Empires Apart (77 page)

One of the most respected economists of the twenty-first century, Professor John Kay, has commented on the powerful myths associated with the American economy. Writing in 2005 he said:

One of the oddities about the last decade has been the belief – on no evidence – that the US is not just the world's most successful economy, but that it's so markedly more successful than any others. The truth is that the richest countries in the world are small western European states:
Switzerland, Norway, Denmark and so on.… If you look at growth rates during the last twenty years, there is no marked difference between American economic performance and European economic performance. The bizarre thing is that not just Americans but a lot of Europeans seem to have brainwashed themselves into believing that Europe is doing much worse than the United States.

He goes on to draw an interesting conclusion from the economic statistics usually used to demonstrate American superiority: ‘American GDP is 20 per cent above French; but French working hours are shorter. The only difference is the French have more holidays and longer lunches. There never has been a huge gap between European and American productivity.' In fact, OECD statistics show that productivity per hour worked is higher in France than the US, although productivity per head is lower. The difference is that the French not only work fewer hours per week but French workers average about seven weeks of paid vacation a year. In America that figure is less than four.

A study of corporate headquarters by a team from Ashridge Strategic Management Centre found that, after allowing for such factors as size of company, US firms typically employed 27 per cent more staff to do the same tasks as western European firms.

What US corporations have that many European corporations lack is scale. Economies of scale in classical economics are primarily about capital efficiencies: the theory is that the company producing a million widgets a day will do so more efficiently than the company producing a hundred widgets a day, because the larger company will be able to afford better widget-making machines. The reality, as the robber barons in America realised after the civil war, is that economies of scale are really nothing to do with capital efficiency but everything to do with naked power. Modern business textbooks no longer talk about achieving ‘economies of scale' but simply about ‘leveraging scale'. Scale gives corporations power: power against their suppliers; power against their smaller competitors (if you bought this book in an independent bookshop you can be sure the
owner paid the publisher far more for it than the big bookselling chains would have done); power against their employees and their unions; and nowadays power against individual governments.

A classic illustration of the link between scale and American economic imperialism is the fate of the British institutions that once dominated the financial world. Margaret Thatcher, one of the most ideologically driven leaders of modern times, was an ardent advocate of the free market policies promoted by US corporations. One target of her ideological zeal was the collection of financial institutions known as the City, which had once formed the hub of the British commercial empire. The City was governed by a host of largely informal rules and demarcation lines that she swept away in a ‘Big Bang' in October 1986. In his book
The Death of Gentlemanly Capitalism
Philip Augar describes what happened. Before Big Bang all the top ten British merchant banks were British owned; afterwards none of them were: three were European, five were American and the remaining two were characterised by Augur as international with a strong American influence. Firms that had been large by British standards were dwarves compared to the giants of Wall Street, and they were simply gobbled up. It is this scale rather than anything deriving from
laissez-faire
economic theory that has driven the ever-increasing power of US corporations. As J.K. Galbraith argued, corporations wield power by using the ‘mystique of the market', but the reality is that they control the market rather than the other way round. Not only do corporations use the power derived from their scale to manipulate the markets, but US corporations often benefit from massive state support. Kevin Phillips presents a lengthy list of occasions between 1982 and 2005 when the American financial services industry received government subsidies; subsidies of $250bn were given to troubled building societies (known in the US as Savings and Loans) at the very same time that Thatcher was allowing American corporations to seize control of the City in the name of free markets.

The US takeover of the City is an example of commercial ‘imperialism' not because the nationality of Britain's banking oligarchs happened to
change but because of the consequent financial transfers. If companies wanted to raise money on the London Stock Exchange in the mid-1980s they would pay around 1.5 per cent to the various intermediaries. The equivalent cost in America was around 5 per cent, and after the Big Bang fees in Britain shot up to ‘international levels'. The work being done was just the same, but British companies needing to raise new capital found themselves paying large dollops of extra commission that disappeared into the maws of Citibank, J.P. Morgan, Goldman Sachs and the like. A new stream of tribute was now passing across the Atlantic.

Whether in fact American corporations are more or less efficient than their global competitors is, in terms of history, largely irrelevant. As historical forces US corporations are simply more important than European corporations because they have shaped America and America is shaping the world.

Since its formation the United States of America has sought to reform the world in what it believes to be its own image, but it has always been an image distorted by the prism of ideology. A nation built very largely on slavery preached equality and justice for all; an empire built on conquest preached peace and respect. Nowadays the mantra is free markets, an ideology of corporatist democracy that is predicated on the supposed superior efficiency of US corporations, and on the assertion that this superiority derived from the free market nostrums that are now prescribed for the rest of the world. But the reality is that the US initially achieved its economic pre-eminence by avoiding the perils of free competition. Massive tariff barriers served to protect infant US industries from the chill winds of free markets.

One study of eleven industrial nations found that in 1875 by far the highest GDP growth rate was achieved by the United States, which also had by far the highest average tariff on imports (45 per cent: the next highest tariffs were in Denmark and Austria, each averaging 17.5 per cent; Britain averaged zero). Looking at the same countries in 1913 found almost identical results: the United States again had by far the highest tariffs (44 per cent) and a growth rate exceeded only by Sweden (which
had increased tariffs from 4 per cent to 20 per cent in the intervening period). Such tariffs are now bitterly opposed by US corporations that are striving to leverage their scale in overseas markets.

It is hard to disagree with Cambridge professor Ha-Joon Chang's assertion (in his aptly titled book
Kicking Away The Ladder
) that the very methods used by America and other western countries to kick-start their own development are now being denied to developing countries. Not only was US development assisted by measures it now decries in others, but those economies it has pressured into following its ideological prescriptions rather than its example have suffered. Harvard economist Dani Rodrik compared the economic performance of Mexico and Vietnam – the former having ‘benefited' from enormous US investment and a free trade agreement with its northern neighbour, the latter suffering from a full US trade embargo until 1994 and severe international trade restrictions for many years after that. His conclusion is that since 1992 (when Mexico signed the North American Free Trade Agreement) its per capita growth rate has barely been above 1 per cent;Vietnam's has been five times greater.

The claim that American-style corporatist democracy is the most economically efficient way to organise society is therefore no more robust than its claim to political and judicial superiority. But whatever may be the pros and cons of its political, legal and economic theories, the underlying reality is that America works. Hundreds of thousand of people clamour to get in because America quite simply offers a better life. The question is, better in what way?

It is easy for liberal Europeans to sneer at American society, to assert – in the snide phrase variously attributed to Oscar Wilde and George Clemenceau – that America is the only nation in history to go from barbarism to decadence without an intervening period of civilisation. But far more of the world's population wish they could live, if not in America, at least like Americans. They believe their lives would be better: richer, healthier and simply longer. Most of them are wrong.

Among the world's richest countries the United States ranks last or nearly last on almost every health indicator: infant mortality, average birth weight, life expectancy at birth, life expectancy for infants and so on. The average American male lives three and a half years less than the average Japanese. The American adolescent death rate is twice as high as England's. A recent survey of thirty-three industrialised nations found that only Latvia had a worse infant mortality rate than the US. Cubans, supposedly suffering under decades of dastardly dictatorship, can expect to live longer than the average American.

Of course Russians are worse off. They spend more of their lives sick than their counterparts in the United States, western Europe and Japan. Furthermore low birth-rates and high death-rates have created a demographic crisis; experts predict that by 2050 Russia's population will drop to 100 million from its current level of around 143 million. This in turn will cause catastrophic labour shortages, damning Russians' aspirations for a better life. One reason for the high death rate is that Russia now has the fourth highest per capita cigarette consumption in the world, encouraged by foreign tobacco corporations who have been among the largest investors in post-Soviet Russia. These corporations have focused their advertising on women, managing to more than double the rate of female smoking since the Soviet era.

America is a much wealthier society than Russia, but that wealth is concentrated at the top. At the end of the twentieth century the richest 1 per cent of the American population owned more of the nation's wealth than the bottom 90 per cent. The conspicuous consumption of the denizens of Wall Street may be beyond the comprehension of most of the world's population but, as one study put it, ‘People die younger in Harlem than in Bangladesh.' Foreigners may snigger at obese Americans, but the US Department of Agriculture reports that 33 million Americans go hungry (or to use their jargon 33 million Americans live with ‘food insecurity'). Twice as many have no health insurance.

One argument frequently cited to compensate for such statistics is that at least the poor in the US can ‘haul themselves up by their bootstraps' and
achieve the good life; America is not stuck with the rigid class structures that compel the poor elsewhere to stay poor. A Canadian study by Miles Corak looking at social mobility over four generations showed that the reality is quite different; not only do poor families in America have a smaller chance of rising up the social ladder than Canadians, but Americans were also less mobile than Scandinavians and even the French; indeed the only nation in the survey with marginally less social mobility was the United Kingdom.

In the last twenty years of the twentieth century US income differentials increased dramatically, the rich became a lot richer and the poor poorer: 145,000 people in the US, one in a thousand of the earning population, earned more than $1.6m each in 2002; this 0.1 per cent accounted for 7.4 per cent of the nation's income, more than double the share of the top 0.1 per cent in 1980. The average CEO in America earns 800 times the minimum wage – for a few hours at their desk they earn more than a worker on minimum wage earns in a year – although US research quoted by Richard Wachman has found no link between performance and high levels of executive pay. The American tax system ensured that the top 400 taxpayers, earning a minimum of $87m a year, paid virtually the same income, Medicare and social security taxes as people earning $50,000. (At the same time the power of corporatism was shown as the tax burden moved increasingly away from corporations to individuals. In 1960 corporations paid 23 per cent of US tax receipts; by 1990 this had fallen to 9 per cent.)

In the first five years of the twenty-first century average pay in the US actually declined in real terms. Massive inflows of cash from the expanding economies in Asia kept interest rates low and pumped up asset prices, which in turn led to big bonuses on Wall Street but did nothing for American wage-earners: by 2006 wages made up the lowest proportion of GDP since the Second World War. This cash inflow, which transferred wealth from the rest of the world to America, was remarkable in two ways: it failed to benefit large sections of American society, and it marked a significant change in the commercial dynamics of the American empire.

One of the characteristics of the British empire is that after the early days of naked exploitation the colonies became recipients of massive British capital investment. On the eve of the First World War the net outflow of capital from Britain was no less than 9 per cent of its GDP, a quite staggering figure. Not all of it went to the empire; the United States and (to a much lesser extent) Russia were significant beneficiaries.

The dynamics of this process are controversial. Ferguson sees Britain's investment in its empire as an act of unrecognised nobility for which former colonies should be grateful. Others – like the renowned Indian economist Amiya Kumar Bagchi – point out that the picture looks very different when other factors are considered. In the case of India taxes levied on locals to support the British occupation, pensions paid to imperial civil servants from Indian revenues, interest payments on government debt, profits made in Britain by ‘adding value' to Indian exports and what has been called ‘self-ransoming' all contributed to ensuring that the people of Britain gained far more economically than the people of the subcontinent. (The classic case of self-ransoming was the enormous debt incurred by the imperial Indian government to suppress the Indian mutiny.) Nevertheless, in terms of classical economics, which largely ignores such tribute-flows, investments were made on a very large scale by British firms in order to dominate economies across the globe.