th: 0px; "> ON JUNE 22, 1897, about 400 million people around the worldone-fourth ofhumanity-got the day off.It was the 6oth anniversary
of Queen Victoria's ascension to the British throne. The Diamond
Jubilee stretched over five days on land and sea, but its high point was the
parade and thanksgiving service onJune 22. The n premiers ofBritain's
self-governing colonies were in attendance, along with princes, dukes,
ambassadors, and envoys from the rest ofthe world. A military procession
of5o,ooo soldiers included hussars from Canada, cavalrymen from New
South Wales, carabineers from Naples, camel troops from Bikaner, and
Gurkhas from Nepal. It was, as one historian wrote, "a Roman moment."
In London, eight-year-old Arnold Toynbee was perched on his uncle's shoulders, eagerly watching the parade. Toynbee, who grew up to become the most famous historian ofhis age, recalled that, watching the grandeur of the day, it felt as if the sun were "standing still in the midst of Heaven." "I remember the atmosphere," he wrote. "It was: 'Well, here we are on top ofthe world, and we have arrived at this peak to stay there forever. There is, of course, a thing called history, but history is something unpleasant that happens to other people. We are
comfortably outside all of that I am sure.'
FARE ED ZA KARI A is Editor of Newsweek InternationaLThis essay is adapted from his book The Post-American World (W. W. Norton & Company, Inc., © 2008 by Fareed Zakaria).
But of course, history did happen to Britain. The question for the superpower of the current age is, Will history happen to the United States as well? Is it already happening? No analogy is exact, but the
British Empire in its heyday is the closest any nation in the modern age has come to the United States' position today. In considering whether and how the forces of change will affect the United States,
it is worth paying close attention to the experience of Britain. There are many contemporary echoes. The United States' recent military interventions in Somalia, Afghanistan, and Iraq all have parallels in British military interventions decades ago.The basic strategic dilemma of being the only truly global player on the world stage
is strikingly similar. But there are also fundamental differences between Britain then and the United States now. For Britain, as it tried to maintain its superpower status, the largest challenge was economic rather than political. For the United States, it is the other way around.
Through shrewd strategic choices and some sophisticated diplomacy, Britain was able to maintain and even extend its influence for decades. In the end, however, it could not alter the fact that its
power position-its economic and technological dynamism-was fast eroding. Britain declined gracefully-but inexorably.The United States today faces a problem that is quite different. The U.S. economy (despite its current crisis) remains fundamentally vigorous when compared with others. American society is vibrant. It is the United
States' political system that is dysfunctional, unable to make the relatively simple reforms that would place the country on extremely solid footing for the future. Washington seems largely unaware of the new world
rising around it-and shows few signs of being able to reorient U.S. policy for this new age.
BRITANNIA S DEMISE TODAY, IT is difficult even to imagine the magnitude of the British
Empire. At its height, it covered about a quarter of the earth's land surface and included a quarter ofits population. London's network of colonies, territories, bases, and ports spanned the globe. The empire
was protected by the Royal Navy, the greatest seafaring force in history, and linked by 17o,ooo nautical miles ofocean cables and 662,000 miles of aerial and buried cables. British ships had facilitated the development of the first global communications network, via the telegraph.
Railways and canals (the Suez Canal most importantly) deepened the connectivity of the system. Through all of this, the British Empire
created the first truly global market.
Americans often talk about the appeal of their culture and ideas, but "soft power" really began with Britain. The historian Claudio V6iz points out that in the seventeenth century, the two imperial powers of the day, Britain and Spain, both tried to export their ideas
and practices to their western colonies. Spain wanted the CounterReformation to take hold in the New World; Britain wanted religious pluralism and capitalism to flourish. As it turned out, British ideas
proved more universal. In fact, Britain has arguably been the most successful exporter ofits culture in human history.Before the American dream, there was an "English way of life"-one that was watched,
admired, and copied throughout the world. And also thanks to the British Empire, English spread as a global language, spoken from the Caribbean to Cape Town to Calcutta. Not all ofthis was recognized inJune 1897, but much ofit was. The British were hardly alone in making comparisons between their
empire and Rome. Paris' Le Figarodeclared that Rome itself had been "equaled, if not surpassed, by the Power which in Canada, Australia, India, in the China Seas, in Egypt, Central and Southern Africa, in
the Atlantic and in the Mediterranean rules the peoples and governs their interests." The Kreuz-Zeitungin Berlin described the empire as
"practically unassailable." Across the Atlantic, The New York Times gushed, "We are a part, and a great part, ofthe Greater Britain which seems so plainly destined to dominate this planet."
Britain's exalted position, however, was more fragile than it appeared. Just two years after the Diamond Jubilee, Britain entered the Boer
War, a conflict that, for many scholars, marks the moment when British power began to decline. London was sure that it would win the fight with little trouble. After all, the British army had just won a
similarbattle against the dervishes in Sudan, despite being outnumbered by more than two to one. In the Battle of Omdurman, it inflicted 48,000 dervish casualties in just five hours while losing only 48 soldiers of its own. Many in Britain imagined an even easier victory against the Boers. After all, as one member of Parliament put it, it was "the
British Empire against 30,000 farmers."
The war was ostensibly fought for a virtuous reason: to defend the rights of the English-speaking people of the Boer republics, who were treated as second-class citizens by the ruling Boers. But it did not escape the attention of London that after the discovery of gold in the region in 1886, these republics had been producing a quarter of the world's gold supply. In any event, the Boers launched a preemptive strike, and war began in 1899.
Things went badly for Britain from the beginning. It had more men and better weapons and was fielding its best generals (including Lord Kitchener, the hero ofOmdurman). But the Boers were passionate in defending themselves, knew the land, and adopted successful guerrilla tactics that relied on stealth and speed. The British army's enormous military superiority meant little on the ground, and its
commanders resorted to brutal tactics-burning down villages, herding civilians into concentration camps (the world's first), sending in more and more troops. Eventually, Britain had 450,000 troops fighting a militia of 45,ooo.
The Boers could not hold back the British army forever, and in 1902 they surrendered. But in a larger sense, Britain lost the war. It had suffered 45,ooo casualties, spent half a billion pounds, stretched
its army to the breaking point, and discovered enormous incompetence and corruption in its war effort. Its brutal wartime tactics, moreover, gave
it a black eye in the view of the rest ofthe world. At home, all of this created, or exposed, deep divisions over Britain's global role. Abroad,
every other great power-France, Germany, the United Statesopposed London's actions. "They were friendless," the historian
Lawrence James has written of the British in 1902.
Fast-forward to today. Another superpower, militarily unbeatable,
wins an easy victory in Afghanistan and then takes on what it is sure
will be another simple battle, this one against Saddam Hussein's isolated
regime in Iraq. The result: a quick initial military victory followed by
a long, arduous struggle, filled with political and military blunders
and met with intense international opposition. The analogy is obvious;
the United States is Britain, the Iraq war is the Boer War--and, by extension, the United States' future looks bleak. And indeed, regardless ofthe outcome in Iraq, the costs have been massive. The United States
has been overextended and distracted, its army stressed, its image
sullied. Rogue states such as Iran and Venezuela and great powers such as China and Russia are taking advantage ofWashington's inattention and bad fortunes. The familiar theme of imperial decline is playing itself out one more time. History is happening again. THE LONG GOODBYE BUT WHATEVER the apparent similarities, the circumstances are not
really the same. Britain was a strange superpower. Historians have written hundreds ofbooks explaining how London could have adopted certain foreign policies to change its fortunes. If only it had avoided the Boer War, say some. If only it had stayed out ofAfrica, say others.
The historian Niall Ferguson provocatively suggests that had Britain
stayed out of World War I (and there might not have been a world war without British participation), it might have managed to preserve
its great-power position. There is some truth to this line of reasoning (World War I did bankrupt Britain), but to put things properly in historicalcontext, it is worth looking at this history from another angle. Britain'simmense empire was the product ofunique circumstances. The wonderis not that it declined but that its dominance lasted as long as it did.Understanding how Britain played its hand--one that got weaker overtime-can help illuminate the United States' path forward.Britain has been a rich country for centuries (and was a great powerfor most of that time), but it was an economic superpower for littlemore than a generation. Observers often make the mistake of datingits apogee bygreat imperial events such as the DiamondJubilee. In fact,by 1897, Britain's best years were already behind it. Its true apogee wasa generation earlier, from 1845 to 187o. At the time, it was producing morethan 30 percent ofglobal GDP. Its energy consumption was five times thatof the United States and 155 times that ofRussia. It accounted for onefifth ofthe world's trade and two-fifths ofits manufacturing trade. Andall this was accomplished with just two percent ofthe world's population.By the late 187os, the United States had equaled Britain on mostindustrial measures, and by the early 188os it had actually surpassedit, as Germanywould about 1S years later. ByWorld War I, the UnitedFOREIGN AFFAIRS" VolumeR 7 No. 3The FutureofAmerican PowerStates' economy was twice the size of Britain's, and together France'sand Russia's were larger as well. In 186o, Britain had produced 53 percent of the world's iron (then a sign of supreme industrial strength);by 1914, it was making less than lo percent.Of course, politically, London was still the capital of the world atthe time of World War I, and its writ was unequaled and largelyunchallenged across much ofthe globe. Britain had acquired an empirein a period before the onset of nationalism,and so there were few obstacles to creating and Britain was undone asmaintaining control in far-flung places. Itssea power was unrivaled, and it remained a global power notdominant in banking, shipping, insurance, because ofbad politicsand investment. London was still the centerof global finance, and the pound still thereserve currency of the world. Even in 1914, bad economics.Britain invested twice as much capital abroadas its closest competitor, France, and five times as much as the UnitedStates. The economic returns of these investments and other "invisibletrades" in some ways masked Britain's decline.In fact, the British economy was sliding. British growth rates haddropped below two percent in the decades leading up to World War I.The United States and Germany,meanwhile, were growing at aroundfive percent. Having spearheaded the first Industrial Revolution,Britain was less adept at moving into the second. The goods it wasproducing represented the past rather than the future. In 1907, forexample, it manufactured four times as many bicycles as the UnitedStates did, but the United States manufactured 12 times as many cars.Scholars have debated the causes of Britain's decline since shortlyafter that decline began. Some have focused on geopolitics; others, oneconomic factors, such as low investment in new plants and equipmentand bad labor relations. British capitalism had remained old-fashionedand rigid, its industries set up as small cottage-scale enterprises withskilled craftsmen rather than the mass factories that sprang up inGermany and the United States. There were signs ofbroader culturalproblems as well. A wealthier Britain was losing its focus on practicaleducation, and British society retained a feudal cast, given to it by itslandowning aristocracy.FOREIGN AFFAIRS •May/June 2oo8 FareedZakariaBut it may be that none of these failings was actually crucial. Thehistorian Paul Kennedy has explained the highly unusual circumstancesthat produced Britain's dominance in the nineteenth century. Givenits portfolio of power-geography, population, resources-Britaincould reasonably have expected to account for three to four percentof global GDP, but its share rose to around ten times that figure. Asthose unusual circumstances abated-as other Western countriescaught up with industrialization, as Germany united, as the UnitedStates resolved its North-South divide-Britain was bound to decline.The British statesman Leo Amery saw this clearly in 1905. "How canthese little islands hold their own in the long run against such great andrich empires as the United States and Germany are rapidly becoming?"he asked. "How can we with forty millions of people compete withstates nearly double our size?" It is a question that many Americansare now asking in the face of China's rise.Britain managed to maintain its position as the leading worldpower for decades after it lost its economic dominance thanks to acombination of shrewd strategy and good diplomacy. Early on, as itsaw the balance ofpower shifting, London made one critical decisionthat extended its influence by decades: it chose to accommodateitself to the rise ofthe United States rather than to contest it. In thedecades after 188o, on issue after issue London gave in to a growingand assertive Washington.It was not easy for Britain to cede control to its former colony, acountry with which it had fought two wars and in whose recent civil warit had sympathized with the secessionists. But it was a strategic masterstroke. Had Britain tried to resist the rise ofthe United States, on top ofall its other commitments, itwould have been bled dry.For all ofLondon'smistakes over the next half century, its strategy toward Washingtonone followed by every British government since the 189os-meant thatBritain could focus its attention on other critical fronts. It remained, forexample, the master ofthe seas, controlling its lanes and pathways with"five keys" that were said to lock up the world-Singapore, the Cape ofGood Hope, Alexandria, Gibraltar, and Dover.Britain maintained control of its empire and retained worldwideinfluence with relatively little opposition for many decades. (In thesettlement after World War I, it took over 1.8 million square miles ofFOREIGN AFFAIRS" Volume87No. 34 . I*7CORBISOfallstripes.soldiersoftheBritishEmpireinEnglandfortheDiamondJubilee,1897territory and 13 million new subjects, mostly in the Middle East.) Still,the gap between its political role and its economic capacity was growing.By the twentieth century, the empire was an enormous drain onthe British treasury. And this was no time for expensive habits. TheBritish economy was reeling. World War I cost over $4o billion,and Britain, once the world's leading creditor, had debts amountingto 136 percent ofdomestic output afterward. By the mid-192os, interestpayments alone sucked up half the government's budget. Meanwhile, by1936, Germany's defense spending was three times as high as Britain's.The same year that Italy invaded Ethiopia, Mussolini also placed50,000 troops in Libya-ten times the number of British troopsguarding the Suez Canal. It was these circumstances-coupled withthe memory of a recent world war that had killed more than 700,000young Britons-that led the British governments ofthe 1930s, facingthe forces of fascism, to prefer wishful thinking and appeasementto confrontation.FOREIGN AFFAIRS -May /June 2oo8 FareedZakariaWorld War II was the final nail in the coffin of British economicpower: in 1945, the United States' GDP was ten times that of Britain.Even then, Britain remained remarkably influential, at least partlybecause of the almost superhuman energy and ambition of WinstonChurchill. Given that the United States was paying most ofthe Allies'economic costs, and Russia was bearing most ofthe casualties, it tookextraordinary will for Britain to remain one ofthe three major powersdeciding the fate of the postwar world. (The photographs ofFranklinRoosevelt, Joseph Stalin, and Churchill at the Yalta Conference inFebruary 1945 are somewhat misleading: there was no "big three" atYalta; there was a "big two" plus one brilliant political entrepreneurwho was able to keep himself and his country in the game.)But even this came at a cost. In return for its loans to London,the United States took over dozens of British bases in Canada, theCaribbean, the Indian Ocean, and the Pacific. "The British Empireis handed over to the American pawnbroker-our only hope," saidone member of Parliament. The economist John Maynard Keynesdescribed the Lend-Lease Act as an attempt to "pick out the eyes ofthe British Empire." Less emotional observers saw that the transitionwas inevitable. Toynbee, by then a distinguished historian, consoledBritons by noting that the United States' "hand will be a great deallighter than Russia's, Germany's, or Japan's, and I suppose these arethe alternatives."THE ENTREPRENEURIAL EMPIREBRITAIN WAS undone as a global power not because of bad politicsbut because ofbad economics. Indeed, the impressive skill with whichLondon played its weakening hand despite a 70-year economicdecline offers important lessons for the United States. First, however,it is essential to note that the central feature of Britain's declineirreversible economic deterioration-does not really apply to theUnited States today. Britain's unrivaled economic status lasted for afew decades; the United States' has lasted more than 12o years. TheU.S. economy has been the world's largest since the middle ofthe 188os,and it remains so today.In fact, the United States has held a surprisinglyconstant share ofglobal GDP ever since. With the brief exception oftheFOREIGN AFFAIRS" Volume8 7 No.3The FutureofAmerican Power late 1940s and 1950s, when the rest of the industrialized world hadbeen destroyed and its share rose to 50 percent, the United States hasaccounted for roughly a quarter of world output for over a century(32 percent in 1913, 26 percent in 196o, 22 percent in 1980, 27 percent in 2000, and 26 percent in 2007). It is likely to slip, but not significantly,in the next two decades. Most estimates suggest that in 2025 theUnited States' economy will still be twice the size of China's interms of nominal GDP.This difference between the United States and Britain is reflectedin the burden of their military budgets. Britannia ruled the seas butnever the land. The British army was sufficiently small that Otto vonBismarck once quipped that were the British ever to invade Germany,he would simply have the local police force arrest them. Meanwhile,London's advantage over the seas-it had more tonnage than the nexttwo navies put together-came at ruinous cost. The U.S. military, incontrast, dominates at every level-land, sea, air, space-and spendsmore than the next 14 countries combined, accounting for almost50 percent ofglobal defense spending. The United States also spendsmore on defense research and development than the rest ofthe worldput together. And crucially, it does all this without breaking the bank.U.S. defense expenditure as a percent Of GDP is now 4.1 percent, lowerthan it was for most ofthe Cold War (under Dwight Eisenhower, it roseto ten percent). As U.S. GDP has grown larger and larger, expendituresthat would have been backbreaking have become affordable. The Iraqwar may be a tragedy or a noble endeavor, but either way, it will notbankrupt the United States. The price tag for Iraq and Afghanistantogether-$125 billion a year-represents less than one percent Of GDP.The war in Vietnam, by comparison, cost the equivalent ofi.6 percentof U.S. GDP in 1970, a large difference. (Neither of these percentagesincludes second- or third-order costs of war, which allows for a faircomparison even if one disputes the exact figures.)U.S. military power is not the cause of its strength but the consequence. The fuel is the United States' economic and technologicalbase, which remains extremely strong. The United States does facelarger, deeper, and broader challenges than it has ever faced in its history,and it will undoubtedly lose some share ofglobal GDP. But the processwill look nothing like Britain's slide in the twentieth century, whenFOREIGN AFFAIRS -May/June2oo8 FareedZakariathe country lost the lead in innovation, energy, and entrepreneurship.The United States will remain a vital, vibrant economy, at the forefrontof the next revolutions in science, technology, and industry.In trying to understand how the United States will fare in the newworld, the first thing to do is simply look around: the future is alreadyhere. Over the last 20 years, globalization has been gaining breadthand depth. More countries are making goods, communications technology has been leveling the playing field, capital has been free tomove across the world-and the United States has benefited massivelyfrom these trends. Its economy has received hundreds of billions ofdollars in investment, and its companiesU.S. military power have entered new countries and industrieswith great success. Despite two decades of ais not the cause of very expensive dollar, U.S. exports haveits strength but the held ground, and the World EconomicForum currently ranks the United States asconsequence. the world's most competitive economy. GDPgrowth, the bottom line, has averaged justover three percent in the United States for 25 years, significantlyhigher than in Europe or Japan. Productivity growth, the elixir ofmodern economics, has been over 2.5 percent for a decade now, a fullpercentage point higher than the European average. This superiorgrowth trajectory might be petering out, and perhaps U.S. growthwill be more typical for an advanced industrialized country for thenext few years. But the general point-that the United States is ahighly dynamic economy at the cutting edge, despite its enormoussize-holds.Consider the industries of the future. Nanotechnology (appliedscience dealing with the control of matter at the atomic or molecularscale) is likely to lead to fundamental breakthroughs over the next50 years, and the United States dominates the field. It has more dedicated"nanocenters" than the next three nations (Germany, Britain, andChina) combined and has issued more patents for nanotechnologythan the rest ofthe world combined, highlighting its unusual strengthin turning abstract theory into practical products. Biotechnology (abroad category that describes the use of biological systems to createmedical, agricultural, and industrial products) is also dominated byFOREIGN AFFAIRS" Volume87No.1281 3The FutureofAmerican Powerthe United States. Biotech revenues in the United States approached$5o billion in 2005, five times as large as the amount in Europe andrepresenting 76 percent ofglobal biotech revenues.Manufacturing has, of course, been leaving the country, shifting tothe developing world and turning the United States into a serviceeconomy.This scares many Americans, who wonder what their countrywill make ifeverything is "made in China." But Asian manufacturingmust be viewed in the context of a global economy. The AtlanticMonthly'sJames Fallows spent a year in China watching its manufacturing juggernaut up close, and he provides a persuasive explanationof how outsourcing has strengthened U.S. competitiveness. Whatit comes down to is that the real money is in designing and distributingproducts-which the United States dominates-rather than manufacturing them. A vivid example ofthis is the iPod: it is manufacturedmostly outside the United States, but most ofthe added value is capturedby Apple, in California.Many experts and scholars, and even a few politicians, worry aboutcertain statistics that bode ill for the United States. The U.S. savingsrate is zero; the current account deficit, the trade deficit, and the budgetdeficit are high; the median income is flat; and commitments for entitlements are unsustainable. These are all valid concerns that will have tobe addressed. But it is important to keep in mind that many frequentlycited statistics offer only an approximate or an antiquated measure ofaneconomy. Many ofthem were developed in the late nineteenth centuryto describe industrial economies with limited cross-border activity, notmodern economies in today's interconnected global market.For the last two decades, for example, the United States has hadunemployment rates well below levels economists thought possiblewithout driving up inflation. Or consider that the United States' currentaccount deficit-which in 2007 reached $8oo billion, or seven percentofGDP-was supposed to be unsustainable at four percent OfGDP. Thecurrent account deficit is at a dangerous level, but its magnitude can beexplained in part by the fact that there is a worldwide surplus of savingsand that the United States remains an unusually stable and attractiveplace to invest. The decrease in personal savings, as the Harvardeconomist Richard Cooper has noted, has been largely offset by anincrease in corporate savings. The U.S. investment picture also looksFOREIGN AFFAIRS -May/June2008 FareedZakariamuch rosier if education and research-and-development spendingare considered along with spending on physical capital and housing.The United States has serious problems. Byall calculations, Medicarethreatens to blow up the federal budget. The swing from surpluses todeficits between 200o and 20o8 has serious implications. Growinginequality (the result of the knowledge economy, technology, andglobalization) has become a signature feature of the new era. Perhapsmost worrying, Americans are borrowing 8o percent of the world'ssurplus savings and using it for consumption: they are selling offtheirassets to foreigners to buy a couple more lattes a day. But such problemsmust be considered in the context of an overall economy that remainspowerful and dynamic.EDUCATION NATION"AH, YES," say those who are more worried, "but you are looking ata snapshot oftoday.The United States' advantages are rapidly erodingas the country loses its scientific and technological base and suffersfrom inexorable cultural decay." A country that once adhered to aPuritan ethic of delayed gratification, the argument goes, has becomeone that revels in instant pleasures; Americans are losing interest inthe basics-math, manufacturing, hard work, savings-and becominga society that specializes in consumption and leisure.No statistic seems to capture this anxiety better than those showingthe decline ofengineering in the United States. In 2005, the NationalAcademy ofSciences released a report warning that the United Statescould soon lose its privileged position as the world's science leader.The report said that in 2004 China graduated 6oo,ooo engineers, India 350,000, and the United States 70,ooo-numbers that wererepeated in countless articles, books, and speeches. And indeed, thesefigures do seem to be cause for despair. What hope does the UnitedStates have if for every one qualified American engineer there aremore than a dozen Chinese and Indian ones? For the cost of onechemist or engineer in the United States, the report pointed out, acompany could hire five Chinese chemists or n Indian engineers.The numbers, however, are wrong. Several academics andjournalistsinvestigated the matter and quickly realized that the Asian totalsFOREIGN AFFAIRS" Volume8 7 No.3The FutureofAmerican Powerincluded graduates of two- or three-year programs training studentsin simple technical tasks. The National Science Foundation, whichtracks these statistics in the United States and other nations, puts theChinese number at about 200,000 engineering degrees per year, andthe Rochester Institute of Technology's Ron Hira puts the numberof Indian engineering graduates at about 125,ooo a year. This meansthat the United States actually trains more engineers per capita thaneither China or India does.And the numbers do not address the issue ofquality.The best andbrightest in China and India-those who, for example, excel at India'sfamous engineering academies, the Indian Institutes of Technology(5,000 out of3oo,ooo applicants make it past the entrance exams)-would do well in any educational system. But once you get beyondsuch elite institutions-which graduateunder io,ooo students a year--the quality The United States'of higher education in China and Indiaremains extremely poor, which is why so advantages today aremany students leave those countries to get in large part a producttrained abroad. In 2005, the McKinsey of immigration.Global Institute did a study of"the emergingglobal labor market" and found that 28 lowwage countries had approximately 33 million young professionals attheir disposal. But, the study noted, "only a fraction of potential jobcandidates could successfully work at a foreign company," largelybecause of inadequate education.Indeed, higher education is the United States' best industry. In noother field is the United States' advantage so overwhelming. A 2006report from the London-based Center for European Reform pointsout that the United States invests 2.6 percent of its GDP in higher education, compared with 1.2 percent in Europe and 1.1 percent inJapan.Depending on which study you look at, the United States, with fivepercent of the world's population, has either seven or eight of theworld's top ten universities and either 48 percent or 68 percent ofthe top 50. The situation in the sciences is particularly striking. InIndia, universities graduate between 35 and So Ph.D.'s in computerscience each year; in the United States, the figure is i,ooo. A list ofwhere the world's i,ooo best computer scientists were educated showsFOREIGN AFFAIRS •May/June 2008 [3IL]FareedZakariathat the top ten schools are allAmerican. The United States also remainsby far the most attractive destination for students, taking in 30 percentofthe total number offoreign students globally, and its collaborationsbetween business and educational institutions are unmatched anywherein the world. All these advantages will not be erased easily, becausethe structure ofEuropean andJapanese universities-mostly state-runbureaucracies-is unlikely to change. And although China and Indiaare opening new institutions, it is not that easy to create a world-classuniversity out of whole cloth in a few decades.Few people believe that U.S. primary and secondary schools deservesimilar praise. The school system, the line goes, is in crisis, with itsstudents performing particularly badly in science and math, year afteryear, in international rankings. But the statistics here, although notwrong, reveal something slightly different. The real problem is onenot of excellence but ofaccess. The Trends in International Mathematicsand Science Study (TIMSS), the standard for comparing educationalprograms across nations, puts the United States squarely in the middleofthe pack.The media reported the news with a predictable penchantfor direness: "Economic Time Bomb: U.S. Teens Are Among Worstat Math," declared The Wall StreetJournal.But the aggregate scores hide deep regional, racial, and socioeconomicvariation. Poor and minority students score well below the U.S. average,while, as one study noted, "students in affluent suburban U.S. schooldistricts score nearly as well as students in Singapore, the runawayleader on TIMSS math scores." The difference between the averagescience scores in poor and wealthy school districts within the UnitedStates, for instance, is four to five times as high as the differencebetween the U.S. and the Singaporean national average. In otherwords, the problem with U.S. education is a problem of inequality.This will, over time, translate into a competitiveness problem, becauseif the United States cannot educate and train a third of the workingpopulation to compete in a knowledge economy, this will drag downthe country. But it does know what works.The U.S. system may be too lax when it comes to rigor and memorization, but it is very good at developing the critical faculties of themind. It is surely this quality that goes some way in explaining why theUnited States produces so many entrepreneurs, inventors, and riskFOREIGN AFFAIRS" Volume87No.132] 3The FutureofAmerican Powertakers.Tharman Shanmugaratnam, until recently Singapore's minister ofeducation, explains the difference between his country's system and thatofthe United States: "We both have meritocracies," Shanmugaratnamsays. "Yours is a talent meritocracy, ours is an exam meritocracy. Weknow how to train people to take exams. You know how to use people'stalents to the fullest. Both are important, but there are some parts ofthe intellect that we are not able to test well-like creativity, curiosity,a sense of adventure, ambition. Most of all, America has a cultureof learning that challenges conventional wisdom, even if it meanschallenging authority." This is one reason that Singaporean officialsrecently visited U.S. schools to learn how to create a system thatnurtures and rewards ingenuity, quick thinking, and problem solving."Just by watching, you can see students are more engaged, instead ofbeing spoon-fed all day," one Singaporean visitor told The WashingtonPost. While the United States marvels at Asia's test-taking skills,Asian governments come to the United States to figure out how toget their children to think.THE GRAY ZONETHE UNITED STATES' advantages might seem obvious when compared with conditions in Asia, which is still a continent of mostlydeveloping countries. Against Europe, the margin is slimmer than manyAmericans believe. The eurozone has been growing at an impressiveclip, about the same pace per capita as the United States since 2000.It takes in half the world's foreign investment, boasts strong laborproductivity, and posted a $3o billion trade surplus in the first tenmonths of 2007. In the World Economic Forum's Global Competitiveness Index, European countries occupy seven ofthe top ten slots. Europehas its problems-high unemployment, rigid labor markets-but it alsohas advantages, including more efficient and fiscally sustainable healthcare and pension systems. All in all, Europe presents the most significantshort-term challenge to the United States in the economic realm.But Europe has one crucial disadvantage. Or,to put it more accurately,the United States has one crucial advantage over Europe and mostof the developed world. The United States is demographically vibrant.Nicholas Eberstadt, a scholar at the American Enterprise Institute,FOREIGN AFFAIRS -May/June2oo8 FareedZakariaestimates that the U.S. population will increase by 65 million by 2030,whereas Europe's population will remain "virtually stagnant." Europe,Eberstadt notes, "will by that time have more than twice as manyseniors older than 65 than children under 15, with drastic implicationsfor future aging. (Fewer children now means fewer workers later.) Inthe United States, by contrast, children will continue to outnumber theelderly. The United Nations Population Division estimates thatthe ratio ofworking-age people to senior citizens in western Europe willdrop from 3.8:1 today to just 2.4:1 in 2030. In the U.S., the figurewill fall from S.4:1 to 3.:1."The only real way to avert this demographic decline is for Europe totake in more immigrants. Native Europeans actually stopped replacingthemselves as early as 2007, and so even maintaining the current population will require modest immigration. Growth will require muchmore. But European societies do not seem able to take in and assimilatepeople from strange and unfamiliar cultures, especially from rural andbackward regions in the world of Islam. The question of who is atfault here-the immigrant or the society-is irrelevant. The reality isthat Europe is moving toward taking in fewer immigrants at a timewhen its economic future rides on its ability to take in many more.The United States, on the other hand, is creating the first universalnation, made up of all colors, races, and creeds, living and workingtogether in considerable harmony. Consider the current presidentialelection, in which the contestants have included a black man, a woman,a Mormon, a Hispanic, and an Italian American.Surprisingly, many Asian countries (with India an exception) are indemographic situations similar to or even worse than Europe's. Thefertility rates in China,Japan, South Korea, and Taiwan are well belowthe replacement level of 2.1 births per woman, and estimates indicatethat the major East Asian nations will face a sizable reduction in theirworking-age populations over the next half century.The working-agepopulation in Japan has already peaked; by 2o1o, Japan will have threemillion fewer workers than it did in 2005. The worker populations inChina and South Korea are also likely to peakwithin the next decade.Goldman Sachs predicts that China's median age will rise from 33 in 2005to 45 in 2050, a remarkable graying ofthe population. And Asian countries have as much trouble with immigrants as European countries do.FOREIGN AFFAIRS Volume8  7 No.3The FutureofAmerican PowerJapan faces a large prospective worker shortage because it can neither takein enough immigrants nor allow its women to fully participate in thelabor force.The effects of an aging population are considerable. First, there isthe pension burden-fewer workers supporting more gray-hairedelders. Second, as the economist Benjamin Jones has shown, mostinnovative inventors-and the overwhelming majority of Nobellaureates-do their most important work between the ages of3o and44. A smaller working-age population, in other words, means fewertechnological, scientific, and managerial advances. Third, as workersage, they go from being net savers to being net spenders, with direramifications for national savings and investment rates. For advancedindustrialized countries, bad demographics are a killer disease.The United States' potential advantages today are in large part aproduct of immigration. Without immigration, the United States'GDP growth over the last quarter century would have been the sameas Europeans. Native-born white Americans have the same low fertilityrates as Europeans. Foreign students and immigrants account for50 percent ofthe science researchers in the country and in 2oo6 received4o percent ofthe doctorates in science and engineering and 65 percentof the doctorates in computer science. By 2010, foreign students willget more than 5o percent of all the Ph.D.'s awarded in every subjectin the United States. In the sciences, that figure will be closer to 75 percent. Half of all Silicon Valley start-ups have one founder who is animmigrant or a first-generation American. In short, the United States'potential new burst of productivity, its edge in nanotechnology andbiotechnology, its ability to invent the future-all rest on its immigration policies. If the United States can keep the people it educatesin the country, the innovation will happen there. If they go backhome, the innovation will travel with them.Immigration also gives the United States a quality rare for a richcountry-dynamism. The country has found a way to keep itselfconstantly revitalized by streams of people who are eager to make anew life in a new world. Some Americans have always worried aboutsuch immigrants-whether from Ireland or Italy,China or Mexico. Butthese immigrants have gone on to become the backbone ofthe American working class, and their children or grandchildren have enteredFOREIGN AFFAIRS •May/June 20o8 [3S]vowYoungAmericans:immigrantsaftertakingthe oath ofcitizenship,LosAngeles, California,2007the American mainstream. The United States has been able to tapthis energy, manage diversity, assimilate newcomers, and move aheadeconomically. Ultimately, this is what sets the country apart from theexperience of Britain and all other past great economic powers thathave grown fat and lazy and slipped behind as they faced the rise ofleaner, hungrier nations.LEARNING FROM THE WORLD IN 2005, New York City got a wake-up call. Twenty-four of theworld's 25 largest initial public offerings that year were held in countriesother than the United States. This was stunning. The United States'capital markets have long been the biggest in the world.They financedthe turnaround in manufacturing in the 198os and the technologyrevolution of the 199os, and they are today financing the ongoingadvances in bioscience. It is the fluidity ofthese markets that has keptAmerican business nimble. If the United States is losing this distinctiveadvantage, it is very bad news.FOREIGN AFFAIRS' Volume87No.[3 6 ] 3The FutureofAmerican PowerMuch of the discussion around the problem has focused on theUnited States' regulation, particularly post-Enron laws such as SarbanesOxley,and the constant threat oflitigation that hovers over businessesin the United States. These obstacles are there, but they do not reallyget at what has shifted business abroad. The United States is conductingbusiness as usual. But others are joining in the game. What is reallyhappening here, as in other areas, is simple: the rise of the rest. TheUnited States' sum total of stocks, bonds, deposits, loans, and otherfinancial instruments-its financial stock, in other words-stillexceeds that of any other region, but other regions are seeing theirfinancial stock grow much more quickly. This is especially true ofthe rising countries of Asia, but even the eurozone is outpacing theUnited States. Europe's total banking and trading revenues, $98 billion in 2005, have nearly pulled equal to the United States' revenues.And when it comes to new derivatives based on underlying financialinstruments such as stocks or interest-rate payments, which areincreasingly important for hedge funds, banks, and insurers, Londonis the dominant player already. This is all part of a broader trend.Countries and companies now have options that they never had before.In this and other regards, the United States is not doing worsethan usual. It functions as it always has-perhaps subconsciouslyassuming that it is still leagues ahead of the pack. U.S. legislatorsrarely think about the rest ofthe world when writing laws, regulations,and policies. U.S. officials rarely refer to global standards. After all,for so long the United States was the global standard, and when itchose to do something different, it was important enough that the restof the world would cater to its exceptionality.The United States is theonly country in the world other than Liberia and Myanmar that is noton the metric system. Other than Somalia, it is alone in not ratifyingthe Convention on the Rights of the Child. In business, the UnitedStates did not need to benchmark. It was the one teaching the worldhow to be capitalist. But now everyone is playing the United States'game, and playing to win.For most of the last 30 years, the United States had the lowestcorporate tax rates ofthe major industrialized countries. Today, it hasthe second highest.U.S. rates have not gone up; others have come down.Germany, for example, long a staunch believer in its high-taxationFOREIGN AFFAIRS -May/June 2oo8 FareedZakariasystem, has cut its rates in response to moves by countries to its east,such as Austria and Slovakia. This kind of competition among industrialized countries is now widespread. It is not a race to the bottomScandinavian countries have high taxes, good services, and stronggrowth-but a quest for growth. U.S. regulations used to be moreflexible and market-friendly than all others.Now everyone is That is no longer true. London's financialsystem was overhauled in 2001, with a singleplaying the United entity replacing a confusing mishmash ofStates' game, and regulators, which is one reason that London'splaying to win, financial sector now beats out New York's onsome measures. The entire British government works aggressively to make London aglobal hub. Regulators from Warsaw to Shanghai to Mumbai aremoving every day to make their systems more attractive to investorsand manufacturers. Washington, by contrast, spends its time and energythinking ofways to tax New York, so that it can send its revenues tothe rest of the country.Being on top for so long has its downsides. The U.S. market hasbeen so large that Americans have assumed that the rest of the worldwould take the trouble to understand it and them. They have not hadto reciprocate by learning foreign languages, cultures, or markets. Now,that could leave the United States at a competitive disadvantage. Takethe spread of English worldwide as a metaphor. Americans havedelighted in this process because it makes it so much easier for themto travel and do business abroad. But it also gives the locals an understanding of and access to two markets and cultures. They can speakEnglish but also Mandarin or Hindi or Portuguese. They can penetratethe U.S. market but also the internal Chinese, Indian, or Brazilianone. Americans, by contrast, have never developed the ability to moveinto other people's worlds.The United States is used to being the leading economy and society.It has not noticed that most of the rest of the industrialized worldand a good part of the nonindustrialized world as well-has bettercell-phone service than the United States. Computer connectivity isfaster and cheaper across the rest of the industrialized world, fromCanada to France to Japan, and the United States now stands 16th inFOREIGN AFFAIRS" Volume8 7 No. 3The FutureofAmerican Powerthe world in broadband penetration per capita. Americans are constantly told by their politicians that the only thing they have to learnfrom other countries' health-care systems is to be thankful for theirown. Americans rarely look around and notice other options andalternatives, let alone adopt them.Learning from the rest is no longer a matter ofmorality or politics.Increasingly, it is about competitiveness. Consider the automobileindustry. For more than a century after 1894, most of the cars manufactured in North America were made in Michigan. Since 2004,Michigan has been replaced by Ontario, Canada.The reason is simple:health care. In the United States, car manufacturers have to pay$6,500 in medical and insurance costs for every worker. Ifthey movea plant to Canada, which has a government-run health-care system,the cost to them is around $8oo per worker.This is not necessarily anadvertisement for the Canadian health-care system, but it does makeclear that the costs ofthe U.S. health-care system have risen to a pointwhere there is a significant competitive disadvantage to hiring American workers. Jobs are going not to low-wage countries but to placeswhere well-trained and educated workers can be found: it is smartbenefits, not low wages, that employers are looking for.For decades, American workers, whether in car companies, steelplants, or banks, had one enormous advantage over all other workers:privileged access to American capital. They could use that access tobuy technology and training that no one else had-and thus produceproducts that no one else could, and at competitive prices. That specialaccess is also gone. The world is swimming in capital, and suddenlyAmerican workers have to ask themselves, What can we do betterthan others? It is a dilemma not just for workers but for companies aswell. When American companies went abroad, they used to bringwith them capital and know-how. But when they go abroad now,theydiscover that the natives already have money and already know how.There really is not a Third World anymore. So what do Americancompanies bring to Brazil or India? What is the United States' competitive advantage? This is a question few American businesspeoplethought theywould ever have to answer.The answer lies in somethingthe economist Martin Wolf noted. Economists used to discuss twobasic concepts, capital and labor. But these are now commodities,FOREIGN AFFAIRS -May/June2008 FareedZakariawidely available to everyone. What distinguishes economies today areideas and energy. A country can prosper if it is a source of ideas orenergy for the world.DO-NOTHING POLITICSTHE UNITED STATES has been and can continue to be the world'smost important source of new ideas, big and small, technical andcreative, economic and political. (Ifit were truly innovative, it couldgenerate new ideas to produce new kinds of energy.) But to do that,it has to make some significant changes. The United States has a history ofworrying that it is losing its edge. Today's is at least the fourthwave of such concern since World War II. The first was in the late1950s, a result of the Soviet Union's launching of the Sputnik satellite.The second was in the early 197os, when high oil prices and slowgrowth convinced Americans that Western Europe and Saudi Arabiawere the powers ofthe future. The third one arrived in the mid-198os,when most experts believed that Japan would be the technologicallyand economically dominant superpower of the future. The concernin each of these cases was well founded, the projections intelligent.But none of the feared scenarios came to pass. The reason is that theU.S. system proved to be flexible, resourceful, and resilient, able tocorrect its mistakes and shift its attention. A focus on U.S. economicdecline ended up preventing it.The problem today is that the U.S. political system seems tohave lost its ability to fix its ailments. The economic problems inthe United States today are real, but by and large they are not theproduct of deep inefficiencies within the U.S. economy, nor arethey reflections of cultural decay. They are the consequences ofspecific government policies. Different policies could quickly andrelatively easily move the United States onto a far more stable footing.A set of sensible reforms could be enacted tomorrow to trim wastefilspending and subsidies, increase savings, expand training in scienceand technology, secure pensions, create a workable immigrationprocess, and achieve significant efficiencies in the use of energy.Policy experts do not have wide disagreements on most of these issues,and none ofthe proposed measures would require sacrifices reminiscentFOREIGN AFFAIRS" Volume8  7 No.3The FutureofAmerican Powerof wartime hardship, only modest adjustments of existing arrangements. And yet, because of politics, they appear impossible. TheU.S. political system has lost the ability to accept some pain now forgreat gain later on.As it enters the twenty-first century, the United States is notfundamentally a weak economy or a decadent society. But it hasdeveloped a highly dysfunctional politics. What was an antiquatedand overly rigid political system to begin with (now about 225 yearsold) has been captured by money, special interests, a sensationalistmedia, and ideological attack groups. The result is ceaseless, virulentdebate about trivia-politics as theater-and very little substance,compromise, or action. A can-do country is now saddled with ado-nothing political process, designed for partisan battle ratherthan problem solving.It is clever contrarianism to be in favor of sharp party politics andagainst worthy calls for bipartisanship. Some political scientistshave long wished that U.S. political parties were more like Europeanones-ideologically pure and tightly disciplined. But Europe'sparliamentary systems work well with partisan parties. In them, theexecutive branch always controls the legislative branch, and sothe party in power can implement its agenda easily.The U.S. system,by contrast, is one ofshared power, overlapping functions, and checksand balances. Progress requires broad coalitions between the twomajor parties and politicians who will cross the aisle. That is whyJames Madison distrusted political parties, lumping them togetherwith all kinds of "factions" and considering them a grave danger tothe young American republic.Progress on any major problem-health care, Social Security,tax reform-will require compromise from both sides. It requiresa longer-term perspective. And that has become politically deadly.Those who advocate sensible solutions and compromise legislationfind themselves being marginalized by their party's leadership,losing funds from special-interest groups, and being constantlyattacked by their "side" on television and radio. The system providesgreater incentives to stand firm and go back and tell your teamthat you refused to bow to the enemy.It is great for fundraising, butit is terrible for governing.FOREIGN AFFAIRS •May/June 2oo8 FareedZakariaTHE RISE OF THE RESTTHE REAL test for the United States is the opposite ofthat faced by Britain in 19oo. Britain's economic power waned even as it managedto maintain immense political influence around the world. The U.S.economy and American society, in contrast, are capable of respondingto the economic pressures and competition they face. They can adjust,adapt, and persevere. The test for the United States is political-andit rests not just with the United States at large but with Washingtonin particular. Can Washington adjust and adapt to a world in whichothers have moved up? Can it respond to shifts in economic requirements and political power?The world has been one in which the United States was utterlyunrivaled for two decades. It has been, in a broader sense, a U.S.-designed world since the end of World War II. But it is now in themidst of one of history's greatest periods of change.There have been three tectonic power shifts over the last 50 years,fundamental changes in the distribution of power that have reshapedinternational life-its politics, economics, and culture. The first was therise ofthe Western world, a process that began in the fifteenth centuryand accelerated dramatically in the late eighteenth century. It produced modernity as we know it: science and technology, commerce andcapitalism, the agricultural and industrial revolutions. It also producedthe prolonged political dominance of the nations of the West.The second shift, which took place in the closing years of thenineteenth century, was the rise of the United States. Soon after itindustrialized, the United States became the most powerful nationsince imperial Rome, and the only one that was stronger than anylikely combination ofother nations. For most ofthe last century,theUnited States has dominated global economics, politics, science,culture, and ideas. For the last 20 years, that dominance has beenunrivaled, a phenomenon unprecedented in history.We are now living through the third great power shift ofthe modernera-the rise ofthe rest. Over the past few decades, countries all overthe world have been experiencing rates ofeconomic growth that wereonce unthinkable. Although they have had booms and busts, the overall trend has been vigorously forward. (This growth has been mostFOREIGN AFFAIRS" Volume87No. 3The FutureofAmerican Powervisible in Asia but is no longer confined to it, which is why to call thischange "the rise of Asia" does not describe it accurately.)The emerging international system is likely to be quite differentfrom those that have preceded it.A hundred years ago, there was a multipolar order run by a collection ofEuropean governments, with constantlyshifting alliances, rivalries, miscalculations, and wars. Then camethe duopoly ofthe Cold War, more stable in some ways, but with thesuperpowers reacting and overreacting to each other's every move. Since1991, we have lived under a U.S. imperium, a unique, unipolar world inwhich the open global economy has expanded and accelerated. Thisexpansion is driving the next change in the nature of the internationalorder. At the politico-military level, we remain in a single-superpowerworld. But polarity is not a binary phenomenon.The world will not stayunipolar for decades and then suddenly, one afternoon, become multipolar. On every dimension other than military power-industrial,financial, social, cultural-the distribution ofpower is shifting, movingaway from U.S. dominance. That does not mean we are entering ananti-American world. But we are moving into a post-American world,one defined and directed from many places and by many people.There are many specific policies and programs one could advocate tomake the United States' economy and society more competitive. Butbeyond all these what is also needed is a broader change in strategyand attitude. The United States must come to recognize that it faces achoice-it can stabilize the emerging world order bybringing in the newrising nations, ceding some ofits own power and perquisites, and accepting a world with a diversity ofvoices and viewpoints. Or it can watchas the rise ofthe rest produces greater nationalism, diffusion, and disintegration, which will slowly tear apart the world order that the UnitedStates has built over the last 6o years. The case for the former is obvious.The world is changing, but it is going the United States' way.The restthat are rising are embracing markets, democratic government (ofsomeform or another), and greater openness and transparency. It might bea world in which the United States takes up less space, but it is onein which American ideas and ideals are overwhelmingly dominant.The United States has a window ofopportunity to shape and master thechanging global landscape, but only if it first recognizes that the postAmerican world is a reality-and embraces and celebrates that fact.0FOREIGN AFFAIRS -May/June 2008