What is happening to the USA? On normal conventional headline statistics it seems to be doing well. Unemployment is at a low, profits rolling in. Yet longevity - perhaps the best independent measure of the wellbeing of a population - is actually falling. Americans are making money but not benefitting by it. Does this have a message for the rest of the world? It is often the case that what happens in USA today happens elsewhere tomorrow.
Capitalism depends upon growth. Basically, the way it works is that economic activity can be generated by investing capital and capital can be created ex nihilo by credit, but credit only works if there is a realistic prospect of a return greater than the initial outlay. Thus there has to be growth for it to work. Growth can come, inter alia from (a) extracting raw materials (b) technological innovation (c) benign changes in the environment (d) genuine increases in efficiency (e) exploitation of others considered to be outside the system. In other words, you either have to really create something new that did not exist before, or extract benefit from other people or nature, or genuinely do more with less. For the past couple of centuries this has worked. Now, it seems to be faltering. Nature is kicking back so that merely staying a viable species on this planet is becoming more and more costly. The world is full so there are no colonial territories left to exploit. Technological change has not come up with anything really major since nuclear power and plastic more than half a century ago except the internet and it is questionable how much real gain that yields. For sure we can now generate seventy e-mails a day instead of five letter, but we also have to read that many which can be a huge waste of time. The scope for growth has shrunk. It is possible to go on producing a semblance of it, but the trick is wearing thin. We also see evidence of this in the increasing problems of sovereign debt that are affecting more and more countries.
So what happens when the system does not work any more? Two major strategies are (a) regression to the previous system and (b) fighting over what remains of the cake. We see both of these happening. The system before international capitalism was mercantilism. This is now called economic nationalism or Trumpism. It means using economics as a weapon for national preference rather than creating a free market world that everybody can benefit from. It is rather ironic that only a few years ago many on the left were demonstrating against globalisation and now the political right is reversing globalisation for nationalistic purposes, but if we ignore left and right and look at the bigger picture we can see that this is a natural instance of regression to an earlier system. That earlier system was less enriching overall. It sometimes brought benefits to one country or another, but the overall effect was that the world was poorer. While the USA is the only mercantilist country it will benefit but as soon as everyone is doing it all will suffer. The USA has taken this turn because it faces bankruptcy if it does not correct its enormous balance of payments problem and in the short run it may have some success, but not much further down the road there lies big trouble and not just for America.
We can see that mercantilism is an instance of fighting over the cake. It is predicated upon the idea that there is not much, if any, growth. The shift from mercantilism to international capitalism was brought about by, firstly, the discovery and exploitation of the riches of the Americas and then, secondly, by the increases in efficiency brought by the industrial revolution. Mercantilism assumes there is no such bonanza to be had, so that national interest means getting the biggest share out of a zero sum situation. If there is only so much, we want as much of it as possible for our people. This is what is happening now as between nations and also within nations. Hence the increasing bitterness of internal and international politics and the ignoring or scrapping of rules and rrangements that have governed an internationalist system. All this is most evident in the USA, but it will surely spread and soon consume us all. When the leading economy starts to behave in this way, others have very little choice but to follow suit.
This is very bad news. At a time when ecological problems require a global solution we are actually moving away from the globalisation that is required. It is evident that much of Trumpism is deliberately anti-ecological. If there is national advantage to be gained by digging coal, dig coal and never mind if it kills the planet. This is disastrous. However, we are caught in a downward spiral. The ecological squeeze is one of the main root inhibitors of growth and without growth the only system we know is nationalism, yet nationalism is exactly what cripples us in our effort to overcome the eco problem.
There are a number of idealistic philosophies and theories around suggesting ways to combine internationalism with a no-growth scenario, but they are untried and generally require a level of goodwill and altruism that goes well beyond what humans have historically demonstrated. The situation will continue to get worse until we come up with a new solution or perish in sufficient numbers for nature to restore balance to the situation without us.
Replies
BBC: https://www.bbc.com/news/business-46654064
US stocks suffer worst week in a decade
Thank you both for the comments. Yes, we are all struggling to understand what is going on. I think that the eco-squeeze threatens the basis of the progress-and-growth approach that has ruled modern civilisation and so we could be on the verge of a major collapse such as apparently overtook the Maya. When growth stops, people squabble over what remains when they should be seeking entirely new survival strategies.
Thank you for this excellent article David. I agree with Robert and think appropriate action will be hampered by the consequences of mercantilism, seems there is a long way to go before new solutions or natural process brings balance again. Stormy times.
Thanks David for this important and very insightful essay. We all need much help with clarity of vision especially in these fake news times. I did not hope for much in that international capitalism would actually respond with any appropriate measures to restore the grounds we live on when in so doing the ten trillion plus of oil reserves would become valueless. But the spread of the mercantilism you described certainly rules out even any wishful thinking that some appropriate action might occur.,