How to Understand American Decline

Like the summer heat, fear of America's impending decline is weighing on Washington these days. Has the United States lost its oomph as a superpower? Even President Obama isn't immune from the gloom. "Americans won't settle for No. 2!" Obama shouted at one political rally in early August. How about No. 11? That's where the U.S.A. ranks in NEWSWEEK's list of the 100 best countries in the world, not even in the top 10. And as the worst recession since the '30s festers on, along with the wars in Afghanistan and Iraq, no number of legislative triumphs—financial reform! health care!—seem capable of lifting the nation out of its doldrums.

(The full list is available in the Aug. 23-30th issue of NEWSWEEK. Vew the list and interactive on Newsweek.com.)

Now the president is turning his attention to improving education. "We've flatlined while other countries have passed us by," Obama's education secretary, Arne Duncan, said in early August, referring to another grim milestone: a report by the College Board that showed an "alarming" decline in young American adults who have completed college; once a global leader, the United States now ranks 12th in the world by that measure. "The country that out-educates us today will out-compete us tomorrow," Duncan warned. That's not just rhetoric. A recent study by McKinsey and Co. showed that the growing gaps in educational achievement between the United States and other leading nations "impose the economic equivalent of a permanent national recession—one substantially larger than the deep recession the country is currently experiencing."

On any number of indicators, according to the NEWSWEEK list, the United States is not the worldbeater it was a decade ago. "On economic fundamentals such as GDP growth, household consumption, industrial production, and trade, the U.S. was ahead on most metrics 10 years ago," says James Manyika, director of the McKinsey Global Institute. Today, in contrast, America barely makes the top quartile, and it's fallen to the bottom quartile in R&D.

China, the putative future superpower, now has a much higher rate of patent creation than the United States, as well as a higher number of engineers being graduated. And because most American R&D spending comes from a handful of U.S. multinationals, some experts fear the companies will eventually shift their funding to China. "The picture of the U.S. that emerges is 'way ahead 10 years ago, still ahead today, but not as far ahead,'" says Manyika.

Beyond that, America hasn't recovered from the serious blows to its stature delivered by nearly a decade of policy debacles. As Obama never tires of reminding the American public—which is listening less and less, judging by his poll ratings—he inherited a Herculean task: the Augean-stable-size mess left behind by George W. Bush. First there was the diversion of military resources and attention from Afghanistan to Iraq—a draining, misdirected war and occupation that many believe never should have been launched. Then there was the long period of fiscal, regulatory, and financial recklessness that contributed to the worst-ever downturn since the Great Depression. Finally, Washington squandered its chance to lead on climate change. The "aughts," The Washington Post wrote last January, were really for naught: the 2000s were "a lost decade," the paper said, with economic output rising at its slowest rate of any decade since the 1930s and an unprecedented net job growth of zero. It's no wonder other countries started to catch up faster.

Nor does anyone seem to be looking at the United States as a model any longer. Despite the initial flurry of worldwide enthusiasm about Obama's election—has anyone ever won a Nobel Peace Prize with less effort?—critics are now back to grumbling that America is no longer a locus of wisdom, or a lodestar for behavior. "For the past 70 years the U.S. has sought to lead and expand an open, democratic international order," Thomas Wright of the Chicago Council on Global Affairs wrote in the Financial Times recently. "This era of expansion is drawing to a close. China shows no signs of democratizing as it grows wealthier. The financial crisis has undermined the lure of open markets."

So, yes, America has clearly suffered some decline, relative to other nations, and a loss of prestige. But even battered and beaten down, American power is more resilient than the naysayers give it credit for. And so is the international system that depends on American power as its central stabilizer. What the declinists tend to miss is the fact that there really are no rivals to the United States. Sure, Germany is an export powerhouse; but will it be a global power ever again? Even the Germans don't want that—they have no military to speak of, and no one wants them to build one. Russia? Riiiight, if you think KGB-run companies and the organized murder of dissidents amount to a good model for governance. Japan? It's long since resigned itself to becoming the Switzerland of Asia, wealthy and comfortable but resolutely neutral about just about everything (except maybe whaling). The European Union, meanwhile, has all it can do to keep its ever-fractious self together, given the market stresses on its troubled currency.

And what about China, everybody's favorite choice for future rival? One recent book, The Beijing Consensus: How China's Authoritarian Model Will Dominate the 21st Century, argues that Beijing is supplying the successor to the "Washington Consensus"—the post–Cold War formula for open markets that came to grief in the financial crisis. But the China model of autocratic capitalism, successful as it has been at home, is hardly something most others want to emulate, and it may well be close to peaking. "China is obviously more dynamic and is going to rival the United States in various ways, but it's not really picking up allies, and it's generating insecurity in Asia that's going to bring the U.S. even further into the region," says Prince-ton scholar John Ikenberry, author of the forthcoming Liberal Leviathan: The Origins, Crisis, and Transformation of the American System. Ikenberry has an unusual metric for global influence: he counts how many allies a country gains over the decades. Starting in 1946, he says, the United States added allies—nations with which it has some kind of security relationship—every five years or so and now has a total of 62, including many from the former Soviet bloc. (Washington also has a strategic partnership with India, another world power.) During that same period, Ikenberry says, China never managed more than two allies altogether (though it has a lot of "fellow travelers," nations that have fallen under the sway of Chinese investment capital). "For China to really be a global peer competitor," says Ikenberry, "you have to think there are going to be states that will peel off [from the U.S.] and start to build a security relationship with China."

Looking again at the NEWSWEEK list, the "best" countries tend to be small, homogenous, and fairly harmless: Finland (No. 1), Switzerland, Sweden. All wonderful places—but they are nations that have almost no geopolitical role to speak of and never will. They're just too tiny. Yet in the category of "large"—read significant—countries, the United States still finishes handily ahead of China in every major index, including economic dynamism, education, health, and "political environment." What the figures don't show at all is the unspoken tradeoff in the global system, a grand bargain that has persisted for a half century: to wit, Europeans and Asians (except for China) will agree to forgo serious military power and strategic dominance in exchange for acknowledging (again, tacitly) that the United States will play that role. This way they get to maintain their generous welfare states and their high McKinsey living standards.

Set aside for the moment the invasion of Iraq. America spends more on defense than the rest of the industrialized world combined, not because it is inherently militaristic, but because the United States is the enforcer of the international system. American military power overlays every region of the planet, restraining belligerents and preventing arms races from East Asia to Latin America. That, in turn, enables globalization to proceed, even in these troubled times for the world economy. With the exception of Iraq, this hidden infrastructure of U.S. power emerges into public view only occasionally, in tsunami relief or in America's unique ability to supply airlift and logistical support to hotspots like East Timor and Sudan. Since 9/11, U.S. Special Operations Forces have been increasingly operating as global SWAT teams, slipping silently across borders to take out terror cells.

The big new question is whether Washington can sustain this global godfather role with an economy that is no longer dominant. Another key element of U.S. power is the unique role of the dollar. America is the only nation in the world that can fall heavily into debt without fearing default or a currency crash because most other countries keep dollars as their reserve currency. Those countries must, perforce, finance U.S. debt. How long can that last? Oddly enough, despite all the hubris emanating from Beijing, Berlin, and Moscow since the financial crisis, little has changed in the old relationships. China, Japan, and the other wealthy Asian countries continue to buy U.S. Treasury bonds (one reason interest rates remain so low, despite the huge U.S. deficit).

Still, there is evidence that a peaceful insurgency against American hegemony has begun. Obama and his secretary of state, Hillary Clinton, encountered this at the global climate conference last December, when they barged in on a private meeting orchestrated by Chinese officials, who intended to get India, Brazil, and South Africa to block a pact. Using some aggressive diplomacy, Obama and Clinton managed to come away with a partial victory for reducing greenhouse gases. A similar attempt to shake free of American power and influence occurred earlier this year when two U.S. allies, Turkey and Brazil, orchestrated an independent opening to Iran over its rogue nuclear program, flummoxing Washington. "We're not living in a world where the United States has a near monopoly on information and every means of power," Clinton told me.

Michael Mandelbaum, author of the new book The Frugal Superpower: America's Global Leadership in a Cash-Strapped Era, argues that the United States will have to scale down its presence in world affairs. Ikenberry tends to agree. "The story is less a state that is rising to take over the American position, but rather the decline in the capacities of all major states to run the international system," says Ikenberry. "It's the softening of leadership from the center." U.S. power is likely in decline, but it's far from fading away. And the global system America largely created in its own image continues to be supported by most countries—even the "best" of them.