Monday, July 12, 2004

End of an Empire?

This is what I finally ended up publishing as one of my contributions to the class magazine for my journalism course. The dumbing down was inevitable, but there are the seeds of a good analysis in here among this crude and unsourced review.


Oxford historian Niall Ferguson combines a brilliant academic reputation with sex appeal, after making a splash as the presenter of last year’s six-part Channel Four history documentary on the British Empire. The book, Empire, which he wrote to accompany the series, lays out his case that the British Empire was, on balance, a good thing for the world. It now tops the national paperback bestseller lists. The combative and media-savvy Glaswegian seems have successfully carved a niche for himself as a modern-day Robbie Burns among historians.

Transatlantic relations between Europe and America are at a low, exacerbated by a President who doesn’t speak any European language, even English. Nevertheless, Ferguson seems have set out to generate more controversy with his new book Colossus: The Rise and Fall of the American Empire. Again, a documentary based on the book will be coming to our screens this month on Channel 4.

He takes up where he left off before, at the time when a combination of near-bankruptcy and international opposition pushed the British into rapid retreat from empire after World War II. Now, he says, America has become the colossus and a good thing too.

While still a student researching his first book, he was a correspondent in Germany for the Daily Telegraph, and the journalist’s skill in crafting an attention-grabbing headline and engaging story has obviously remained with him. He blends economic data and cultural references, ranging from Milton’s poetry to the Terminator movies, into confident prose holds the general reader’s interest while providing enough details to keep the other academics happy. As a ripping yarn, Colossus matches the novels of Stevenson or Scott.

From these threads of politics and economics, he weaves a sophisticated analysis of world history, emphasising how the two interact with each other and the more primordial motives of identity, the drive for power and instinct for violence to drive history. In his 2001 book, The Cash Nexus, he made the case that states that could successfully tax their citizens, keep trust in their currencies and borrow cheaply had a base from which to defend and increase their national power. An obvious example was Britain, which, as he tells in Empire, defeated Napoleon and went on to conquer much of the world. Now, with the USA importing over a billion and half dollars in capital each and every day from the rest of the world, it’s no wonder that it’s eleven trillion dollar a year economy now accounts for about a third of the world total. Its one-time challengers, Russia, Germany and Japan, have stagnated economically and been largely elbowed aside politically.

Economists, it’s often said, are people who wanted to be accountants but couldn’t handle the excitement. Britain’s most celebrated theorist, John Maynard Keynes, as well as setting the course that guided the British economy for three decades after his death in 1946, wrote many passages that are still commonly quoted today. However, in many instances, experts cannot agree on what exactly he was recommending.

In contrast, many American economists learned their trade by using mathematical methods to manage the American military and war economy. John Nash, subject of the book and film A Beautiful Mind, was one of those who created game theory, used for everything from planning nuclear wars to organising mobile phone license auctions. Their influence changed economics from a literary art to a branch of science almost incomprehensible to the non-specialist. Ferguson largely succeeds, with some exceptions where he falls down in his statistical arguments, in bridging this gap between the ivory tower and the practical world of the journalist, politician, and informed public.

Colossus is a more nuanced book than his provocative headlines would suggest and it does not conceal the missteps and disasters. Narrating the rise of American expansion, he covers both noble intentions and what was in many cases, a very ugly reality. These include the ruthlessness and greed driving many interventions in Latin America, the muddle that was reconstruction in Germany and now in Iraq, and national self-deception in Vietnam. America has never really focused any foreign engagement for long, he says, unless combating someone else’s imperialism, as during the forty years of the Cold War.

A key weakness at the heart of the book, much of which is constructed like an opinion piece in a middle-brow journal like Foreign Affairs, is that Ferguson never precisely defines what exactly he means by an American empire. Intervention by the US to guide troubled countries towards democracy, the rule of law and free markets could perhaps be better described as leadership, with other countries bearing most of the non-military burden. In the fondly remembered days before the Bush administration, we imagine that America led the way, first in international consensus building, then by acting through international institutions such as the UN, NATO and the IMF. The gunboat diplomacy of the British Empire, which Ferguson seems to be advocating, has not been on the cards for a long time.

On some subjects and in certain regions of the world he seems to have little detailed specialist knowledge to offer. In relation to Asia in particular, his sources tend to be limited to a sample of recent books for the general reader.

While defending American actions in Kosovo, Afghanistan and Iraq, Ferguson believes that eventually, when faced with the dilemma of choosing between military spending to keep order globally and domestic needs for social security and consumer expenditure, the new American empire will soon be dismantled. He writes in the last chapter: "The U.S. government [is] effectively bankrupt...the decline and fall of America's undeclared empire will be due not to terrorists at our gates or to the rogue regimes that sponsor them, but to a financial crisis of the welfare state."

Is this Cassandra right? I don’t believe so, and after reading the source material he refers to, I feel that Ferguson uses some complex statistical data without caveats, in spite of his own lack of economic training. While dismissing the European Union’s potential as a military or political power, he writes that international investors, who heretofore have happily lent their cash to the US, seem to be becoming more attracted to lending in Euros instead.

I looked at his source data on currencies first, made up of the reports issued by the Bank for International Settlements (Quarterly report, Q1 2004, chapter 3, table 3.3) the international club of central banks. It seemed to tell a different story, namely of investors’ preference for their home currency. Since the creation of the Euro in 1999, Europeans have begun issuing bonds mostly in Euros, just as Americans have continued borrowing from the capital markets in dollars. However, everyone else outside the Eurozone still overwhelmingly uses the dollar as the international currency of choice for raising funds and investing.

Ferguson writes on how two economists, one a deputy Treasury Secretary serving under Paul O’Neill, published a report in which they calculated the future obligations of the US government to pay for health care and pensions against the value of likely future tax receipts. They estimated a shortfall of some forty five trillion dollars - that’s $45,000,000,000,000, equivalent to £24.5 trillion or twelve times as much as it would cost to buy every house, flat and other piece of residential property in Britain. At almost four times the size of the US economy, this puts America’s indebtedness on a par with such pillars of the world financial community as Chad, Gambia or Uganda.

Again, his work is not as sophisticated as a detail-orientated analyst might like. In the first place, he fails to point out how the research was sponsored and published by the American Enterprise Institute, a Republican think-tank that gives a home to thinkers such as Newsnight regular and Pentagon “prince of darkness” Richard Perle. The Institute has long advocated the privatisation of welfare and health care and their report advances this agenda.

Neither has the paper gone through the thorough filtering by other experts in the field that academic papers have to endure before publication if they are to be accepted as part of the academic literature.

On reading the small print, I discovered that the projections assume that the budget will, like Willy E Coyote in the Roadrunner cartoons, come to the edge of a cliff, and rather than pulling back or falling over, just keep on running into thin air. Although the crisis, if it comes, can be averted by action in the near future, the study counts the cost of current policies as if they never change until 3500AD, a period of fifteen centuries, or about 300 years longer than that from the foundation of Rome to its sacking by barbarian tribes in 410AD.

In contrast, official forecasts from the Congressional Budget Office show that spending will grow rapidly within two decades, triggering either a relatively small crunch, or some reaction to avert it, as has always happened in the past. Americans already 27% of national income every year in taxes (according to the White House Office for Management and the Budget statistics), slightly over half the relatively low level in Britain. Increasing this figure by a proportion of fifty percent in order to balance the budget, while obviously painful, is not likely to bring about an economic collapse.

Colossus: The Rise and Fall of the American Empire (ISBN 0713997702, 400 pages) is published in hardback in Britain by Penguin/Allen Lane.