Wednesday, January 13, 2010

The decade the world tilted east

From: Sid Shniad,dwp_uuid=9c33700c-4c86-11da-89df-0000779e2340.html?ftcamp=rss

The decade the world tilted east

We are living through the end of 500 years of western ascendancy

By Niall Ferguson
Financial Times: December 27 2009


I am trying to remember now where it was, and when it was, that it hit me.
Was it during my first walk along the Bund in Shanghai in 2005? Was it amid
the smog and dust of Chonqing, listening to a local Communist party official
describe a vast mound of rubble as the future financial centre of south-west
China? That was last year, and somehow it impressed me more than all the
synchronised razzamatazz of the Olympic opening ceremony in Beijing. Or was
it at Carnegie Hall only last month, as I sat mesmerised by the music of
Angel Lam, the dazzlingly gifted young Chinese composer who personifies the
Orientalisation of classical music? I think maybe it was only then that I
really got the point about this decade, just as it was drawing to a close:
that we are living through the end of 500 years of western ascendancy.

"Western Ascendancy": that was the grandiose title of the course I taught at
Harvard this past term. The subtitle was even more bombastic: "Mainsprings
of Global Power". The question I wanted to pose was not especially original,
but increasingly it seems to be the most interesting question a historian of
the modern era can address. Just why, beginning in around 1500, did the less
populous and apparently backward west of the Eurasian landmass come to
dominate the rest of the world, including the more populous and more
sophisticated societies of eastern Eurasia?

My subsidiary question was this: If we can come up with a good explanation
for the west's past ascendancy, can we then offer a prognosis for its

Put differently, are we living through the end of the domination of the
world by the civilisation that arose in western Europe in the wake of the
Renaissance and Reformation – the civilisation that, propelled by the
scientific revolution and the Enlightenment, spread across the Atlantic and
as far as the Antipodes, finally reaching its apogee in the age of industry
and empire?

The very fact that I wanted to pose those questions to my students says
something about the past 10 years. I first began to teach in the US because
an eminent benefactor of New York University's Stern school of business,
Wall Street veteran Henry Kaufman, had asked me why someone interested in
the history of money and power did not come to where the money and power
actually were. And where else could that be but downtown Manhattan?

As the new millennium dawned, the New York Stock Exchange was self-evidently
the nodal point of a vast global economic network that was American in
design and largely American in ownership.

The dotcom boom was ending, to be sure, and a nasty little recession ensured
that the Democrats lost the White House just as their pledge to pay off the
national debt began to seem almost plausible.

But within just eight months of becoming President, George W. Bush was
confronted by an event that emphatically underlined the centrality of
Manhattan to the western-dominated world. The destruction of the World Trade
Center by al-Qaeda terrorists paid New York a hideous compliment: for anyone
serious about challenging the American global order, this was target number

The subsequent events were exhilarating. The Taliban overthrown in
Afghanistan. An "axis of evil" branded ripe for "regime change". Saddam
Hussein ousted in Iraq. The Toxic Texan riding high in the polls, on track
for re-election. The US economy bouncing back thanks to tax cuts. "Old
Europe" – not to mention liberal America – fuming impotently.

If Napoleon had been, in Hegel's phrase, 'the Zeitgeist on horseback", then
Arnold Schwarzenegger, the action-hero turned governator of California, was
the Zeitgeist behind the wheel of a Hummer. Fascinated, I found myself
focusing on empire, in particular the lessons of Britain's empire for

As I reflected on the rise, and probable fall, of America's empire, it
became clear to me that there were three fatal deficits at the heart of
American power: a manpower deficit (not enough boots on the ground in Iraq),
an attention deficit (not enough public enthusiasm for long-term occupations
of conquered countries) and above all a financial deficit (not enough
savings relative to investment and not enough taxation relative to public

Back in 2004 I warned that the US had imperceptibly come to rely on east
Asian capital to stabilise its unbalanced current and fiscal accounts. The
decline and fall of America's undeclared empire might therefore be due not
to terrorists at the gates nor to the rogue regimes that sponsor them, but
to a fiscal crisis at home.

The realisation that the yawning US current account deficit was increasingly
being financed by Asian central banks, with the Chinese moving into pole
position, was, for me at least, the eureka moment of the decade.

When, in late 2006, Moritz Schularick and I coined the word "Chimerica" to
describe what we saw as the dangerously unsustainable relationship between
parsimonious China and profligate America, we had identified one of the keys
to the coming global financial crisis.

The illusion of American hyperpuissance was shattered not once but twice in
the past decade. Nemesis came first in the backstreets of Sadr City and the
valleys of Helmand, which revealed not only the limits of American military
might but also, more importantly, the naivety of neoconservative visions of
a democratic wave in the greater Middle East. And it struck a second time
with the escalation of the subprime crisis of 2007 into the credit crunch of
2008 and finally the "great recession" of 2009. After the bankruptcy of
Lehman Brothers, the sham verities of the "Washington Consensus" and the
"Great Moderation" were consigned forever to oblivion.

And what remained? By the end of the decade the western world could only
look admiringly at the speed with which the Chinese government had responded
to the breathtaking collapse in exports caused by the US credit crunch, a
collapse which might have been expected to devastate Asia.

While the developed world teetered on the verge of a second Great
Depression, China suffered little more than a minor growth slow-down, thanks
to a highly effective government stimulus programme and massive credit

It would of course be ingenuous to assume that the next decade will not
bring problems for China, too. Running a society of 1.3bn people with the
kind of authoritarian planned capitalism hitherto associated with the
city-state Singapore (population 4.5m) is fraught with difficulties. But the
fact remains that Asia's latest and biggest industrial revolution scarcely
paused to draw breath during the 2007-09 financial crisis.

And what a revolution! Compare a tenfold growth of gross domestic product in
the space of 26 years with a fourfold increase in the space of 70. The
former has been China's achievement between 1978 and 2004; the latter was
Britain's between 1830 and 1900. Or consider the fact that US GDP was more
than eight times that of China's at the beginning of this decade. Now it is
barely four times larger – and if the projections from Jim O'Neill, Goldman
Sachs' chief economist, prove to be correct, China will overtake America as
soon as 2027: in less than two decades.

What gave the west the edge over the east over the past 500 years? My answer
is six "killer apps": the capitalist enterprise, the scientific method, a
legal and political system based on private property rights and individual
freedom, traditional imperialism, the consumer society and what Weber
probably misnamed the "Protestant" ethic of work and capital accumulation as
ends in themselves.

Some of those things (numbers one and two) China has clearly replicated.
Others it may be in the process of adopting with some "Confucian"
modifications (imperialism, consumption and the work ethic). Only number
three – the Western way of law and politics – shows little sign of emerging
in the one-party state that is the People's Republic.

But does China need dear old democracy to achieve enduring prosperity?

The next decade may well answer that question. Then again, it may take
another 500 years to be certain that there really is a viable alternative to
western ascendancy.

/The writer is Laurence A Tisch Professor of History at Harvard University,
author of The Ascent of Money and a contributing editor of the FT/

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