Zakaria claims that the last twenty years has seen the rise of the rest of the world relative to the United States. He says:
We are living through the third great power shift in modern history. The first was the rise of the Western world, around the 15th century. It produced the world as we know it now—science and technology, commerce and capitalism, the industrial and agricultural revolutions. It also led to the prolonged political dominance of the nations of the Western world. The second shift, which took place in the closing years of the 19th century, was the rise of the United States. Once it industrialized, it soon became the most powerful nation in the world, stronger than any likely combination of other nations. For the last 20 years, America’s superpower status in every realm has been largely unchallenged—something that’s never happened before in history, at least since the Roman Empire dominated the known world 2,000 years ago. During this Pax Americana, the global economy has accelerated dramatically. And that expansion is the driver behind the third great power shift of the modern age—the rise of the rest.
I am always suspicious of these three-part schemes of historical epochs, the three parts of which seem to contract precipitously in length as we approach the current day. According to Zakaria, the first of these phases lasted abut 400 years, the second lasted about 100 years, and we’re now in one that has, at least in large part, happened in 20 years.
Zakaria goes on to say that this “This will not be a world defined by the decline of America but rather the rise of everyone else.” But the only way that sentence makes sense to me is if it means relative American decline.
Here’s the only problem with Zakaria’s thesis:
U.S. share of global economic output (on a purchasing power parity basis) has declined very slightly over the past twenty years – from about 21% to about 20%. But what has really happened over this period has been the rise of China and the rest of non-Japan Asia at the relative expense of Western Europe and Japan.
At the start of each of the last two recessions there has been a lot of hand-wringing about whether current problems are symptomatic of terminal U.S. decline. Zakaria in his article tells a story of how twenty years ago Indians were culturally fixated on the U.S., but are now more inward-looking. He goes on to cite recent economic growth rates for China and India, and makes the point that if we were to extrapolate these out for some decades the world would be a very different place. Just replace China and India with Japan and Korea, and this is an almost a word-for-word recitation of the kinds of articles you could find every week in every major American newspaper and magazine twenty or twenty-five years ago.
What Zakaria misses is that the relative decline of the U.S. is real, but that it already happened. U.S. share of world GDP in 1945 is estimated to have been about 50%; this more than halved between 1945 and 1980. The U.S. economic crisis of the 1970s was largely the result of this decline. I’ve argued at length that the Reagan economic program was a creative and successful response to that crisis that has prevented the U.S. economy from going the way of Europe. This program was focused on two things: sound money and deregulation, broadly defined. It’s ironic that, despite the rhetoric, Reagan’s program was premised on a very clear-eyed recognition of relative American decline. (It’s interesting, by the way, to see Reagan’s take on foreign policy commitments in this light.)
The ability of the U.S. economy to defy historical gravity for the past 25 years has not been automatic: it was earned in a set of pivotal political battles that were pretty much complete by 1984. The next twenty years comprised, within the American economy, a Twenty Years War to implement this less-regulated system that has now reached maturity. We live in the new economy that it has created. The danger of misdiagnosis of our current situation is that we will fail to understand the sources of our success and unwittingly throw them away.