The Decline of the American Empire

Veni, vidi, vici. There was a time, not long ago, when the motto of Julius Ceasar was the sum of the United States’ international political economy. Every time that a developing economy found itself in trouble, like Thailand and the rest of Asia in 1997-1998, or was on the “brink” of capitalism, like China and post-communist Russia, American envoys arrived in their black limousines to offer not completely disinterested advice. American medicine, often administered by doctors of the International Monetary Fund — whose biggest sponsor is, obviously, Uncle Sam — was always the same: Measures of austerity to reduce the deficit and get the trade balance into shape, accompanied by the opening of markets to foreign companies and banks, i.e. American ones.

When I was stationed in Asia, I often saw those “motorcades” — the parades of automobiles that were all rigorously made in the U.S. — that whizzed through the streets of Beijing before disappearing behind the very high walls of the governing complexes. Inside there were politicians, businessmen and diplomats who came to say to the Chinese leaders that the moment had come to open the wall and make them enter in the biggest market in the world. Protected by the banners of the free market and free commerce, the United States government opened new horizons for multinationals and business banks. General Electric, Exxon, Goldman Sachs and Morgan Stanley were the last members — perhaps unaware — of a long tradition of economic colonialism, heirs of the East India Company that helped and benefited the colonial Anglo-Saxon empire and the “Hongs”, monopolistic conglomerates of British Hong Kong. If you don’t believe us, read the list of banks that dominate the fluxes of international capital.

The names of the businesses that sell stocks or buy rivals change, but their financial consultants always come from an oligopoly of four or five American banks with the addition of a pair of European competitors. To whoever opposed this Pax Americana in economic affairs, the U.S. responded with words that Carly Simon sang in the opening titles of one of the Bond films: “Nobody does it better.” The excessive economic power of America — at least since the fall of the Berlin Wall — has conferred it the right to dictate laws to the whole world on matters of finance and business. The events of the last three years have pushed the needle of the balance of international economic power. The tumult also has been the direct result of purely American financial practices — subprime mortgages and their transformation into bonds that are sellable to investors — by banks who believed themselves to be the most sophisticated and cautious in the world.

Governing authorities put their trust in these banks, and they sustained a deregulation of markets and an economy which allowed Wall Street to invent products of high toxicity without anyone saying anything. And the central bank — under the leadership of former Fed guru Alan Greesnpan — inflated the bubble by having such low interest rates for such a long time that the money to bet on markets was practically free. Greenspan and his successors can speak as much as they like of an “unexpected crisis,” an “unforeseeable financial tsunami” and a “100-year flood,” but the reality is that both they and Wall Street have made elementary and avoidable errors. The key word here is “elementary” because the incompetence and greed of the American financial system laid bare the fact that the United States doesn’t always “do it better” than others. And this is perhaps the longest-lasting and most serious consequence of the crisis: The decline of the American economic empire.

The signs of the end of a cycle abound. Governments of developing countries — chief among them China and Russia — no longer have any intention to obey the sermons of the Americans on the economy. Rather, in the latest talks, various leaders of the East and West didn’t pass up the opportunity to tease Americans over the causes of the crisis. One needs only to look at how Beijing responded to the repeated request of Washington for a rise of its currency: No, no and, again, no. The position has changed recently, but only because the Chinese government has decided that an increase in renminbi, their currency, would help to calm the economic crisis and fight inflation. As Giucas Casella said, “Only when I say so!” The boldness of the Chinese is understandable. They know very well that the United States is in difficult times and that they depend more and more on China. Beijing is one of the greatest financers of the enormous American deficit, and the exportation of Chinese goods to America has created an enormous commercial surplus in favor of the economy of the Dragon. And if these are the tendencies that preceded the crisis, there are new trends that should worry the leaders of American finance.

The growth of Chinese banks is without a doubt one of them. If, as seems likely, the listing of the Chinese Bank of Agriculture — which, up until a little while ago, was one of the worst financial institutions in the world — goes through, four of the ten biggest banks in the world by market capitalization will be Chinese; the United States have four others, while Old Europe has only two. It is clear that the Chinese banks are good because the internal market at their disposal — thanks in part to the protectionist policies of Beijing — is immense and they are not yet capable of attacking a Goldman or J.P. Morgan. But history teaches that, once the mother country has been conquered, the Chinese financial institutions will look beyond the border to expand and make their utilities grow — like American banks did after World War II. Other companies are already taking advantage of globalization to invade Western markets and put their corporate champions into difficulty.

Names like Tata, the Indian group that bought Jaquar and Tetley Tea from the British, or Huawei, the Chinese telecommunication giant that has many times thought about acquiring Motorola, could, in a day not so far away, become as well known as General Electric or Siemens. The sector of natural resources, for example, is already a battlefield, with companies like the Indian ONGC, the Russian Rusal and the Chinese CNOOC on a collision course with Exxon, Chevron and Total. It is possible that these new arrivals could squander their advantages, as happened to Japanese companies in the ‘80s, and reassign the keys of global capitalism to Western powers. Hope, it is said, is the last to die, but wishful thinking has never been a big economic strategy. If the motto of “veni, vidi, vici” doesn’t work anymore, American governments and companies should ensure that the financial crisis doesn’t transform itself into an Ides of March.