A new era of American greatness is dawning
The age of American deindustrialization and decline has ended
The USSR challenged the USA for many decades, then it fell apart. China grew faster than the USA for many decades, now it is stalled. Africa grew much faster than the USA for several decades, but now Africa is mired in stagnation. Why is it so many nations almost surpass the USA, but they never do?
One success story was the EU. In 2007 the EU had an economy that was larger than the USA. But since the Great Recession the USA has done much better than the EU, and also the EU lost Britain, so now its economy is much smaller than the USA’s, $16 trillion versus $25 trillion.
Why is the USA doing so well? How long will this last?
I don’t have any answers, but I’d like to ask some questions.
In 1945 the USA had 50% of the world’s industrial capacity. We declined after that. The worst phase of relative decline was from 1960 to 1980 when we fell from almost 40% of world GDP to around 25% of world GDP. The USA went from being the world’s largest creditor to being the world’s largest debtor. But why? Yes, those were the years of deindustrialization, but in theory we only gave up low value activities such as clothes making. If we had advanced quickly enough into new, high tech fields, we should have been able to hold our relative position. But of course, we failed.
For America, the special era was 1848 to 1929. These were the years we were growing faster than the rest of the world. We emerged as a super power. We actually started to lose our relative position after 1929, but that slip was erased by World War II. So when we speak of decline, we date everything from 1945.
America is very strong right now. Despite all the talk of inflation, the USA is growing faster than any developed nation, for the first time in many decades. We are even growing faster than China.
So after decades of relative decline, the USA is bouncing back. But why? Should we think of this as an era when the USA is doing everything right, or should we think of this as an era when our competitors are making many mistakes?
I don’t have any answers, but I’d like to talk about why so many of our historic enemies have collapsed, and maybe this will offer some perspective about why, exactly, the USA is doing so well right now.
Africa and the Communist countries fell into the same trap
If you think two things are completely separate, and yet they change at the same time and in the same way, then you need stop and ask yourself why were you so confident that they were completely separate?
We have a standard story about austerity and neo-liberalism in Africa: supposedly the much abused continent was penetrated by European capital at the dawn of the modern era (Portugal lead the way in the 1300s and then in 1970s Portugal was the last European country to retreat) and since then much of Africa has been subjected to the imperial whims of Europe, so when the West decided to impose austerity in the 1970s, Africa had few ways of fighting back.
But wait, we have a completely different story about the Communist countries of the Soviet Union and Eastern Europe: in theory they rejected Western capital completely, they were independent, they had their own industrial base, their own technology centers, they had a savings rate higher than the USA, they had a military that could face down the West. They had nuclear weapons. And yet they fell victim to austerity at the same time as Africa.
Is this a coincidence? With some effort, we can imagine a link: economic growth in the USSR was failing after 1960, but its economy was supported thanks to rising oil prices, which the USSR was able to export. The real problems in the USSR become apparent in the 1980s when the price of oil dropped, but those problems had clearly been building for 20 years before that. In that sense the USSR became a commodity exporter just like Africa. So in some sense the USSR story is the similar to Africa? It’s all about commodities?
Possibly. That’s the start of a story but it doesn’t explain why neither region was able to move up the value chain toward high tech goods. Both regions actually went the other way, towards activities of lesser value. In places like Senegal the coastal people had, for thousands of years, gone to sea to capture fish. But then, for Senegal to pay off its debts to Western powers, Senegal had to sell most of its fishing rights to Western sea fishing corporations. Some families in Senegal lost the right to fish.
Several contradictions jump forward that we should think about.
We assume that Africa suffered because it was weak. But if it was weak, why was it able, during these same years, to destroy the European empires? Wasn’t it Europe that was weak? Europe fought to keep its colonies, but Europe suffered defeat after defeat and finally went home.
Okay, set all that aside for a moment, if we say that Africa was weak, what story do we have for the USSR? It had the world’s largest collection of nuclear weapons. It could not be bossed around. And the USSR funded the rebellions in Africa that destroyed the European empires. How can it be that the weak defeated the strong? But if we assume that the USSR and Africa were strong, because they were able to defeat Europe on the battlefield, then why did they end up deeply indebted to Europe?
The Struggle to Save the Soviet Economy:
Mikhail Gorvachev and the Collapse of the USSR
By Chris Miller ©2016
page 11
...To deal with populations unhappy with their relative poverty, Eastern Europe’s governments began borrowing heavily to pay for imports of Western technology and consumer goods. When the bill came due and Eastern European governments tried to implement austerity measures, their populations pushed back, sometimes taking to the streets. Even more generous benefits were needed to placate protesters. Hungary, Poland, Romania, and East Germany soon all found themselves deep in debt. Between 1975 and 1980, East Germany’s net debt increased from $3.5 billion to $11.7 billion, while Poland’s jumped from $7.7 billion to $23.4 billion. Each country had to implement harsh austerity programs and reschedule debt payments to balance their books.
Soviet analysts watched with horror as Easter Europe’s debt crisis began to spiral out of control during the 1980’s. Soviet research institutes, most notably the Institute of Economy of the World Socialist System, which focused on Eastern European affairs, conducted a series of reports on the subject for top policymakers, noting the even Hungary, one of the best-governed Warsaw Pact countries, was mired in debt. Other Soviet researchers examined the role of Western banks in creating Eastern Europe’s debt crisis. The outlook was worrisome. In dollar terms, Poland accumulated twice as much foreign debt as the Soviet Union, even though the USSR’s population was many times larger. Poland’s debt burden was not unique: East Germany and Hungary had even higher levels of debt per person.
During the mid 20th Century, African nations grew much more quickly than the USA. While American cities were rife with crime and decay, nations such as Senegal were euphoric with money, and they were building museums, theaters, parks, highways, airports. Awash in cash, they celebrated their new freedom by building some of the most beautiful cities in the world.
And yet, after 1970, everything fell apart. Caroline Melly has written a sad book about Senegal after the boom times ended:
Bottleneck: Moving, Building & Belonging in an African City
By Caroline Melly © 2017 Page 35-36
By the late 1970s, the grand theaters, highways, bureaucratic complexes, and modern family dwellings of the independence era had become worn with age, and so had the spirit of African renaissance that had inspired these projects in the first place. Collective optimism was replaced with nagging concerns about recurrent droughts in Senegal’s agricultural hinterlands, mounting international debt, global price fluctuations and economic recession. Western experts blamed Senegal’s predicament on its overly regulated economy and its “bloated” and inefficient postcolonial bureaucracy. This diagnosis ushered in what Elyachar (2005) has called the “generation of structural adjustment”: a period of intense Western “technical” intervention that sought in particular to “open” Africa’s economics to the global economy and to redefine the role and reach of the state. It was a vision fueled by mantras of good governance and by the language of economic diversification, deregulation, decentralization, and privatization (see also Hibou 2004).
In many ways, Senegal was a primary testing ground for structural adjustment policy, as World Bank interventions there date back to 1967, when it approved its first loan to the Sengalese government. It is quite telling that one of the earliest World Bank-sponsored programs in Senegal focused on housing construction. In 1971 and 1972, the bank worked with the Senegalese state to create Parcellas Assainies, a new approach to affordable housing that offered land ownership opportunities at the margins of the city to lower-income urban residents (Tall 1994). This program conceptualized private land ownership as a crucial component of a stable democracy and liberalized economy, and it reflected a broader commitment within policy circles to cultivating individual “responsibility” through the logics of ownership and debt repayment. This early experiment was followed in the 1980s and 1990s by a flurry of liberalizing schemes that slashed government social programs, payrolls, agricultural subsidies, and other public expenditures; sold off parastatal agencies; and devalued the region’s currency (CFA franc), tied at that time to the French franc.
These drastic cuts brought very concrete changes to everyday urban lives. No longer symbols of the state’s vision or commitment, the city’s languishing infrastructures instead told of government neglect and urban disarray. The costs for basic necessities rose suddenly and unpredictably, particularly in the wake of devaluation, wreaking havoc on household budgets (see Bendech et al. 1997; Makhtar Diouf 1992). Urban unemployment skyrocketed as public sector opportunities dwindled and many private-sector firms closed or made staff cuts. The prestigious national university became overenrolled and underfunded, and the once-treasured diplôme no longer guaranteed government work (see Cruise O’Brien 1996). As the public sector withered, the Senegalese state launched a program in 1983 and 1984 called Opération Maitrisards, which aimed to use low interest loans to lure university graduates into private sector enterprise. Though this program was estimated to have generated about 200 enterprises and 1,800 jobs, a large proportion of these initiatives were thought to have ailed (Makhtar Diouf 1992, 75). In essence, the “salaried man” so revered in the early independence years became a mythical figure. At the same time, seasonal and permanent migration to the capital city intensified as villagers escaped the effects of economic austerity and ecological ruin in the agricultural hinterlands. These newcomers arrived to find a city with few dependable opportunities, scant affordable housing, and few public resources.
What structural adjustment policies brought about, then, was a “freezing of social stratification” (Bayart 2009, 69) rather than increased social mobility. Deep concerns about “crisis” - of the state, of youth, of social reproduction - came to supplant postcolonial optimism.
We are left with a puzzle: the Communist countries and Africa win all the battles but end up hopelessly mired in debt. Europe loses every war and ends up wealthier than ever because all of its foes owe it money.
We should note a huge change that happened here: for some reason, Africa and the Communist countries felt they had to repay their debts. They defaulted many times, and so they had to renegotiate their debts many times, but still, they felt they had to keep paying. They couldn’t just steal the money and walk away and shout “You stupid suckers! You gave us all of this money, but we will never pay you back!” Neither the Communist countries nor Africa thought they had that kind of freedom. But why didn’t they have that freedom? How had they become trapped?
Could these nations have simply raised internal taxes and so lived on their own income? Wouldn’t they have become extremely powerful if they had granted themselves the independence of living on their own income? Instead it was the West that was constantly heckling them: “Please live within your means, stop borrowing so much money!” Why were the USSR or Africa forced to sit around like children taking a lesson from parents? They were well aware of the hypocrisy of the West, which wanted them to take on more debt so they could buy more products and services from the West. And yet both the USSR and Africa seemed to lack the power to break out of the thrall they were in. Why?
After 1999, when Vladimir Putin took over Russia, he was able to pay off all of Russia’s debts. He was helped by rising oil prices, but he also showed great discipline in keeping the budget under control. Why couldn’t this be done sooner? Was it mere coincidence that the Communist Countries fell apart when Africa fell apart? Was it mere bad leadership? Could have Putin have saved the situation if he had simply gained power sooner?
Mr. Putin: Operative in the Kremlin
Fiona Hill & Clifford G. Gaddy © 2013
Page 133-134
Russia’s story over the decade since Putin’s Millennium Message in December 1999 is one of the most dramatic reversals of fate in recent economic history. Russia was essentially bankrupt and practically in receivership when Putin first stepped into his top leadership roles. Yet within five years after Putin took power, practically all of Russia’s foreign debt had been repaid and its foreign exchange reserves had been built back up. Putin made Russia’s debt to the International Monetary Fund a particular priority. It was paid off three-and-a-half years ahead of schedule. Equally important for Putin, Russia’s share of the world economy grew rapidly in his first two presidential terms. Measured in dollars at the market exchange rate, Russia grew between 1999 and 2008 from the twenty-third-largest economy to the ninth largest. Its growth rate over this period was twice that of China.
If performance alone were sufficient to gauge Putin’s understanding of economics, and his skill in management, he would deserve high marks. However, in the case of Russia it is very difficult to distinguish the results of Putin’s policies from the effects of another variable – the increase in oil prices that coincided with his term in office. As noted earlier, thanks to higher oil prices, the country’s wealth – the natural resource rent represented by Russia’s oil and gas – soared. Virtually all measures of Russia’s economic performance also moved in lockstep with oil prices during the Putin era, climbing steadily from 1999 to 2008, dropping sharply in mid-2008 with the global economic crisis, and then rebounding in 2010-2011 as oil prices recovered. This does not mean, however, that government economic policy in this period was inconsequential. It would have been extremely easy to squander this wealth and to forfeit the opportunity to make the most of the oil price windfall. To what extent, then, did Putin’s policies contribute to economic success from 1999 to 2008? And if they did contribute, what were the important elements of those policies and where did they originate? Was it Putin’s Survivalist identity that made the critical difference, including the lessons he learned over his career about basic self-reliance and the importance of ensuring that the Russian state had sufficient reserves to withstand any eventuality? Or did Putin draw upon some other deeper understanding of the fundamentals of a market economy in shaping government policy?
Leadership or global economic circumstance? A combination of both? Was Putin lucky or was he smart? Why didn’t the USSR produce a leader like Putin earlier? Or if Putin had been in power when oil prices hit rock bottom in the 1990s, would he have known what to do? And why didn’t Africa produce a leader such as Putin? Nigeria is rich in oil — why doesn’t it have a leader who can use the wealth to modernize Nigeria? But Putin later made the mistake of invading Ukraine, so perhaps, he wasn’t a better leader, perhaps he was simply a leader inclined to make different kinds of mistakes?
Above all, are we asking the right questions? Are we starting with the right assumptions? Are the current political units the right way to look at the world, or are they a fake superimposition on the social reality that lies underneath the surface? Are nation states the correct way to view the world, or should we instead analyze everything at the level of regions, or industries, or cultures, or languages?
After 1929 Asia slowly replaced the West as the engine of worldwide growth
Peter Drucker has argued that the 60 years leading up to 1914 were the most innovative years in human history. A person born in 1860 and dying in 1940 would live to see the first lightbulb, the first power plant, the first power grid, the first electrified city, the first electric street cars, the first combustion engine, the first cars and trucks, the first telephones and then the growth of the telephone networks to include every household, the first great oil boom, the first submarines and the exploration of the underwater seas, the development of germ theory, the sterilization of the hospitals and so the first safe surgeries, combined with the first true anesthesias, the first airplanes, the first radio as telegram and then in 1920 the ability of radio to carry the human voice, the invention of the television, the first sulfa drugs followed by the invention of the first true antibiotics, the first plastics, the invention of textiles made of plastics (nylon), and so much more than I can list. A person born in 1860 and dying in 1940 was born during one epoch of the human race and died in a completely different one, much more so than any person born in any other year. The best and most recent book on this subject is "The Rise and Fall of American Growth: The U.S. Standard of Living since the Civil War” by Robert J. Gordon.
1870 to 1929 represents the heyday of the West, relative to the rest of the world. After 1929, the various colonial independence movements begin to gain momentum, so that much of the world was able to gain its independence in the 1940s, 1950s and 1960s.
After 1929, Japan emerges as the fastest growing of the developed nations. This was a huge shift. For 200 years before this the fastest growing country was always some Western country. But after 1929, the fastest growing country was always in Asia (ignoring the disruptions of 1941-1945).
For several decades, the Asian countries had such small economies that their rapid growth, measured as a percentage, did not translate into rapid growth in absolute terms. Even as late as the early 1990s the USA had more absolute growth than China, even though China had much faster economic growth as measured as a percentage.
What is the variable that explains the success of Asia?
But why was Asia able to do so well when the USSR (and Eastern Europe) and Africa were doing so poorly? Demography? Failing demographics would explain the weakening situation in the whole of the West, including the USSR and Eastern Europe, but it wouldn’t explain the difference between Africa and Asia. Both regions had booming populations in the mid to late 20th Century.
(The bottom line is misleading, as it keeps us from seeing the rise of the Middle East and the decline of Latin America.)
Government control of the economy? This is tantalizing but it is difficult to figure out what the successful Asian countries had in common. In Japan the government built an exceedingly close relationship with the largest firms, but the government did not outright own the big companies. In China, much of its early success in the 1970s and 1980s and 1990s was thanks to “village” firms which operated like for-profit corporations but were nominally owned by the village and therefore nominally “government owned.”
At the moment, in 2023, Japan is quiet and China is on the verge of a serious economic crisis, so it is possible that the era of Asian success is coming to an end, but it is clear that the period from 1970 to 2020 will be remembered as a period of incredible Asian success. What is maddening is that these success stories seem to have no obvious common denominator. Nations such as Japan, Korea, Taiwan, China, and to lesser extent Vietnam and Indonesia and Thailand and Myanmar, don’t seem to have much in common. Regarding conquest and the colonial experience, they have different stories, with Japan remaining completely free, and China avoiding direct conquest, while other nations in the area spent centuries under European control. These nations are ethnically different, they have a mix of religions (Buddhism, Taoism, Islam, Hinduism), they have followed different economic policies — so is it merely a coincidence that they fell behind the West, for centuries, and then suddenly caught up after 1970? These Asian countries are the exception to the idea that the world slowed down after 1970.
If there was some cultural factor that explains the success of Japan or Korea or China, how would we find out what that factor is? I don’t have an answer, I simply want to point out the difficulty. Most of the time when people go looking at culture for an explanation of success or failure, they end up seeing whatever they want to see. We lack sufficient analytic rigor to talk about culture. And yet, it remains true that culture might explain everything. We just don’t know how to do that analysis.
Again, I don’t have any answers. But I’d feel like I was making progress if I felt that I was asking the right questions.
What is wrong with Latin America?
I’ve studied Latin American history in the 1800s but not in the 1900s, so I've less understanding of this, but I'm aware economists are generally baffled by the decline of much of Latin America, especially Spanish Latin America, since the 1930s. Normal economic rules don't seem to apply. When Latin American countries try to do the "correct" thing and run their monetary policy so they have the kind of moderate 2% inflation that the USA Fed aims for, those Latin American countries end up with high unemployment. But when these same Latin American countries try to stimulate the economy to bring down the unemployment, they end up with out-of-control inflation. There is no happy middle space where they can get moderate inflation and low unemployment.
Structuralist economists have argued that the world economy has a structure, and the Western nations are at the center of that structure, and Latin American companies are at the periphery, but are tied into the center in ways that limit their freedom regarding monetary policy. They lack economic independence, as they depend on imports to keep their societies alive, and to pay for those imports they must depend on their exports, in particular their exports to the USA. But that means that some of the most important economic events that happen to these countries actually happen outside of these countries. They are dominated by events in the USA, while the USA is unaffected by events in Latin America. (I’ve no idea if the structuralist economists are correct about any of this, but I summarize their view since I don’t have any other answer for the phenomena that we can all see: Latin American countries suffer recurring waves of economic crisis, and there is no policy that seems to save them.)
Every once in awhile the price of commodities spike on international markets, and then these Latin American countries are saved by luck. Every once in awhile the price of copper will spike, and so Chile is saved, or the price of coffee will spike, and so Ecuador is saved, or the price of beef will spike, and so Argentina is saved. But outside those lucky instances, these countries are cursed.
Presumably these countries can only save themselves if they find a way to start moving up the value chain in international commerce, but presumably that would take a program that has some government support and has excellent leadership. Here again, we are confronted by the question, why do some nations seem to suffer with recurring bad leadership? In the case of Argentina, the answer seems to be both internal oligarchs and external agencies. Internal oligarchs who own large amounts of agricultural assets want to see Argentina remain an agricultural nation. And likewise, when the IMF says "cut your spending and focus on your exports" the IMF is really saying that Argentina should focus on its current exports (agricultural goods) rather than developing newer export industries that might have higher value.
If there is a way out of this cycle of decline, it might come from combining several nations together into a union, in the same that Europe has done with the European Union. It is noteworthy that Brazil has had a better time than almost any other Latin American country, possibly because of Brazil's size, internal market, and diversification of industry. It is possible that countries with just 40 or 50 million people are too small to survive on their own in the modern world economy. Brazil’s 210 million people give it a certain independence. Perhaps if all of Latin America formed a single union, like the EU, then it would be big enough to escape the trap that it is in. However, to form a union, each nation would have to be willing to engage in some democratic process for setting rules for the union and then every nation would have to be willing to abide by those rules. This only works if you have nations that are already committed to liberal democracy and the rule of law. In the EU we've already seen how much damage can be done by a single errant nation (Hungary) and Latin America has several such nations. So it is difficult to see how Latin America will escape the mess it is in.
But we should wonder, why is it so difficult to analyze this situation? And we should then ask, are we asking the right questions? Do we start with the correct assumptions? Just now I analyzed Latin America largely in terms of its different nations, and yet at one point all of this land belonged to Spain. The lines that now exist on the map were only drawn in the mid to late 1800s. Trade routes among cities in Latin America had developed when none of these nations existed. So we should ask, is it correct to assume that these nations are the right starting point for our questions? Would we get different answers if we looked at trade patterns at level of cities or regions? Are the political entities somewhat fake?
The Great Stagnation of 1970 to 2020
So then, in the USA, we have everything after the post war boom ended, a long period of stagnation, lower profits, lower productivity growth, technological stagnation except for computers, a concentration of wealth, austerity and neoliberalism, and, in politics, an almost surreal valorization of "free markets" which were supposed to make everything better even as they made things worse (although intelligent observers like to make the point those markets were never actually free, and there are some libertarians who argue that free markets have not failed, they’ve simply never been tried).
Why did things get worse after 1970? Many, many theories have been advanced: maybe it was corporate greed (though corporate profits in the USA shrank), maybe it was the rebellions that brought independence to a hundred nations across Africa and Asia, maybe it was the end of white supremacy or maybe it was the whites trying to get revenge by inflicting poverty on the newly freed nations, maybe it was cultural decline, maybe it was rock music and people taking too many drugs, or maybe people were having too much sex, maybe it was a loss of faith in God, a loss of purpose, a loss of meaning, a loss of needed discipline, a loss of essential social ties, maybe it was the rise in divorce, the end of the stable family, maybe it was women having children out of wedlock, or it was the falling savings rate, or maybe the leadership was feckless and selfish and ignoring the needs of the people in the imperial centers, causing the rot to spread everywhere, or maybe the Western powers found it was simply easier to maintain an empire through debt dependency than to have to maintain multiple armies across Africa and Asia.
Maybe. It is likely that all of these things were a factor, in a nexus of of contending factors that people had to deal with every day, both as individuals and in larger groups.
So now have we considered everything? If yes, then perhaps we need to go back to things that we thought we understood, and we should look at them again. We to find a way to look at everything from the outside, so we can see it with fresh eyes.
What did our enemies think of us?
Perhaps the perspective of our enemies can help us escape from our own narrow little nationalistic worldview. What did the USSR think of us?
The Struggle To Save The Soviet Economy
by Chris Miller
Page 20-22 Chapter 1
The Decline of the West?
During the 1970s and 1980s, Soviet analysts had many reasons to think that Western capitalism in general - and America in particular - was on the decline. The United States was still the wealthiest and most technologically advanced country in the world, but its lead was shrinking, and many believed that America’s economy would increasingly underperform its rivals. To be sure, there were still spheres in which America retained its dominant position. Supercomputers, for example, were produced primarily in America, and that was unlikely to change soon. But Soviet researchers nonetheless sensed that by the early 1980s America’s technological dominance was beginning to erode. Other countries were catching up to America in spending on research and development. Soviet researchers at the USA-Canada Institute noted that in the early 1980s, the United States spent less on research and development than West Germany and only slightly more than Japan. When military research and development was excluded, Japan and West Germany, the United States’ main capitalist competitors, significantly outspent the exhausted superpower.
Absolute numbers didn’t tell the whole story, Soviet analysis suggested. Japan and European countries developed government programs to target investment in high tech. Unlike the United States, which relied on capital markets to allocate investment, Japan created a public-private model that Soviet researchers thought would produce higher growth rates. America’s falling technological position was increasingly visible in trade patterns, Soviet scholars noted. Japan’s top export to the United States in 1985 was cars, followed by electrical machines and household electronics. By contrast, America’s main exports included basic commodities such as grain, soy, coal, and lumber. How could such an export base propel America’s economy forward? None of this meant immediate decline, of course. America was still the world leader in high tech. But Soviet scholars - like many analysts in America and across the world - thought that other countries, and other models of economic policy, were catching up.
In the Soviet Union, economic success meant industrial prowess. That notion motivated shock industrialization in the 1930s, and it also explained why the Soviet Union consistently preferred heavy industries over consumer goods. Measuring by its industrial base, however, the United States was falling behind in the late 1970s and early 1980s. The industries that had made America great were decaying. Shipyards were closed, steel mills were shuttered, and millions of American factory workers lost their jobs. Like many in the United States, Soviet officials believed the collapse of America’s manufacturing base was evidence of deep economic problems.
…This price differential between American and Japanese manufacturing, explained a different economist, created a profound challenge for U.S. industries. Soviet scholars were not alone in drawing this conclusion. “The theme of the ‘Japanese offensive,’” the report noted, “has become one of the central themes in [America’s] media, reaching political actors and bourgeois scientific research in the U.S.” The result of this Japanese offensive was that the United States “in the 1980s saw a marked fall in the competitiveness of American products on the world capitalist market.” Its manufacturing products were too expensive. High tariffs and import quotas, meanwhile, kept American agricultural goods out of many potentially lucrative markets, especially Japan. This reduction in competitiveness, combined with a strong dollar, meant that America’s trade deficit was unprecedented - over $100 billion per year by the early 1980s. America’s negative trade balance with Japan made up an increasingly large part of the overall trade deficit.
In fact, Soviet analysts argued, America’s challenge was not just to reduce its trade deficit with Japan, but to learn from Japan’s economic policy successes. Some Americans had already gotten the message. Articles published in Soviet journals noted that American corporations were adopting ideas from Japanese management thinking. A soviet report on American manufacturing in 1986 noted that General Motors - once the symbol of America’s industrial might - had created a new subsidiary called Saturn in 1985, which would emulate Japan’s car manufacturing methods. Japan’s success also held lessons for America’s government. An analysis by the USA-Canada Institute titled “Government policy on the question of restructuring industry in the U.S.,” for example, cited prominent American authors such as Chalmers Johnson and Robert Reich who argued that Japan had better solutions to pressing economic questions. Johnson, for example, published an influential book examining how Japan’s Ministry of International Trade and Industry managed economic growth to avoid wasteful conflicts and industrial tension. Johnson’s conclusion - which was also embraced by the Soviet scholars who cited him - was that Japan, not America, had the economic policy institutions that would lead the world into the twenty-first century.
Differences existed between the USA and the Soviet Union. Thousands of good books have been written on this subject and I've nothing new or original to add to that conversation. Rather, if we are to discover anything interesting about this well-worn topic, we need to go in the other direction: let's focus on what the USA and the Soviet Union had in common.
Both countries used military conquest to expand dramatically during the 1800s. The USA in particular started as 13 small colonies hugging the Atlantic coast and yet by 1900 the military had swept west, conquered all the land out to the Pacific Ocean and then gone overseas and acquired a number of distant colonies such as the Philippines. By contrast, Russia conquered Alaska but then, in one of its stupidest decisions, sold Alaska to the USA 1867. (The whole history of the Cold War would have been dramatically different if Russia had kept Alaska.) So both nations expanded, but the USA in particular tended to keep everything it grabbed.
Both nations saw the dramatic expansion of the monetary economy during the 1800s. In 1776 only 22% of Americans had jobs, and everyone else was still working in the non-monetary economy. By 1900 both countries had mostly switched to economies that used money. Here again, the USA was much more advanced than Russia, which still had large zones of non-monetary economic activity, at least till the Revolution of 1917.
Both nations faced increasing social chaos because of the instability unleashed by the monetary economy, and therefore the rising and falling of debts and the ups and downs of the business cycle, which lead to increasing episodes of mass unemployment, an increasingly serious problem as people were no longer able to to simply go back to the farm. Children of farmers always have the option to go home to the farm, but once a family's been living in a city for a few generations, there is no place to go back to.
Both nations moved to limit the chaos of the money cycle at the same time. The USA introduced the central bank in 1916 and Russia had its revolution the next year in 1917. This set up an interesting experiment in terms of which way was the best way for limiting fluctuations in the money cycle, a decentralized system of banks, with a central bank providing leadership, or a centralized committee that set prices and rationed goods. 13 years later the USA fell into the Great Depression while the USSR grew much faster than the USA for the whole stretch from 1920 to 1960, so at least for awhile there was no clear answer about which system was better, and it is easy to understand why some thought the Soviet system was winning. During the Great Depression, as the Western nations shrank, the USSR engaged in a massive and successful campaign of industrialization, such that its economic output surged from 8% to 18% of world output. This allowed the USSR to fight as an equal during WW II, and then afterwards to beat the USA into space, launching the first satellite, then putting the first dog into space, then the first man, and then the first woman.
In the 20th Century, both societies became increasingly sophisticated and specialized, with knowledge workers gaining more influence in whatever narrow specialities they had. To organize the work of increasingly specialized individuals, both societies began relying on committees to make decisions. Everywhere that, in the 1700s or 1800s, an individual leader might have made an individual decision, now there were committees making decisions. While there are some well known problems with "decision by committee" it's not clear how else we should make decisions on issues where the specialized skills of different experts need to be combined.
Indeed, both countries can blame some of their suffering on the incompetence that arises automatically when someone controlling the money builds enough political power that they can then ignore the advice of experts. This is one of the main themes that Chris Miller harps on in this book: the various ways some minister used some control of money to build a patronage network, such that they could then defy a committee or control it.
Are any answers possible?
Why did America do so poorly for 60 years, and why is it doing so well now? Or perhaps we should ask the inverse, why are our international competitors all falling away? It’s an impossibly huge topic, and I can for now only suggest some areas that might be fruitful for further research.
Accountability: did other nations, such as the USSR and China, lack accountability? Is the governance structure of the EU overly complex? Did the USA enjoy some kind of leadership advantage that pulled it through its years of relative decline? Is the USA presidential system uniquely beneficial? But if yes, then why did the USA suffer any decline at all?
Immigration: America is constantly absorbing the peoples of the world, their religions, cultures, languages, and ideas. America is constantly reinvented by its immigrants. It is possible that the big immigration wave that the USA enjoyed in the 1980s and 1990s and 2000s is what has allowed it to do so well since 2008. (But also, does immigration create problems? Is it a double-edged sword? That’s worth considering for another essay.)
Debt: my great grandfather was born in 1858. At the time, most of the world was still outside of the monetary economy. Barter was still the norm for any exchange of goods and services. The monetary economy finally took over the whole world during the 20th Century. That was, in some sense, the main story of the 20th Century: that humans fully committed to using money. It is possible that an economy enjoys some special magic when it first converts to money, which would explain why the USA did so well in the 1800s and why places like Africa did so well in the early 1900s. But merely using money is no longer the main story of human development. That story has already been told. But debt? The USA has been creative about inventing new kinds of debt. It is possible that the next phase of human development is all about the creative extension of debt in new ways. And this is an area where the USA is poised to lead.
Women: a society that empowers everyone is a society that is going to do better than a society that only empowers half the population. In this area, the West has lead. More education for women has given us a generation of talented female entrepreneurs. They are building new businesses in every sector of the economy, though perhaps it is most interesting when they build a business around something that used to be women’s work. For centuries, women’s work belonged to the world of barter and only men’s work belonged to the emerging monetary economy. But as women become entrepreneurs they help pull whole categories of human effort into the modern economy.
Conclusions
In the end, I have no answers, only questions. For the first time since 1929, the USA is the fastest growing large, developed nation. We seem to be at the dawn of a new era of American greatness. Some of this might be because our opponents have made stupid mistakes. Some of this might be because America contains unique forms of modern behavior. Some of this might be because we are enjoying the long-term dividend of smart cultural habits.
Two questions suggest themselves:
Can we do even better?
When will our opponents get their act together?