Are We Really Going The Way Of The British Empire?

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Given our sense of being taxed to the limit, it is important to remember that we have one of the smallest proportions of GNP going to government of all the advanced industrial countries, about 31 percent, whereas in countries like Britain and France it is closer to 44 percent. President Bush has said that the problem is that the Americans have the will but not the wallet. In some ways it’s the opposite of that: We have the wallet but not the will. And in that sense I think the American situation ought to be seen more as one of politics and political stalemate than of economic decline.

You have made an especially persuasive argument about what you call the World War II effect; you suggest that our vision is distorted by that huge, aberrational bulge in American power.

If one asks, “Has American power declined since World War II?” clearly the answer is yes. We don’t have very good measures for 1945, since this was such a disruptive period, but many people think that we produced half of the world product in 1945. By 1950, when we had some good measures, we had about 35 percent of the world product. Today we have about 23 percent. Clearly there has been a decline as measured from 1945.

But 1945 or 1950 is a strange place to start measuring, because World War II had strengthened the United States and weakened everybody else. As others regained their health, the American share of the world product went down closer to what had been its pre-war level. We had about a quarter of the world product in 1938. It got back to that level, about 23 percent, by 1975, and it has remained there since. So rather than a continued downward slope you have a plateau and then a mountain called World War II, then a return to the plateau since 1975, which would suggest that it took about a quarter of a century or so for the World War II effect to work its way through the system.

Another way to think about the World War II effect is that it makes for quite a just parallel to Britain’s advantages from having been the first industrializer. And alas, what matters for those of us born or come of age on the mountain or on its downward slope is that the return to the plateau does not seem like a return but like a fall into the abyss.

I think that’s the reason it’s important to have an accurate sense of history. I mean, if we have this exaggerated view that the position of the United States in the fifties and sixties was normal, then we’re bound to feel dread when we consider the present.

If we understand that the position after World War II was abnormal, we’ll realize that the world is necessarily going to be more competitive, that we’re not going to have the automatic and easy lead across every area of international economics and international industrial sectors. It’s going to be a world in which in some areas we’ll be ahead and some areas we’ll be behind.

Both you and Professor Kennedy make reference to the economist Mancur Olson’s notion that societies with long successful runs—especially one victorious in war—become sclerotic. The argument runs that our rivals have become more dynamic in responding to certain challenges by dint of past failure, indeed by dint of their past shattering. I couldn’t quite determine how seriously you took Professor Olson.

Olson’s thesis is interesting. He argues that what happens over time is that interest groups use government to protect themselves from competition, creating sclerosis, and that it sometimes takes a major disruption like depression or war to break this sclerosis, or to clean the arteries, if you will. The examples he gives are Germany and Japan, as contrasted with Britain.

I think there’s something in that thesis, but again I think it can be too simple. There are other paths to success and other paths to dynamism. There is what the economist Joseph Schumpeter called creative destruction, the constant tearing apart of industries in capitalist societies that is a function of markets. To the extent that countries actually deprive themselves of the creative destruction that goes along with markets, they may become sclerotic.

Now, for all the excesses of the markets in the 1980s in the United States, they did make major changes in industrial structure. And I think in that sense, if one asks, “Has the United States become sclerotic, with its long string of success?” it’s a much more mixed picture than Olson’s theory would suggest. Part of the reason for this is that markets still work quite strongly in the United States—or more so than in many other societies that are often touted as being great successes.

It’s been said for years that markets are brilliant advisers in the short term and poor ones in the long. On this theory British economic behavior from the 1870s to 1914 was absolutely rational, but the long-run consequence of following economic signals can be quite horrifying for the power of a national state.

For instance, Britain was a capital exporter in a period when, in retrospect, one wishes that it had invested domestically; in the 1980s our tax code encouraged the accumulation of vast amounts of debt, and this may have stirred up a great deal of trouble for the next decade.