The Future (24 page)

Any legislative effort to address inequality with measures that require funding through taxes of any sort has also come to mark the political fault line dividing the United States into two opposing factions. The corporate-led counterreform movement that began in the 1970s adopted as one of its key tenets a cynical
strategy known as “starve the beast”; while proclaiming the importance of “balancing the budget” and “reducing deficits,” the movement pushed massive tax cuts as the initial step in a plan to use the resulting funding gap as an excuse to force sharp reductions in the role of government. This was part and parcel of the larger effort to diminish the democracy sphere and enhance the market sphere.

What is most troubling to advocates of American democracy is that the radically elevated role of money in politics has given the forces representing wealth and corporate power sufficient strength to advance their agenda even when a sizable majority of the American people oppose it. In effect, those who zealously advocate the expansion of the role of markets while demanding a constriction of the ability of people in democracies to enact policies that address the abuses and disruptive risks that often accompany unrestrained market activity are posing a threat to the internal logic of the nation-state itself.

America’s middle class has been hollowed out by, among other causes, the emergence of Earth Inc., the increasing proportion of retired Americans, and advances in the availability of expensive health care technologies. The result is a fast growing financial crisis that is threatening the
ability of the United States to provide world leadership. U.S. government indebtedness compared to GDP is threatening to spiral out of control. According to a study by the nonpartisan Congressional Budget Office, the
U.S. debt-to-GDP ratio is 70 percent in 2013, and already
exceeds GDP if money the government owes to itself is added to the debt.

Although a highly publicized credit downgrade by the bond rating firm Standard & Poor’s in 2011 had
no perceptible effect on the demand for U.S. bonds, experts have warned that a sudden loss of confidence in the dollar and in the viability of U.S. finances cannot be ruled out in the coming decade. Partly due to the weakness of the euro and a lack of trust in the Chinese yuan, or renminbi (RMB), the U.S. dollar remains the world’s reserve currency. For those and other reasons, the United States is still able to borrow from the rest of the world at extremely low interest rates—as of this writing at less than 2 percent for ten-year bonds.

Yet the looming financial troubles are potentially large enough to provoke a sudden loss of confidence in the future of the dollar, and a sudden increase in the interest rates the U.S. government would be required to pay to holders of its debt. Even a one percentage point rise over projected increases in the interest rates paid on the debt would
add approximately $1 trillion to interest payments over the next decade.

The strength of any nation’s economy is, of course, crucial for the exertion of power in multiple ways. It undergirds the ability to finance weapons and armies, and to use foreign aid and trade concessions to build necessary alliances. It enables the building of superior infrastructures and the provision of public goods such as education, job training, public safety, pensions, enforceability of contracts, quality of the legal system, health care, and environmental protection. It also allows for the creation of a superior capacity for research and development, now crucial to gain access to the fruits of the accelerating scientific and technological revolution.

More broadly, the ability of any nation to wield power on a sustained basis—whether military, economic, political, or moral—depends upon multiple additional factors, including:

The United States is now failing to satisfy many of these criteria. But it is not the only nation-state that is in danger of dissipating its ability to make sound decisions about the future. The larger and more significant change in the balance of power throughout the world is the relative decline in the effective power of nation-states generally. In the words of Harvard professor Joseph Nye, “
the diffusion of power away from government is one of this century’s great political shifts.”

One of the principal reasons for the steady decline in the effective power of nation-states has been a rise in the power of multinational corporations. The redistribution of economic power and initiative to multinational corporations operating in many national jurisdictions simultaneously (even while exerting increased influence over the domestic policies of the nations in which they are based) has significantly diminished the role of nation-states.

With their ability to outsource and robosource their labor inputs, many corporations no longer have the same incentive to support improvements in national education systems and other measures that would enhance labor productivity in their home nations. And with the astonishing increase in trade and investment flows, multinational corporations are playing a far more significant role than ever before. Some political scientists have asserted that the influence of corporations on modern governance is now almost analogous to the influence of the medieval church during the era of feudalism.

The integration of the global economy has shifted power profoundly toward markets. The massive flows of capital over digital networks in Earth Inc. have made some national economies highly vulnerable to the sudden outflow of “hot money” if and when global markets reach a negative judgment about the viability of their fiscal and monetary policies. International banks and bond rating firms have become more significant players in national debates about taxing and spending. Greece is only the best known of many examples of countries no longer able to make decisions for themselves. It must first get permission from the European Union, which supports it, and international banks, which hold its debt.

The historic decline in the power, influence, and prospects for the Eurozone countries (those European nations that have joined in a monetary union) stems in large measure from a widely recognized fatal flaw in the decision by those European nations entering the monetary union to gamble that they could delay tight integration of their fiscal policies (without which a single currency is ultimately not viable) until the political momentum toward unity made that difficult step possible.

Recently released documents confirm that when the Eurozone was founded, there was widespread awareness, particularly in Germany, that Southern European countries were
not even close to the fiscal conditions
that would have reduced the risk of monetary integration. Yet then chancellor Helmut Kohl and other European leaders decided that the benefits of European unity were worth the gamble that cohesion could be maintained until there was sufficient Europe-wide support for tighter fiscal unity. When the financial crisis of 2007–08 exposed the fatal flaw, the global credit markets essentially called Europe’s bet.

Broadly speaking, Europe now faces two options. First, it can acknowledge the failure of the Eurozone experiment and sharply contract the number of nations that remain in the Eurozone alongside Germany and France—the core of Europe’s economy. This option is unattractive for several reasons: there are no legal procedures for the withdrawal of a country from the Eurozone; the transition from the euro back to a national currency—for a country like Greece, for example—promises to be exceptionally painful and expensive; and Germany would find itself once again threatened with competitive devaluations—in nations like Italy, for example—whenever the strength of the German economy significantly outpaced that of its neighbors.

The second option is to move quickly and boldly forward to a fiscal unification of the Eurozone, notwithstanding the disparities in the strength and productivity of Germany’s economy compared to the nations of Southern Europe. However, the only way to maintain anything remotely approaching parity in living standards in a fiscally unified Europe would be for Germany to make transfer payments (essentially budget subsidies) to the weaker European countries for at least a generation. Yet even though this might be a long-term economic bargain for Germany, the relatively more prosperous taxpayers of the former West Germany have shouldered the burden of subsidies to those in the relatively weaker former East Germany
for the two decades since reunification—at an estimated cost of $2.17 trillion—and as a result their appetite for taking on this new burden is quite low.

The inability of Europe’s leaders to establish the needed fiscal integration and move more quickly toward a unified Europe has created a significant political and economic crisis that threatens to undo one of the most important U.S. successes in the aftermath of World War II. The weakening of political cohesion and economic dynamism in Western Europe (along with the long-running political paralysis and economic slowdown in Japan) have also contributed to the new difficulties faced by the United States in providing world leadership.

As with the compound ideology of democratic capitalism, the political concept of a nation-state is also made up of two ideas that overlap one another. The idea of a nation is based on the common identity of the people who live in a national territory; whether or not they share the same language (often the vast majority do), they usually share the same feeling that they are members of a national community. The state, by contrast, is an administrative, legal, and political entity that provides the infrastructure, security, and judicial basis for life within the state. When both of these concepts overlap, the result is the kind of nation that we commonly think of as the principal form by which global civilization is organized.

There is a rich historical debate about the origins of nation-states. The first large “states” emerged around 5,400 years ago when the Agricultural Revolution first produced large food surpluses in areas endowed with
plant varieties that were especially suitable for cultivation: the Nile River Valley in Egypt, the Yellow River Valley in China, the Indus River Valley in India, the Tigris and Euphrates river valleys, and the
Fertile Crescent (and in nearby Crete). These states also appeared in
several other areas of the world, including Mexico, the Andes, and Hawaii.

The marriage of state and nation occurred much later. In a very real sense, modern nation-states were created as an outgrowth of the Print Revolution. Throughout most of human history, it was not the dominant form of organization. Empires, city-states, confederations, and tribes all coexisted in large areas of the Earth for millennia. Although there are a few examples of nation-states that existed prior to the Print Revolution, the rise of the modern nation-state as the dominant form of political organization occurred when the spread of printed books and pamphlets in a
shared form of national languages stimulated the emergence of common national identities.

Prior to the Print Revolution, languages such as French, Spanish, English, and German, among others, featured a multiplicity of dialects and forms that were so distinctive that speakers of one form often had
difficulty communicating with speakers of other forms. After the Print Revolution gained momentum, however, the economic imperatives of mass mechanical reproduction of texts provided a powerful push toward a common dialect of each tongue that was then adopted as a common language within each national territory. The emergence of group identities
in regions where the majority of people spoke, read, and wrote in the same language created the conditions that led to the emergence of modern nation-states.

The Reformation and the Counter-Reformation unleashed passions that combined with these new national identities to trigger a long series of bloody wars that finally culminated in the Treaty of Westphalia in 1648—the treaty that formalized the construction of a new order in Europe based on the primacy of nation-states, and the principle of noninterference by any nation-state in the affairs of another.

Soon thereafter, the dissemination of news—printed in national languages and presented within a distinctively national frame of reference—
further strengthened national identities. Over time, the wider availability of civic knowledge also led to the emergence of representative democracy and elected national legislatures. When the people of nations gained political authority over the making of laws and policies, the functions of the state were married to those of the nation.