Power Failure

Americans have never felt at ease with empire, and with good reason. Running an empire often demands that we betray our republican ideals, at least for periods of time. It can also be costly in gold and in blood. So it was no surprise that after the fall of the Soviet Union, the American people leapt at the opportunity to lay down the imperial burdens we had carried since World War II. Politicians in both parties assured us that we could off-load our responsibilities onto a “global” market mechanism, overseen by a new institution created in 1995 called the World Trade Organization (WTO). Many if not most of us said, “Good riddance.”

The September 11 attacks soon reminded us that it wasn’t possible simply to lay down our arms. What we failed to grasp then or since was that our Cold War–era hegemony had not been based solely on military force but also on our ability to manipulate a complex cross-border industrial system built with care over decades.

America’s approach to empire after World War II was based on principles radically different from the mercantilism that had shaped the overseas strategies of the European powers. When the Roosevelt, Truman, Eisenhower, and Kennedy administrations remade the political economy of the West, they did not aim solely to concentrate control and wealth in America as, say, the British had concentrated control and wealth in London. Instead, they used the Marshall Plan, the Bretton Woods institutions, and the General Agreement on Tariffs and Trade to engineer a system that distributed opportunity, wealth, and power as widely as possible while also tying nations together in a system of industrial interdependence designed to make it hard for any country to take up arms against another. 

Although most Americans believe “globalization” is a recent phenomenon, the basic structures of today’s world were all put into place during those first two decades after World War II. In practice, this involved forcing France to share control over its coal and steel industry with Germany, an action that planted the seed of today’s European Union. It also included forcing American industrialists and workers to share their home market with Japanese industrialists and workers, and later with industrialists and workers from across East and Southeast Asia. The basic idea was to encourage peoples to focus their energies on commerce rather than conquest. When they did not do so, the idea was to be able to exercise sufficient economic power to force them to stand down, as the U.S. did when it sabotaged the 1956 French and British adventure in Suez by cutting off flows of oil and cash.

In the half-century after World War II, America was responsible for tragedies in Vietnam, Chile, Iran, and elsewhere. But given the nature of the regime we opposed in the Cold War, we achieved something remarkable. From our position as hegemon, we projected nonmilitary power across the international political economy in ways that, year after year, steadily expanded the realm of peace, prosperity, stability, and liberty. The long booms in China, India, Brazil? All, ultimately, were made in America.

What’s hard to understand now is why it’s taken so long for elites of both parties to admit that our WTO experiment went awry long ago, in the most fundamental of ways. Does Washington’s retreat from regulating international industrial, financial, and energy systems have nothing to do with the growing instability of these systems? Does the U.S. retreat from active management of the trading system have nothing to do with China’s startlingly swift rise to near-hegemonic status? In recent months, the Obama administration has begun to reposition troops and ships to meet what it views as a growing military “threat” by China. But does such a move make sense while we continue to rely on Chinese factories for, among many other things, the great bulk of the pharmaceuticals and electronics we use every day?

For our nation, there are no questions more important. Yet almost no one asks them.


Through the heart of the 20th century, most Americans assumed that the international economy was entirely the product of political decisions. Experts wrote books explaining the workings of the industrial and trading corporations that Washington used to help govern U.S. relations with other nations. Among the best such efforts were Robert Gilpin’s U.S. Power and the Multinational Corporation (1975) and Albert O. Hirschman’s National Power and the Structure of Foreign Trade (1945). Other experts wrote about the political nature of the large business corporation and detailed how citizens could ensure that these institutions would serve the public interest. The Modern Corporation and Private Property (1932) by Adolf A. Berle (a member of Franklin Roosevelt’s “brain trust”) and Gardiner C. Means, for example, was widely influential for five decades after its publication. 

After the fall of the Berlin Wall, however, a new model of book emerged in which the authors claimed to identify some great force acting on the human world, almost mechanically, over space and time. Rather than focus on how citizens could use institutions to achieve particular political and economic goals, these works emphasized the general helplessness of the individual, even of the nation. Important early works in this school include Kenichi Ohmae’s The Borderless World (1990), Robert Reich’s The Work of Nations (1991) and, most famous, Francis Fukuyama’s The End of History and the Last Man (1992). Lately, the most popular author in this vein has been Thomas L. Friedman, especially with his 2005 book, The World Is Flat.



The political goals of these authors differ, often profoundly. But in practice, this metaphysical “school” helped to obscure how the people who run a state can use cross-border business corporations to project political power into other lands. Where once we saw a network of political institutions, we tend now to see a self-governing “market.” Where once we saw inter-nation relations, we see “globalization.” Where once we debated how best to structure institutions to promote cooperation among peoples, we now debate how to compete.

An awakening of sorts does at last seem to be taking place. Much as the shock of 9/11 led us to rethink our military posture, the shocks of the financial crash of 2008, the Japanese tsunami of 2011, and the ongoing euro crisis are forcing us to question how our international industrial and financial systems are structured. As was true after 9/11, one result is a burst of articles and books that aim to reconnect us to some lost corner of our history—theoretically to help America’s elites to act more effectively in the world. Two of the first are Power, Inc. by David Rothkopf and Why Nations Fail by Daron Acemoglu and James A. Robinson.

Rothkopf is a longtime business consultant and author, and he worked in the Commerce Department under President Bill Clinton. In his own work—including his last book, Superclass—he has tracked closely to the metaphysical school while keeping apart from it. In Power, Inc., Rothkopf makes his case in compelling language for finding our future by looking to our past. After listing a series of recent big-think books by, among others, Friedman and Daniel Yergin, Rothkopf faults them all for a “temporal narcissism” characterized by a tendency to focus “primarily on the recent, rather than the remote, past.” 

 Good start. Unfortunately, the problems begin as soon as Rothkopf sketches out his thesis—essentially that “regardless of the system we see, corporations have grown in influence worldwide and in every instance have played a role in paring away key prerogatives of the state.” This assertion is questionable on its face. It is by no means clear that private corporations in, say, China have in any significant way supplanted the central state. A more grave failing for a book called Power, Inc. is that Rothkopf never clarifies the differences between the corporations we use to govern nations and the corporations we use to govern industrial and commercial activities or, for that matter, the corporations we use to govern cities and universities. Nor does Rothkopf clearly distinguish between what makes an institution “public” and what makes it “private.” Is the Chinese state today the property of the Chinese people or of the lords of the politburo? Is Wal-Mart a reincarnation of the British East India Company, hence a tool of that same state, or rather, those same lords? Does the U.S. state lack the power to assert control over private corporations and banks? Or would it be more accurate to conclude that the state apparatus was essentially privatized by, for instance, Rothkopf’s superclass over the course of the Reagan and Clinton administrations? Don’t expect to find an answer, or even the question, here.

In Why Nations Fail, Acemoglu and Robinson, professors at the Massachusetts Institute of Technology and Harvard, seek to distill key lessons from their long experience in the politics and economics of development. Unlike Rothkopf, they ask the right questions, beginning with “Who Is the State?” And they start with an impeccable thesis. “Inclusive political institutions” like the open markets of mid-20th-century America, they argue, deliver better economic outcomes for the many than do “extractive” institutions, like billionaire businessman Carlos Slim Helú’s cluster of monopolies in today’s Mexico. They then use this opposition to lay the basis for an important conclusion—that the current fashion for “authoritarian growth” models of development, in which nations like Sierra Leone or the Congo are urged to emulate autocratic China, is wrong and dangerous. “Growth under extractive political institutions, as in China,” they write, “will not bring sustained growth, and is likely to run out of steam.”

Like Rothkopf, Acemoglu and Robinson also dig deep into history to prove their case. But many of their stories are recklessly reductionist. They trace America’s “inclusive” political institutions, for instance, to a single germinating moment: the sudden, belated realization in Jamestown that a Spanish-style conquest and pursuit of gold would not pay. The authors also mistakenly conclude that it is necessary to recount almost the entire history of the world to make their case. Just one brief excursion takes us from Tiberius Gracchus to Roman shipwrecks to photosynthesis to a point 3,030 meters below the ice in Greenland over the course of a few paragraphs. 

Given the authors’ ex-pressed concern about the growing fashionableness of China’s development model, a bigger problem is their failure to connect this to the collapse of America’s ability to protect the world system Washington put into place after World War II. The very concept of development was part of the much larger U.S. strategy designed in the early years of the Cold War. So, too, were the main institutions of the development regime, such as the World Bank. Yet Acemoglu and Robinson never explore whether the growing popularity of the authoritarian development model is but another symptom of China’s swift and conscious move into the power vacuum created when Washington let go the levers of empire in the mid-1990s.

America does not ever again need to micromanage the world—the system we built after World War II no longer requires such rule. But we do have to use our still-considerable power consciously. The greatest danger we face today comes not from having ceded pride of place. It comes from having dismantled the institutions and habits of thought that enabled us to ensure that no other nation-state or corporate estate captures control over the international system as a whole or concentrates sufficient power to disrupt the flow of goods and money. These two books, while looking to the past for answers, manage to jump right over the key lessons of history.

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