The financial crisis of 2008 has not just toppled once proud corporate giants and eviscerated American assets, livelihoods, and credit. It has touched off an anxious debate over whether the debacle heralds a long-predicted decline in U.S. global power—nothing short of the beginning of the end of the American century.
Overseas and in America, the meltdown is being widely interpreted as a bellwether event, the moment when the American colossus is forced by its own imprudence to throttle back on its globe-straddling ambitions and begin climbing down from the summit of its primacy. A dramatic sign is the emergency Washington summit of the G-20 on November 15. The leaders of 20 key economies will start remaking the power structure of global finance to give rising nations a bigger role.
The rumblings about America's decline are understandable. The financial crisis represents this year's third shock, coming after spiking energy and food prices. Even with a bold intervention by Washington to shore up financial markets, the scope and velocity of the made-in-America financial tumble have thrust forward doubts about the future—and the attractiveness—of the freewheeling U.S. capitalist model, about America's true strength overseas, and about the durability of a post-Cold War order with the United States as the unchallenged, full-service superpower. "The U.S. will lose its status as the superpower of the world financial system," Peer Steinbrück, the finance minister of Germany, declared in September. "This world will become multipolar."
That prediction came from the top ranks of a close U.S. ally and trading partner. From would-be rivals and those nursing resentments of Washington, the reaction has been more caustic. "Economic egoism is also a consequence of the unipolar vision of the world and of the desire to be its mega-regulator," Russian President Dmitry Medvedev said last month. He blamed the United States for having "let slip" a chance for a more democratic world order after the rush of global solidarity with America following 9/11. Why? Because of Washington's "desire to consolidate its global rule," he said. Even as world leaders gathered at the United Nations in September, the chatter behind the public speechifying veered onto one topic: U.S. decline. "The corridors are full of it," said a senior U.N. diplomat with no track record of U.S. bashing. He shook his head over "America's blindness to recognize how the world has changed."
American centrality. The Bush administration, by contrast, has sought to reassure Americans that their status as the premier economic and military power—U.S. "centrality," as Secretary of State Condoleezza Rice puts it—will endure. Indeed, some measures of American pre-eminence remain impressive—and relatively unchanged. With less than 5 percent of the world's population, the United States still produces about one quarter of global gross domestic product—more than three times the share held by Britain at the height of its empire in the mid-1800s. Some 60 percent of the world's reserve currencies are held in U.S. dollars. One third of the world's 500 largest companies are American, and one third of its patent filings are, too, by one measure. America's military budget represents just under half of the world's total defense spending. Seventeen of the world's top 20 universities are in the United States. And American popular culture penetrates into nearly every corner of the world.
Yet Americans are feeling sour about their country's international standing. The need to preserve American primacy remains, for the time being at least, a given to most Americans. A Chicago Council on Global Affairs opinion poll released in September found that 53 percent of Americans worry that the United States has already lost leverage for achieving its aims overseas. Improving U.S. stature received more backing as being of the highest priority than any other goal, with 83 percent calling it "very important."
The new decline debate has reached a full boil just as Americans are electing a new president. Bush administration officials dismiss the talk of decline as a predictable and episodic ritual. "We've been here before," says Eliot Cohen, Rice's counselor and a leading neoconservative foreign policy figure. "It is periodically fashionable to talk about how the United States is all washed up." No doubt, other low points have occasioned bouts of declinist gloom. Take the 1970s, with the painful setbacks of Vietnam, Watergate, stagflation, and musings about "malaise." Many analysts, here and overseas, saw the geopolitical advantage shifting toward the Soviet Union—an assessment that, in retrospect, seems ludicrous. In the mid- and late-1980s, concerns about a debilitating American "imperial overstretch" failed to come true. Japan, with its industrial success and high-profile acquisitions of American assets, was pegged by some to have attained a trajectory that would eclipse U.S. economic might—another short-lived projection.
This time, however, might not turn out as well for America, some analysts worry, because the trends eroding America's pre-eminence run deeper. "It's not simply that we've run into a rough patch, shaking our self-confidence," warns Andrew Bacevich, an international affairs specialist at Boston University and author of this year's The Limits of Power: The End of American Exceptionalism. "It's different this time." That there is some sort of big change is widely accepted, even mainstream. Defense Secretary Robert Gates now speaks of a "multipolar world." In its 2007 annual survey, the International Institute for Strategic Studies referred to "the profound loss of authority suffered by the United States since its invasion of Iraq."
Diminished dominance. Yet more troubling was the vista painted by Thomas Fingar, the U.S. intelligence community's top analyst. Foreshadowing a conclusion of a coming report called "Global Trends 2025," he said in September that "American dominance will be much diminished over this period of time" and "will erode at an accelerating pace with the partial exception of the military." In future competition, he added, the military will be "the least significant" factor. Fingar labeled U.S. pre-eminence since World War II a "truly anomalous situation." Indeed, shifts in economic and military power—played out slowly, over decades and centuries—are the norm, as Yale historian Paul Kennedy pointed out in his 1988 work, The Rise and Fall of the Great Powers. Some analysts conclude that if the reality of America's power position has changed, so must American attitudes. "We should disenthrall ourselves from the idea that the well-being and security of the United States can only be attained by seeking to maintain primacy," says Bacevich.
In any case, the new financial shock is rattling a load-bearing pillar of American strength—its role as global financial superpower, including its privileged position as issuer of the world's favored reserve currency, the U.S. dollar. The dollar's special role has been critically important. It allows the federal government to affordably cover budget and current account deficits. The Feds are selling about half the new national debt to foreign investors, including governments like China's and sovereign wealth funds like those in Abu Dhabi and Kuwait. That has bridged the yawning U.S. fiscal gap, financing, in effect, global military activities and domestic spending without sparking inflation or driving up the interest cost of such monumental borrowing. It has also allowed Americans to maintain a notoriously low net savings rate.
Critics point to the hazards inherent in racking up some $10 trillion in public debt—exacerbated now by fresh doubts over American solvency. Says historian Kennedy, "The crisis will confirm in the minds of Asians not to be so fiscally dependent on Uncle Sam." Those foreign investors, suggests Chas. W. Freeman Jr., a former U.S. diplomat in China and Saudi Arabia and president of the Middle East Policy Council, will conclude, "We're not going to finance your improvidence indefinitely." One other vulnerability also looms larger than in the past: energy imports. When Jimmy Carter was urging energy conservation in 1980, the United States imported 37 percent of oil consumed; last year, it was 58 percent.
Something else is different about the current debate over U.S. decline. Without any contraction of its daunting military firepower or the size of its economy, other nations are bound to assume more influential positions. The world geo-political map is being redrawn: Several powers are rising, some rapidly. China takes top billing on the list. Back when economic reforms began in 1978, China contributed but 1 percent of the world's GDP and its trade. Last year, it reached 5 percent of world GDP and 8 percent of trade. China's growth has hummed along at nearly 10 percent annually—for three decades. That is three times the global average.
China's "peaceful rise," as officials call the strategy, aims to restore China to the status it had enjoyed for many centuries: the world's largest economy. A recent Goldman Sachs report has bumped up the time by which China's economy is expected to surpass America's in size to 2027. China's growth is fueling a rapid expansion of military capabilities and, in effect, promoting a model competing with that of the United States—authoritarian capitalism.
At the same time, India, the world's most populous democratic state, has also found a surer path to prosperity that is broadening its influence and enabling a military buildup. Along with the economic recovery of Japan and the growth of what used to be called the "tigers" of South Korea and Southeast Asia, predictions of a "Pacific century" or an Asian one look more plausible. Asia is returning to its historical norms, Kishore Mahbubani, dean of the Lee Kuan Yew School of Public Policy at the National University of Singapore, argues in his book The New Asian Hemisphere. "The era of Western domination has run its course," he writes.
There are shifts elsewhere, too. The once slumbering giant of South America, Brazil, is overcoming its past weaknesses. Russia is undergoing a resurgence of uncertain duration, courtesy of massive sales of oil and natural gas. Its invasion of neighboring Georgia and support for separatist regions there may mark a new period of strategic challenges to the West. Meanwhile, the European Union, in fits and starts, continues to evolve into a more coherent force in global affairs that, as a 27-nation collective, already presents the world's largest economy.
Biggest loser. The world's energy suppliers—especially those along the Persian Gulf—are also gaining strength. Flynt Leverett, director of the New America Foundation's Geopolitics of Energy Initiative, calls the flood of money from oil consumers to producers "arguably the greatest transfer of wealth from one group of countries to another." The "big loser," he says, is the United States. The Gulf Arab states, as a group, may emerge as the world's most important investor. As well, Iran and its regional ambitions will get plenty of sustenance.
But the rise of other powers doesn't tell the whole geopolitical story. They are forging connections without U.S. involvement and, in some cases, with the likely aim of blunting U.S. influence. The maneuvering reflects the sort of games nations have virtually always played. When one country's overweening power ignites concern, some of the others search for ways to counterbalance it. That can happen frontally, through political-military alliances or, more gingerly, in a nonconfrontational mode dubbed "soft balancing." For instance, Russia, China, and the four Central Asian states have formed the Shanghai Cooperation Organization, a group with a decidedly non-U.S. approach to world affairs—no hectoring about human rights and democracy there. And though the United States, with its tight alliances, is East Asia's leading protecting power, it is not part of a new regional grouping that is becoming more influential. China is reaching deeply into Africa, the Middle East, and even Latin America with trade deals, energy investments, and aid with few strings attached.
Russia, too, is using arms sales and energy commerce to revive old connections in the developing world. Its outreach, especially in Latin America, appeals to left-leaning governments aloof from Washington. For the first time since the Cold War, a Russian naval fleet is heading into Latin American waters for exercises with Venezuela. Parag Khanna, an analyst with the New America Foundation, sees the uni-polar moment giving way to a different global game. In The Second World: Empires and Influence in the New Global Order, he predicts a "geopolitical marketplace" in which developing countries are courted by and align flexibly with one of the new "Big Three": the United States, the European Union, and China.
Others anticipate an even more complex diffusion of global power. Richard Haass, president of the Council on Foreign Relations and a former Bush administration official, argues that the new era will devolve into "nonpolarity," in which nation-states lose influence and a fractious assortment of nonstate players wield more clout. These include a variety of regional and global organizations, nongovernmental groups, foundations, multinational corporations, and even unsavory militias, drug cartels, and terrorist networks.
The erosion of U.S. global standing—at least in the eyes of the world—has been hastened by a foreign policy routinely portrayed overseas as one of arrogance and hubris. The charge of U.S. unilateralism—stoked above all by a costly and unresolved war of choice in Iraq—has fortified a troubling caricature of America as a militaristic and hypocritical behemoth that frittered away the outpouring of global goodwill after 9/11. The damage to America's reputation has weakened its "soft power"—the attractiveness abroad of its society and politics. Reports of prisoner abuse at Abu Ghraib and Guantánamo and what many see as encroachments on America's civil liberties in the name of fighting terrorism have taken a toll. It was, seemingly, with some glee that the German magazine Der Spiegel ran a cover story this fall titled "The Price of Arrogance" and depicting the Statue of Liberty with its flame extinguished. The world supply of deference to the lone superpower is flagging—a likely drag on the next presidency.
The go-it-alone instincts of the Bush administration—though tempered in its second term—came into play on issues from climate change to international justice to arms control. Old allies felt a cool wind from Washington. Grand ambitions for a democratic Middle East went unfulfilled. The Americans championed the war on terrorism with a "with us or against us" zeal. Fairly or not, friends and foes alike saw a lecturing, moralistic American style of leadership. It sat badly. "We exited the Cold War with amazing prestige and an automatic followership," says Freeman. "Nobody will charge a hill with us anymore."
There have been other body blows to American prestige. The inability to bring closure to the wars in Afghanistan and Iraq (especially the lengthy bungling of the Iraq occupation), the initial feeble response to Hurricane Katrina, and the regulatory laxity and greed that underlie this year's financial crisis all served to cloud the picture of American pre-eminence. Chinese students are questioning whether they should study American-style business. Mahbubani, the Singaporean analyst and former diplomat, marvels at "a new level of incompetence in America that is puzzling the world."
And yet, for all the deflating news, the time-tested ability of American society to assess and overcome problems should interject caution about proclaiming the American century over and done with. The restorative capacity of America, reasons Thérèse Delpech, a leading French strategic thinker, "is constantly underestimated abroad and even sometimes at home." Those who contend American decline is being exaggerated—or not happening—say that the unipolar moment was never destined to last and that the degree of deference actually accorded to Washington in happier days was never as much as is portrayed. Take, for instance, the disfavor visited on the United States because of its racial segregation and bigotry and a polarizing war in Vietnam.
Nor are doubts about American competence a new factor. Blunders, errors of judgment, the warping of policy by partisan politics, and intemperate rhetoric all are recurring features of U.S. policymaking; nevertheless, American leadership persists. "The U.S. is no good at foreign policy," asserts Walter Russell Mead, a senior fellow at the Council on Foreign Relations and author of Special Providence: American Foreign Policy and How It Changed the World. He likens the robustness of America's global standing to the muddling through of the comic bumbler Mr. Magoo. "The Bush administration has danced with the world in the worst way," Mead says—but the damage is mostly reversible. "The fundamentals of America's power position in the world," he says, "are probably as strong as they were in 2001."
Rising to the occasion. Further, the current credit crash follows in a long tradition of occasional panics and meltdowns in both the British Empire and the United States. "Those crises haven't sunk us in 300 years," reasons Mead. "We seem to find a way to manage them." Skeptics of U.S. decline believe that other weaknesses are exaggerated and that the U.S. economy remains central. Says George Schwab, president of the New York-based National Committee on American Foreign Policy, "When Wall Street coughs, the rest of the world catches a cold." No other currency, including the euro and the Chinese renminbi, is yet ready to replace the dollar. The economic burdens of leadership are said to be manageable. U.S. defense expenditures today equal 4.2 percent of the nation's GDP, compared with 9 percent in the Vietnam War.
Nor, in general, should the rise of others stir angst, say the anti-declinists. It reflects, by contrast, the near globalization of the U.S.-initiated postwar system, whose very openness should accommodate the peaceful rise of newer powers. "It was American strategy to see them get stronger," says Robert Kagan, a senior fellow at the Carnegie Endowment and author of The Return of History and the End of Dreams.
The interdependence woven into the existing system creates mutual vulnerabilities that might deter efforts to weaken the United States directly. John Bruton, the European Union ambassador in Washington, says, "If the West goes into decline, so do they." U.S. policy aims to make China a "responsible stakeholder." If China were to sell off its trove of U.S. public debt, it would undercut the value of its own assets. More likely, Beijing sees buying treasury bills as both a good investment and a way to balance a relationship in which it has to sell to the American market to make its long climb out of poverty. "The Asians are not happy about America being so weakened," says Mahbubani.
The anti-declinists, meanwhile, also count America's demographics as a key source of vigor. Through its acceptance of immigration and its higher birthrates, America's population is projected not only to grow but to avoid taking on the aging profiles of China, Russia, and Western Europe. Russia's population is shrinking by 720,000 people per year—hardly the way to great-power status. China is also graying quickly, in part because of its one-child policy. They both face underdevelopment in their vast countrysides, ethnic tensions, environmental constraints, and the perhaps inevitable return of political pressures for democratic change. Neither country will find that its path to restored greatness is clear and smooth.
Nor, in the end, is America without geopolitical options. It has forged a strategic tie to the South Asian giant of India that reflects democratic and multicultural affinities. But it is also a de facto hedge against the strengthening of still-authoritarian China. U.S. strategists welcome a closer relationship with moderate Brazil, in part as more hedging, this time against anti-U.S. leaders in Latin America. Bush and a new set of more pro-American European leaders have been setting aside scraps over Iraq and other issues, and East European countries are looking to Washington for reassurance against a more assertive Russia. In East Asia, the United States remains the ultimate balancer to China. "We are still the glue that holds things together, despite the opinion polls," reckons Kagan.
Few doubt that America's global position will experience "relative shifts," to use the diplomatic language of State's Cohen. But, he insists, "there is no other country's hand I'd rather play." Says a senior U.N. diplomat, "Bet against America at your peril." Even so, in the 21st century, it might be prudent to spread a few wagers on others as well.