The coming decline of America

If there is one thing I am willing to bet my last (declining) dollar on, it is that American power has peaked. Economic power certainly has; and military power will follow.

A country's economic power depends on its competitive strengths, and two in particular: you either have to provide the rest of the world with resources that only you can provide; or you must offer a huge market for their exports.

On both counts, American strengths are on the ebb. Its huge current account deficit suggests that exporters are taking risks in selling their wares for dollars.

When it comes to providing resources, barring high technology and defence, the rest of the world offers better bargains. Broadly speaking, China offers better low -- and middle-level skilled labour, and India higher -- skill services.

The best tell-tale signs of America's decline are emotional ones: you can't hide angst and disappointment. These days one sees more whining than shining in the US.

Today's Americans are more likely to blame the whole world for their problems than themselves. When the world's sole hyperpower acts like a crybaby, something is amiss.

Consider the evidence. America's jobless growth is widely blamed on China and India. China is allegedly keeping its currency undervalued and preventing American companies from exporting more.

US companies may indeed be able to sell more to China if the yuan is upvalued, but the places from which they will export may not include the US, given the geographical dispersion of manufacturing.

Barring very high-tech industries or defence equipment, the underlying strength of American companies comes from manufacturing bases outside America and Europe.

The real whining in the US is about India, as the backlash against outsourcing shows. Unlike some optimists, I don't believe that this whining is going to die down even after the US elections because this issue touches a raw nerve. It questions America's basic belief about itself as an intellectual capital superpower.

In the past, the decline of American manufacturing didn't create much of a backlash because America is anyway the land of capitalism -- so who cares if blue collar jobs go to South-east Asia or Mexico or China?

Americans always knew that their real strength was intellectual property, their ability to create new technology that will help them grow new competitive strengths.

But India, Eastern Europe, Russia, Latin America, China and even the poorer parts of South-east Asia are posing a challenge here -- and this challenge is gong to intensify over the next few decades as every research-driven company tries to lower costs by hiring engineers and technicians from cheaper places.

And it's not about IT services and BPO alone. Even in pharma, where American companies dominate the world, the long-term trends are against Americans. If you want to develop new drugs at lower R&D costs, you have to come to India and China. Demographic trends (mainly, an aging population) are also against you.

American states, facing huge medicare bills, will increasingly favour the use of generic drugs to make their medicare systems viable. This again works against Americans, who think pharma and biotech will be the next big employer after infotech. They will be, but the jobs will go to countries with cheaper technical manpower, not Americans.

A recent report in The Times of India gave a glimpse of American angst. It quoted an unemployed IT worker as saying that if he were on the jury in a case involving the murder of an Indian software engineer, he would exonerate the accused.

If this is what the bulk of unemployed software engineers in the US are thinking, you can guess which way the wind is blowing. Americans are losing confidence in their ability to compete.

Just as traditional blue-collar workers have not seen a real wage increase in ages, the same is going to happen in the high-profile knowledge sector. They are going to see wages decline in real terms, thanks to price competition from the rest of the world.

History tells us that civilisations decline when they become soft and over-indulgent. Prosperity does this to most of us. When we are poor, we are more motivated to succeed than when we are rich. Americans are rich, and they want life to be easy now.

But the world will not let them have it. They have to either work harder to maintain their places in the sun, or step aside for the emerging powers. Those displaying a greater hunger for success are the ones who will succeed.

To be sure, America's military might will help it retain its hyperpower status for a few more decades. But today's America is more like the Soviet Union of the 1970s and 1980s, which had enough nuclear weapons to destroy the world but not enough economic staying power.

We are now seeing the beginning of the end of American power and this will bring new challenges for us and the rest of the world.

Powered by