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ICG Risk Blog - [ Trying to define the trends and timing of a Pax Americana ]

Trying to define the trends and timing of a Pax Americana


Part 3

Ambrose Bierce described truth as "An ingenious compound of desirability and appearance" and so it remains today. One of the difficulties in projections such as in A possible Pax Americana end game is timing - the timing of individual events in an event sequence and the total time horizon over which the forecast is presumed valid, possible mitigation events - pro and con, and the assumptions that underpin it all. (I find underlying assumptions and timing to be more useful than the predictions themselves.)

I make a habit of periodically reviewing my earlier forecasts for accuracy in content and timing, and a determination of which underlying assumptions remain valid and for those that are not, why not. While this can be a bracing exercise, humbling in various respects, it is an invaluable learning experience for content and process, and for restraining ex cathedra pronouncements that imply more solemnity than they deserve. If you fancy yourself a systems thinker or are interested in flagging secondary and tertiary effects, I recommend the process highly. At a minimum, it will drive you from single-loop learning, e.g., asking what could we do better, to double-loop learning, e.g., asking if we are asking the right questions and then asking about better or worse. (If you get that far, you will have exceeded what almost every US corporation does in applied knowledge.)

While I number among those who believe that the long term trends of the US are not excellent without significant internal and external mitigations, in the limited time that I have to devote to it, I am still trying to determine conditions to when, how, and if. Forecasts are often deeply misleading, e.g., we habitually assume adoption rates in technology and societal change at far faster rates that history indicates even as we omit the emergence of new players and technologies that cause radical mediation shifts, for or against us. We make global forecasts of relative changes of nation states over too short a time frame while not properly examining the underlying trend lines. Both often lull us into a false sense of security.

There is a cautionary tale in forecasting economic realignments among nations that falls squarely on the predictions that we are discussing here with regards to the reign of Pax Americana. Still worth reading today is Paul Kennedy's The Rise and Fall of the Great Powers: Economic Change and Military Conflict from 1500 to 2000 published in 1987, in which he predicted that advantage would slip from the USSR/Russia, the US and the EC (now EU) while it would accrue to Japan and China. Kennedy flagged the US and USSR as afflicted by "military overstretch" rising from the "spiraling cost of the arms race" coupled with a decline in economic investment and growth, while Europe would continue to face decline unless it achieved unification, a condition upon which Kennedy had some doubt.

In the interim Kennedy has been criticized for making predictions that "have not fared well over the past decade and more." I will address two of them, both of which now suffer in their own counter predictions although one is far more thoughtful than the other and presents a better assumption set. Henry Nau took Kennedy to task in 2001 in Why ‘The Rise and Fall of the Great Powers’ was wrong:

Russia did indeed continue to decline, but not for the reasons Kennedy argued. Russia kept sinking even after it shed the burdens of the Soviet empire and military interventions in Afghanistan and elsewhere. The other powers that Kennedy predicted would decline did not decline at all. The United States experienced a spectacular rebirth, not only ‘winning’ the Cold War but becoming once again the dominant economic power in the world. The European Union (EU) also surged ahead to create a single market and common currency and, despite an initially weak euro, enjoyed steady growth at the end of the 1990s. By contrast, the Pacific region, which Kennedy predicted would rise in relative power, floundered. Japan hit a big pothole in the early 1990s and is still struggling at the beginning of the new millennium to crawl out of a decade-long economic slump. China slowed down to 3–4 per cent annual growth (after subtracting excess inventories) from a previous level of 10–12 per cent growth and faces potentially crippling problems of unemployment, corruption, and social unrest. The rest of Asia suffered a severe financial crisis in 1997–98 and began a long process of restructuring from export-led manufacturing growth to information-oriented service activities, including, in particular, a more competitive domestic banking and financial industry. The ‘Asian Miracle’, in short, aborted; and the ‘rise of the Pacific region’ quickly turned into a trouble-laden stall.

Things look rather different in 2005, a mere four years later. The EU is in disarray while China has surged as has India which achieved hardly a mention. The GWOT was unknown. Nau's saving grace is to flag the issue of time horizon:

Kennedy was dealing with trends over centuries. It is possible that the American and European renaissance is a temporary blip and that Japan and other Asian nations are poised to resume their meteoric rise. Russia and China too may just need more time to adapt to a rapidly globalizing world economy.

I would recommend reading Nau, as Kennedy, for the assumptions and trends that both consider. A forecast that is not fairing quite as well in my estimation is Dinesh D'Souza's 2000 The Virtue of Prosperity: Finding Values in an Age of Techno-Affluence which is far more coarse in its criticism of Kennedy ("Never was a book so spectacularly discredited by events."), has little of the insight of Nau, and is virtually hagiographic in depicting the US as enjoying "unprecedented domination over the political, economic, cultural, and technological life of the world." I think not.

Rather than read the entire book, you can find a cache of the introduction and first chapter here. Contrast that with the reality of The world is flat save for the depression that we occupy: Friedman on global opportunity and competition.

I'll close this note with a highly recommended (and short) WAR-RELATED DEFLECTIONS OF ECONOMIC TRENDS in which Krus, Nelsen and Webb put at once to shame the fallacy of making linear growth assumptions as it compares and extrapolates three centuries of economic trends of Eastern and Western civilization.

Their work is also a good example of mitigation - good for the West and bad for the East - in that the trend convergence following World War I was deflected by World War II, without which the "combined economies of the Far East countries appeared likely to surpass the industrial output of Western countries" by 2010-2020. The mitigation of World War II "delayed the projected intersection of these trends" to the 2040-2050 period, a figure that fits well with other economic forecasts.

Sound forecasting is not a sport for the faint of heart.

Washington's Pax Americana smacks of Roman power game
By Paul Kennedy
The Australian
August 04, 2003

Why ‘The Rise and Fall of the Great Powers’ was wrong
Review of International Studies (2001), 27, 579

The Virtue of Prosperity: Finding Values in an Age of Techno-Affluence
by Dinesh D'Souza
The Free Press
January 2000
Cache of the introduction and first chapter

From War-related deflections of economic trends in Eastern and Western Civilizations
Krus, D.J., Nelsen, E.A. & Webb, J.M.
Psychological Reports, 84, 1021-1024, 1999

The Rise and Fall of the Great Powers: Economic Change and Military Conflict from 1500 to 2000
Paul Kennedy
Random House, 1987

Gordon Housworth

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