Is the United States a Failed State?

Paul Krugman has recently said that: “If we were looking at a foreign country with America’s level of political dysfunction, we would probably consider it on the edge of becoming a failed state — that is, a state whose government is no longer able to exert effective control.”[1] This has become increasingly a cliché, often used in conversation to explain the fall of the American Empire, which has been to some extent validated by the storming of the capitol and Trump’s refusal to accept Biden’s electoral victory. The concepts of the developmental and failed states are often used, but seldom carefully analyzed, but both seem crucial to understand why divided societies, facing a contested hegemonic position in the global economy might thrive or collapse.

The Developmental State and the Rise of China

The idea of a developmental state is often associated with the Asian experience in the post-war period, from Japan to China, including in particular South Korea and the other so-called Tigers, i.e. Indonesia, Malaysia, Taiwan, Thailand and, perhaps, now Vietnam. Theoretically the work of Chalmers Johnson, and his followers – e.g. Alice Amsden, Ha-Joon Chang, Peter Evans, and Robert Wade, to cite the most prominent – was central for the conceptualization of the developmental state. Their work builds on a tradition that harks back to Friedrich List, but the logic of the developmental state is actually related to the American experience, and to the legacy of Alexander Hamilton, who was the inspiration for List, as noted by Stephen Cohen and Brad DeLong in Concrete Economics: The Hamilton Approach to Economic Growth and Policy. But that too misses the point that England was the ultimate inspiration for Hamilton’s Report on Manufactures. The origin of the concept should be examined in light of the rise of what John Brewer called the British Fiscal-Military State.

The central characteristic of the Fiscal-Military State was its ability to borrow more or less without limit, and to be able to carry the burden of debt in domestic currency lightly with relatively low interest rates. At the core of the developmental state is the ability to spend, without external restrictions. In other words, a true developmental state must have a hegemonic currency, or it must not have a significant shortfall of it. The ability to spend was evidently central to making war. Priya Satia has shown recently in her Empire of Gunshow government procurement policies were central for the creation of what she calls “not a military-industrial complex, but a steadily expanding military-industrial society” (Satia, 2018: 27). Charles Tilly famous dictum, according to which “war made the state, and the state made war,” is correct (1975: 42). Satia seems to agree; she tells us that “state institutions drove Britain’s industrial revolution in crucial ways… war made the industrial revolution” (Ibid.: 2).[2]

There are many and complex reasons for the fall of the British Empire. But at a deeper level Charles Kindleberger, in his classic The World in Depression: 129-1939, suggested that the roots of the inter-war crisis, including the Great Depression, the decline of British hegemony and the slow emergence of the American one, were associated to the inability of the United Kingdom and the reluctance in the United States to act as a lender of last resort, maintain counter-cyclical credit and demand on a global basis. In other words, the British state has lost its ability to spend without limits, and had to borrow in foreign currency, in dollars. That new state of affairs was settled with Tripartite Agreement of 1936 between France, the U.K. and the U.S. to stabilize exchange rates, and consolidated after the Bretton Woods Agreement of 1944. The United States ability to spend without limits in dollars, and the hegemonic role of the dollar were established, and exemplified by the Marshall Plan. That is true even if the rise of the Soviet Union meant that an alternative existed to the American model of regulated capitalism that emerged in the post-war period, during the so-called Golden Age.

This hegemonic position did not seem seriously threatened, in particular, since the collapse of the Soviet Union in the early 1990s. But in the 2000s, the rise of China has created a heightened sense of anxiety, about the loss of American preeminence in the global economy, finding expression more conspicuously in Donald Trump’s trade wars. At the same time, the effects of the rise of Chinese manufacturing, with the significant losses of manufacturing jobs in the United States mostly since the entry of China in the World Trade Organization (WTO) in the early 2000s, have amplified the internal divisions in American society. But to understand the rise of China it is also important to rethink the notion of the developmental state in the periphery. What is missing in Tilly’s argument about the role of war is the peripheral state, and the relation of the latter with the developmental state. If we take the Asian case as paradigmatic, we could say that the state lost the war, and the loss made the developmental state. The developmental state in the periphery appears in the post-war period with the establishment of American hegemony.

In the context of the Cold War, the United States was willing to accept significant structural reforms. At home, the desegregation of schools, that started with the Brown v. Board of Education decision, and later with the passage of the Civil Rights and Voting Rights Acts were seen as necessary to show that the American democratic capitalism corresponded to the ideals of freedom cultivated abroad. The U.S. Justice Department said explicitly in an amicus curiae brief filed in of the cases leading up to Brown that "the existence of discrimination against minority groups has an adverse effect upon our relations with other countries. Racial discrimination furnishes grist for the Communist propaganda mills, and it raises doubts even among friendly nations as to the intensity of our devotion to the democratic faith” (apud Dudziak, 2004: 34).[3] In the same vein, the United States allowed and even promoted the industrialization of the countries that lost the war, to preclude the spread of Soviet communism. In the Asian case, the very existence of the developmental state was to some extent tied to the special relation with the United States in a geopolitical situation that included, not only the Soviet Union, but also communist China, North Korea, Vietnam, and the domino theory, according to which Asian economies would fall and become communist if a neighboring country also did it. And that is without considering India, Indonesia and the non-aligned movement that also seemed suspicious to the American establishment.

This generated the conditions for the expansion of American military procurement policy in Asia. Daniel Immerwahr shows in How to Hide an Empire that Toyota, the firm famous for ‘just-in-time’ or the flexible production methods that superseded Fordist mass production, was virtually broke at the beginning of the Korean War. The firm was saved by Pentagon purchases, which guaranteed demand, and the same time that it enforced standards, and transferred technology. The United States provided the dollars, lifting the external constraint that precluded development in other parts of the periphery, and provided the transfer of technology required to master the more advanced methods of production of the time. Immerwahr points out that: “Not only did the contracts provide profits, they offered Japanese firms a chance to master U.S. standards—i.e., the standards that were rapidly spreading out all over the world. The U.S. military was the largest and one of the most exacting standard-setting agencies on the planet” (2020: 361).[4] He suggests that the United States military procurement was central for Japanese economic growth, and refers to the American influence wherever its military bases appeared as being necessary, but not sufficient, for catching up. The broad and vast Baselandia, the American version of the military-industrial society, promoted industrialization at home, and also abroad, in what might be referred to as “promotion by invitation,” following the concept used by Immanuel Wallerstein. China too benefited enormously from the importation of standards – not the military's, but those of giant American retailers like Walmart. The process of learning to meet the demands of Western buyers is what allowed the goods themselves to be reproduced in vast volumes for the increasingly larger home market, and allowed for a socialist consumer society.

From New Industrial to Predator State

It is evident that in this period of affluence the American developmental state was somewhat hidden, to use Fred Blocks apt expression. It was concealed in order to promote the notion that free markets and democracy guided the functioning of U.S. institutions, and not state or planning, which could be confused with socialism, or worse, communism. This was necessary marketing. But the strong technobureaucracy connected the invisible hand of the state, with the large corporations that dominated the economy, and that had moved abroad causing some anxiety about the American challenge, were a developmental state, and were best captured in the American marketplace of ideas by John Kenneth Galbraith’s notion of The New Industrial State. Exactly at this juncture, when the American hegemony seemed unmatched, in which at home significant advances in fact expanded the scope of democratic principles, even if society was still unequal, and when developing countries in the periphery seemed to grow fast indicating the possibility of closing the gap, a political backlash took place.

Michal Kalecki, who had predicted that the ebbs and flows of conservatives and progressives would mark the cyclical fluctuations of the economy in the post-war period, foresaw also the changes that led to the rise of neoliberalism in the 1970s. Kalecki would go on to argue, at the end of period of expansion of the welfare state and the full employment policies, that the booming economy of the Golden Age would make the working class “radically reformist in its attitude towards capitalism,” rather than revolutionary, opening the space for more militant pro-capitalist views even within the lower classes. These working-class attitudes are epitomized by the Hard Hats Riot, in which white constructions workers attacked Vietnam war protestors, mostly students, by Richard Nixon’s Southern Strategy and his silent majority, by the rise of George Wallace and by Reagan Democrats. Resentment against those that protested about the persistent inequalities in the U.S. fueled the flames of division. The roots of Trump’s right-wing authoritarian populism hark back to these developments.

But these pro-system radicals would promote reforms that undermined the material well-being of the working class. The opening of China, which certainly played an important role in the Cold War strategy, should also be understood in the context of development by invitation, and the strategy of exploiting internal divisions and coopting the white working class. The discussion about deindustrialization often emphasizes the role of globalization and of automation in reducing manufacturing employment. In this perspective, the decrease in manufacturing jobs is almost seen as an unintended consequence of the process of development of the periphery, and the latter more often than not is seen as independent from U.S. policy actions. But it is probably more accurate to think of deindustrialization as a project of the hidden developmental state, and the American elites that benefit from it. The movement to weaken trade unions and to facilitate the movement of manufacturing from the Rust Belt to the Sun Belt had started in the 1940s, with the so-called right-to-work laws. The policies of development by invitation in the periphery, and the free trade agreements that facilitated the transfer of the manufacturing base to developing countries are an extension of the same strategy of weakening organized labor force at home, that gained force in the 1970s.

Arguably, the capabilities of the hidden developmental state in the U.S., that continues to work through the military-industrial complex, remains intact. Although, five million manufacturing jobs have been lost in the 2000s, manufacturing output grew continuously, if somewhat more sluggishly in the decade between the Great Recession and the pandemic. Tyler Cowen has suggested that the pandemic and the development of the vaccines, as part of the Operation Warp-Speed, demonstrates that the U.S. maintains and has in fact amplified its technological lead over China.[5] While his argument might be exaggerated, it is true than in many sectors American corporations are still at the technological frontier. Further, in military terms or regarding the position of the dollar, which is central for the ability to spend more or less without limit, vital for any developmental state, the U.S. position is unparalleled. There are U.S. military bases around China, but not vice versa. China holds significant reserves in dollars, while the U.S. does not need to hold renminbi reserves.

The question, then, is to understand how is it possible that the developmental state is still in place and yet there is a widespread view that the U.S. is now a failing state. To put it in the paradoxical words of Tom Engelhardt, the United States is “the most powerful, wealthiest failed state on the planet.” The country is often compared to developing countries that are seen as completely dysfunctional. According to Bhaskar Sunkara “America’s levels of both police violence and violent crime find their closest peers in countries like Venezuela and South Africa.” Facing a pandemic that required swift, rational government action, the U.S. “reacted instead like Pakistan or Belarus,” according to George Packer.[6] The reason is that all these analysts are, to put it bluntly, incorrect. The U.S. is not really a failed state, that is incapable of delivering and providing a modicum of well-being to its population. Rather, in the US the elites that control the levelers of power decided not to provide basic economic rights to its citizenry.

It is not a failed state, but what James Galbraith has called The Predator State, which implies the use of the state apparatus to promote the private gains of corporations and the wealthy. Private interests have taken over the commanding heights of the country to promote the looting of what is left of the New Deal and Great Society project. It is laissez-faire capitalism for the poor and the minorities, and a developmental state for the wealthy and the corporations. The wealthy and the corporations, that use the hidden developmental state, are doing fine. They are actually even better during the pandemic. Working from home, with an increase in the value of their assets, and likely to get access to the vaccine faster than the majority of the global population. It is the working class, the more racial and ethnically diverse working class, that is already living in substandard conditions, with higher degrees of violence and incarceration, with less access to health benefits, and decent living standard conditions than in countries of comparable levels of development, that is forced to face harsh free market realities.

Conclusion

The deeds and misdeeds of the American predator state are not the result of lack of strength, but strictly of lack of will. But here again the British case of the early 19th century might be worth remembering. The developmental state, and its ability to wage war and spend allowed for the rise of the British Empire, but what led to a less divided society was the long fight of the working class to obtain a share of the well-being that the Empire provided to Victorian elites. In the process, they had to defeat fascism at home and abroad. The same is true in the United States now. And it is worth remembering, now that a Democratic administration is in the White House, that before the U.S. can promote freedom or democracy abroad, it will have to provide decent living to its working class, and defeat fascism at home. The failed storming of the capitol hill might turn into a right-wing electoral victory in four years. The risk is not a failed state, and a declining empire, but an authoritarian empire. Hope springs eternal.

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[1] Krugman, P. “Is America Becoming a Failed State?” New York Times, 11/5/2020.

[2] Satia, P., Empire of Guns: The Violent Making of the Industrial Revolution, New York: Penguin and Tilly, C. “Reflections on the History of European State Making,” The Formation of National States in Western Europe., Princeton: Princeton University Press.

[3] Dudziak, M. “Brown as a Cold War Case,” Journal of American History, 91(1), Jun., 2004: 32-42.

[4] Immerwahr, D., How to Hide and Empire: A History of the Greater United States, New York: Farrar, Straus and Giroux.

[5] Cowen, T., “Covid Is Increasing America’s Lead Over China,” Bloomberg, 11/16/20.

[6] Engelhardt, T., “The US Is a Failed State,” The Nation, 9/10/20; Sunkara, B., “America is a failing state. And establishment politics can’t solve the crisis,” The Guardian, 11/1/20; Packer, G., “We Are Living in a Failed State,” The Atlantic, 6/15/20.