America’s current financial distress has been greeted by Russian nationalists with ill-concealed satisfaction. It shows, they say, how rotten American capitalism is: sweet revenge for the ideological defeat of communism. America’s geopolitical moment, they also claim, has passed into history: we now live in a multi-polar world, in which Russia will take its place as one of the poles. Most of this is based on wishful thinking and bad statistics.
A quick reality check would show that America’s economy is ten times the size of Russia’s, and American defence spending is almost as big as the rest of the world’s put together. Russia’s commodity-based economy is far more vulnerable to global disturbances than is America’s, as the halving of the price of oil in the last three months has shown. The grandiose geopolitical ambitions of the Putin presidency will have to be drastically scaled down.
Nevertheless, changes will come, though they are far from the crude conjectures of Russian nationalists. The most obvious is the renewal of the presidency. By the time this column next appears in a fortnight, Barack Obama will probably have become president-elect of the United States. The first foreign policy priority of an Obama administration will be to “fix the reputation we’ve left with the rest of the world.” These were the words of Colin Powell, Bush’s first secretary of state, who has now endorsed Obama. US foreign policy will not become more pro-Russian: it will become more multilateral –that is. It will take into account the views of its partners, even if Russia is still not regarded as a reliable partner.
There will also be a modification of the global economic regime. The era of American-sponsored conservative economics is coming to an end. The economic crisis has been market-led; recovery will be government-led. The American and EU governments have pledged trillions of dollars to bail out their banking systems; and trillions more will go into budget deficits to counter gathering recession. When governments mount rescue operations on this scale, they tend to stay around. So expect a ‘new capitalism’ of tighter banking regulation, tighter control of executive pay, more egalitarian tax systems, increased government spending on capital projects, and a new ‘global financial architecture’ to prevent wild credit booms developing in the future.
None of this will alter the fact that the market system will remain the philosophic and practical foundation of the world economy, and that America will remain its lynchpin. The success of market-based capitalism is based on its unrivalled capacity for self-correction. Governments have an indispensable role to play in limiting its fluctuations and making it socially acceptable. But the logic of ‘buying cheap and selling dear’ ensures that even big downswings eventually reverse themselves. Warren Buffett, has captured this logic in his aphorism: ‘Be fearful when others are greedy, and be greedy when others are fearful’.
America, the home of modern capitalism, is also the most successful modern society –the most prosperous, the most powerful, and the most inventive. Joseph Schumpeter had the United States in mind when he talked about capitalism progressing through ‘gales of creative destruction’. In Europe most people believe that governments should limit competition in order to protect small businesses. In the United States competition is God. Hundreds of thousands of small business start –and fail –every year. And from numberless seeds giant acorns continually grow –and die.
None of this makes America the world’s greatest civilization. But critics of the American way of life often make the mistake of thinking that what they dislike is bound to fail. Great civilizations have risen and fallen throughout history. America’s mediocre civilization may have discovered the secret of perpetual renewal.
Robert Skidelsky 