I’m nearing the end of Blowback: The Costs and Consequences of American Empire by Chalmers Johnson. Towards the end he makes some novel economic arguments that I will have to think about. Basically, he argues that the rhetoric of free trade and globalization that arose after World War II was at first political in nature, acting as an ideological counterweight to communism. It supported a geopolitical strategy which was to get industry off to a fast start in Japan and later Korea, open the U.S. market to their exports and allow their economies to grow quickly, creating strong Cold War allies in Asia. The U.S. itself was highly industrialized, growing fast, and its markets were by far the largest in the world, so at first it could absorb these exports and drive growth abroad just fine. But over time, Japan and Korea grew large relative to the U.S., and other economies like Singapore, Taiwan, and Hong Kong began to copy the model, and later the nations of Southeast Asia and of course China. Johnson argues that the U.S. kept its own markets open without insisting that these countries do the same. The result was the slowing of growth in the U.S., loss of the industrial base, loss of well paying blue collar jobs, and inner-city and small-town poverty. Meanwhile, he argues that because labor costs stayed low in Asia, which by now western multinational corporations were insisting on, the middle class in Asia was not growing fast enough to be able to afford the things they were making. With the U.S. stagnating at the same time, the U.S. couldn’t afford to buy all the things being made either. All this led to manufacturing over-capacity in Asia and under-demand globally, which he sees as leading directly to the Asian financial crisis of 1997. So in his view, the free market, free trade ideology we somewhat take as a given now began as a cynical propaganda campaign, which outlived its usefulness with the end of the Cold War. He blames the financial industry for pushing the system over the edge, but does not see financial speculation or risk taking as a root cause. Publishing in 2000, he suggests that 1997 may end up being seen by history as the high water mark of the American empire, after which it went into decline.

Like I said, I have to think about all this. For one thing, while the U.S. might have directly subsidized the rise of Cold War allies like Japan, Korea and Taiwan to some extent, you certainly can’t make that same case for China, which followed almost exactly the same trajectory a bit later. And the economic theory behind free trade is pretty elegant and appealing. You can’t base a national economy on subsidized, inefficient domestic industries forever and expect to remain competitive. You need to adapt to change rather than resist change. On the other hand, you need strategies to slow the rate of change so you have time to adapt, retrain as many workers as possible, educate the next generation of workers, build public infrastructure that allows the private sector to operate efficiently, and provide a safety net for those who are still left behind. The U.S. clearly failed to do these things, at least in the city centers and small factory towns that used to depend on heavy industry. To some extent I think Chalmers is right that we believed our own Cold War propaganda and let ideology prevent us from taking the measures that would have allowed us to adapt better.