Various measures are used to paint the complex portrait of current American economic power and health. The idea of U.S. “declinism” — the hypothesis that the country is losing its global economic ascendancy, and therefore its ability to shape world events — continues to be hotly, and inconclusively, debated by academics and media commentators. The on-going debate is more than a parlor game. Robert Kagan’s 2012 article in the New Republic on the subject was said to strongly inform President Obama’s remarks in the State of the Union address that year.
America’s GDP was $16.2 trillion in 2012, while China’s was $8.2 trillion, according to the World Bank. Total global GDP that year was $72.4 trillion. The trend lines strongly suggest that, over time, China will eventually catch the United States, even if the Chinese economy does begin to slow down over time. But how meaningful are these aggregate figures in terms of relative economic power?
In a December 2013 paper published by International Studies Quarterly, “American Economic Power Hasn’t Declined — It Globalized! Summoning the Data and Taking Globalization Seriously,” Sean Starrs of Toronto’s York University argues that the traditional measurements of a country’s economic power are no longer sufficient for an accurate analysis. In his view, national accounts — GDP and balance of trade calculations, for example — do not adequately indicate levels of a country’s economic power because of the rise of transnational corporations (TNCs), which “now account for the lion’s share of global economic activity.” As Starrs puts it, “In the era of transnational capital we cannot assume that the rapid rise of a country’s GDP and/or domestic market indicates the rapid rise of that country’s economic power.” To address this, he analyzes 2012 data on the profit-shares of the top 2,000 corporations in the world, as ranked by Forbes Global 2000, in order to establish another way of looking at the global economy and America’s status.
Key findings include:
- American firms still own 46% of the world’s top 500 corporations, accounting “for by far the most dominant profit-shares across the most sectors than corporations from any other country.” The country leads in 18 of the 25 broad sectors of the world’s top 2,000 corporations.
- This contrasts to “the general paucity of Chinese firms at the upper echelons of the majority of sectors.” For example, even though China is the largest electronics exporter in the world, it only obtains 4% of the profit share because “over 90% of China’s high-technology exports are actually by foreign — not Chinese — firms.” In healthcare equipment and services, there is not a single Chinese firm in the world’s top 2000 corporations, while the American profit-share is 84%.
- Most of the assets managed by American firms are ultimately owned by American interests: “41% of all global household assets is concentrated in North America, even though by GDP, the Asia-Pacific, North America, and Western Europe are roughly equal at a quarter each.”
- Further, “That American GDP accounts for ‘only’ 22% of global GDP, while the proportion of American millionaires and total household wealth is 42% and 41%, respectively, yet again demonstrates how globalized American capital, American ownership and American economic power has become. We cannot rely solely on national accounts if we want to meaningfully assess power in the global political economy.”
- The Great Recession did not destroy American financial power: “Three years since the Wall Street crash in autumn 2008 and the top American financial-services firms have increased their global dominance to 53% of the total profit of the financial services sector in the Forbes Global 2000.”
- However, there has been an “unequivocal American decline” in the banking, construction, and telecommunications sectors and in all three, China has risen very quickly.
In short, Starrs concludes: “While globalization by definition is the expansion and deepening of cross-border flows, the power to profit from these flows remains highly vertical with the United States at the summit.” However, he also urges caution when it comes to interpreting this data: “This is not to say that the United States does not have serious problems, from high inequality and unemployment to sluggish growth. Hence, another insight from critical political economy is that there is no assumption that the continued power of the American investor class correlates with increasing living standards for all.”
The study reviews and takes into account some of the other important literature in this area produced by scholars and commentators such as Kagan, Joseph Nye, Andrew Bacevich, Zbigniew Brzezinski, Michael Ignatief, Thomas Friedman, Michael Mandelbaum, Joseph Stiglitz, John Ikenberry and Fareed Zakaria, among others; the bibliography provides a useful reading list for further exploration of the topic.
Keywords: financial crisis, economy