Randall Germain . America in decline
Wall Street's meltdown has dealt a serious blow to U.S. leadership in the world, and a possibly fatal one to the cause of global economic liberalization
Randall Germain
The Ottawa Citizen
Friday, September 19, 2008
Economists and business commentators have correctly observed this week that the financial tsunami sweeping over Wall Street harbours deep and lasting implications for the global economy. Rather less attention, however, has been devoted to the implications which this crisis portends for global politics, or international relations as scholars often call it.
Two sets of implications are particularly relevant, for they hold the potential to recast significantly the environment within which global politics operates for some time to come.
The political implications of the financial crisis begin with the electoral opportunity it presents to the opposition campaigns in Canada and the United States. In Canada, if the Liberals and New Democrats are at all competent, they will firmly glue the halo of U.S. President George W. Bush ("the fundamentals of our economy continue to remain solid ...") to Stephen Harper, finally providing some precision and traction to their so far lacklustre campaigns.
But it is south of the border where the electoral punch of an imploding Wall Street will really be felt. Barack Obama has been handed an unparalleled opportunity both to re-energize his campaign and refocus his economic message as a defender of Main Street and the American dream. An updated, anti-Wall Street version of the line, "it's the economy, stupid," should feature in the campaign.
But the elections will be over within weeks. What will the longer-term political fallout look like?
There are two areas to which we should pay particular attention. The first area is centrally concerned with the United States and its now diminished ability to provide international economic leadership for the world economy. The U.S. has been until recently the world's undisputed economic superpower, with its leadership resting on three combined elements.
One element is paradoxically its overwhelming military superiority. This military supremacy will not be immediately challenged: the U.S. after all still outspends the rest of the world on military expenditures by a very wide margin. Nevertheless, when the costs of the unfolding financial rescue are added to the mounting cost of the war on terror as well as the many other domestic welfare issues that will face the new president, the ability of the U.S. to maintain its military supremacy will erode.
And it will erode faster if the Chinese and Japanese suddenly become reluctant to continue funding America's budgetary and current account deficits. By further undermining its already precarious fiscal position, this financial crisis will ultimately compromise American military supremacy, and thereby also its capacity to exercise international economic leadership.
American leadership also derives from the health and vitality of its economy. A central pillar of the American economy is its financial system, much of which now lies in tatters.
Not only will other states look with shock and awe on what has become of American finance (large parts of which are now effectively nationalized), they will question whether the model of capitalism promoted by the U.S. is worthy of emulation. Economic liberalization as promoted by the U.S. over the past two decades has most likely been fatally compromised. In effect, the apogee of globalization has been reached, and active retrenchment is not far off.
The final element of international leadership compliments the way in which an economic model works: it is a universal and widely applauded ideology that helps to explain economic performance, binds people to a particular model, and inspires emulation among others. For over half a century the U.S. has provided the world with a workable, free-market, liberal economic philosophy that facilitated the extension of the market economy to the four corners of the globe. Wall Street's implosion has dealt a serious and perhaps life-altering blow to this ideology, and liberalism will likely take many years to recover if ever.
And this is where we can locate the second major political implication of the financial upheaval of the past week, which may be neatly summarized as the return of the state.
With the revelation that the ideology of economic liberalism is actually destructive of financial systems, can an enhanced role for the state in the economy be far off? Congress has doled out significant amounts of public money to financial firms, and is set to demand a new regulatory oversight capacity that will rein in the worst excesses of liberalization and lax regulation. Whether this demand also lends support for a functioning national health-care system and proper welfare is for the moment unclear, but momentum for a more socially responsible state-centred politics has been given its strongest fillip since the Depression.
In this the U.S. will finally be joining the rest of the world. China, India, Russia, Brazil and many other emerging and industrialized countries have been reluctant to follow an American-style liberal path since at least the millennium. Some may applaud this turn, believing that the world will be a better place if and when globalization becomes more responsive to social demands firmly rooted in the imperatives of national politics. And indeed, it is clear that fully liberalizing an economy runs many risks, including that of financial meltdown.
But Canada and Canadians ought to pause before celebrating this development unreservedly. In a world dominated by a few relatively large and potentially illiberal economies, in which the role of the state is increasing and better able to subject economies to growing levels of political interference, how will we fare? Who will buy our goods and services, and will the prices be fair? Where will we find investors in our firms and industries (outside perhaps of our oil and inevitably also our water resources), and most importantly, in such a world with whom will we -- all 33.5 million of us -- become economically integrated? Ironically, it can only be the U.S., but by then it may be so busy looking after itself that the welfare of Canadians will rate a distant second to looking after Americans; that is after all the essence of non-liberal domestic politics, namely looking after your own first.
Perhaps, after all, we will come to look back rather fondly on the pre-crisis days of globalization and liberalization, when we sat under the wing of America but were also at home in the world.
Randall Germain is a professor of political science at Carleton University.
© The Ottawa Citizen 2008
. Why should anyone assume it will work any better next time? Allowing the market to be distributed amongst many smaller competitors reduces the overall risk, and simple regulations stressing open "books" and transparency to investors is probably all that is really needed, along with the courts of law to arbitrate contract disputes. Certainly, unethical companies would find themselves punished in such a market, as investors could clearly see problems as they arise. (Anyone who dosn't take the time to read their statements will not be helped by a regulator in any event, and gets what they deserve).
