December 12, 2002
THE INEVITABLE EMPIRE:
Get Us Out Of Here: German businesses are starting to flee rising taxes, a failing economy and a Chancellor who can't seem to cope (CHARLES P. WALLACE/BERLIN, Dec. 16, 2002, TIME Europe)Barely two months after he won re-election by a wafer-thin margin, Schroeder's handling of the country's sputtering economy has made him the most unpopular leader in postwar Germany. People feel betrayed and lied to by Schroeder, because during the election he promised no new taxes, yet now proposes to raise taxes by 26 billion next year. The opposition Christian Democrats have demanded a parliamentary inquiry into whether Schroeder committed election fraud by concealing an 14 billion deficit and not coming clean about the new taxes. Opinion polls show the popularity of Schroeder's Social Democrats collapsing. They're supported by just 27% of voters, compared with 50% for the opposition, while a DIMAP opinion poll shows 80% of voters are unhappy with his handling of the economy. A song attacking his tax increases hit the top of the pop
charts, and then a German Web designer urged Germans to protest by sending Schroeder "the shirts off our backs" — and now 1,000 shirts a day are arriving at the chancellery in Berlin. Schroeder complained in a television interview that he and his family had received personal threats in an unprecedented tide of hate mail.And now it gets worse: a steady stream of Mittelstand companies — the small- and medium-sized firms that have been the backbone of the German economy for decades — are pulling up stakes and leaving the country. They're voting with their feet to escape Schroeder, his taxes and the onerous labor laws that they say prevent them from competing in the world market.
[...]
Air travelers were threatened with a 15% tax on frequent-flyer miles, prompting national airline Lufthansa to say it was considering moving its program overseas, which would eliminate 500 jobs.
Europeans and many on the American Left continue to labor under the delusion that the various nations of Europe, by combining their declining economies and birthrates and rising crime rates into one massive Franco-German run bureaucracy can become a serious challenger to the almost accidental global hegemony of the United States. Here's a fairly representative piece by one of the smarter guys on the Left, The End of Empire (William Greider, 23 September 2002, The Nation):
The imperial ambitions of the Bush Administration, post-9/11, are founded on quicksand and are eventually sure to founder, but for fundamental reasons not currently under discussion. Bush's open-ended claims for US power -- including the unilateral right to invade and occupy "failed states" to execute "regime change" -- offend international law and are prerogatives associated only with empire. But Bush's greater vulnerability is about money. You can't sustain an empire from a debtor's weakening position -- sooner or later the creditors pull the plug. That humiliating lesson was learned by Great Britain early in the last century, and the United States faces a similar reckoning ahead.The US financial position is rapidly deteriorating, due mainly to America's persistent and growing trade deficit. US ambitions to run the world, in other words, are heavily mortgaged. Like any debtor who borrows more year after year with no plausible way to reverse the trend, a nation sinking deeper into debt enters into an adverse power relationship with its creditors -- greater and greater dependency.
These creditors are both private investors and governments from Europe and Asia; now none of them have any incentive to disrupt their lopsided relationship with the superpowerful leader of the world. After all, it works for them: Their exports have unfettered access to the largest consumer market in the world, producing trade surpluses and gaining greater market share. Their capital, meanwhile, reaps good returns on the loans and investments in the American economy. But history suggests that with sufficient provocation, the creditor nations will eventually assert their leverage over the United States, however reluctantly. That critical juncture is likely to arrive either because the American debt burden has become so great that additional lending would be too risky or because the creditor nations want to jerk Washington's chain, perhaps to head off reckless new adventures. Either way, it will be a humbling moment for American triumphalism. [...]
The European Union, meanwhile, is patiently assembling the economic girth and institutional confidence to act as the leading counterpoise to Washington. That is the essential idea of the euro -- a competing world currency other nations can use for trade and as a reliable storehold of wealth. As the euro establishes its durability and comes into wider usage, the dollar will no longer be the only option. At that point, it will be easier for Europe or others to exercise their financial leverage against the United States without damaging themselves or the global financial system as a whole. Europe is not quite there yet, but the euro is rising and so is European anger. The Saudis' financial withdrawals this summer may be a hint of what Americans can expect -- episodes of veiled pressure until Washington gets the message.
Of course, such dire predictions are nothing new. First, it was predicted, with some good cause, that the costs of the Cold War would lead to American decline. Then it was imagined, far less reasonably, that Japan would eventually challenge U.S. pre-eminence. Nowadays, folks who don't worry about the EU will offer up the specter of a rising China, a completely ridiculous notion that seems to owe more to a kind of modern fear of the Yellow Horde than to any reality on the ground.
Posted by Orrin Judd at December 12, 2002 11:10 AM
Knock on wood!!!
Not to wish ill upon anybody, but if europe is going to collapse, I hope it does it sooner than later, so as to serve a better & more clearly delineated example to those in the U.S. who want to emulate them.
That was a straight up brilliant post. Bravo.
Posted by: Timothy at December 12, 2002 1:39 PMOrrin,
I'm in general agreement with your thesis, although I'd sometimes
have to caution against the onset hubris. I'd like to pick up on one
minor point though, the one you make about China.
I propose that it is not at all a 'completely ridiculous' notion
that China might one day challenge the dominance of the US. The goal
of much of your country's policy towards China (and my own, the UK)
could be construed as being one of (gently) pushing them towards an
economic liberalisation in this direction. The most populous nation on
earth, it's the 'potential' that holds the attention; a huge un-tapped
market that can enrich both us and them. The hope being that, one day,
they will throw off their oppressors and join us as part of the
'family' of democratic and free nations. Given what I know (and have
seen) of the Chinese skill in 'making a buck' (over much of Asia
outside China itself), I wouldn't bet against them.
Cheers,
Alastair
Alastair:
They do represent a large market, though the population controls they've put in place have them teetering already on the brink of a demographic disaster, first with an imbalance of men to women, but then with real population decline.
As, or more, importantly, they don't make anything--they have no ideas. They're excellent at assembling parts into wholes, but the whole is never something they came up with. This, I've argued, is the modern equivalent of a colony. It used to be the imperialists exploited the natural resources of their colonies. Now we have them assemble things cheap. Neither seems to benefit the colony much in the long run.
Finally, how likely is it that you can have a functioning democracy of over a billion people and have it run smoothly. It seems likely that India and China will both have to be Yugoslaviaed before they can have effective governance.
Orrin,
Interesting. That's the first time I've seen someone talk about the
difficulty of 'managing' a functionally democracy of such a size and
suggest a 'Yuguslavian' option. I think a comparison to the Balkan
state is misplaced however because, historically, China has much more
national 'glue'. They've been around a long time as well now. As for
the 'management' side, no doubt it is difficult, but 'federation'
could be as likely an outcome as 'balkanisation' (although they seem
to drift towards a strong centralising government).
As for the argument about 'lack of ideas', this is the same argument
often made with respect to the Japanese. It has some merit ofcourse
but is, overall, a gross generalisation. Industrial nations have often
started out by exploiting their chief assets - cheap and plentiful
labour. More than this, in the early years of development, there is a
pattern of copying the ideas of others. At present, at least one
Chinese company made a good profit copying Japanese and US bycicle
designs for local consumption, and are now making even more profit
copying Japanese motorcycles (I think I recall reading this a while
ago in the Economist magazine). The US itself followed much the same
road at one time. And in time, given the right conditions, much can
grow from this e.g. Sony,Toyota,Samsung,LG etc. It seems a natutal
stage of industrialisation to follow the lead, and copy, others.
The important thing is the 'right conditions', and this is where a
free, democratic society comes in. One that values individual freedom
of expression. Like the US. Who knows? Now, I know that you are not
saying that the Chinese are stupid, or incapable of thinking when you
say things like 'they have no ideas', because it is obviously untrue
and more than a little patronising
The difference is that, 500 years ago, a single centralised authority
had the power to stifle innovation and free enquiry and so withdraw
to their own world, ignoring the rest of us. They got a rude shock in
the 19th century, much like Japan. As capitalists and traders, the
Chinese have flourished everywhere outside China - they are
'industrious' at generating money.
I don't want to labour this because it really was a minor quibble. I'm
no expert on China but cannot dismiss their potential.
Anyway, as Yoda would say, "difficult to see, the future is".
1 AM in London, time for bed!
Cheers,
Alastair
Anyone who complains (or in this case, gloats) about the damage being done to the US by the trade deficit is an economic ignoramus. There are many reasons why this is true (besides the merely empirical). I'll just mention two.
First, the Balance of Trade is a somewhat artificial economic's term that, as defined, always equals zero. This reflects the not terribly sophisticated economic insight that both sides to a voluntary transaction always value what they get as worth less than what they give. This is why, for example, we never worry about Massachusetts' trade deficit with Michigan. It has no economic effect.
Second, what's really happening is that foreigners are sending us stuff (machine tools, cars, pate de foie gras
) in return for miniature etchings of dead presidents and other dead Americans. Although very nice, these etchings have no intrinsic value other than the fact that, eventually, the foreigners can come here and buy stuff back from us, by which time we will have used the stuff they sent in the first place to make more stuff.
The fact that the Europeans are sending us lots of stuff while we send them lots of paper does not in any way give them the whip hand over us.
Of course, they value what the get more
than what they give.