Middle Class and Globalization: A Big Power Comparison (Part I)

Such a thesis, of course, would seem to run counter to a true U.S. hallmark — adaptability. But what is true in the field of equity analysis — that past performance is not an indication of future results — may also be true in the direction and performance of national and continental economies.

Just ask yourself this simple question: Which nation stands to lose the most from the rapidly changing global landscape, especially when measured against the backdrop of its own expectations, projected path and historic experiences?

Viewed in that light, the United States may well be the major entity that is most vulnerable.

The intra-societal effects of globalization have a strong psychological edge — with an impact on national motivation and outlook for the future. Thus, it is especially vital to examine the distinct components of the U.S. psyche that may lead to such an outcome.

Probably the most important element providing an insurance mechanism to Europeans and Japanese at this juncture is the fact that their national identities are still rooted in the collective experiences of defeat and destruction.

Over the long run, such memories help a nation (or region) eschew blind optimism and/or the assumption that times will always be good. In particular, it prepares the entity to cope with periods of decline.

The United States as a whole has of course contended with difficult moments, but the only period of true significance was the stock market crash of 1929 and the ensuing economic depression. While significant, this period did not permanently alter the national psyche.

In contrast, other great powers of yesteryear — China, India, Russia, Germany, France, Britain — in their own ways have all shared the experience of collective defeat. They have either more or less adjusted to their status as formerly great powers or, as is the case with China and India, expect to recapture their former status in the near future.

The national myth of the United States remains rooted in the notion that it is a forever young nation. Europe, Japan and Russia may have gotten old and tired (and may be dying out) — but not America.

The United States is accustomed to seeing itself among a small cadre of dynamic players on the global stage, if not the only one.

The American psyche is rooted in a relentless sense of optimism, of marching forward, never really looking back and always expecting a turn for the better. This relentless optimism has important consequences for the U.S. economic model as well. It induces citizens to believe that they can all realize the American Dream, even when income inequality is increasing.

It is this relentless optimism that is responsible for the irrational belief that prevailed for so long that one can safely spend too much today — and save next to nothing. The national mythology holds that one's income may well go through the roof tomorrow. All of that makes for a risky pattern of operations, both individually and collectively.

The closest historic parallel to where the American middle class sees itself today may be found just about a century ago, during the last big globalization wave. Back then, Wilhelminian Germany was the ascendant nation. From 1870 onward, the nation's technological innovations, societal success and business prowess were the envy of the world.

The years from 1890 to 1910 were the best in Germany's ascent. Everyone was giddy in the knowledge that German science and technology was having a profound influence on humanity. It was very similar to 1990s America, when the United States found itself in the same position.

Interestingly, American leaders now share one serious deficiency with the German elites back then: They view any talk of a possible change in their world status as near-unacceptable.

To them, such talk smacks of defeatism, which must be countered at any price — even if the price is a growing self delusion and an exaggerated sense of their own importance and power. Such are the trials and tribulations of elites unwilling to look at the world stage with open minds.

But what the United States was to Germany back then, China now is to the United States. Whatever the ultimate outcome of this competition, it is already clear that the U.S. elites have tried to cope with a closing of their nation's mind, as did their German forbearers.

Just as it was profoundly wrong, arrogant and ultimately self-destructive to assume Germany could cure all of the world's ills, so it has been wrong — and ill-advised — for U.S. elites to harbor the same delusions.

Editor’s Note: This is Part I of a two-part series. Part II will appear on The Globalist tomorrow.

This analysis first appeared on January 28, 2008, as part of The Globalist's Executive Edition.