America Not In Decline

Barack Obama and the next Congress will take power at a time when the financial crisis and Mesopotamian misadventures have spurred talk of America’s decline. Last week, a Russian analyst was even giddily forecasting the collapse and breakup of the United States, with Russia and China becoming joint global hegemons. Such predictions may comfort critics and opponents of American power, but they lack any real basis. In fact, long-term demographic and economic trends suggest that the age of American dominance won’t end anytime soon.

In Futurecast (St. Martin’s Press, $26.95), economist Robert Shapiro, a founder of the Progressive Policy Institute and now chairman of the consulting firm Sonecon, examines how the relentless forces of demographics and globalization will shape the world of 2020. His analysis suggests that the United States will remain the leading global power. Europe, Japan, and China, meanwhile, have reason to worry.

Demographic trends will have seismic effects on the world’s economies and may even spur domestic conflicts over dwindling resources. Indeed, Shapiro cautions that much of the world is about to confront “the greatest aging of national populations ever seen, along with the smallest relative numbers of working-age people on record.”

In Europe and Japan, where labor forces are already shrinking, fewer workers will have to pay more taxes to support the growing pensioner population, triggering a vicious economic cycle. Workers will have less money to save. That will mean less investment, which will translate into slower productivity growth and sluggish income progress, making it ever harder for the fewer workers to support the pensions of more seniors.

China will face similar challenges. Thanks to its notorious one-child policy, it has the world’s most rapidly aging population: between 2005 and 2020, the number of Chinese aged 65 and over will grow by 65 percent. China does not offer much government support for its elderly, which may lead to unrest, particularly among seniors living in urban centers such as Beijing and Shanghai.

The United States faces a more encouraging demographic future. To be sure, it will need to make adjustments and reform its entitlement programs. But America has maintained higher fertility rates than the countries of Europe and Japan, and its population has been rejuvenated by two generations of high immigration.

Between 2008 and 2020, globalization will continue spreading prosperity around the world, expanding consumer choice, and intensifying competition throughout domestic markets. Over the past 30 years, trade and investment between countries has expanded twice as fast as the total growth and investment of all individual countries. Developing countries are now able to attract the capital to build modern factories and businesses.

Globalization will also transform services, which represent two-thirds of advanced economies. It is a sign of the times that even lawyers may lose their jobs to outsourcing, with Indian firms such as Pangea3 providing basic legal research and drafting services at (what Pangea3 calls) “a radically low cost.”

In all likelihood, the United States will continue doing well in the white heat of international competition, while the highly regulated economies of continental Europe and Japan will stumble. Barring a departure from open markets, the vast and flexible U.S. economy will remain a magnet for investment that funds innovation, which will ensure that U.S. workers remain among the most productive and highly paid in the world.