The End of Pax Americana?

In the Mediterranean in May 1954, warships of the Royal Navy gave a 21-gun salute to Britain’s new monarch, Queen Elizabeth II, who was on-board the private vessel, the Royal Yacht Britannia, returning from a global tour of Britain’s realm. The ceremony was glorious, and was a demonstration of naval power reminiscent of the origins of the British Empire.

Little did many of that time knew, 1954 was pass the ‘high water mark’ of Britain’s supreme power on the global stage and pass the end of Pax Britannica. India, the crown of Britain’s possessions, is already on her own, and independence movements are underway in many of her colonies from Southeast Asia to Africa.

And after 2 devastating world wars that bankrupted the European nations, the baton of global empire had been irrevocably handed over to the United States, which reluctantly (at first) assumed the responsibility of global superpower after World War II. Since then, Britain went into gradual decline in her political, economic and social influence.

Quantitative economic historian Angus Maddison from the University of Groningen has a historical chart of various players and their share of global GDP, and with hindsight, its very clear that the US has replaced Britain during the years of the world wars:

America became the de-facto ruler of the world, and competed with the Soviet bear for influence as the old European imperial powers decolonise and retreat home. From 1945 to 1965, the US inherited the traditional sea lanes that the British used to charter, went heads on against the spread of communism in the ex-colonies of the European empires and spent billions to rebuilt her ex enemies (Germany and Japan), exercising her influence on ‘free, democratic and capitalist’ nations that are not aligned with the Soviet/communist bloc.

Just like the British in their time in the 19th century, where we saw the developed world moved from an agrarian society into a manufacturing-based footing, the US also led the world in technological advancement in the second half of the 1900s by sparking the Third Industrial Revolution (digitalisation), and moving the developed world into a services-orientated society. And it is still holding the beacon of technological progress as we speak…

However, there are signs that ‘Pax Americana’ is nearing its end.

I’ve learnt from historian Paul Kennedy’s “The Rise and Fall of the Great Powers” and science-fiction writer Isaac Asimov’s “Foundation Trilogy” that civilisations tend to move in cycles. While being a fan of European history, I’m also an avid student of Asian history, and in particular, Chinese history. Given that the Chinese civilisation is the oldest continuing one on earth, its history is a rich and vast arena that the serious student of history cannot hope to ignore.

I’ve noticed several similar patterns after observing both Eastern and Western history. Namely, great societies and empires tend to follow a typical and unmistakable path:

First Stage:

• They start off with humble beginnings, at times after a devastating war or a political regime change (like a revolution)
• The people collectively desire better welfare and a better life, and there is some form of political unity that kick-starts responsible governance  (there will be responsible leaders and typically low corruption in the civil service)
• Politicians tend to focus on domestic affairs and on boosting productivity, encouraging foreign investment and opening borders to improve trade
• The people work hard to feed themselves and their families, saving as much as they can and deferring enjoyment (there isn’t much consumer goods and as such a consumer economy is non-existent). They also tend to rely on themselves as the government has little resources to help the populace
• Since there is hardly any real wealth in the society, there is hardly any cultural development and achievement as everyone is caught up with survival

Second Stage:

• Overall conditions are gradually improving as development progresses and as the society benefits from peace and stability
• The people continue to desire better welfare and living conditions, and political unity has allowed implementation of pro-growth reforms, which benefits overall society
• Politicians  continue to focus on domestic affairs and on boosting productivity, encouraging foreign investment and opening borders to improve trade. This time however, they also begin to have more resources as they reap the rewards of a growing tax base. They start to expand their defensive capabilities in order to protect the country
• The people continue to work hard to feed themselves and their families, saving as much as they can but this time also enjoying the benefits of an improving society
• Some form of cultural development is starting to be seen, as sophistication and affluence in the society increases

Third Stage:

• Development continues but starts to increase at a slower rate than in the second stage
• The people as a whole begin to know that they are wealthier, and they demand more civil rights and seek more interest in having a say in the nation’s politics
• Politicians begin to look beyond their borders as the country’s overall economic strength starts to spillover into geopolitical influence, spending more on defense and may even start to exercise their power overseas. Boosting productivity, encouraging foreign investment and opening borders to improve trade begins to take an important but secondary priority.
• The people begin to appreciate the fruits of their labour, and begin to work less and save less and consume more than in the second stage
• As the population becomes increasingly affluent, they begin to appreciate the fruits of their hard work, with an increase appreciation for the arts, music, and of course, finer food

Fourth Stage:

• Development has plateaued but the people as a whole fail to recognise it
• The people think  they are wealthy, and they demand more civil rights and seek more interest in having a say in the nation’s politics
• Politicians continue to look beyond their borders believing that the country’s overall economic strength naturally demands geopolitical influence, spending more on defense and exercising their power overseas. Boosting productivity, encouraging foreign investment and opening borders to improve trade may no longer be on the table as there is little focus in these areas
• The people’s productivity declines and become less competitive, but they continue to appreciate the fruits of their earlier labour, and work less and consume like in the third stage (debt is also rising in this stage as productivity declines)
• The population believes that they are still as affluent as before and becomes complacent, focusing more on the sophisticated and finer things in life (this is the stage where cultural achievements are at the apex)

Final Stage:

• Society as a whole is declining slowly as living conditions may deteriorate
• The people still believe that they are wealthy, but because they are no longer as productive and competitive as before, begin to resent competition
• Politicians may start to turn inwards again as the society becomes restless and civil strife is rampant. However, spending on defense typically remains slow to decrease. This is also the stage where protectionist policies may start to increase and social welfare gains more demand
• The people’s productivity continues to decline, but they continue to appreciate the fruits of their earlier labour, and work less and consume like in the third stage (debt levels are high in this stage as productivity declines and stagnates)
• The population is slow to accept that their society is in gradual decline, and yearn for the ‘glorious old days’

Human history is filled with dozes of examples of great civilisations and empires going through this whole process. Persia… Rome… Umayyad Spain… the Chinese Han, Tang and Ming dynasties… Mughal India, and so on. One could easily see this process having played out to the UK and her once far-reaching empire. In fact, Bridgewater Associates even have an entire template and model for this historical understanding of empires and civilisations, known as the ‘Sovereign Life Cycle‘.

Each stage is marked by certain distinguishable characteristics. For example, the final stages are always accompanied by an all-powerful military (relatively high defense spending) and a great degree of cultural achievement. Policy-makers also tend to focus on ‘bringing back the glorious past’ instead of admitting that they have lost their competitiveness and devising policies to encourage innovation and productivity to once again be at the forefront. 

With this above understanding, do you think the mighty United States of America is also in the final stages?

*images credits to http://russia-insider.com, http://www.changesinlongitude.com*