The End of Influence

For as long as many can remember, the United States has been the country with money, influence, and power. But all that is changing, write Brad DeLong and Stephen Cohen in their new book, The End of Influence. FP excerpts exclusively here.

For more than a quarter century now the countries of the world have been dreaming the neoliberals' dream. They have been trying to shrink their states back to their core competencies to promote economic efficiency, global economic integration, and growth, and to slash through red tape, rent-seeking, and simple corruption. They have been actively privatizing state holdings. They have hugely reduced their ownership and their active involvement in "national champion" companies. They have cut back on interventions to affect market outcomes and on regulation to scrutinize and control market players.

But now they are waking up. And the neoliberals' dream is at an end.

To understand why, we need to journey back to the mid-20th century. The coming of World War II ensured that whatever money still remained in Britain left quickly. Franklin Delano Roosevelt ruled an isolationist country that he wished to cajole into engaging in the war with Hitler as early and as completely as he could. But part of Roosevelt's strategy (and a not-altogether unwelcome consequence, for many who worked in the State, War, and Navy Building-a Victorian-era structure just west of the White House that looked like a French brothel) was to make Britain broke before American taxpayers' money was committed in any way to the fight against Hitler. Only after Britain had sold off the family silver to pay for the nozzle would America "lend" Britain its garden hose to fight the Hitlerian fire.

America did come to the aid of its closest, cherished, and most important embattled overseas ally after Britain was broke. The Grand Alliance was the great moment in the grand story of the English-speaking nations. It does remain Churchillian in the inherited grandeur of its narrative. And America did come to the rescue of England, and together-with enormous although unloved assistance from the Red Army of the Soviet Union and Josef Stalin-America did save the world from the horrors of the Nazis. But while we were gearing up to come to the rescue, we squeezed the British, and when World War II was over, the United States, not Britain, had the money. When the British borrowed money from us, it had to be repaid in dollars, not in sterling. And imports into Britain had to be rationed well into the 1950s.

Will the United States be similarly squeezed? No. We are not engaged in a total war. We do not domestically produce only 1,200 calories of food per citizen per day. We are still by far the world's largest national economy. The United States is technologically powerful and resourceful and is still the center of world finance. World finance is still transacted in dollars. And the United States remains the world's only military superpower, whatever that may turn out to mean.

But the United States is losing the money. America is now massively in debt to foreigners and will be more in debt with each passing year as far into the future as forecasters can see. It will not be squeezed as it squeezed Britain, but it will be constrained.

Back when the United States had the money, it used it to pay attention to other governments only when it chose and to make certain that other governments paid attention to the United States even when they wished to not so choose. With the Marshall Plan, America made Western Europe an offer that all but forced Western Europe to adopt the mixed-economy social-democratic order of the post-World War II North Atlantic. It financed and arranged "regime change" in lesser countries to remove governments that seemed to be veering off into serious error. In all this, the United States used the leverage of having the money exclusively for the global greater good.

Who has the money now? What can they do with it? What are they holding? The smallest big batch of money held by other people is simply cash: greenbacks. Perhaps $450 billion, perhaps more, circulates abroad in cash, in hundred-dollar bills. Some countries, such as Panama and Ecuador, have formally gone over to a dollar economy. In other countries (such as Lebanon), cash dollars are widely used. Then, of course, many individuals and organizations prefer the anonymous convenience of hundred-dollar bills: drug dealers; arms merchants; Russian operators; Argentines and Eastern Europeans with doubts about their local currency; rich and not-so-rich Chinese, who live in a cash economy where the largest Chinese currency note in circulation is 100 yuan (about $15). Though not often discussed in polite company, seigniorage, that is, the ability to coin or print cash (the right held by a feudal seigneur) and have other folks hold it, is valuable: Those who hold the $100 bills have, for many, many years, been providing a substantial loan to the U.S. government -- and it's interest free!

The bigger big batches of dollar-denominated and U.S.-located assets -- and they are very big indeed -- are not cash but are rather investments. A great deal is held by private foreign individuals and organizations: Japanese housewives, German doctors, Scottish pension funds, Dutch companies, Colombian drug lords, Japanese insurance companies, sons of Gulf sheiks, and Russian "businessmen."

This money is private money. It belongs to market players -- people, companies, organizations, and institutions looking for the highest returns at the lowest risk. Much of the money is in the hands of the governments and rulers of oil-producing states (or in the hands of whatever or whoever holds their money). Truly great piles of U.S. obligations are in the hands of the governments of Asia. Japan holds about $1 trillion in reserves (which comes to almost $9,000 per U.S. household). Taiwan, Hong Kong, and Singapore together hold something like $500 billion. Korea sits on another $200 billion.

But it's China that is the biggest holder of U.S. obligations, with some $2.5 trillion in "reserves," the lion's share of it in U.S. debt obligations. America owes unimaginably large amounts of money to lenders (such as China), about $20,000 per American household, three-fourths of China's GDP, a fact worth repeating, a fact that makes rapid repayment impossible.

Proverbs 22:7 instructs us: "The borrower is servant to the lender." But the lesson requires some exegesis to fit smoothly into context. The burden of the U.S. foreign debt may be better explained by the oft-repeated Wall Street wisecrack, which we repeat: When you owe the bank $1 million, the bank has got you; when you owe the bank $1 billion, you've got the bank.

Neither side can walk away; we're locked. The debt binds China especially and other governments that have the money. Selling the debt would send the dollar way down and thereby destroy the value of their dollar holdings and severely damage their economies' massive export-based sectors. Worse yet, sell it for what? Their "reserves" are so huge that there is nothing else they can hold them in, not at that scale. From a Chinese viewpoint, it's exasperating.

The U.S.-China economic imbalance has forced the two powers into a very intimate and not very desired embrace, something Lawrence Summers once called a financial balance of terror. This is all to the good: The two powers must learn to work as partners, and not just in economic matters -- global warming and global order also need positive Sino-American cooperation, and they are much more important long-term issues. Sino-American partnership, in managing the complex mess of their imbalanced economic codependency, can constitute a good beginning for managing the utterly unhinged problems of world balance and order. We have no acceptable choice but to get good at it, and that will take some doing on both sides.

As money alters power relations, the United States is not simply becoming dependent -- but it is no longer independent, either. That is a major change. And China is no longer helpless and cowed in face of the superpower hegemon; it has got a grip on it. Indeed, while the world peeks in, the two countries are realizing that they have thrown themselves into an intimate economic embrace with, to say the least, very mixed feelings.

For the past 30 years, America rather successfully propagated to itself and others a worldview of unfettered markets and "re-fettered" states: Expand the realm of markets in society and roll back the reach of other institutions, especially government. They backed that worldview with money and, until it crashed, this American outlook was willingly adopted by more and more people and governments around the globe. Soft power -- not military might, not straight-out money, but the ability to inspire acceptance and imitation -- was a vital component of American international dominance. It soothed the abrasiveness of military and economic power and made the wielders of such power feel good.

Money, of course, is power. Because America had the money -- had it solidly, rightfully, self-assuredly, and durably -- for about 100 years, people all over the world wanted to be like Americans: successful, modern, loose-jointed, efficient, democratic, socially mobile, leggy, clean, powerful, and, of course, rich. Money brings a nation power, not just the power to command, or at least influence, the behavior of other nations. And when the money accumulates over time and as a result of real economic success, and not just windfalls from guano or oil deposits, it brings the power to propagate, consciously or not, the ideas, concerns, fashions, norms, interests, amusements, and ways of displaying and behaving that come out of its culture. These penetrate deep down into other cultures as well as its own; they become part of daily life. This is luxuriant power: It doesn't have to be exercised willfully or even consciously, and it doesn't even cost anything extra. It was clearly the way to be.

As the United States emerged in the aftermath of World War I as the top power and giant money master, American jazz swept through Europe, faster than Ford and Kodak. Later, especially after World War II, Europeans eagerly welcomed the onslaught of American movies. Most Europeans encountered America at the movies, but two generations of rather privileged Europeans traveled to America to see for themselves (many sponsored by the State Department), to behold the skyscrapers of New York, the George Washington and Golden Gate bridges, and the houses of rather ordinary people with huge shiny cars, washing machines, televisions, and the orthodontically enhanced smiles on tall, milk- and meat-fed women.

American cultural dominance has continued to grow. Teenagers around the globe now uniformly dress in styles pioneered by American teens and have even adopted the same body language. They eat on the street. The American-designed, Asian-manufactured iPods fill their heads with the same harsh music; they instant-message, blog, and Tweet. And the English language -- not altogether an American cultural invention -- is not merely the international language, but also the second language for a vast global population: Languages carry more than their words and grammar; they carry cultural form and content.

America will be less and less the origin of new cultural trends or global memes: First, because the others now have the money. But also, because while America remains especially modern, the modern is no longer especially American; it is rapidly becoming semiglobal and if not old, at least very mature. There is no need to leave China to see skyscrapers; there are more of them in Shanghai than in New York, and they are newer, taller and bolder. The energy -- that key element in New York 1920s literature (e.g., Dos Passos) has, with the money, shifted its residence. For the foreign traveler now arriving at New York's Kennedy airport, the ride into Manhattan is still eye-opening, but in a new way: litter and slums line the Van Wyck Expressway through Jamaica, Queens, where rust and graffiti festoon the old transit trains and bridges; the roads are poor; there is no proper train into town -- let alone something as sleek and fast as in Hong Kong or Shanghai. Hollywood no longer has an inherited, built-in meganarrative -- the presentation of life in modernity in all its weird and quotidian forms: How women walk and speak, houses, murder, seduction, sex, kitchens, raising children, "making it," excursions, courtrooms, shopping centers, schools, hospitals, universities, and office buildings -- the world, perhaps of your future.

The culture created by America and exported by its movies is not gone; it's not even going. It has simply gone universal and is now open to a vastly expanded range of contributors. This is very likely to be a good thing for American and world culture, an opening to new ideas, talents, and energies. And America's ambient culture is being enriched by foreign imports ranging from soccer to sushi, not to mention energetic Ph.D.'s in material and biological sciences.

America is sure to remain a leader in cultural power, but there is a difference between being a cultural leader and an easy, almost un-self-conscious cultural dominance. Our research universities are the envy -- and model -- for the world. So too are our high-tech, biotech, and nanotech genre Silicon Valley-type firms, with their multinational, multiracial, and monocultural workforces of the bright, ambitious, educated, and driven. And there is also a powerful emergent American cultural force best represented by Barack and Michelle Obama: America might yet develop new meganarratives to succeed the world of modernity that will seize the world's hearts, fears, longings, and energies. But no matter how creative its creative people become, as in the realms of economic and political power, America is unlikely to remain the cultural hegemon, the overwhelmingly dominant source of cultural memes.



The Party’s Not Over

Does Islamist party Hizb-ut-Tahrir pose a threat to Western society? The answer may well be yes -- but that doesn't mean it should be banned.

In recent weeks, Britain's Labour government and the Conservative opposition have been embroiled in a feud about, of all things, Islam -- or, more precisely, an Islamist organization called Hizb-ut-Tahrir (Arabic for "The Party of Liberation"). Tory leader David Cameron has been assailing Gordon Brown's government for allegedly funneling taxpayer money to two Hizb-supported schools where students are being exposed to Islamist ideology. The education minister insists that the schools in question have nothing to do with the group. The issue is particularly tricky because many Britons, within government and out, have repeatedly called for Hizb-ut-Tahrir to be banned altogether. Their ranks included, at one point a few years ago, then-Prime Minister Tony Blair. It hasn't happened yet, though, for reasons that will be touched upon below.

One thing is for sure: We can all expect to hear more about Hizb-ut-Tahrir (HT) in the years to come. Founded 56 years ago in Jordanian-controlled Jerusalem, the party is estimated by some experts to have 1 million members around the world. A lot of them are now in jail. HT is banned outright in a number of countries, ranging from harsh dictatorships like Uzbekistan and Syria through countries like Pakistan, Syria, Jordan, Turkey, and Bangladesh, to Western European democracies including Germany and Denmark. Yet the group persists, and in some respects -- judging by the vast amount of literature it continues to produce, on paper, and myriad websites -- it seems to be thriving. The party recently made headlines in the United States when it was revealed that one of President Barack Obama's religious advisors, Muslim polling expert Dalia Mogahed, had participated in a Hizb-ut-Tahrir-sponsored TV broadcast. (She subsequently said that she'd been unaware of the show's affiliation.)

The party has undoubtedly been helped, over the years, by the clarity of its ultimate aim: the creation of a modern-day caliphate, an Islamic state that would bring together all the countries of the Islamic world. Unlike al Qaeda, though, which professes comparable goals, Hizb-ut-Tahrir emphasizes political action rather than force, arguing that Muslims have to be "enlightened" through education, propaganda, and political agitation until they fully understand the need to seize the reins of power in their own countries and unite the ummah, the global community of believers. According to one of the group's myriad pamphlets: "[I]f the Islamic Ummah were to rise as an Islamic Ummah, she would be more than capable of rescuing the world from the evil forces that control it, suppress it, and make it experience all kinds of misery, humiliation, and slavery."

It's this openly revolutionary aim that has gotten the party into trouble in many of the more authoritarian countries where it has run afoul of officialdom. Yet even though it claims to profess non violent means, the party has still managed to get into trouble in more liberal societies for the extreme intolerance of some of its views. The party became verboten in Germany, for example, after it shared a platform with neo-Nazis. HT officials insist that they are anti-Zionist rather than anti-Semitic -- though several studies of the group's literature have shown that the distinction doesn't always hold up. The group was proscribed in Denmark after, among other things, distributing pamphlets urging Muslims to "kill [Jews] wherever you find them, and turn them out from where they have turned you out." When I first came across the group's pamphlets in Central Asia in 2001, for example, I was struck by their references to the dictator of Uzbekistan, Islam Karimov, whom they ritually denounced as "the Jew Karimov." (He has no Jewish background whatsoever, as it happens.) One of the party's pamphlets stresses that Muslims who elect to leave the faith automatically face the death penalty -- a stricture that would be hard to reconcile with democratic freedoms if they dared to put it into practice.

Another source of concern is the group's role as a "conveyor belt," radicalizing members who then go on to participate in overtly violent actions. Its prominent members in Britain have included Omar Bakri Muhammad, founder of the group Al Muhajiroun, which gained notoriety for praising the 9/11 hijackers and harbored adherents who would later be implemented in terrorist attacks. When British intelligence officials searched the home of Omar Sharif, the Briton who attempted to blow himself up in a Tel Aviv bar in 2003, they found a cache of Hizb-ut-Tahrir literature. British journalist Shiv Malik claims that at least two major al Qaeda figures, Khalid Sheikh Mohammed and Abu Musab al-Zarqawi, originally had ties with the group.

Still, the party insists that it can't be blamed for the actions of everyone who has been associated with it and that it remains committed to the non violent pursuit of its agenda. "Our political culture stresses nonviolence and the importance of finding intellectual and political solutions to our problems," Abdul Wahid, member of Hizb-ut-Tahrir's executive committee, told an interviewer in 2005. "We say this because we consider that the problems of the Muslim world are the result of a decline in the quality of thought leading to political ineptitude." He dismissed the controversial actions of some of the party's earlier members in Britain (presumably including Omar Bakri Muhammad) as "over-enthusiastic."

Rashad Ali, a young British Muslim who joined the group as a teen but ultimately renounced it, explains that its recruitment efforts focus on young intellectuals who are drawn to its intense emphasis on ideas. "They really knew how to present their ideas in a way that was emotionally and intellectually engaging," he told me in an interview. He describes an intense indoctrination process "designed quite overtly to replace the un-Islamic thoughts and sentiments of an individual with Islamic thoughts, emotions, and behaviors." Unlike other Islamist groups, he says, the party embraces modern technology and dress and evinces a fairly subtle understanding of the limits of official tolerance in modern democracies. (When its British critics target Hizb-ut-Tahrir's anti-Semitic utterances -- which could trigger its prohibition on grounds of racial incitement -- the offensive passages tend to disappear quickly from the party's online publications.) Rashad says that he grew estranged from the group when it gradually became apparent that his own understanding of Islam, as a faith that is home to a variety of organic traditions, was being squeezed into a narrow, totalitarian political program.

In Britain, though, two government reviews have failed to result in outright bans, since merely professing noxious views is not enough to justify prohibition. By the same token, Hizb-ut-Tahrir remains a legal organization in Canada, Australia, and the United States, where it has recently staged several conferences. Indeed, some of its critics argue that this is probably the right policy. One of them is Hannah Stuart of Britain's Centre for Social Cohesion and co-author of a recent study that explores the party's ideology in some detail. With an outright ban, she says, "you run the risk of glorifying them." She contends that the best approach to countering Hizb's intellectual challenge is a policy of "civic intolerance" -- of the kind already used against the neo fascist British National Party: "Even though they [the BNP] are legal, they're treated with absolute disgust by all mainstream politicians." She approves of the stance, for example, taken by the British National Union of Students, which recommends that student groups should decline from taking part in debates with Hizb-ut-Tahrir. "All members of society should deny them a platform for their views," she says; government should not fund its activities or offer any form of support.

After all, prohibition also has its dark side. Felix Corley represents the group Forum 18, which monitors religious liberties in the countries of the former Soviet Union. He points out that Hizb-ut-Tahrir's prohibition in those countries doesn't seem to have done anything to solve the problem of religious extremism -- an argument bolstered by the fact that the party remains strikingly active even in countries where it's been banned for years. It may be worth noting that al Qaeda -- still a relatively small group in terms of membership, and these days a much beleaguered one -- has been promoting the idea of the caliphate only for the past 20 years or so. HT members have been at it for more than half a century, and they're still going strong. Among other things, prohibition lends credence to the party's insistence that Western countries and their authoritarian "lackeys" in the Islamic world really are engaged in a "war on Islam."

Corley, for his part, insists that the "greatest way to counter religious extremism is to have religious freedom." As even he acknowledges, though, it's precisely groups like Hizb-ut-Tahrir that put that principle to its hardest test.