As Our Empire Fades, some chilling words

January 30, 2005
ECONOMIC VIEW
Lessons for the American Empire
By ANNA BERNASEK

IN 1897, Britain celebrated Queen Victoria's diamond jubilee with grand ceremonies, lavish parties and parades that stretched for miles. It was all in tribute to a monarch who had reigned for 60 years, but it was also a celebration of Britain's unrivaled world power and success. Never before had an empire been as wealthy or as vast, spanning a quarter of the world's population and land mass. Yet within 50 years, the British Empire would vanish.

No living memory survives to compare the speeches, parade and celebrations surrounding President Bush's inauguration with those of Queen Victoria's day. But the president's triumphal tone in his Inaugural Address was just one of a growing number of factors that evoke shades of empires past.

Today the United States is the unrivaled world leader in commerce and political and military force. As such, it faces many of the same questions that have concerned powerful nations for centuries.

Obviously, it is not destined to undergo precisely the same experience as, say, imperial Britain or the Soviet Union. But the history of great powers, particularly in the modern era, offers lessons worth considering in navigating the future.

Economists and historians have long recognized the importance of balance in a nation's spending priorities. Over time, those spending decisions help determine the trajectory of a nation's prosperity and power. A country can run into trouble, for instance, if it consumes too much in military spending and starves its economy of investment. If such a pattern continues, that country's economy won't be productive enough to support further military spending; ultimately, its military will weaken and its power will decline.

In a 1987 book, "The Rise and Fall of the Great Powers," Paul Kennedy, a history professor at Yale, formulated the concept this way: "Without a rough balance between these competing demands of defense, consumption and investment, a Great Power is unlikely to preserve its status for long."

The British Empire was crushed by its unsustainable spending on World War I and World War II. For the Soviet Union, the cold war ultimately proved too much for its planned economy to support.

Today, the United States faces its own difficult choices between the competing demands of security, consumption and investment. Abroad, the Iraq war lingers painfully while other potential conflicts loom in Iran and elsewhere. Domestically, privatization of Social Security could cost a cool $2 trillion or so. And in global commerce, the offshore threat to the labor force and competition for business profits are increasing. Up-and-coming companies based in Asia and elsewhere may one day rival even our most successful corporations. That prospect makes increased investment in research and development and in education a pressing need for the economy. Put all that against the backdrop of the country's already substantial debts, and it is clear that tough decisions need to be made.

Now for those practical lessons.

For starters, nothing lasts forever. The eventual decline of the United States in relative terms is inevitable. But managing measured change is profoundly more desirable than suffering a precipitous fall.

Niall Ferguson, a history professor at Harvard who has written at length about the British Empire, put it this way: "There's a very big difference between declining in the next five years and the next 500 years," he said. "I shouldn't think Americans would like to live through what the British did."

Avoiding a rapid decline has something to do with picking one's battles. According to Professor Ferguson, wars among near-equals can be particularly destructive. Had Britain been able to use its influence to head off World War I, its ensuing decline would have been far less abrupt. But even if avoiding war with Germany might not have been possible, it appears that Britain seriously overestimated its chances of achieving a quick strategic victory. It's a good reminder that military actions are among the most risky a nation can undertake. So far, the wars against Iraq and Afghanistan, much weaker nations, are not in themselves likely to seriously injure the United States' position. But concluding the conflict in Iraq has not proved as easy as prewar estimates suggested, and opening a front in Iran or elsewhere could add significant burdens.

Managing a potential decline also requires knowing what the competition is up to. That is not to say a global power can't tread its own path, but if it goes too far out of step with emerging rivals, the balance of power could shift.

For instance, if the United States continues to be the greatest military spender in the world, while its rivals use their resources for economic growth, the current advantages held by the United States will shrink over time.

Of course, when it comes to rivals, the future is notoriously difficult to predict. For years, many commentators said Japan was the primary commercial threat. And many people predicted that it would soon eclipse the United States. That hasn't happened. Today, China is probably the most popular candidate for the next great economic and military power. Many estimates suggest that China's economy could overtake the United States' within 40 years.

History shows that in the long run, economic policy tends to be just as important as military policy when it comes to a country's national security. In the short run, military spending can be supported by borrowing (Britain) or authoritarian measures (the Soviet Union), but eventually the guns belong to those whose economies can afford them.

IN fact, a great power that ignores its economy can become its own worst enemy. According to Professor Kennedy, when great powers have been threatened with decline, they have tended to increase their spending on security; as a result, they starved their economies of needed investment. Such a short-term strategy ultimately cannot be sustained, and the fall can be abrupt.

In the end, Britain's enormous borrowing to pay for two world wars was simply too much for its economy. At the close of World War II, British foreign debt stood at $40 billion, roughly the same size as its entire economy in 1948. "The British lost their empire because they went bust," Professor Ferguson said. "With a potential fiscal crisis looming in the United States, it should be a lesson to us all."



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