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September 28, 2008
David Warsh, Proprietor


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A Weary Titan?

In anticipation of the presidential debate on national security and international relations last week, I took down one of the best books I know on the subject, The Weary Titan:  Britain and the Experience of Relative Decline 1896-1905, by Aaron L. Friedberg.  It is a broad, dispassionate study of how Britain’s leaders thought about their nation’s place in world affairs at the very moment that its global pre-eminence was giving way to competition for influence with Germany, Japan and the United States.

 

It was not that I thought there was any very direct correspondence between then and now.  There are some intriguing superficial resemblances, it is true:  the British Empire was tested by a war in South Africa and a major financial crisis during a decade which, in retrospect, saw a tipping point from its role as one kind of power to another. Domestic politics seethed with debates over the appropriate level of taxation and the benefits of free trade.

 

But what really interested Friedberg (and me) is the question of how statesmen form their opinions of their place in the world, how they take the measure of the leaders of other nations with whom they deal. Do they rely mainly on cold calculation – economic indicators, intelligence estimates and so on? Or on belief – meaning shared images of national traits and “stories”?  Both, surely, but in what degree?

 

These are always very interesting questions. They are especially interesting in the United States today, at a time when Russia has vowed to modernize the army of Venezuela and China is hoisting astronauts in a space program aimed at returning to the moon.

  

Friedberg wrote his book in the 1980s, when the commercial contest with Japan was very much on American minds.  That makes it a good illustration of just how quickly appearances can shift.  For while Toyota has indeed become the largest and most successful automotive manufacture in the world, today it is China that appears poised to achieve the “superpower” status that Russia lost when the Union of Soviet Socialist Republics collapsed in 1991.

 

And on the subject of China, nobody I know is more interesting than Friedberg, now professor of politics and international affairs at Princeton University.  A couple of years’ service in Vice President Dick Cheney’s office, 2003-05, have dimmed him in some eyes, added luster in others. But as long ago as November 2000, Friedberg set out a useful roadmap for thinking about the Sino-American relationship in an article in Commentary magazine, “The Struggle for Mastery in Asia.”

 

This much was clear, he wrote:  China’s leaders seemed determined to challenge US dominance in East Asia, which had been unquestioned since the ends of World War II.  To this end, he imagined, China’s leaders would over the next two or three decades pursue a pincer movement of sorts to extend the boundaries of its northern and southern perimeter, acting as a peacemaker between the two Koreas in the north, but as more of a bully to the south, pressing Singapore to end its close cooperation with the US, perhaps even provoking a short sharp war over border issues with Vietnam as a rhetorical gesture to demonstrate the limits of US power. Presumably it would also continue to support Pakistan in order to distract India as well.

 

With its ability to enforce its will in the region thus demonstrated, Friedberg wrote, China’s leaders would feel free to press Japan to curtail its treaty relationships with the US, whereupon the ultimate object of its campaign – reunification of Taiwan on mainland terms – would be a mere formality.

 

At that point my lofty contemplation of grand strategy was interrupted by events underscoring the continuing fragility of financial markets. Only a week before President Bush had called Congressional leaders to the White House to sell an emergency plan devised by Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke designed to avert a meltdown in global financial markets.  Democrats rebelled, demanding a number of compromises. This time it was a Republican minority that threatened to bolt an agreement that had been approved by GOP leaders the day before.

 

Much of the difficulty had been precipitated by a number – the $700 billion that  Paulson wanted Congress to authorize him to disburse to financial firms, in exchange for suspect loan-backed securities so complicated that the market for them had simply ceased to function out of fear. The government would hold them for a time until their underlying value could be better understood, then sell them back to market participants, recouping at least some of its investment. The shock and awe evoked by the big number was intended to calm the markets.

 

Instead it was everyday voters whom the number shocked. They quickly produced an insurgency of their own – or rather their legislators did, reflecting their constituents’ wrath. First it was the Congressional Democrats who demanded – and quickly received – a number of concessions from the White House, including oversight, salary caps, warrants and some measure of aid for homeowners threatened with foreclosure. Then it was the Republicans’ turn.

 

President Bush thus found himself in the position of the boy who once before had cried wolf to bad reviews. After all, wasn’t this pretty much the way he had sold the invasion of Iraq – WMD and all that?  This time, however, the threat was much more palpable:  the cascade of failures that presumably would ensue if banks did not soon resume lending to one another. (Last week only central banks were making significant loans.) Twice in twelve hours Bush went on television to proclaim that America “would rise to the occasion” – the first time for the benefit of Congress, the second time to underscore to the markets his commitment to their cause.

  

Meanwhile, it is election season.  People often go a little crazy in the late stages of an election. Not only are angry voters bombarding their Congressional representatives with telephone calls; an interesting array of technical economists, left and right, were proffering alternative bail-out plans of their own. There were at least four of these in circulation, as nearly as I could tell. The proposals evoked the “teach-ins” that broke out on campuses across the country in the first days of widespread opposition to the Vietnam War in the mid-1960s. These alternatives elicited a good deal of useful commentary, mostly online, but otherwise went nowhere, as the administration and Congressional leaders stuck to the heavily modified Paulson plan. Financial economist Robert Merton, himself the veteran of an earlier rescue, put it this way, “A superior theoretical solution that cannot be executed within the constraints of time and robustness is not superior.”

 

And then the thing subsided, as markets waited nervously in hopes that Congress would complete its deliberations over the weekend.  I watched the presidential debate, reassured that the 47-year-old Obama mentioned China twice. (What does he make of the fact, I wondered, recently noted by Norman Augustine, that eight of China’s top nine leaders hold science or engineering degrees? What do they make of him?) And the next morning I thought Alessandra Stanley had it just about right when she described the encounter in The New York Times as “a generational collision.”  At times, she wrote, “it looked almost like a dramatic rendition of Freudian family tension: an older patriarch frustrated and even cranky when challenged by a would-be successor to the family business who thinks he can run it better.”

  

So I went back to The Weary Titan. This time I looked a little harder at the chapter on the financial crisis of 1901-05. It had been precipitated by the Boer War, Friedberg wrote, not so much caused by it as catalyzed: for years the sense had been growing among conservatives that government spending was getting out of hand. Government spending by some calculations had reached 9.8 percent of national income; surely it could go no higher; the practical limits of Britain’s financial capacity had been reached.  The financial resources of the United Kingdom were inadequate to do all that was required for imperial defense.

 

So in 1905 Britain began to cuts its naval and military budgets.  The same year a General Staff study ventured that an army of 120,000 British troops might be sufficient to check any attempted German invasion of France.  When the war finally came nine years later, the economy-sized force wasn’t nearly sufficient. It didn’t deter the Germans, nor stop them once they began to march; it was only enough to draw Britain into a protracted war, by the end of which, the United Kingdom would lose seven times its ante in battlefield casualties alone.  Such are the perils of wishful thinking.

 

That made me think, not of weapons system and battlefields, but of the prospects for the reform of financial regulation. Financial capacity will have much to do with the global competition with China in the coming fifty years. Little understood is the extent to which a company such as AIG, the insurance giant, has been vital to the expansion of American power around the world, both through its conventional insurance underwriting, and by the credit protection it provided to financial institutions around the world. Keeping it afloat with a loan from the Fed was more than a matter of having to unwind its unfathomably complex book of trades.

 

Should the bailout then be viewed as a matter of national security?   Certainly it has that dimension. Harvard University economist Kenneth Rogoff is correct when he says that, in an era of “financial triumphalism,” the American financial sector has grown too large. Financial firms accounted for one-third of US corporate profits in 2006, he calculates, a grossly exaggerated share of the pie.  But he’s also right when he says that financial innovation should be allowed to flourish, but not without better checks and balances.

For the US has almost certainly entered an era of competition with China for global influence.  All the forces by which nations exert their power will be brought to bear: political, economic, financial, military, moral. The prospects are anything but clear. This is perhaps the main reason to think that that the November election is likely to be seen as a turning point. Has the United States somehow reached a tipping point? It is much too early to tell. Meanwhile, the weary titan in question today is not just John McCain, 72, but the Republican Party itself. It is in a state of collapse. May it fall back and quickly regroup!

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