The Financial Crisis Threatens U.S. National Security

The financial crisis showed capitalism and market economies may not be the best long-term path to economic prosperity.

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Scheherazade S. Rehman is a professor of international finance/business and international affairs at The George Washington University. You can visit her homepage here and follow her on Twitter @Prof_Rehman

One of the greatest dangers for U.S. national security emanating from the financial crisis is that it has cast doubt on the notion that Western style democracy, capitalism, and market economies are the best long-term path to economic prosperity, development, and sustained wealth. This is without question one of the most striking, distinct, and impending threats to U.S. national security. The current financial crisis has exposed real weaknesses in Western economic and political models and has cast misgivings about their long-term results, for example, unsustainable debt, overleveraging, common systems (i.e. banking and healthcare) systemic failure, rising youth unemployment, increasing dysfunction of government governance, growing disparity in income, etc.

Moreover, the financial crisis has showcased to the world that mixed economies and non-democratic political systems are seemingly weathering the storm better than western developed countries. In some cases, such as China, these emerging economies are actually thriving. Emerging market economies (such as, Brazil, Indonesia, India) are looking at the China model with some envy as they are trying to determine how to grow wealthier, increase infrastructure, rely less on inward investment, move towards domestic demand, and manage income disparity amongst their large populations. In the United States we may worry about ideology, but others whose economies are not developed yet worry first and foremost about economic success and second about ideology (ironically with the exception of China).

[See a collection of political cartoons on the economy.]

The previously glowing perception of modern capitalism is shifting, indeed even in the West and unfortunately the messy and sometimes inefficient side of democracy is being showcased.

Over the last 60 years the West has focused on strategies to use democracy as a mechanism to transform fragile countries into functioning ones. Our hand is severely weakened in convincing others that we have the roadmap to economic and political systemic success. There's no doubt that the severity and destruction of the still ongoing financial crisis in the West has eroded real wealth and confidence in the system. The erosion has fundamentally tarnished the ideology that Weston style institutions and governments are the key to development in emerging markets. Thus, the long-term impact on U.S. national security could be far more damaging than previously anticipated. 

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Additionally, there has been more than subtle pressure being put on Washington, D.C. lawmakers and the White House to shift away from the focus on promotion of democracy and threats overseas and instead rebuild the U.S. economy and its future i.e. to focus on the middle-class recovery, upgrade education, slow down income disparity, and essentially keep society functioning. It should be noted that the single greatest threat to these goals is government dysfunction and failure to deliver needed policy to move us in that direction.

From a security standpoint perhaps the most dangerous outcome of the current financial crisis is the disenchantment with the messy side of democracy, a loss of confidence in free market capitalism, and an inward looking United States and Europe.

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