About the American Economic Dominance

Last week I chaired a debate between students of Harvard University in Massachusetts and students of Trinity College, Dublin at the Hist debating society in Trinity.

The motion was that the House welcomes the decline in American economic dominance, and it was proposed by Trinity and opposed by Harvard. Opinion was very evenly divided among the student audience and the case was argued vigorously on both sides.

Those arguing for the motion put a lot of emphasis on alleged abuses of American military dominance, such as the invasion of Iraq and detention without trial in Guantanamo Bay in Cuba.

My own sense of it is that military dominance and economic dominance are two very different things. The US has been economically dominant in the world since the 1880s, but it did not become the world’s militarily dominant power until about 1943. It was quite happy to allow the British Navy bear the expense of keeping the world’s sea lanes open for American commerce! Indeed the US kept a much smaller military establishment than it could have afforded for many years. It felt its geography was enough to protect it from attack, and that it did not need to divert economic resources into the military.

It was only in the second world war that the US started to devote a serious proportion of its vast resources to military matters and thus became militarily as well as economically dominant in the world.

Europeans have reason to be glad that this happened and that the US was able to intervene militarily in Europe by invading France on D Day in June 1944. Germany had already lost the war through it major defeats by the Soviets at Stalingrad and Kursk, long before D Day. But if the US had not invaded France in June 1944, and had focussed solely on defeating Japan, it would have been the Soviet Union on its own that would have completed the defeat of Germany , and thus all of continental Western Europe would have come under Soviet dominance.

Strangely, the debaters did not have much to say about the ill effects of economic, as distinct from military dominance. The big side effect of US economic dominance is the dollar’s status as the world’s sole reserve currency. This has meant that the dollar could defy gravity and the US was not subjected to balance of payments constraints of the kind that disciplined other countries. This allowed the US to run big deficits with China, which in turn has pumped that money back into the global financial system, and gave us the credit boom that has recently burst. If the dollar had not been not the world’s sole reserve currency, it would have lost value much sooner, the US would not have had such a big boom, nor such a big bust. That would have been good for all of us.

But over all, it has to be said that US economic dominance has had broadly beneficial effects because, with US economic leadership, the World Trade Organisation has opened up the world’s markets to exporters from poor countries, promoted economic liberalisation, and in the last fifteen years has brought prosperity to billions of poor people, particularly in Asia. That has made the world more interdependent than ever before, which has created its own dangers. The trouble now is that the archaic constitutional system of the US makes it very difficult for a US Administration to contribute properly to governing the more prosperous and interdependent world it itself has done so much to create.

It cannot pass a climate change Treaty because, under the constitution, any Treaty can only be ratified if two thirds of its Senators vote for it. A two thirds majority in the Senate is almost impossible to achieve if a Treaty is even slightly controversial. One Senator can block the appointment of vital leaders in a US Administration. Almost 40% of the posts in the Administration that require Congressional approval are still vacant, and one Senator from Alabama alone is blocking 70 appointees because he is looking for concessions for his state. The difficulties passing healthcare legislation suggest that the much more difficult task, that of closing the fiscal deficit by expenditure cuts and tax increases, will be completely beyond the capacity of Congress, at least until it is almost too late. The US is already in financial arrears to the United Nations

The American constitution of 1783 was the world’s first written constitution. It gave the world a model of the rule of law and the liberty of the individual. But it was designed for an agrarian society which wanted to curb government, not for giving global leadership of the kind the US is now called upon to provide. It was designed for the eighteenth century, not the twenty first. It needs to change, for the sake of the world as well as for the sake of the United States.