In his iconic 1987 tome, "The Rise and Fall of the Great Powers", Paul Kennedy set forth a theory of how great powers rise and fell: in essence, first comes economic power; then comes military power to protect economic interests; next economic power wanes, even as military power (expensively) continues; and finally, no longer able to support imperial overreach, the military power collapses as well.
Americans may be astonished at how precisely his description of the decline of the British Empire a century ago resonates today, almost twenty years after his exposition was published. So, we are not the first travelers down this road, others have come this way before, leaving us if we are careful to read them, signposts. To see how Kennedy's examination of the past uncannily described the future, follow me below the fold, and we will examine how, as Mark Twain famously opined, history may not repeat, but it rhymes.
The Empire In 1860, the UK was the economic and military envy of the world.
As Kennedy recounts, because the UK was an island, it did not need a large standing army to defend itself. Rather, it did possess by far the world's largest navy, enabling it to acquire, almost against its better will, a breathtaking array of colonial acquisitions. Furthermore (excerpted from pp. 151-248):
Between 1760 and 1830, the United Kingdom was responsible for around 'two-thirds of Europe's industrial growth of output', and its share of world manufacturing production leaped from 1.9 to 9.5 percent; in the next 30 years, British industrial expansion pushed that figure to 19.9 percent .... Around 1860, which was probably when the country reached its zenith in relative terms, the United Kingdom produced 53 percent of the world's iron and 50 percent of its coal and lignite, and consumed just under half of the raw cotton output of the globe. 'With 2 percent of the world's population ..., the United Kingdom would seem to have had a capacity in modern industries equal to 40-45 percent of the world's potential' .... It alone was responsible for one-fifth of the world's commerce, but for two-fifths of the trade in manufactured goods.
Additionally:
[Another] area of British distinctiveness and strength lay in the realm of finance....[E]asy availability of capital in the United Kingdom, together with the improvement's in the country's financial institutions, stimulated Britons to invest abroad as never before.... [thus] the British economy acted as a vast bellows, sucking in enormous amounts of raw materials and foodstuffs and sending out vast quantities of textiles, iron goods, and other manufactures....
This commercial growth, which could be almost word for word a description of America's post-WW2 boom, coincided with a political/economic ideology that could be imported intact into Republican talking points today:
[T]he ideology of laissez-faire political economy, which flourished alongside this early industrialization, preached the causes of eternal peace, low government expenditures ... and the reduction of state controls over the economy and the individual....
....Mercantilist measures, with their emphasis upon the links between national security and national wealth, were steadily eliminated; protective tariffs were abolished; the bans on the export of advanced technology (e.g., textile machiinery) was lifted; ... imperial preferences were ended.
....
Given the Liberal assumptions about interstate harmony and constantly increasing prosperity, ... all that was needed was for statesmen to act rationally and to avoid the ancient folly of quarreling with other peoples. And, indeed, the laissez-faire Liberals argued, the more British industry and commerce became integrated with, and dependent upon, the global economy, the greater would be the disincentive to pursue policies which might lead to conflict. In the same way, the growth of the financial sector was to be welcomed, since it was ... demonstrating how advanced and progressive Britain had become; even if other countries followed her lead and did industrialize, she could switch her efforts to servicing that development, and gaining more profits thereby.
Substitute 20th century America for 19th century Britain, and is not all of the above equally true? Not only in terms of economics, but also in the political ideology undergirding that economy? In the 1990s, it was claimed that no two countries that had McDonald's restaurants, would ever go to war with each other. Even today, we hear how the Chinese or others will never go to war over e.g., Taiwan: it wouldn't be "rational." This blind, unhistorical, psychologically unsound, business-school faith in the economic rationality of state actors we hear today is the very same fallacy echoing from the distance of Victorian Britain.
The Achilles Heel But of course, like perhaps all empires, the British empire had sown the seeds of its own destruction:
While all this made Britons wealthier in the short term, did it not also contain elements of strategic danger in the longer term? With the wisdom of retrospect, one can detect at least two consequences of these structural economic changes which would later affect Britain's relative power in the world. The first was the way in which the country was contributing to the long-term expansion of other nations [especially the US, Russia, and Germany].... The second potential strategical weakness lay in the increasing dependence of the British economy upon international trade and, more important, international finance. [While Britain's exports were increasing], foreign imports, both of raw materials and (increasingly) of foodstuffs, were also becoming vital.... And in the fastest-growing sector of all, the 'invisible' services of banking, insurance, commodity-dealing, and overseas investment, the reliance upon a world market was even more critical. The world was the City of London's oyster, which was all very well in peacetime; but what would the situation be if ever it came to another Great Power war?....Was not the entire economy, and domestic population, becoming too dependent upon imported goods, which might easily be cut off or suspended in periods of conflict? And would not the London-based global banking and financial system collapse at the outset of another world war...?
What Britons wondered in 1906, Americans must certainly wonder in 2006. And indeed:
[Since 1815] the country [had] luxuriate[d] in the consequent half-century of virtually unchallenged maritime and industrial pre-eminence. After 1870, however, the shifting balance of world forces was eroding British supremacy in two ominous and interacting ways. The first was the spread of industrialization and the changes in the military and naval weights which followed from it weakened the relative position of the British Empire more than that of any other country, because it was THE established Great Power....
The second, interacting weakness... was perhaps even more serious. [British manufacturing diminished relative to the rest of the world almost across the board in the late 1800s. The rate of British industrial growth was] far less than that of the country's chief rivals. The loss of industrial supremacy was soon felt in the cutthroat competition for customers. At first, British exports were priced out of their favorable position in the industrialized European and North American markets..., and then out of colonial markets...; and finally, British industry found itself weakened by an ever-rising tide of imported foreign manufacturers into the unprotected home market -- the clearest sign that the country was becoming uncompetitive.
The supplanting power And of course, the British Empire was supplanted, not by Germany but by another power:
After the Civil War, the United States was able to exploit... rich agricultural land, vast raw materials, ... modern technology (railways,the steam engine, mining equipment) to develop such resources;.. the flow of foreign and increasingly, domestic investment capital--to transform itself at a stunning pace.
Kennedy goes on to describe how production in such things as wheat, corn, sugar, coal, steel, railway track, and crude oil expanded by hundreds or even thousands of percents. By 1914, it was the largest oil producer in the world, and the greatest consumer of copper; its pig-iron and steel production surpassed the 3 or 4 largest producers in Europe combined. By 1919 after World War one, the US had indeed surpassed all of Europe put together as the area of the largest economic output in the world, and was the world's largest creditor nation.
In the late 1800s,
[T]he United States began to pour its farm machinery, iron and steel wares, machine tools, electrical equipment, and other products onto the world market. At the same time, the Northern industrialists' lobby was so powerful that it ensured that foreign products would be kept out of the home market by higher and higher tariffs....[Meanwhile, w]ith the cost of carrying a bushel of wheat from Chicago to London plummeting from 40 cents to 10 cents in the half-century before 1900, American agricultural produce streamed across the Atlantic.
....
Perhaps even more destabilizing, although less well understood, was the impact of the United States upon the world's financial system and monetary flows. Because it had such a vast surplus in its trade with Europe, the latter's deficit had to be met by capital transfers -- joining the enormous stream of direct European investments into U.S. industry.... [T]he drain was a large one, and constantly growing larger; and it was exacerbated by the U.S. Treasury's policy of accumulating (and then just sitting on) nearly one-third of the world's gold stock. Moreover ... its own financial structure was underdeveloped....[Thus, t]he United States in the years before 1914 was already becoming a vast but unpredictable bellows, fanning but also on occasions dramatically cooling the world's trading system.
To be fair, the Financial Times on April 3, 2006 asserts that there is at least one important difference today (via www.patrick.net):
Most people believe that US manufacturing is shrinking, and that it is a very small portion of the world's output. In fact, the opposite is true. The US produces, as in manufactures, over 22% of the total global manufacturing output as of 2005. This percentage is actually higher than it was 10 years ago, being around 21% in 1995. [The next 3 largest, in 2005/1995 percentage rank were: Japan, 17%/21%; China, 7%/4%; and Germany, 6%/9%.]
In Summary,
When I read Kennedy's book last year, I was amazed at how aptly his description of the decline of the British Empire applied to the decline of American hegemony now; and how the rise of late 19th century America was mirrored by the rise in particular of China now. In summary, the dominant economic power:
- acted as a huge engine for the world's manufacturing and finance
- adopted a laissez-faire economic policy
-lowered trade barriers
-invested in the industrialization of developing countries
-ignited virtually geometric growth in the low cost, mass-population developing country
-was thereby crowded out of its former markets by the lower-cost, mass production country
-which then became the new dominant economic power.
Do we not hear the sound of economic history rhyming?