Revenge Strategy, wasting the power of your hate on the guiltless (XLII): American Capitalism is in jeopardy? Judge yourself, please.
Today we will continue hiking with American Capitalism. Before proceeding further, I would like you to read the book from Alan Greenspan and Adrian Wooldridge, Capitalism in America: An Economic History of the United States. It is a reference book for all of us who are interested to learn about the fables and tales within our economic development. I find this book a wonderful legacy from Mr. Greenspan for all of us.
As mentioned previously, in order to understand the current USA-China Trade War, it is decisive to surmise the past of both nations. We already covered China (PRC), and today we will continue with our hike to the challenges of American Capitalism during the last 100 years. I have prepared a list of reservoirs of issues and/or fountains of outstanding crossroads encountered by American Capitalism during the last 100 years of its history. Let´s begin:
- The emergence of the multinational corporations (MNCs): International business activities are not new between nations. The transfer of goods and services across national borders has been taking place for thousands of years. But since the end of WWII, with American Capitalism leadership, the international business went through an unparalleled revolution out of which it has emerged the most important economic phenomenon of the latter half of the 20thcentury: the multinational corporation. We can´t explain the success of American Capitalism without the MNCs. The comparative advantage theory has triggered the model of globalization that the USA has expanded through the MNCs. The prime transmitter of competitive forces in this global economy is the MNC. The current USA-Chinese trade war shows the role of the MNCs as key success factors for both nations.
- Individualism-Inventiveness-Entrepreneurship: American Capitalism has kept a competitive advantage in its capitalism model because of certain characteristics embedded in their mindset and culture: individualism and entrepreneurship are deeply ingrained in the American spirit. And these two characteristics have been the source of competitive advantage for America. The creation of value and financial returns comes from innovation and knowledge-intensive advantages embedded at the core of its society. When inventiveness and entrepreneurship are combined with abundant financial capital, PLUS the superior graduate education and the inflow of foreign brainpower; it is not surprising at all that American Companies have dominated the world markets in the newest industries of our times: software, biotechnology, entertainment, information, disruptive technologies, and multimedia technologies. The current USA-Chinese Trade war reveals the same competitive advantages.
- Massive deregulation and privatizations: The sale of hundreds of billions of dollars of state-owned firms around the world, have triggered the empowerment of the MNCs in those respective industries. When these MNCs are American, and they have developed through international acquisitions over the last decades, it is obvious that economic growth can be attained. American MNCs dedicated to communications, energy, water, transportation systems (in between other state-industries) have benefited from the privatization of these cash-cow companies. The current USA-Chinese Trade War reveals this issue perfectly.
- The Post World WWII context and the Collapse of Communism: After WWII, American Capitalism assumed the leadership of efforts to revive the global world economy. With Europe in ruins and China under Mao, the USA had no rivals. Nevertheless, when the Cold war started in the 1940s, it frustrated the effort to create a safe international global economy for American hegemony. Although, and despite the Cold War, the USA continued living a prosperous period of time up to the 70s. After the European reconstruction in the late 1940s and early 1950s, the rate of economic growth of the industrialized economies reached a historically unprecedented level (4 to 5% average for Western Europe, 3% steady for the USA), and Japan reached the 10% rate/GDP growth a year. With those steady growths, the open multilateral world economy was established fully. During the 70s, a profound recession cracked America. In parallel, during the Cold War, communist economies isolated themselves from the world; the less developed economies of the Third World (as they were called) never shared the spreading postwar prosperity of the USA, western and Japanese economies. Hence, American Capitalism continued its economic strategy: The Cold War years persuaded America´s unquestionable ideology of unregulated, free markets and the belief that an open world economy was in America´s economic interest. The current USA-Chinese Trade war exhibits it.
- The Post Cold War International Economy: The 1979-1980 Iranian hostage debacle in which the USA was clearly unable to deal effectively with terrorism in the Middle East. The inept handling of the oil crisis (1973) and the second oil crisis by the Carter Administration led to Ronald Reagan´s era (1980). After 1989, with the end of the Cold War, there was an assumption that things would improve automatically. It wasn´t the case. Since 1989 to our days, there has not been one single decade of secure political foundations for the world economy to replace the cold war issues. The USA-China/Russia current conflict is simply a mere symptom of this inherited problem which was never fixed before. The current USA-Chinese Trade war displays it.
- An Insecure Trading System: The 2008-2009 World Financial Crisis was simply another symptom of a deep sickness of the insecure global trading system. The achievements of the trading system after WWII have been remarkable in favor of trade liberalization. Meanwhile, trade protectionism has been reduced apparently in terms of tariff reductions in industrialized economies; reduction of quotas and restriction of subsidies. “The WTO dispute mechanism has worked moderately well, but the tensions between the forces of globalization and those who support the trade protectionism continue to threaten the global trading system”. The current USA-Chinese trade war exposes it fully.
- Standardization of free-market policies all over the world: American capitalism requires steady expansion to survive. And they, as much as China, require certain rules of the game to make free-markets a reality. These standards are conditions for the buyers and the sellers at the global marketplace all over the world, particularly in developing nations. The USA-China trade war exposes this issue fully.
- The internationally monetary system as an evolution of the Classical Gold Standard model (from 1821 to 1914), next the Gold Exchange Standard (from 1925 to 1931); next the Bretton Woods System (1946-1971) and the post-Bretton woods system as of 1971. The past century monetary hegemony of one country over the international economy has been associated with monetary stability, trade liberalization, and rapid economic growth. But after the recent financial crisis, it is not clear that American hegemony in monetary affairs could be reestablished. The gold standard was a specific type of fixed exchange rate system, one that required participating countries to maintain the value of their currencies in terms of gold. The Bretton Woods agreement (1946-1971) implied that each government pledged to maintain a fixed or pegged exchange rate for its currency vis-a-vis the dollar or gold. The Bretton Woods system broke down because the USA issued too many dollars. The Post-Bretton Woods System under the Smithsonian Agreement, made the world to turn to floating exchange rates in 1973. After that year, the dollar´s ups and downs can be traced largely to changes in the U.S. economic policy.
- The rise of tech giants after the 2000s: little by little, American Capitalism has observed the rise of information technologies as the premium industries leading its mark. Either if the technology is driven by a low cost, a blue-ocean or differentiation strategy; the emergence of magnates as Bill Gates, Steve Jobs; and recently, Mark Zuckerberg, Jeff Bezos or Elon Musk is evident. At the same time, to follow the giga-economy is also a huge risk for the same American Hegemony in the future. Too much of the same thing without certain kind of regulation, create a bubble crisis. Once you put your eggs in the same basket, we lose the power of a diversified portfolio of businesses. If a future crisis hits those tech industries or new disruptive techs, there will be no cushion of the recovery possibilities and resilience on time.
- Unique tolerance for the effects of creative destruction: American capitalism has been unique into this. Alan Greenspan and Adrian Wooldridge have developed this idea in their latest book. The authors argue that “America’s genius holds a unique tolerance for the effects of creative destruction, the ceaseless churn of the old giving way to the new, driven by new people and new ideas”. The authors debate that creative destruction has also lifted almost all Americans to standards of living unimaginable to even the wealthiest citizens of the world a few generations past. Nevertheless, in my own opinion, creative destruction doesn´t work for all, not even in the USA, or other places. And the uniqueness of the creative destruction can´t be the unique recipe of success for American capitalism, which needs to replicate many cases of innovation for financial, particularly in the low-income and middle class if it wishes to self-defend itself from bursting massive manifestations of hatred anger in the new generations to come.
I have not included climate change or environmental issues related to American capitalism hegemony. But I will do it before the end of the saga.
Thank you for reading to me. In our next publication we will continue with the subject: Who is who on this boxing ring? Strategic Comparative Analysis between China and the USA. Stay tuned!
Sources of reference utilized to write this article:
Disclaimer: Illustrations in Watercolor are painted by Eleonora Escalante. Other types of illustrations or videos (which are not mine) are used for educational purposes ONLY. Nevertheless, the majority of the pictures, images or videos shown on this blog are not mine. I do not own any of the lovely photos or images posted unless otherwise stated.
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