Painful death of the American economic dream

Source: Guardian.co.uk

02/11/09

This crisis has been a long time in coming, and history suggests that the period of upheaval will be long and painful, just as it was between 1914 and 1945

It wasn't really supposed to end up like this. When the Berlin Wall came crashing down 20 years ago, the cold war ended with triumph for the west.
Instead of two superpowers, there was one. Instead of competing ideologies, there was capitalism, and a particularly brash form of capitalism at that.

The elder George Bush said the world should learn how to do things the American way. "We know what works," he said. "Free markets work."

The reach of the market grew longer for two decades, encompassing China and India as well as the former Soviet Union and its satellites. Rapid growth brought impressive poverty reduction in China and India; there are few Poles or Czechs who hanker after the days when Moscow pulled the strings.

But it was always inevitable that, sooner or later, globalisation would run into a crisis, and what we have seen in the past two years is just the start of it. Don't be fooled by the sucker's rally of the past six months – Americans are once again running down savings to consume goods they can't afford; China's exports are booming.

The global imbalances are back. A combination of political change and technological revolution has always produced upheaval. That was true when the spinning jenny met the Enlightenment, and it was true when a second wave of inventions – cinema, electric light, the automobile, aircraft – coincided with a crumbling of the 19th century balance of power.

Digital technology and bioscience will drive the third industrial revolution, but these changes take place at a time when the spread of the market has vastly increased the reserve army of labour. America's hegemony is being threatened by the rise of China.

These, then, are combustible times. This crisis has been a long time in coming, and history suggests that the period of upheaval will be long and painful, just as it was between 1914 and 1945...

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