The United States of America is about to be knocked off its hegemonic perch by the upcoming challenger of China. If peace persists, and unfortunately there is no guarantee that it will, then the decline of the USA is unlikely to be mourned by most of the developing world because China understands and can deliver what developing countries want — faster economic development for most of their people. The neo-classical economists of the West have amply demonstrated during the last third of a century (1980-2013) that they have no idea about how to help deliver higher growth in less developed countries. In fact, they do not even know how to, and cannot even help, produce higher economic growth in the USA.
The late Alice Hoffenberg Amsden (1943- 2012) has made several highly significant observations in her book “Escape from Empire — The Developing with the World’s Journey Through Heaven and Hell.” From the very first paragraph, Alice sets out the accurate looking-glass tone of her book:
“For more than half a century after World War II, first one American empire and then another dominated a territory larger than that imagined by King Solomon or Alexander the Great. The first lifted all boats, the second lifted all yachts. In one case, prosperity and growth were graced by Heaven. In the other, inequality and stagnation were squired by Hell. Whatever we can say about the rise and fall of American imperialism, it was not black and white, and it saw big changes. The new economic stars that are forming in the firmament. constellations like China and India, will rapidly alter survival patterns here on Earth.”
From 1950 to 1980, the Americans permitted every nation to set their own economic agenda and to grow as best they saw fit. This policy resulted in “lifting all boats”, in the greatest period of widespread economic growth ever experienced by developing countries. The USA was accurately seen as a permissive, enabling angel, the midwife of greater prosperity and the source of higher world living standards. American economists and politicians were the object of great popular affection. The American culture was then as it is now — enormously attractive.
The dominant economic genius of the first American empire was the benign ghost of John Maynard Keynes, realistic, encyclopaedic, compassionate, helpful. American visitors peddling economic advice found out a thing or five about local circumstances before discussing how aid could help. American advice was soundly based on local priorities and political and social consent.
But in 1980 with the election of President Reagan, everything changed. The US policymakers decided, perhaps having seen too many Hollywood films, that the Americans would be “No more Mr Nice Guy.” In Alice Amsden’s words, the first American empire’s slogan for the developing world was (You) “Get Smart” while the second empire’s self-seeking command was (We) “Get Tough.”
The dominating presence of the second American empire was the malign thinking of Milton Friedman, whose monetarist policies always caused an immediate economic collapse and consequent misery with the declared intention of limiting inflation and producing eventual faster growth. Subsequent growth did indeed often occur, usually to about the immediate peak of the pre-monetarist policy, but that growth spawned much larger income inequality, higher unemployment, and did not facilitate higher long-run growth. As John Kenneth Galbraith (15 October 1928-29 April 2006) accurately observed, “Friedman has had the bad luck that his remedies have been tried” and as JKG was too polite to observe, “invariably with disastrous results for most of the population.”
The economic decline of America — like the economic decline of the UK — has been produced by applying the same rules within these previously hegemonic countries than have been previously applied within their empires. These invalid neoclassical economics are now destroying the productive foundation of the home economies, in an intellectual economic version of the rules of the empire striking back.
The dominating practice of the American-financed international institutions has been the insistence that in return for financial assistance from the IMF the recipient country must adopt the *American way” — privatisation, “free” (but oddly preferential-to-the-US) markets, less government, spending cuts, tax cuts for the rich, etc, etc, the whole nine yards of nonsensical neoclassical economics. And, says the OECD and its American sisters, no helpful measures to assist job creation and manufacturing industry (which changes, they do not say, are the real basis of widespread future prosperity).
Neo-classical economics has its many defenders, nearly all of them in the yacht-owning ranks of the rich or super-rich who are the main beneficiaries of the practice of that kind of economics, or paid-for economists piping a neoclassical tune. The two terms presidency of Barak Obama has failed because his administration has continued to practice the defective understandings of neoclassical economics. George Osborne, the UK’s Chancellor of the Exchequer, has produced through wage cuts a British economy in which living standards are declining because most growth is directed to the pockets of the rich. The UK’s Prime Minister, David Cameron, recently met many British and often living-offshore billionaires to get the funding to try to win an election to continue to run Britain for the benefit of these many expatriate rich people and their kith and kin. The opposition to a realistic economics or to a fair election in the UK is very well funded.
“Alice Amsden argues that the more freedom a developing country has to determine its own policies, the faster its economy will grow. America’s recent inflexibility — as it has single-mindedly imposed the same rules, laws, and institutions on all developing economies under its influence — has been the backdrop to the rise of two new giants, China and India, who have built economic power in their own way”
See the first review in http://worldcat.org/identities/lccn-n80-49958/
“With the awakening of Giants, global absolute power has become a relic of the past. Absolutism cannot be preserved by the United States, nor can it be acquired by China. No longer can a single country enjoy it. What will empower an Empire now is how “great” it is, meaning how much it promotes global economic development.“
I hope the observations in the first and second sentences of this quote are correct, but I am not sure that all world leaders have become mature enough to stop competing for the advantage of hegemonic power. All recent history (or a mathematical analysis of the last 500 years) suggests they have not.
China could become great, given the development-assisting criterion of greatness, because it could create investment credit to enable economic development in many countries of the world. The United States of America cannot promote global development so long as neoclassical economics is its dominant paradigm.
And yet, and yet…if the Americans understood Shimomuran economics, then not only the people of the United States but many of the people in the nations of the developed and developing world could become richer faster. After all, it was the administration of Franklin Delano Roosevelt that invented the policy of investment credit creation which Dr Osamu Shimomura practised in post-war Japan and explained in his many works.
The Chinese and the Japanese cannot be allowed to have a monopoly in their understanding of high-growth macroeconomics. Less developed countries want the investment credits and the manufacturing technology which produces economic growth, and if the US and the EU do not provide it, China or Japan will. As Alice Hoffenberg Amsden unerringly puts it:
“The Second American Empire is now in decline, possibly from immoderation but principally from a lack of greatness: it has made little contribution to economic development due to what may be described as a closed mind. Can its way of thinking be changed, or it is too late?”
Note: George Tait Edwards has published a book about “Shimomuran Economics” at http://www.lulu.com/shop/george-tait-edwards/shimomuran-economics/paperback/product-21688864.html and much else elsewhere during the last four decades.
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