GUEST BLOG: Stephen Archer on the decline of the US economy

The US is likely to lose its place as the global 'hyper power' very soon. Certainly, its place as the lead superpower already hangs in the balance. Given that 100 years ago the United Kingdom was the world superpower (we've now dropped down to fifth place), should the US worry or is this just the macro waxing and waning of the world economy?

The UK's decline was precipitated by WW1 which was costly enough in itself. However, the decline of the USA is far more complex and it has an uncertain end game.

So why will the US cease to be a superpower?

Politically, in the international context, the US has been compromised since 1975 when the Vietnam war finally ended. Its authority as a global citizen has been weakened further in the past 15 years by wars in Iraq, Afghanistan and its very uncertain touch in matters including the current changes in the Middle East. Whereas the US was once seen as the cavalry - now it is viewed with far greater caution, even fear.

Confidence was once an abundant feature of the USA but since 9/11 this has been shaky and with the more recent economic debacle, its confidence has taken an even bigger knock.

Competition from the European Union (in combination, a bigger economy than the US) and from old foes like Japan and Korea - but more recently and critically China - has meant that the seemingly natural pre-eminence of the US as an economic power is threatened.

We all see that China will overtake the US in GDP terms, having already taken the number two position, ahead of Japan. China will most likely overtake the USA within a decade and India will follow suit placing the USA in third position. At this point its 'hyper power' status will be lost and its super power status will be questionable.

The US is Bust

If the US was a business it would be under water. Its deficit is running at $1.4tn and its debt is 10 times that and heading for the same level as its GDP. Debt is rising at $1.5bn per day. Think of the cost of interest...

China owns 40% of the US debt and supplies 30% of the US imports. Even China has cut its lending to the US expressing fears about the US' ability to serve its obligations.

Wall Street is dragging down the international competitiveness of the US by its short-term outlook and focus on revenue rather than value growth. Its regulations and legal frameworks are also reducing competitiveness. In addition, the country's political structure, even the constitution, is also preventing its ability to fight back.

A Presidential term of four years is too short and the stalemate between the top two parties is crippling.

The US business culture is outmoded. It is sluggish, bound by an 'entitlement culture' and ineffective leadership mechanisms in corporations. Too few businesses see themselves in the context of the world markets. Its insularity is therefore at risk of starting to really damage it. 40 years ago it had the first signs that Japan would take a large slice of its automotive market but it did not respond and make the required changes to take on the challenge.

A talent drought

The talent coming out of US education system is now way behind many emerging nations, and this is proving a challenge to employers needing world class expertise. The US is 35th in the OECD world ranking for high school maths competence. Its immigration position is loading up the social security cost obligations more than it is providing value from skilled resources.

Innovation, with a few notable exceptions is not strong enough to take on the new world players and when Wall Street's demand for quick fixes comes into play the most innovative (risky) R&D products often get parked. 27 of the top global innovators are now business outside the US. This number rose by 15 in 2010 alone.

Rather focusing on organic growth, its growth is driven too much by M&As, 70% of which fail to meet key objectives. And, without core organic growth the US cannot trade its way out of trouble.

The silver lining

This paints a bleak picture of the US but it has the ability to turn itself around. It just has not recognised the shape of the issues and the scale of the Sputnik moment that Obama alluded to.

But whilst there is no doubt the US can turn around, I don't think it will. Its cultural strengths have atrophied too much and the pain of the change will be too much for most to bear. But the alternative...

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www.stephenarcher.eu

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