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Get used to it

10 October 2012 By Edward Hadas

Whoever wins the U.S. presidential election will preside over a relative decline in the country’s global economic position. He should, but probably will not, accept the inevitable.

There was a time when almost everything about the American economy set the world standard. In 1960, the United States was the world’s largest market. It had by far the most developed infrastructure, easily the best educational system and undoubtedly the most business-friendly government. It was the source of most innovations, from safe highways and comfortable suburban houses to computers and advanced pharmaceuticals.

Those days are long gone. The creation of the European Union has left the U.S. market in second place. Overall, the infrastructure in Europe and Japan is at least as advanced. The United States is still the global leader in many areas of industry, education and government, but it has fallen behind in some, and the gaps have narrowed in all.

The automobile industry provides a good example of the trend. Researchers Joyce Dargay, Dermot Gately and Martin Sommer point out that in 1960 the United States had 411 vehicles for every 1000 people, while Sweden, then the European leader, had 175, only 43 percent as much. By 2002, the U.S. ratio had almost doubled to 812, but the ratio in the current European leader, Italy, had increased much faster – to 656 or 81 percent of the U.S. level. In Japan the ratio moved from 19 to 599. Almost inevitably, in the interim the United States lost its clear pre-eminence in automotive design and manufacturing.

The principal cause of the end of American economic predominance is the sincerest form of flattery: imitation. Other countries have learned from the American teacher, and copying proved easier than creation. Some of the students learned so much that they are now teachers. The catch-up was only hastened by American economic weaknesses, most notably insufficient investment in infrastructure, a persistent trade deficit in manufactured goods and financial mismanagement.

None of these problems as well as the painfully slow recovery from the 2009 recession is likely to have much effect on the basic pattern in the next presidential term or for many terms thereafter: the U.S. economy will continue to advance, but much of the rest of the world will advance faster. The largest relative losses will no longer be to Western Europe and Japan, which are basically in the same economic position as the United States. They are rich and slowly getting richer despite financial, social and demographic weaknesses. However, about 80 percent of the world’s population live in countries which have a long way to go to catch up to global standards. Some may languish, but others will move fast enough along the path towards prosperity to ensure that America’s lead narrows.

What should the next president do?

He should recognise reality. The truth may be painful, but it is better to know. An American president will be better at promoting American interests if he does not assume he has the right to set the global agenda on trade, finance or technology. Recognition will also make him better at calibrating military and diplomatic ambitions to economic reality. The president might just be more motivated to address domestic economic weaknesses if he has no notions of inevitable national superiority.

After he admits the hard truth, he should relax. Not only is there nothing much to be done, but the relative decline of the United States is basically a good thing. More extensive prosperity is good and lesser global economic inequality is even better. Americans who believe in the nation’s manifest destiny to teach the world the right way to live can be pleased that one part of the American dream, the tremendous economic enterprise, is becoming more of a global reality.

Finally, he should act responsibly. Although the American economic era is slowly ending, the country has a disproportionate residual importance. Its currency is the global reserve and its research universities remain the world’s best. In many parts of the globe, America is considered almost as much the archetypical land of opportunity as it was a few decades ago. A president who wishes to conserve as much of the country’s position as possible would do his best to nurture these legacies. For example, he would try to reverse the current fiscal and monetary policies, which might have been designed to make the dollar untrustworthy.

Unfortunately, neither candidate shows much sign of taking my advice. At least in public, they vie to show more confidence in American greatness. Such boosterism may be an electoral necessity, but it is poor preparation for dealing with the challenge. In the 19th century, France suffered from refusing to recognise that the Napoleonic conquests marked the peak of the nation’s influence. The UK repeated the mistake in the 20th century. The United States looks all too likely to do the same.

 

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