[Marxism] US: Irresistible rise or declining empire? The economic basis

["Fred Feldman" <ffeldman@xxxxxxxxxxxxxxxx>]

U.S. Hegemony: Continuing Decline, Enduring Danger (excerpt)
by Richard B. Du Boff


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Richard B. Du Boff is Professor Emeritus of Economics, Bryn Mawr
College.

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 ?Global hegemony? might be defined as a situation in which one
nation-state plays a predominant role in organizing, regulating, and
stabilizing the world political economy. The use of armed force has
always been an inseparable part of hegemony, but military power
depends upon the economic resources at the disposal of the state. It
cannot be deployed to answer every threat to geopolitical and economic
interests, and it raises the danger of imperial overreach, as was the
case for Britain in South Africa (1899?1902) and the United States in
Vietnam (1962?1975).

Britannia ruled the waves from 1815 to 1913, but by the 1890s she was
under economic challenge from the United States and Germany, and
between the two world wars was no longer able to function as
underwriter to the world system. U.S. hegemony began during the Second
World War and peaked some thirty years later. The United States still
has immense?unequalled?power in international economics and politics,
but even as the sole superpower it finds itself less able than it once
was to influence and control the course of events abroad. Its military
supremacy is no longer matched in the economic and political spheres,
and is of dubious value in preserving the global economic order and
the stake that U.S. capital has in it. Even during the golden days of
1944?1971 the United States was unable to avoid military defeat in
Vietnam and a draw in Korea.

Slow Merge Ahead: Hegemony Since the 1970s

An idea of the decline of American economic power can be formed from
the following:1

In 1950 the United States supplied half the world?s gross product,
against 21 percent at present. Sixty percent of the world?s
manufacturing production in 1950 came from the United States, 25
percent in 1999. The U.S. share of exports of commercial services, the
fastest growing part of the world economy, stood at 24 percent in
2001, while the European Union (EU) had 23 percent?40 percent if
intra-EU exports were counted.

Non-U.S. companies dominated major industries in 2002, accounting for
nine of the ten largest electronics and electrical equipment
manufacturers; eight of the ten largest motor vehicle makers and
electric and gas utilities; seven of the ten largest petroleum
refiners; six of ten telecommunications companies; five of ten
pharmaceutical firms; four of six chemical producers; four of seven
airlines. Of the twenty-five largest banks in the world, nineteen were
non-U.S. banks, although the two largest were Citigroup and Bank of
America.
Of the top one hundred corporations in the world in 2000 ranked by
foreign-held assets, twenty-three were American. Together, Germany,
France, the United Kingdom, and the Netherlands, with a combined gross
domestic product (GDP) seven-tenths that of the United States, had
forty; Japan had sixteen. During the 1990s, the share of U.S.
multinationals in the foreign sales of the world?s one hundred largest
multinationals decreased from 30 to 25 percent; the share of EU-based
companies increased from 41 to 46 percent.

Twenty-one percent of the world?s stock of direct investment in other
countries was American in 2001, compared with 47 percent in 1960.
During 1996?2001, 17 percent of all new direct investment abroad came
from the United States and 16 percent from Great Britain; together,
France and Belgium-Luxembourg supplied 21 percent.

Of the twenty-five largest mergers and acquisitions (M&As) in the
United States in 1998?2000, five involved takeovers by foreign
multinationals (three British, two German). Of the top twenty
corporations involved in cross-border M&As from 1987 through 2001,
only two were U.S. (General Electric and Citigroup); they accounted
for 5 percent of the value of all M&A deals during these years.

In global finance, the United States is not only less dominant, but
vulnerable. The weak link is the dollar, whose status as the world?s
key currency has been eroding since the 1970s, irregularly and with
periodic revivals. Between 1981 and 1995, the share of private world
savings held in European currencies increased from 13 percent to 37
percent, while the dollar?s share fell from 67 to 40 percent.
Forty-four percent of new bonds have been issued in euros since the
new currency was introduced in 1999, closing in on the 48 percent
issued in dollars. Half the foreign exchange reserves held by the
world?s central banks were composed of dollars in 1990 compared to 76
percent in 1976; the proportion rose back to 68 percent in 2001
because of the phasing out of ecus (reserves issued to European banks
by the European Monetary Institute) to make way for the euro.2 For the
first time since the Second World War there is another source of
universally acceptable payment and liquidity in the world economy?at a
moment when the U.S. balance of international payments is chalking up
record deficits.

Since 1971, when the United States had a deficit in its trade in goods
(merchandise) for the first time in seventy-eight years, exports have
exceeded imports only in 1973 and 1975. A nation can run deficits in
its trade in goods and still be in overall balance in its dealings
with foreign countries. Deficits in trade in goods can be offset by
having a positive balance in sales of services abroad (financial,
insurance, telecommunications, advertising and other business
services) and/or income from overseas investments (profits, dividends,
interest, royalties, and the like). But the U.S. merchandise deficit
has become too big to be paid for by services sold to foreigners plus
remittances on investments. The U.S. current account (the sum of the
balances in trade in goods and services plus net income from overseas
investment), almost constantly in surplus from 1895 to 1977, is now
deteriorating sharply; the merchandise deficit has become too big to
be paid for by services sold to foreigners. And since 1990, the
positive balance on investment income has been shriveling as foreign
investment in the United States has grown faster than U.S. investment
abroad. In 2002, the balance turned negative: for the first time the
United States is paying foreigners more investment income from their
holdings here than it receives from its own investments abroad.

Like most gaps between income and expenses, the current account
deficit is covered by borrowing. In 2002, the United States borrowed
$503 billion from abroad, a record 4.8 percent of GDP. When foreigners
receive dollars from transactions with U.S. residents (individuals,
companies, governments), they can use them to buy American assets
(U.S. Treasury bonds, corporate bonds and stocks, companies, and real
estate). This is how the United States turned into a debtor nation in
1986; foreign-owned assets in the United States are now worth $2.5
trillion more than U.S.-owned assets abroad. By mid-2003, foreigners
owned 41 percent of U.S. Treasury marketable debt, 24 percent of all
U.S. corporate bonds, and 13 percent of corporate stock. U.S.
companies are continuing to invest abroad, but unlike the British
Empire in the decades before the First World War, the United States is
unable to finance those investments from its current account. By
contrast, Great Britain?s current account was in surplus, averaging 3
to 4 percent of GDP every year from 1850 to 1913, when income from
services and foreign investment was larger than its merchandise trade
deficits.3

So far the global investor class has seemed willing to finance America
?s external deficits, but it may not be forever. The deficits are
exerting a downward drag on the dollar, arousing suspicion that the
United States favors a cheaper dollar to help pay off its ballooning
trade deficit. As the dollar declines in value, the return to foreign
investors on dollar-denominated assets falls. German investments in
choice office properties in New York, San Francisco, and elsewhere
were cut back sharply in 2003. While the buildings were becoming
cheaper in euros, rents were shrinking when converted from dollars
back home. ?We can get the same return in Britain and the Nordic
countries, so why go to the United States, where the currency risk is
greater?? asked the chief investment officer of a Munich-based
property fund.4 Until recently all Organization of Petroleum Exporting
Countries (OPEC) sold their oil for dollars only; Iraq switched to the
euro in 2000 (presumably terminated with extreme prejudice in March
2003), and Iran has considered a conversion since 1999. In a speech in
Spain in April 2002, the head of OPEC?s Market Analysis Department,
Javad Yarjani, saw little chance of change ?in the near future...[but]
in the long run the euro is not at such a disadvantage versus the
dollar. The Euro-zone has a bigger share of global trade than the US
and...a more balanced external accounts position.? Adoption of the
euro by Europe?s principal oil producers, Norway and Britain, could
create ?a momentum to shift the oil pricing system to euros.? Thus,
concluded Yarjani, ?OPEC will not discount entirely the possibility of
adopting euro pricing and payments in the future.?5




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