At the end of World War II, the United States of America became the gravitational centre of a vast global market. Because it had the largest economy and was the only major belligerent to escape devastation, it was the United States that was able to exert decisive influence in shaping the post-war world. American policymakers took a senior role in creating a set of post-war institutions — the International Trade Organization, the International Monetary Fund, and the World Bank — that were intended to maintain an international trade regime that would favour American interests.
While the principal aim of the United States in this period was to defeat communism, all too often this involved overthrowing democratically elected governments and supporting vicious dictators. Friendly governments were given money and weapons; in return, they were expected to continue selling the US the cheap commodities that its economy required. Though rarely acknowledged, it is clear that none of us living in North America today would enjoy the standard of living that we do had we been forced to pay Third World countries the actual market value of their natural resources.
This arrangement was remarkably successful for decades. It came under strain in the 1970s, rebounded during the 1990s after the USSR collapsed, and seems poised to once again disintegrate. Today the question is no longer if America’s informal but potent system of global empire will come to an end, but when.
The decline of the American economy has deeply rooted causes. Some of them are international. Starting in 1973, for instance, members of the oil producers’ cartel OPEC realized that their control over most of the world’s oil supply was a potent economic weapon. In reaction to American support for Israel in the Yom Kippur War, they stopped providing the Western world with oil. The price of oil skyrocketed and, because oil was essential to transporting goods through the economy, the rise in oil prices translated into a rise in prices generally. Though the embargo ended in 1974, the days of cheap oil were over, and despite some fluctuation decade-to-decade and year-to-year, the price of oil has been rising ever since. The economy never really recovered and the high growth rates of the 1950s and 1960s never returned. Compared to that era, now remembered as a “golden age” of capitalism, current growth rates appear positively sluggish.
America’s transition to a slow-growth economy undermined the premise on which America’s post-war prosperity had rested. Without high growth rates corporate profits suffered. In reaction to this, businesses started to cut back workers’ wages and wherever possible, relocated overseas. Over a period of decades this process hollowed out much of the American economy. As their purchasing power was diminished Americans turned to credit to sustain their lifestyles. They ran up huge debts and treated the equity in their homes like credit cards. Though the “Great Recession” has many causes: at the centre lies one basic fact, America cannot afford its lifestyle, and rather than adjust it has tried to live on credit.
Meanwhile, China’s explosive growth has made it the second-largest economy in the world. With this economic power has come growing influence. In Africa, Latin America, and even in Canada, Chinese state firms are busy securing contracts that guarantee their economy the resources it will need to prosper. Meanwhile, Justin Yifu Lin, the first person in Chinese history to earn a doctorate in economics at the University of Chicago, became the Chief Economist and Senior Vice President at the World Bank.
America is caught in a dilemma. Its domestic economy is declining and its ability to coerce other countries into selling it cheap resources is weakening. On the other hand China’s economy is growing rapidly. Chinese growth is problematic for the United States in many ways: first of all because it undermines American free market growth models that the IMF and World Bank have advocated and causes Third World countries to try and emulate the “Beijing Model” of development; Secondly the growth of China increases the global demand for scarce natural resources, most notably oil but also minerals and perhaps, in the near future, fresh water and arable land. If China, the US, and the rest of the world all demand the same dwindling supply of natural resources, then a conflict of one sort or another will be inevitable.
