Don't Write Off American Ingenuity

In our newfound economic plight, it seems fashionable in many circles to write-off future prospects for Western, and in particular, American economic revival. The Financial Times, ever the bastion for economic pragmatism sprinkled with free-market idealism, confirmed this today with Luke Johnson’s piece on why he ‘fears the West’s luck has run out.’ Indeed he presents many valid points, namely the need for a shift away from profligate consumption in the West and the rising challenge of East Asian economies. These challenges, while not easy, are not insurmountable, and I suspect the picture is a more complicated one than is usually acknowledged. Rather than focusing on ‘the West’ – the differences among these nations can be as marked as the similarities – let’s focus our attention on the United States.

Capitalism has long been the secular religion of choice in the United States, with the skyscrapers of New York and Chicago its temples. The contemporary American economy has its roots in the vast waves of immigration during the turn of the 20th Century. The lure of the American dream is more surreal than actual, but nonetheless sustained a free-spirited endeavour that allowed the US to innovate and prosper. From the airplane, to the assembly-line, from motion-pictures to the internet, the American economy has a knack for bringing seemingly intangible inventions to the masses. This is not only a testament to American ingenuity, but to the openness and adaptability of the American people. Few other nations peddle their wares so openly to their consumers with perhaps the exception of Japan (though it is often tempered with a sense of novelty that never leaves Japanese shores). Why then the fear that the days of American economic supremacy and the Western standard of living are numbered?

It cannot be denied that the US, indeed much of the Western world, has lost influence at the tables of the world’s economic organisations. With that loss of influence will come diminished structural power to shape future economic institutions and agreements. Lest the words of the late Susan Strange, the venerable British political-economist, be forgotten, structural power is enormously difficult to acquire as the existing players have set the current set of rules. China and India certainly have climbed more than a few rungs on the ladder of economic influence and status, but they haven’t used this reposition to suggest a concrete policy of what a re-ordered economic world might look like. So long as this is case, the US, and to a lesser degree Europe, will continue to drive the economic agenda forward. There are numerous drawbacks to this lack of leadership from other states, but in the absence of others filling the gaps, it is essential the US continue to lead.

China and India have unique and admirable entrepreneurial cultures, yet for better or worse lack the dynamic individualism that drives American entrepreneurship. Anglo-Saxon individualism has its (many) social handicaps, but it is brilliant at generating new ideas and the money that flows from them. A Weber-esque work-ethic combined with the purest form of Schumpeterian creative destruction resulted in a market economy characterised by great leaps and bounds, rather than continuous and steady growth. For all the faults of the American education system at present, it is remarkable for fostering an individual way of thinking about the world. Critical thinking and asking questions are (traditionally) encouraged, while rote memorisation, so common a technique in many countries, de-emphasised. There is probably a need to rebalance the equation a bit, but the US must be cautious not to weed out the greatest asset of American education – to allow and encourage thinking ‘outside the box’. Most of America’s greatest technological, economic, and indeed even social, innovations were not products of traditional thinking. So long as the US maintains its culture of a liberal education – I take issue with Stanley Fish on this matter – and other countries emphasise a conformist society of memorisation, its economic prospects and hope remain relatively bright. In a competitive and global world, product differentiation and perception are vital to success.

Demographic decline in the West continues to be a hot topic amongst various social scientists, journalists, and politicians. Compared to many European countries, the US is demographically blessed, principally due to immigration, but also impart to social conservatism and the importance of religion. Nonetheless, the US is still competing against a vast new pool of labourers in the developing world, which in classical trade theory eventually leads to wage equilibrium globally. The demographic fear tends to discount the transformation capacity of technology, much the way Malthus was wrong (so far) about the food supply at the end of the 18th Century. Japan is already dealing with their far more serious demographic challenge with robots and artificial intelligence taking over traditionally menial roles. The success of this transformation depends on the substitutability and marginal costs of capital over labour, but given the natural assets of the United States described above, I am confident mind-boggling solutions will be created, implemented, and very possibly, exported.

The demographic argument in favour of Western decline also ignores social threats and the imminence of climate change in an era of strained resources. The social threat of an increasingly male population in China is not to be taken lightly. Given the genetic implications and social construct of gender, the future may very well be one of increased hostility, both internally and externally. This would mark the end of ‘social stability’ so vital to the success of China’s meteoric rise and thus cherished by the ruling Communist Party. The US would be wise to pay careful attention to its own social challenges - income inequality and immigration – so that these do not hinder its strengths.

Climate change will pose challenges and hardships for all countries, albeit unevenly. The natural ability of the US to adapt and innovate will be an asset to the country in the face of climate change’s more menacing effects. Americans cannot, however, expect a deus ex machina to save them from their profligate ways. Real changes in lifestyle will be necessary, but a more sustainable lifestyle does not imply endemic poverty. Those countries still developing will be least able to cope with their own development in the midst of ravenous climate change, though this is not something to take heart in. Schadenfreude is no one’s friend in the context of climate change.

America has a host of assets that will ensure a prosperous survival in the years ahead. Times will not always be easy, unpleasant truths will need to be dealt with, and real changes in expectations are necessary. Adaptability and creativity are essential to a shift within American society, though this is nothing new. Numerous shifts, from the 1860s, 1930s, and 1960s, prove the resilience of American potential. As the West recovers from its debt-induced hangover, we would be wise to remember our strengths, while also reconsidering what is important in our quality of life. A high standard of living can be maintained for many years, but not without a redefinition of what that is. Over consumption, both of media and of objects, has a weakening effect. I am confident that America’s ingenuity will succeed in that redefinition as the West moves to what must be more sustainable society.