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The Risks and Rewards for the West in the Coming Multipolar World
"A marked shift has occurred in the tone and assumptions surrounding our national fortune. Nowhere is this better seen than in the second generation of books dealing with...
The Risks and Rewards for the West in the Coming Multipolar World
"A marked shift has occurred in the tone and assumptions surrounding our national fortune. Nowhere is this better seen than in the second generation of books dealing with America’s financial crisis, particularly Joseph P. Quinlan’s The Last Economic Superpower."
New York Journal of Books
The global economy, designed by Western powers with the United States as lead architect, is in the process of reconfiguration. The 2008 global financial crisis has terminated America’s reign as sole economic superpower and opened up important new spheres of influence to developing nations.
Does this signal the retreat of globalization as we know it? Has an economic “cold war” already begun? Will the West ever exert the kind of control and influence it enjoyed just a few short years ago?
In The Last Economic Superpower, Joseph P. Quinlan, a Wall Street veteran and expert on global economic affairs, addresses these questions and many others. Presenting his vision with refreshing clarity and objectivity, Quinlan examines:
Decisions made now will shape the course of history. The Last Economic Superpower outlines critical choices that must be made in order to recast, reinvent, and reenergize a new style of globalization.
The Last Economic Superpower lays bare the issues and challenges that will decide whether the world builds a new, functional system that serves all or fragments into separate spheres of influence, which benefits no one.
The decamping of the state from the commanding heights marks a great divide between the twentieth and twenty-first centuries.
—Daniel Yergin and Joseph Stanislaw, The Commanding Heights
Disillusionment can be a great motivator. Make enough people miserable, drain their hopes for the future, sap their confidence, and the result is an ideal prelude for change. During the 1970s the United States suffered two oil shocks, soaring prices, two economic recessions, declining productivity, and the demoralizing effects of stagflation—high inflation-cum-high unemployment. Against this ugly backdrop, the political and economic scars the decade left on the United States were deep enough to set off a global revolution.
The seminal event that started the 1970s downturn came from halfway around the world. Up until the early 1970s, the United States had been the unchallenged leader of the free world, and times were so good after World War II that the 1950–1973 period is often referred to as the "golden era." As the label implies, the two decades following the war were a time of strong global growth and development thanks to U.S. economic aid and leadership (a.k.a., the Marshall Plan), and the successful rebuilding of war-torn Europe and Japan. By the time the 1970s rolled around, all the major economic players before the war had recovered from the ravages of conflict.
The good times ended when a group of developing nations decided to exert their collective might against the West. On October 16, 1973, the Organization of Petroleum Exporting Countries (OPEC) announced that it was raising the price of oil by 70 percent. This body blow from the Middle East suddenly upended a near quarter century of prosperity and growth for the United States and many other nations. Soaring oil prices stunned the fossil-fuel-dependent West and brought economic growth in the United States and beyond to a grinding halt.
In the ensuing months, prices soared, and the unemployment lines lengthened. Those weren't the only lines. Soon long lines of cars were winding into gasoline stations across the nation, an outcome of gasoline shortages. To make ends meet, many U.S. households that had grown comfortable with a single wage earner found they needed two incomes to keep up with the rising price of food, energy, and other staples. Relatively tame over the 1960s, the U.S. inflation rate surged from 3.4 percent in 1972 to more than 12 percent by 1974. Not surprisingly, investors took fright of the shifting economic landscape, and by the end of that year, the Dow Jones Industrial Average was down by roughly 40 percent from the levels at the end of 1972.
In such an environment, the misery index—a figure that simply combines the rate of inflation with the unemployment rate—gained national prominence. The index spiked to nearly 18 percent in 1975 as prices continued to soar and the number of idle workers increased. Jimmy Carter pounded the point over and over during the campaign of 1976, helping him win the presidency.
Popular discontent stoked skepticism over the government's role in the marketplace, undermining support for government management of the economy. Strict industry regulations, wage and price controls, state-owned enterprises, and various industrial policies—these state-led initiatives were discredited as the 1970s dragged on. The Nixon presidency would be remembered by some as the "last liberal administration," a rap on its aggressive pursuit of wage and price controls and the creation of new government agencies like the Environmental Protection Agency and the Occupational Safety and Health Administration. The administrations of Presidents Ford and Carter did not fare any better when it came to creating the environment for real economic growth. Taken as a whole, the 1970s turned out to be the weakest decade of growth in the post–World War II period.
Worse was to come. A second oil shock erupted in 1979, after Iran, a major oil producer, was taken over by religious fundamentalists. The flow of oil from the country was halted, and even when the oil spigot opened again, the flow was intermittent. The U.S. economy was staggered yet again. The misery index reached an all-time peak of 20.36 percent in 1980. President Carter found the tables turned on him that year, when Ronald Reagan also found the misery index a convenient rallying cry. Rarely had a decade started on such a sour economic note. And the pain lingered. The U.S. economy contracted in 1980, faintly recovering the following year before sliding back into recession again in 1982.
The point of maximum pain came in November of that year, when the employment rate soared to a postwar record of 10.8 percent. Not since the end of World War II had so many Americans been on the dole. And not since the end of World War II had the U.S. economy taken such a hit, with the economy contracting by nearly 2 percent in 1982. Against this backdrop, the championing of state-directed prosperity had reached a point of no return. Times were ripe for change.
THE SHIFT IN THE COMMANDING HEIGHTS
A silver lining would emerge from the miserable performance of the U.S. economy in the 1970s. The rocky times spawned a new mindset about economic policies not only in the United States but also in Europe. The 1980s brought a new way of thinking about the role of the state in the economy. In the most basic terms, market failures could be blamed on government failures. A consensus formed around the idea that governments and bureaucrats were no longer capable stewards of the economy. That idea opened the door to a radical rethinking about the relationship between government and the marketplace. The new cause needed a flag bearer and it found two: Margaret Thatcher and Ronald Reagan. As Reagan would famously remark, "The best minds are not in government. If any were, business would hire them away."
Starting in the United Kingdom, swiftly embraced in the United States, and adopted to some degree by key countries around the world, control of the most important components of the economy, or the "commanding heights" as Vladimir Ilyich Lenin put it, shifted in a way that would have made the communist leader red with anger—from the state to the private sector. Starting in the early 1980s, a counterrevolution kicked in—policies were crafted that favored the deregulation of domestic industries, the privatization of state enterprises, and the liberalization of international trade and investment. During this era giants in the telephone and airline industries in the United States were deregulated, while across the pond Britain privatized British Telecom and British Gas. Smaller government was the rallying cry, entailing lower tax rates and less regulation. Beginning in the early 1980s and continuing through the 1990s, free-market capitalism was gradually embraced, cross-border capital flows soared, global trade and investment flourished, and globalization made a stunning comeback.
The global economy set the course for a quarter century of almost unprecedented prosperity following the severe economic downturn of the early 1980s. Around the world, increased competition, greater cross-border openness, privatization of state enterprises, and industry deregulation became guiding economic norms. The developed nations—with the United States at the forefront—led the way in promoting the primacy of the free markets. In heavily state-run parts of the world, socialists and communists alike joined in jettisoning the "visible hand" of the government for the "invisible hand" of the markets. Privatization and deregulation meant the hiving off of hundreds of businesses
Excerpted from THE LAST ECONOMIC SUPERPOWER by JOSEPH P. QUINLAN. Copyright © 2011 by Joseph P. Quinlan. Excerpted by permission of The McGraw-Hill Companies, Inc..
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Posted March 3, 2012
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