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American global hegemony is under pressure

By Peter McMahon - posted Thursday, 10 February 2005


American global hegemony - a core reality of the last 50 years - is under threat. Changes within the US, both techno-economic and political, and the rise of genuine alternative power centres are combining to threaten US dominance. Recent developments, especially the ongoing, messy war in Iraq, the failure to deal a telling blow against global terrorism, and the new fragility of the US dollar are all indications of imminent change.

The US ended World War II as the only clear winner. Not only was the US in great shape in terms of industrial, financial and military capability, but other developed nations were in bad shape. Britain was financially wrecked, France, Germany, Italy and Japan were physically devastated, and the Soviet Union was very weak except for its huge land army. The subsequent global hegemony achieved by the US was built on military power expressed by its nuclear deterrent and powerful conventional forces, industrial power increasingly in the form of large corporations, and the central role of the dollar in international economics.

While its nuclear deterrent kept the only real enemy, the Soviet Union, at bay, US industrial power translated into American transnational corporate penetration in an international economy based on the Bretton Woods financial regime. This set the scene for a revitalised global finance system, dominated by American or American-run institutions, including private banks, the IMF and the World Bank. By the mid- 1980s, the mix of transnational corporate activity (now including firms from Japan, Europe and even some less developed nations) and global finance markets were so well developed and integrated the term “globalisation” came to be used to describe the emerging new world order.

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By this time US industrial decline was well advanced, with firms from Japan, Europe and the fast developing East Asian “tigers” out-competing American firms in core markets like automobiles, white goods and even computers. Increasingly, however, American corporate activity was shifting into “knowledge-based” production and finance, exploiting the still central position of the US in global financial and institutional (for example WTO) arrangements.

The end of the Cold War in 1990 allowed the US to rethink its global military posture, which was already undergoing constant change to due to rapidly evolving technology. The US military opted for ever more high-technology solutions, and a renewed advance into space, focused around ballistic missile defence.

A series of events have shown the underlying weakness of the US position, now based so firmly on the twin pillars of the central role of the dollar and ever more technology-based global military power. It is telling that this situation parallels the predicament of the previous global hegemon, Britain, which relied more and more on the Royal Navy and sterling to maintain its global role as Germany and the US undermined its industrial leadership at the turn of the century.

First, the increasingly volatile oil supply situation as the US became dependent on Middle East oil (which is likely approaching peak production) led to a long entanglement with Iraq, the last, and ongoing, military phase of which showed the problems with the small, high-tech army policy. Secondly, there is the questionable willingness of the rest of the developed world to support huge US deficits and maintain the strong dollar. This has been exacerbated by the current Bush administration’s fiscal and international relations policies, which indicate a growing unilateralism. That is, the US seems increasingly unwilling, or unable, to accept the global systemic responsibilities of global hegemony.

The Middle East, and especially Iraq, is the prime site of the American dilemma. First, the intention of the Iraq government to opt out of the system where oil markets traded in US dollars in favour of the Euro, announced in November 2000, was a serious blow to the role of the dollar as de facto global currency, with all the privileges that entailed. The way in which the US subsequently invaded Iraq, and the overall failure of the occupation to achieve peace, has greatly damaged US credibility. This has eroded its capacity to form military and diplomatic alliances and may be behind the growing lack of confidence in the dollar, reflected in its volatility over recent times. In effect, with a strong Euro there are now two currencies vying for global primacy.

Whether this erosion of American hegemonic position is structural, and had to happen sooner or later, or was brought about by inept leadership, is debateable. The rise of a united Europe, with a bigger GDP than the US, and the continuing growth surge of China, in themselves present challenges to US supremacy. Furthermore, there are signs that an alliance of less developed countries, led by Brazil, is emerging to challenge the US-based “Washington consensus” which governs global economic relations. It would seem inevitable that the relative position of the US - to a certain extent the result of the extreme exigencies of global war from 1914 to 1945 - would have to decline.

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But there can be little doubt that the attitudes of the current American leadership - led by a president heavily influenced by simplistic, religion-based notions and largely run by ideological extremists (known as “neocons”) - has made the possibility of a reconstruction of global conditions around more equitably negotiated arrangements much less likely.

Of course, the need to find global solutions to global problems like climate change, disease and unbalanced economic development demand more than ever a functioning global system. The question is whether the US can step down from its position of unique power and join such a project. After all, American global military reach is undiminished, and provides a powerful card to play. But a century ago the then hegemon, Britain, found that once the basic advantages arising out of economic primacy had gone, hegemony could not be maintained by military power alone.

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About the Author

Dr Peter McMahon has worked in a number of jobs including in politics at local, state and federal level. He has also taught Australian studies, politics and political economy at university level, and until recently he taught sustainable development at Murdoch University. He has been published in various newspapers, journals and magazines in Australia and has written a short history of economic development and sustainability in Western Australia. His book Global Control: Information Technology and Globalisation was published in the UK in 2002. He is now an independent researcher and writer on issues related to global change.

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