Decline and fall of the US empire

The biggest kid on the global block no longer reigns supreme over all it surveys. Its mighty corporates are being eclipsed, its financial markets are in meltdown and foreign policy in shreds. But there's plenty of gas left in the huge American tank. Stefan Stern reports.

by Stefan Stern
Last Updated: 09 Oct 2013

In the second century of the Christian era, the Empire of Rome comprehended the fairest part of the earth, and the most civilised portion of mankind... (Its) peaceful inhabitants enjoyed and abused the advantages of wealth and luxury... the Roman senate appeared to possess sovereign authority, and devolved on the emperors all the executive powers of government.

So wrote Edward Gibbon at the start of his monumental Decline and Fall of the Roman Empire, whose first volume was published in 1776, the year the United States of America declared its independence from Great Britain. Of course, another two centuries on from this period of blissful achievement described in Gibbon's opening sentences, Rome was under threat from barbarian invasion and sinking fast.

In 2007, serious observers look at America and ask: is the US 'empire', or maybe hegemony, heading the same way as Rome's? The historian Niall Ferguson certainly thinks so, predicting collapse of a US colossus that is 'running on empty, weakened by chronic deficits of money, manpower and political will'.

As far as the modern Imperium Americanum is concerned, the 'declinist' case is fairly simply put. After the victory of the Allied forces at the end of World War II, the all-powerful military-industrial complex of the US carried all before it. The Cold War proved a long, drawn-out and expensive affair, but it ended with the collapse of the Soviet bloc (expected by some) and the undisputed triumph of the capitalist West.

The great paradox is that since that 'victory' of 1989, the US's prospects have, arguably, been slowly deteriorating. The rise of powerful new economies in the east now threatens to see American supremacy challenged and overturned. And in political terms, while the bi-polar world of US-Soviet relations was in the first place superseded by US unipolar dominance, we now see a more confusing, unstable and multi-polar world emerging.

It is not Communism that worries leaders in Washington any more, but Islamist and other forms of state-backed terrorism (which has in part filled the vacuum left by the collapse of the Soviets), and the tiger economies of the Asia-Pacific region.

An uncertain America seems still to be shaking from the impact of 9/11 - its borders are harder to cross, for those who mean it well in addition to those who mean it harm. It has turned in on itself in the face of the economic explosion of China and India. And, meanwhile, in its own hemisphere the growing tension over Latino immigration is also proving unsettling. Samuel Huntington, the controversial Harvard professor who popularised the term 'clash of civilisations' in the mid 1990s, led the way again on the Latino question with his book Who Are We? The challenges to America's national identity (Simon & Schuster) in 2004.

The terrible mess of Iraq now serves as a daily reminder that America's writ does not run everywhere, as it may once have done. As with the war in Vietnam, TV news brings the horror into people's sitting rooms. The confidence of a once proud nation has been clobbered.

Perhaps the most powerful (and satirical) analysis of this state of affairs was provided by the 2004 film Team America - World Police, an utterly filthy, obscene and deeply offensive film that I cannot recommend too highly. In it, blundering (if well-meaning) American superheroes, in the form of Thunderbird-style puppets, jet around the world trying to bring peace and harmony but usually leaving death and destruction, Baghdad-style, in their wake.

If the politics look grim, the economics don't really make for happy viewing either. China and India are both growing at about 10% a year, and China in particular seems set to overtake the US economy as the world's biggest in as little as 30 to 40 years. While the G7 countries (with the US in the lead) currently account for about 60% of world output, the proportion may slip to 30% by the time we're halfway through the 21st century. Tough news for all the world's current elite, but toughest of all, perhaps, for the US.

As if to make the point, when Blackstone, the private equity giant, floated this summer on the New York Stock Exchange, who was ready with a $3bn cheque to snap up a nice slug of the firm? The Chinese. Not only that, but Chinese banks and institutions are by far the biggest investors in US Treasury bills - the IOUs that the US writes to the world, raising dollars to fund its fiscal deficit. Chinese investors have fistfuls of dollars in their hands, and a huge say in the destiny of the US economy.

This all represents quite a comedown for the country that dominated - invented even - 20th-century capitalism. The modern car industry, for example, was defined and personified by the three giants of Motown (Detroit): Ford, Chrysler and General Motors. These firms were more than mere icons. Together they created the vast thumping heartbeat of industrial America.

Their significance was made explicit in a famous remark uttered by Charles E Wilson, the former head of General Motors, who later served as secretary of defense under President Eisenhower (that military-industrial complex again). In 1952 Wilson told a Senate sub-committee: 'What is good for the country is good for General Motors, and what's good for General Motors is good for the country.'

In coming up with such a choice phrase, Wilson was emulating his predecessor at GM, Alfred Sloan, who had memorably dedicated himself to providing 'a car for every purse and purpose'. Sad to report, then, that GM's future leaders were unable to live up to Sloan's vision. Only last year, GM and Toyota ended their seven-year collaboration on developing hydrogen fuel cells. The firms were apparently 'unable to agree terms for sharing the intellectual property behind the development'.

Sad, too, to remember that, for the first time, in April 2007, GM was overtaken as the world's leading seller of cars by... Toyota. Never has that slogan about the car in front belonging to you-know-who been more upsetting to Americans. Although, thanks to the appetite among newly rich Russians for Chevrolets, GM officially nudged back into the lead for global sales - briefly - in July.

GM had been, uninterruptedly, the world's number one auto manufacturer since 1931, but this summer may have given GM its final taste of global dominance.

Think of great American businesses and brands and you conjure up famous corporate names, many of which are in trouble. GM - maker of the Cadillac, Buick and Pontiac, as well as the Chevrolet - we know about. Ford, too, is in rapid retreat, unloading Land Rover and Jaguar and quite possibly Volvo soon as well. What would Henry have said? And Chrysler was chewed up by the Germans (Daimler) in their so-called 'merger of equals' in 1998, only to be spat out again at the feet of private-equity buyers earlier this year.

What about Coca-Cola, ultimate symbol of the land of the free and still the world's most recognisable brand, but struggling to catch up with a society whose demands have changed? What about the tobacco concern Philip Morris, whose Marlboro Man has to ride ever further from home, deep into the developing world, in search of profits?

Remember those impressive IBM personal computers that no-one ever got sacked for buying? Since 2005 they have had the Chinese name of Lenovo stamped on them. And Motorola has been regularly outpaced in the mobile telephony market, losing its former position of dominance first to the Finns of Nokia and latterly to the brilliance of South Korea's Samsung.

And Americans can't even shop their way out of the gloom. What could be cooler, more Sex in the City and all-American than Barneys, the uptown Manhattan-based department store chain? Think again. In June, a Dubai-based investment company called Istithmar snapped up Carrie Bradshaw's favourite shop for $942m. It's enough to turn a girl to drink.

So runs the pessimist's charge-sheet. But clearly the US is not on its commercial knees - yet. And although some of the aforementioned household names may be struggling, other big beasts go from strength to strength.

Microsoft, the company behind almost every PC operating system in the world, still dominates, even if its Windows Vista package may represent its last global mega-launch. But Microsoft's biggest rival is, of course, another home-grown product, Google, the company that makes Microsoft's ambitions look modest. And then there are so many of the other web heroes whose origins are all-American: Craigslist, MySpace, Facebook, and so on. Are these the sort of businesses that a dying nation would be likely to produce?

And it's not just these shining aspects of the 'new' economy that are going well. Not all of America's old economy has rusted over, been dismantled or sold off and bundled onto the slow boat to China.

In July, Boeing unveiled its impressive new 787 point-to-point aeroplane, which looks set to make Airbus' Franco-German headache a little bit worse. Verily, the 787 is the iPod of the skies - a triumph of collaboration and supply-chain management. So what if it is no longer the all-American plane of yore (wings made in Japan, the carbon composite fuselage made in Italy and the US, the landing gear French)? Apple didn't try to build its own iPods but sourced components intelligently from around the world. Boeing has joined in on the act.

For something more like all-American manufacturing, look no further than Milwaukee, Wisconsin, where auto-parts maker Johnson Controls continues to lead the world. Even the sometimes-maligned General Electric - which may occasionally frustrate the teenage analysts of Wall Street - is laying the groundwork for a world-leading position in green or sustainable business with its Eco-imagination investments.

For all that, American workers and some business leaders are unsettled. They worry about 'unfair' competition from China, whose undervalued currency makes its exports all too attractive. Scare stories (and some genuinely worrying ones) about the hazards of doing business with China - dodgy contaminated pet foods, wobbly and uncertain supply chains - are cropping up in the press all the time, just as they did 40 years ago when fears about Japanese industry began to grow.

And then there is the permanent threat of further outsourcing and off-shoring of jobs, which haunt American workers on the 'and then they came for me' principle. Democratic presidential candidate John Kerry tried to exploit these fears in 2004 with his talk of 'Benedict Arnold' (ie treacherous) companies, but he couldn't make the fears stick. This time around, his former running mate John Edwards - and other democrat contenders - are focusing much more attention on the issue.

Economic populism, even protectionism, is back in fashion - in some circles, at least. It mixes a dangerous cocktail of fear, anxiety and prejudice.

The US presents a paradoxical picture. On the one hand, we seem to be witnessing a golden age of philanthropy, with billionaires such as Bill Gates and Warren Buffett devoting almost all their vast wealth to good causes. And yet, on the other hand, American society is (in economic terms) as brutally divided as ever in its history. While the sub-prime (high risk) mortgage market goes into meltdown, with the threat of homelessness looming for hundreds of thousands of people, the number of American billionaires soars - up to 1,000 from only 13 in 1985. More than 200,000 new millionaires were created in 2005.

If you pooled all the money owned by US millionaires, the total - an estimated $30trn - would be bigger then the value of the economies of China, Japan, Brazil, Russia and the EU put together. No wonder this plutocratic regime has been labelled 'Richistan' by the Wall Street Journal reporter Robert Frank. A lucky few soar off into the distance, while those left behind worry about their jobs, their livelihoods and the roof over their heads.

This uncertain, unsettled world hardly seems compatible with traditional notions of the American dream. As Jeff Immelt, chief executive of General Electric, told the Financial Times recently: 'If you put globalisation up for a popular vote in the US, we'd lose.'

A useful insight into these trends is provided by another new book, The Puritan Gift (IB Tauris) by Kenneth and William Hopper. This is a lament for the great US corporations of the post-war years, those organisations inhabited by competent 'corporation men' - managers who were team players, steadily building great businesses that seemed set to last.

But today, as the economist Paul Krugman has pointed out, the experience of capitalism among ordinary Americans is frequently pretty miserable. 'Fears that low-wage competition is driving down US wages have a real basis in both theory and fact,' he wrote recently in the New York Times. 'When we import labour-intensive manufactured goods from the third world instead of making them here, the result is reduced demand for less-educated American workers, which leads in turn to lower wages for these workers. And, no, cheap consumer goods at Wal-Mart aren't adequate compensation.'

The recent collapse of the sub-prime mortgage market in the US has been seen by some as the tipping point that will finally send the US economy spiralling down and out of control. Losses of up to $100bn have been predicted. But to judge by Federal Reserve chairman Ben Bernanke's robust presentation to the Senate at the end of July, there is still great underlying confidence in the essential health of the economy. Growth is solid, and interest rates will not come down again until inflationary pressures have eased - hardly economic doomsday.

To some extent, we see all these events and developments through the prism of the failed Bush administration and its miserable 'war on terror'. But perhaps we risk overdoing the gloom. The growth in business opportunities in the Asia-Pacific region must be seen by any true-believing free-trader as good news. A rising tide may lift all boats, even if emerging-market boats are rising a lot faster.

And then look a bit harder at the current data. Six out of the top 10 companies in the FT's Global 500 index are American (see table, above). Only one is Chinese, and one Russian. Thirteen of the top 20 are from the US. The US remains the pre-eminent world economy by some margin, and is, overall, hardly in a position of weakness. The challenge now is to adapt to fast-changing circumstances, something the best US businesses have always been able to do.

The risk for America is that it will follow the route taken by Rome, where 'Prosperity ripened the principle of decay', as Gibbon wrote. But an alternative future is available. 'An empire remains powerful so long as its subjects rejoice in it,' according to the historian Livy. And patriotism is something there appears to be no shortage of, even now, in the US.

Like the reports of Mark Twain's death, the declinists' (and anti-Americans') tales of a doomed America have been a little premature, not to say exaggerated. Uncle Sam may be looking a bit peaky at the moment, but he will be around with us for a good while yet.

FT top 20 global companies by market valuation (dlrs m) 2007
1 Exxon Mobil, US, 429,567 (oil & gas production)
2 General Electric, US, 363,611 (general industrials)
3 Microsoft, US 272,918 (software & computer services)
4 Citigroup, US, 252,857 (banking)
5 AT&T, US, 246,206 (fixed-line communications)
6 Gazprom, Russia, 245,911 (oil & gas production)
7 Toyota Motor, Japan, 230,832 (automobiles and parts)
8 Bank of America, US, 228,177 (banking)
9 Industrial & Commercial Bank of China, China, 224,788 (banking)
10 Royal Dutch Shell, UK, 214,018 (oil & gas production)
11 BP, UK, 208,845 (oil & gas production)
12 HSBC, UK, 202,146 (banking)
13 Procter & Gamble, US, 199,294 (household goods)
14 Wal-Mart Stores, US, 193,643 (general retailing)
15 Altria, US, 184,277 (tobacco)
16 China Mobile Hong Kong, Hong Kong, 181,799 (mobile telecoms)
17 Pfizer, US, 179,015 (pharmaceuticals & biotechnology)
18 American International Group, US, 174,878 (non-life insurance)
19 Johnson & Johnson, US, 174,397 (pharmaceuticals & biotechnology)
20 Berkshire Hathaway, US, 168,280 (non-life insurance)

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