Photo above: The Hertford Bridge in Oxford, England. Used by Permission. © Tom Ley 01302 782837

Wednesday, January 6, 2010

The United States After a Decade of Disappointment and Setback by Dr. Douglas O. Walker

At the dawn of the Twenty-first Century the position of the United States and other economically advanced countries in the world seemed unchallengeable. In the second half of the previous century, the countries of the West had marshaled the economic resources of the world, controlled its oceans and space, and extended their trading relationships not only to the other side of the globe but deeply into every country on every continent. The West's per capita incomes, already far higher than other areas of the world, had risen markedly as it witnessed a strong renewal of progress following a protracted and deep depression and a devastating full-scale war extending across several continents. Labor productivity rose rapidly in response to a broadening division of labor, more capital per worker, and innovations in organization, products, techniques and transport. As a result, living standards in the West far exceeded those of the rest of the world and as the end of the Twentieth Century approached Western countries enjoyed an economic boom.

Equally important, the development of poor countries that had lagged in the process of world development was spurred by the success of the more economically advanced countries, and prosperity spread, indeed, accelerated with time, across the globe. This was in no small part due to the leadership of the United States in establishing an international monetary and trading system that promoted world development.

The global economic landscape of year 2000 reflected the progress made by all countries during the previous half century. In the case of the West, its relatively small proportion of the world’s population, only some 15 per cent of all its inhabitants, produced the vast bulk of its wealth and was the center of scientific and technical advance. One country, the United States, endowed by its geography and history with the position of leader of the West, comprised a much smaller five per cent of all people on earth but exercised unchallenged global economic supremacy and political hegemony as its former adversaries either lay prostrate and exhausted from an economic competition that they could not win, as in the case of the states of the old Soviet Union, or were so weak and poor and divided so as to represent no threat to its dominant position. For Americans, a future of peace and prosperity smiled upon them.

But the last decade has not been at all successful for America. Two recessions, one very deep, growing internal and external imbalances, high unemployment and a financial crisis scorched the economy and left a legacy of tarnished hopes. It is not surprising that after a half century of progress a decade of setbacks soured Americans on what was a very difficult decade and changed their outlook about the future. It is not too much to say the experience of the past decade has shaken many Americans to their core.

In contrast, for much of the rest of the world the first decade of the Twenty-first Century was a very good one. Developing countries grew very rapidly most years during the decade and, while affected by the global financial crisis, it appears they are now rebounding strongly from the downturn. For these countries, and therefore for the vast majority of the world’s population, these have been very good years, even great years and there is promise of more to come.

Geopolitically, the first decade of the Twenty-first Century could represent a turning point in the political and economic history of the world. During the past decade, the United States has been incautious in its economic policies and allowed its economy to fall from being the wonder of the world to become the debtor to the world. At the same time, other countries, many initially much poorer and backward in their technological sophistication and business acuity, surpassed it in many areas. For them, the decade was truly one of great economic achievement.

The world economic landscape of 2010 is therefore very different than that of 2000, and it is different not only because of the success of other countries but because of a failure of the United States to conduct itself with the seriousness and purpose of a great country with great responsibilities. Americans made serious errors in policy and consequently suffered setbacks and financial panics at their own hands.

The world economic scene of 2020 is now being set. If the U.S. returns to the theme of limited government and free markets, it will prosper and retain its position in the world. If it continues down its current road of expansive government and interferences in and controls on the economy, it will find itself falling ever further behind a world economy dominated by the rapidly expanding economies of Asia, Africa and Latin America.

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