By Clyde Prestowitz
Conventional wisdom says that America is in decline, that the American century is over, and that the future belongs to the rest, especially the rest in Asia. Predictions that China's gross domestic product will soon surpass that of the US to become the world's largest economy are legion.
Prominent authors such as CNN commentator Fareed Zakaria and former diplomat Kishore Mahbubani have rushed to publish books predicting a historic shift in the global balance of power as a result of this change in relative share of global GDP. And the Australian government recently indicated its agreement with this thinking by moving to redeploy its resources and reorient its policies in response to a white paper on ''Australia in the Asian Century''.
Yet, there is growing evidence that all of this analysis may be a bit premature and that America is not only coming back but that this century may well wind up being another American century.
All is not well in many parts of the global economy. Japan, facing population decline from 128 million to perhaps only 88 million people over the next 30 years and with extremely rapid ageing and a national debt of 240 per cent of GDP, is making a desperate gamble that it can shake off two decades of deflation by having the Bank of Japan engage in massive buying of assets. Even if it works, this will not solve the population and other deep structural problems of Japan.
South Korea appears to be in somewhat better shape, but its population decline and ageing rates are worse than Japan's, and any recovery by Japan will entail damage to South Korea's export-dependent economy.
China has been the great story of the past quarter-century and still is a good one. But the miracle days are past. China has followed a growth strategy based on huge investment, sometimes in excess of 50 per cent of GDP. It has now hit a point of diminishing returns. Each new dollar of investment yields a bit less growth than the previous dollar. For a long time the key question has been whether China would get rich before it gets old. The answer increasingly appears to be no.
India has good demographics with a growing, youthful population, but beyond that the Indian story is a very mixed one. Corruption is rampant and a huge drag on growth. The political system is slow, inconsistent and often incoherent.
As for Europe, it is a nightmare. Austerity is the order of the day. Germany's is the only economy with any growth at all and it's not much. Most European countries have rapidly ageing and shrinking populations and increasingly difficult-to-carry welfare burdens. Whether the European Union and the euro will survive are still open questions. In any case, there is no chance that Europe will lead a global revival. That brings us to the US. Certainly, it has significant problems. Its government debt is high and federal budget deficits large.
Unemployment is stubbornly hanging around 7.5 per cent. Its students score only in the middle on international comparison tests, and its banking practices and financial policies were a large source of the global economic crisis of the past five years. All true.
But where would you most like to put your money? The record highs of the Dow Industrials and the S&P 500 tell us that for a lot of people, the US is the place. Why? For all the problems, the future is looking brighter and brighter and, in comparison to the likes of China, more stable.
Start with the big trends. US demographics are among the world's best. It will have steady 1-2 per cent population growth for as far as the eye can see, both as a result of domestic births and of continuing immigration. Thus, compared with the rest of the world, with the possible exception of India and Africa, the US workforce will expand and will become relatively younger. The US dollar is and will remain the world's main reserve currency for a long time.
Serious as the US debt and budget numbers are, they are beginning to get better. Households and businesses have largely repaired their balance sheets and the federal budget deficit has declined from 10 per cent of GDP to a bit over 4 per cent and is heading lower. The US economy is now headed for 3 per cent growth in 2013, according to a number of leading analysts. As this continues, government revenues will rise and the deficit will continue to fall.
Of perhaps greatest significance are two dramatic technological and geological developments. Of course, technology, inventiveness and entrepreneurial spirit have always been American strong points. In few other places do such endeavours as Google, Apple and Facebook sprout up as frequently as in America. But these bright spots didn't seem to reverse the trend of decline.
In the past five years, however, the technology to obtain natural gas and oil from shale rock formations by fracking has turned the world upside down in America's favour. The US has extensive shale formations over much of the country and these contain as much oil and gas as Saudi Arabia and enough to power America for more than 100 years. Even more importantly, the cost is very low. The price US factories pay for gas is one-third that of German factories and a quarter that of South Korean factories. Cheap gas is also translating into cheap electricity, so that US factories pay half for electricity what a Mexican factory pays and a quarter of what an Italian factory pays. Nor is it just a matter of gas. US oil production has risen by a third over the past four years and America will soon overtake Russia and Saudi Arabia to become the world's biggest producer of oil and biofuels.
The gas-oil boom is making America largely energy-independent while creating a huge investment and job creation wave as a lot of manufacturing moves back to America. Given that about a third to a half of the US trade deficit is energy-related, fracking is likely to reduce the deficit dramatically.
The second technology revolutionising production and manufacturing in America's favour is 3D printing. In this process, printers like those that do computer printouts deposit layers of metals, plastics and other materials to create such things as auto and aeroplane parts, furniture, toys and almost anything else you might want to make.
Indeed, in one case, a whole house was built from scratch by 3D printers. The beauty of the technology is that it can be designed to make unusual shapes at low cost and can be expanded gradually and evenly without huge investment in capital equipment. This technology is, of course, not unique to America, but because America is a country of such high demand supplied by a long global supply chain, 3D printing is likely to have the most revolutionary impact by moving much of the production closer to the source of demand, and thereby rearranging the supply chain while greatly reducing the US trade deficit.
Thus America emerges as the major country with the best demographics; best energy picture; improving budget and debt picture; best technology, research and development, and innovation picture; main currency; most powerful military; and most balanced economy. Perhaps Australia would do well to commission another white paper: Australia in the New American Century.
Clyde Prestowitz is president of the Economic Strategy Institute in Washington. This is an edited extract from the American Review, published by the United States Studies Centre at Sydney University.
This article originally appeared in The Age.