DISPATCHES FROM AMERICA How to manage an imperial decline
By Aziz Huq
Do empires end with a bang, a whimper, or the sibilant hiss of financial
deflation?
We may be about to find out. Right now, in the midst of the financial
whirlwind, it's been hard in the United States to see much past the moment. Yet
the ongoing economic meltdown has raised a range of non-financial issues of
great importance for our future. Uncertainty and anxiety about the prospects
for global financial markets - given the present liquidity crunch - have left
little space for serious consideration of issues of American global power and
influence.
So let's start with the economic meltdown at hand - but not end
there - and try to offer a modest initial assessment of how the crumbling US
economy might change America's global stance.
From its inception, the financial panic stemmed from, and also exposed, a form
of imperial overstretch - that of Wall Street's giant financial firms. For
them, it took the form of highly leveraged positions grounded on fragile,
poorly assessed collateralized debt. As John Grey recently observed in the
British Guardian, however, the panic also uncovered another kind of imperial
overstretch - that of American geostrategic power, raising questions about how
the gap between stressed political and military assets and Washington's global
ambitions will be resolved.
It's important to clarify what's currently at stake globally. Otherwise,
depending on one's druthers, this is a subject that tends to be either
overblown or underplayed. Few in the mainstream media even countenance the
possibility of catastrophic changes in the US position in the world. On the
other hand, some in that world are already ascribing seismic significance to
what's happening before the dust has even settled. As historian Andrew Bacevich
cautions, the future has yet to be written and so neither outcome is - as yet -
a foregone conclusion.
Nonetheless, it's worth trying to grasp just how today's financial crisis is
converging with two other trends - the weakening of American hard and soft
power - to transform the geopolitical landscape.
Melting down
Start with the financial crisis, which emerged from an industry-wide
mismanagement of credit and risk. Sophisticated instruments such as
credit-default swaps were intended to cushion institutions from default risk on
speculative housing assets by breaking those assets into small bits and
spreading them widely among financial institutions. Like any kind of insurance,
this was a way of spreading risk around to minimize the consequences of
catastrophe.
Instead, of course, those "instruments" seem to have cushioned investors only
from a frank assessment of risk. Worse, the very splintering of risk,
originally designed to insulate financial merchants from too-hard blows, meant
that it would prove exceedingly difficult to assess the soundness of all sorts
of other institutions.
Paradoxically, what were fashioned as tools to eliminate risk became tools for
risk contagion. As a consequence, it is still unclear whether the tumbling of
world markets was a consequence of a confidence-based liquidity crunch, or of a
more fundamental problem of worthless assets.
For all but a hardline core of Republicans in the House of Representatives, the
tenpin-style collapse or near-collapse of Lehman Brothers, AIG, WaMu, Wachovia
and other outfits signaled the failure of a decades-old deregulatory approach
to finance. (The credit-default swap market, in large measure the font of
today's crisis, has never been regulated thanks in important part to former US
Federal Reserve chief Alan Greenspan's confidence in them.) The distinctively
modern American model of deregulatory fervor reached its pinnacle during the US
President George W Bush years, and has now broken.
The crisis of finance, however, was also a crisis of national governance,
highlighting structural weaknesses in the national political system that can
render a president a lame-duck months before his term in office ends. The
crisis has also highlighted the striking difficulty Congress has in sustaining
meaningful legislative inquiry and action on complex issues. Since the panic
began, its leaders have proven incapable of imagining alternatives to a deeply
regressive and barely re-regulatory response. Not only is the nation's
financial framework unsustainable, its political architecture seems seriously
flawed.
All of this has an immediate, practical aspect, which has not exactly gone
unnoticed in the rest of a panic-stricken world. For decades, the United States
has run consistent and growing current-account deficits - basically a measure
of how indebted over time a country is in relation to its foreign trading
partners - to the tune of $6.7 trillion since 1982. That was then, though. This
is now, and the sustainability of a political economy, no less a global
geopolitical strategy that hinges on international credit markets, is today in
question.
Even before the mid-September unraveling began, international creditor goodwill
toward the "sole superpower" and its fiscal overreach seemed to be evaporating
fast. Asian investors, for instance, were quick to evince "unprecedented"
skepticism about US assets in the opening moments of the crisis. Earlier this
year, vast Middle Eastern and Asian sovereign wealth funds, many bloated by
petrodollars, were still willing to furnish crucial injections of capital to US
banks, probably staving off the current liquidity crunch. (Paradoxically, their
help may only have pushed the onrushing crisis back to a point where it became
even more politically toxic to the still-ruling Republican Party.)
Since September, however, the same sovereign wealth funds have proved skittish
indeed about helping US financial outfits, eliminating another possible
resource for responding to credit shortfalls.
American power on the wane
At some point, tighter global credit conditions are sure to significantly
constrain America's freedom of action internationally. After all, Chinese and
East Asian investors, to offer but one example, are now quite capable of
reining in, and even undermining, the federal government (if they choose to),
rather than vice versa.
Though it may not yet have penetrated American consciousness, a national fiscal
crisis is also bound to be a crisis of national security. In the coming years,
a new president will have to deal with a growing disparity between the
historically hegemonic role of this country on the world stage and its
diminishing capacity. Simply put, the US will have to do more with less, even
to maintain a semblance of its current strategic profile. What effect this has
on geopolitical stability, on the number of small and big wars that occur
globally, and on collective problems ranging from climate change to human
rights, remains to be seen.
This might not matter so much if it hadn't been for the Bush administration's
myopic focus on the Middle East as the sum of all evils and the bind it has put
future policymakers in by shredding US capacity elsewhere. The recent Russian
invasion of Georgia offered a graphic illustration of just how hobbled American
power had become even before the present financial crisis hit. Apart from a
spasm of vice-presidential denunciations, American has not taken and cannot
take action in response to Russian moves in Georgia. Indeed, the White House
has found itself in a situation uncomfortably like that of our erstwhile
European allies, who have been confined to plaintive whining.
Worse, the Bush administration may have been fully complicit in Georgia's
strategic error that precipitated the crisis. As military analyst George
Friedman has noted, the US had 130 military "observers" in Georgia, who knew of
its military deployments and also had the satellite capacity to view Russia's
buildup in North Ossetia. Despite this knowledge, the US failed to restrain its
ally from launching its forces against that breakaway region. Indeed, it may
have been American training and support for the Georgian army (given in
exchange for its contributions to "the coalition of the willing" in Iraq) that
emboldened President Mikheil Saakashvili to invade. In which case, the
administration succeeded only in enticing an important ally to throw egg in our
face.
Nor is the US position in the Middle East any more impressive. However
successful the "surge" has been in the American partisan political theater, it
has not resolved the fundamental sectarian instabilities in Iraq, nor has it
altered a growing regional imbalance as Iran gains unprecedented influence.
The mountainous Pashtun border areas in Afghanistan's east and Pakistan's west,
by contrast, are in a state of open revolt against US regional desires, while
the Pakistani regime favored by the Bush administration has collapsed.
Obituaries are now being written for Afghanistan's Hamid Karzai regime (for
those who didn't notice that it was moribund on arrival six-plus years ago).
Diminishing US economic and military influence only underscores a third trend:
the wilting of America's "soft power." At the UN in September, for instance,
Bush faced a tsunami of whispered complaints about America's flawed stewardship
of the global economy. Manifest failure in an area in which Americans took such
pride saps Washington's ability to persuade and build alliances in areas like
resisting slaughter in Darfur, fighting piracy in the Gulf of Aden, or stemming
Russian designs on what it calls its "near abroad".
What, in retrospect, must be termed the Dick Cheney White House, has reduced
America's reputation as a moral beacon to junk-bond level. As Democratic
presidential candidate Barack Obama and Republican presidential candidate John
McCain have both recognized, any claim to human rights leadership the United
States may have once possessed has run aground on the shoals of its torture and
"extraordinary rendition" policies, all approved at the highest government
levels.
In addition, the insular parochialism of the country's increasingly
conservative judiciary has sliced away at the nation's reputation as a font of
constitutionalism. It remains to be seen whether similar judicial parochialism
will help undermine the country's attractiveness as an entrepot for financial
deal-making.
Managing imperial decline
The United States today stands in a position somewhat reminiscent of imperial
Great Britain after World War II: its currency is no longer the pillar of
global financial stability, its armies and navies are no longer capable of
enforcing its policy desires, and its reputation has been battered by formally
successful but functionally catastrophic military conflicts.
Britain's World War II-eviscerated economy and infrastructure cannot, of
course, be compared to its present-day American equivalents, even glutted with
the detritus of two successive boom-and-bust cycles. Nonetheless, the analogy
may be suggestive for Washington when it comes to possible shifts in
geopolitical and economic tectonics.
As was true in the Britain of those years, so it is today, that even as the US
position in the world undergoes a radical diminishment, the extent to which
this is being grasped by a policymaking establishment in Washington unused to
dealing with such uncertainty remains unclear.
In foreign policy terms, the overextended nature of British imperial power only
struck home in 1956, nine years after the world war ended. That was the moment
when British prime minister Anthony Eden fundamentally miscalculated British
power in response to Egyptian president Abdul Nasser's nationalization of the
Suez Canal Company. With the French and Israelis at his back, Eden reckoned
that Nasser was overreaching and saw an opportunity to undermine the Egyptian
regime in an area where British power had long been dominant.
Eden reckoned, however, without a newly dominant United States. American
president Dwight D Eisenhower, angry at being cut out of Middle Eastern
affairs, threatened Eden. He would, he indicated, "pull the plug" on the
British pound by withdrawing American fiscal support for the recovering British
economy. The country's monetary weakness led directly to its military collapse
in the crisis. The Suez fiasco not only destroyed Eden's prime ministership, it
also marked the end of British imperial ambitions.
How, then, will the United States deal with the uncertainty attendant on its
present declining fortunes? A "virtual" history of parallel events featuring a
new American president is not hard to imagine, with the weak dollar playing a
similar starring role to that of the vulnerable pound back in 1956. Suez was,
of course, disastrous for the British exactly because Eden so dramatically
misjudged the gap between British assets and his version of its national
ambitions. The question today is whether a new American president might do the
same.
The most obvious temptation remains an attack on Iran, which would almost
certainly fail, even as it exposed US operations in Iraq, Afghanistan and
elsewhere to blowback of a magnitude hard for many American politicians to
conceptualize at the moment. It would just as surely mark an unpredictable
reordering of political relations in the Middle East and possibly, like Suez,
the end of American global imperial pretensions.
Iran is but one possible place for a new Suez. Others, from Pakistan to the
Taiwan Strait, abound. Such dramatic miscalculations are easy to imagine,
especially if the nationalistic pressures of inside-the-Beltway politics drive
international commitments. In addition, other global actors recognizing
American weakness in ways Americans may not could add to the mayhem.
In a fast-transforming economic climate, a new president will be faced with a
difficult balancing act: exercising flexibility while coming to terms with
weakness, compensating for strengths lost during the past eight years while
giving up ground in pragmatic ways. If that doesn't happen, then hard questions
will linger, even after the last credit-default swaps have been unwound, about
America's capacity to project influence in the world.
Aziz Huq, author of Unchecked and Unbalanced: Presidential Power
in a Time of Terror (The New Press, 2007), directs the liberty and national
security project of the Brennan Center for Justice at New York University. He
is counsel in several cases involving post-9/11 detentions, including Omar vs
Geren, Munaf vs Geren and al Marri vs Puciarrelli.
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