgage companies, only 20% found buyers. The city authority is itself in debt to the tune of $300 million and in an attempt to reduce its debt, is cutting public transport and even street-lighting.

Detroit, like much of the industrial eastern United States, has been in decline since the nineteen-seventies, a decline which began under Ronald Reagan and gave rise to the term 'the Rust Belt' to describe the ravages of industrial decay. The rise and fall of Detroit is, in microcosm, that of the broader United States.

It can be argued that America has many 'sunrise' industries, of which Microsoft must surely be the most prominent example. True, but even there, all is not light and happiness. Microsoft has been under attack both commercially, and from litigation, both by the Federal authorities and competitors claiming unfair practices. The state of California itself is in dire straits at the moment (California is in debt to the tune of $28 billion) not only financially, as foreclosures wipe out its farmers and growers, but also environmentally as drought blights Central Valley, the 'garden of America'. The sun seems to be setting on the Sunshine State, once the exemplar of the American Dream but now suffering the same fate of those states, Oklahoma and Arkansas, to whose citizens it once offered hope during the years of Depression.

The irony in all this is that of America had left Britain with its empire, it would probably have achieved, far more successfully, its aim of reducing our standing in the world, as the burden of empire sapped our resources. As it was, America's insistence on our relinquishing our imperial holdings actually revitalised us and left it holding the baby of global responsibility, the full cost of which is now becoming evident. Assuming the role of global hegemon is like some ghastly game of 'pass the parcel' wherein the 'winner' soon discovers that the parcel contains only rotting fish-heads and not the glittering crown imagined and coveted. I can imagine that many of the wiser heads once bent over desks in the Foreign and Commonwealth Office during the nineteen-fifties, and who now, we imagine, have passed on to higher callings, are looking down from on high, shaking their heads and saying, "We told you so!" America is still far and away the biggest economy in the world but the auguries give cause for concern. The table below shows the extent of the competition:

United StatesChina
GDP ($ billion)GDP growth (%)GDP ($ billion)GDP growth(%)
200310,3833.31,2669.3
200713.1633.22,64510.5

Given the events of the last twelve months, it can only be expected that the situation will deteriorate further, from America's point of view, when the 2008 and 2009 figures become available.

America made the fatal error of believing its own myth, as did Britain in times past, namely that it could avoid the pitfalls which brought down the empires of the Persians, the Greeks, the Romans and the Mongols, but there is a baleful and inevitable logic to the trajectory of empire.

Chris Waller - Permission granted to freely distribute this article for non-commercial purposes if attributed to Chris Waller, unedited and copied in full, including this notice.

Members can discuss this and other articles on the economics forum at International Mensa.

About Us

Economania is the website of Mensa's internationally recognised Special Interest Group dedicated to economics, trade and finance.

Topics

 

Loading