In My View

Is USA in terminal decline?

The day before Dow Jones index of the New York Stock Exchange headed south on 22 Januray, the Democratic Party candidates of the American presidential election were debating policies in South Carolina. The first issue in the debate was the American economy – and all the three candidates left in the field talked about an economic stimulus packages – a few tens of billions of dollars here; a few tens of billions there.

That was before Barack Obama, the first black candidate of the US presidential races called Hillary Clinton, the first woman candidate in the country’s history, a darling of the Corporate establishment; and Clinton charged him with defending a slum-lord in Illinois, Chicago as a lawyer. It all was so familiar: the same thundering denunciations of the special interest-laden Washington; the same name calling about who is more sold out, already, to the corporate lobbyists. But in all this familiar territory, one thing stood out: a desperate search for measures that can arrest the decline of the USA.

This was also in the background of the America’s Federal Reserve’s (Central Bank) headlong lunge to cut bank lending rates by an unprecedented 75 points of one per cent. The idea is if money is made cheaper, the investments could rise thus arrest the decline of the US economy. There is a clear sense of panic – both at the government level and within the god of American policies, the Market.

In the past when the USA has been in recession, it has tried to recover from the deep end of the economic crisis by essentially two-fold measures: the government loosening its purse strings by spending more money; and by creating an environment for higher consumer spending. But this time it is different. Because the government is severely cash strapped, with it spending $ 2 billion a day in just the Iraq war alone, and the large corporates refusing to invest in the USA, having found better investment returns in emerging markets like India; and China.

On top of that, in the past decade or so, income inequality has deepened in the country beyond imagination. The income differential between the top executives of a company and the wage earners is 2,173:1. Measured by the GINI index, which keeps track of income inequality across the world, the USA is closest to underdeveloped economies; thus more unequal, than the average developed nations.

Interestingly, at the end, this fact might prove more of the reason that could pull the USA further down this time that anything else on the horizon. Because all these millions of dollars bonuses that have been handed down to the brokers in the Wall Street for the past years could barely increase service charge in a New York restaurant by ten per cent more on the bill, while most of money flowed outside as investment offshore where the returns are higher.

The mobility and autonomy that capital has gained in this current phase of globalised Capitalism would now work against the USA. This statement needs more explaining. A belief endures among the Marxist theoreticians that more capital becomes unburdened by fixed assets and becomes liquid, it seeks newer areas where it can autonomously multiply.

Before, and during the previous recession in the US economy in the 1970s, this mobile capital had found its favoured destination in Japan. But Japan was constrained by its size, population and thus the depth of its economy to retain this capital in large volumes. Plus, those were the days of the Cold War and Japan was particularly vulnerable to the scare of a Soviet expansion. So when Ronald Reagan launched the all-out war against the “Evil Empire” Japan witnessed, and indeed supported a reverse flow of capital from its coffers, much against a fundamental tenet of Marx’s theory that money flows from a ‘Declining Centre’ to an ‘Emergent Centre.’

But this time the situation is very different. This time the emergent Centre, if not the ‘emerged’ Centre, is China – garguantan, both in the size of its area, population and its economy. China can absorb all the capital that American capitalists can invest and provide higher returns. All this while, it was also investing some of its surpluses in the USA itself, as the latter was considered the most stable economy in the world; in the process propping up the dollar. Will China now continue to do the same when the US in such turmoil?

The answer to that question can well hold the key to the continuance of USA as the pre-eminent power of the world. It is the supreme irony of the world that the fate of the most revered temple of Capitalism depends on the decisions of an avowed socialist State. This could also mark another break in contemporary human history almost of the same dimension that we witnessed almost decades ago when Soviet Union collapsed. What frisson this causes in the American society would be something watched very closely in the next few years.

Pinaki Bhattacharya, currently located in Kolkata, is a Special Correspondent with the Mathrubhumi, Kerala. He writes on Strategic Security issues. He can be contacted at pinaki63@dataone.in