Introduction
During the cold war era, the size and intensity of international financial flows greatly increased. This increase in capital flow superseded national economies. The intensification of the integration of financial markets resulted in national governments ceding their economic autonomy to the created international markets.
The global financial crisis that hit the world in 1992 was a demonstration that international economic forces and economic globalization had indeed triumphed over the nation-state.
The Exchange Rate Mechanism (ERM) has forced countries to rethink their involvement in international trade. This is because matters of currency speculation and inflation are considered fundamental in international trade. This was evidenced when America’s Federal Reserve decreased the interest rate in the 1992 this was done to stimulate the American economy and enable it stay within the ERM currency band (Gilpin and Gilpin 1).
America power in the global economy
The path of USA towards global hegemony began in the period 1950 to 1973. In this period the GDP of USA grew steadily at 5% per year. This was a smooth growth since there was no recession witnessed. This growth was largely associated to the position of the USA during the world war two where it occupied extraordinary position. Whereas Europe and Asia went to war during world war two and experienced a lot of destruction and loss of human life, there was no battle fought in the land of USA.
It is during this period that the dollar was accepted as the world’s standard currency; the United States ventured and assumed leading positions in the global industries since the European and the Asia powers like Japan had to extensively spend this period reconstructing their countries and their economies while closing their productivity gaps (International newspaper 1).
To understand the power of America as hegemony, it is imperative to discuss the theory of hegemonic stability. This theory is faced in the international regime and it posits that a dominant state establishes the hegemony and that country itself determines the rules and the basic principles and also the decision making procedures.
The hegemony constructs and safeguards the interest of the international regime. The hegemony is respected and the principles it sets are accepted based on its strength and prestige. The hegemony benefits by exploiting the rest of the regimes. The weakening of the regime will lead to changes in the international system and the entire hegemonic system (Honghua 7).
The dominance of the United States of America in the global economy and its ability to dictate the rules of international trade has been threatened by the emergence of china as a rising world power.
There have been arguments and doubts in the United States of America as to whether China will be a status quo state or a revisionist one and the conclusion is that from the current turn of events, China is merging as a revisionist state and hence demands several efforts by the USA to suppress it by influencing China to play according to the acknowledged rules of the global community (Laursen 1).
China on the other hand is very much concerned on how it should pursue policies in a world dominated by America and it is torn between its pursuit of rivalry and competition with the USA or to accept USA as a dominant force and instead to pursue cooperation .
The question as to whether or not America is a world power in the global economy can be explained using the Leninist theory of imperialism that sought to unearth the laws of global politics that included unequal development among the world powers which may have been caused by different timing of industrialization and technological break through which may result in some states overtaking others which may be even latently powerful.
According to Robert Gilpin, these different rates of development can result to power transition where the stronger hegemonic power is challenged by the weaker power.
The slowly but continuous decline of America as a global economic leader and the continuous rise of China is linked to the book by an historian, Paul Kennedy in his book the rise and fall of world powers which inspired the Chinese people.
According to Kennedy, hegemonic powers have the tendency of maintaining global dominance by stretching their influence in the rest of the world through military alliance and military involvement.
As such they dedicate a lot of resources to the realization of external dominance at the expense domestic developments like education, health and economy which are still considered the elements of global power. This could lead to the decline of a global power (Asian perspective 10).
The decline of the USA has been linked to the rise of china. The rise of china can be confirmed by the consistence of its growth rate of eight percent per annum since 1980s and also can be analyzed from the international monetary fund rankings of 1994 which placed china as the third largest economy in the world.
The debate as to whether the power of United States is on decline or as to whether other powers are emerging to leapfrog the United States at the international political economy has been raging since 1980s, in this period which was the advent of cold war several scholars and states predicted the collapse of the USA, a prediction which never came to pass.
This was because the USA enjoyed a period of economic boom in 1990s due to its technological developments and it is in this period that USA entered into the computer age and was the only country to undergo this transition.
America also still maintains economic dominance in view of the fact that there is no country which has made considerable gains as compared to the USA.
The element of national power has been considered fundamental in defining the degree of countries’ influence in the international system. The European Economic Community tried to leapfrog the USA but they could not manage it due to their outdated market and over-regulated business environment.
During similar period, Japan which was considered the second economy experienced the worst recession ever witnessed and also Japan’s business environment is faced with structural challenges as over-regulation by the state and labor practices (Asian perspective 14).
The dominance of the USA in the global economy is indeed unmatched. America is technologically and military superior and considered the most dominant economic power in the global history. This is evidenced in the spending of the USA in the area of Research and Development which is more than the next six countries combined and this has facilitated America’s dominance in science and technology (Asian perspective 16).
Many scholars agree that China’s growth is impressive and hence its power is increasing but they note that China’s increasing power will not improve its power and it will not alter the balance of power in the international global economy. Yes China has seen increase in its power leverage but its relative power as compared to the USA has not improved. What places the USA ahead of China is its technological advancement.
It is the development in the areas of technology that is considered fundamental in the coming centuries and this is therefore what gives the USA leverage over other developed economies since high technology affects other dimensions of national power like economic, military and political (Burch and Denemark118).
The USA is also unchallenged in the global economy due to its high technologically driven economy, this is specifically human talent. It has achieved this through its open door policy that enables it to attract the best talent from the other countries from the globe.
There are three factors that enable the USA to maintain its hegemony on the global economy
First is technological development: the USA was the first to develop the transatlantic fiber optic cable which they initiated in the year 1989 which culminated to the citizens of the United States of America accessing the world wide web.
This technology is considered the foundation for knowledge work and it has revolutionized the search for information around the world. This was later followed by other technological developments that powered USA to the next level.
The second feature that enables the USA to maintain its grip in the global economy was financial investments. The gross private domestic investment increased as the share by two percentage points. This provided leverage money for innovations and technologies which fueled growth. The United States has one of the most advanced and vibrant financial systems as a result of its equity markets to venture capital funds.
The third feature that makes America maintain its grip in the international economy regime is education standards. The USA has expanded their educational system and this has enhanced growth. These three factors have enhanced the position of the USA (America in the Global Economy 1).
The clear understanding of the USA as the leader in the global economy is by the use of its currency as a parameter. The dollar has always been used as the standard medium of exchange in the international market for several years. The dollar is used to price such commodities as oil, coffee, tea and wheat. In countries like Korea and Thailand the use of the dollar amount to almost 80%of their transactions. The dollar is the major currency in all cross border transactions.
The diminishing power of the USA in the global economy is becoming a reality; the overreliance on the dollar is no longer instrumental since many countries have experienced balance of trade deficit and reduction in exports.
The US dollar has been stable since the USA ended its convertibility into gold and has been considered the dominant currency around the globe; it has also been preferred as the currency held by several governments in the foreign exchange reserve.
The dollar, besides states has also been used by market actors within states like the Multinational corporations as their preferred unit of account The US war on terror has also impacted on its role in the global economy.
The position of the USA has been heavily challenged by other emerging economies. The dollar for example has been challenged by the creation of the Euro which commentators have seen as one of the ways of countering dollars dominance in the international market and instead it is one of the tools of strengthening the Europe’s grip in the international market.
The ambition to make the Euro a world currency that can challenge the US dollar could not materialize because of two main reasons, the European market is highly decentralized and two there is no central government borrower or lender which is critical in providing the base market (Lauren 55).
At the International Monetary Fund, the US has greater leverage in voting. The creation of the European central bank was also aimed at enhancing their strength at the international monetary matters as such they could for example team up in their voting stance in the IMF where their combined voting strength superseded that of the USA.
Another challenge to the dollar emanates from Japan. The Japanese policy makers have in the recent past intensified their promotion of the Japanese yen at the standard currency particularly in the East Asia region; this was thwarted following the resistance from countries like China and Korea.
Due to this failure by Japan to win in their idea of promoting the use of yen, they opted for plan B whereby they proposed the modeling of a common currency along the line of the Euro which was to be used by the countries of the East Asia region. All the efforts of Japan were primary aimed at preventing the dominance of dollar in the Asian region (The international 1).
The decline of the dollar as seen from the above explanation and the campaigns by the European and East Asia countries will mean that the USA will lose the benefit that is accrued from the use of their currency status. Consequently the prestige that come with their currency being accorded international status and being used globally will be lost (Breslyn 163).
Besides the effects that the use of dollar will have on the USA, it will also have an impact on the world since it will raise suspicion as to whether the international monetary fund will survive without a central currency and this will in turn generate global currency and monetary instability (Ravenhill 237).
The influence of non-state actors and the economic liberalization also explains the place of the USA in the global political economy. The emergence of powerful non-state actors has indeed influenced affairs at the international political economy.
Though these non-state actors do not have leverage and voting power in the international organizations like the World Trade Organization (WTO), they heavily rely on lobbying to channel their issues and also find market in the developing and developed world. Majority of these non-state actors are the Multinational Corporations of which some are powerful than some of the states’ economy.
The creation of intergovernmental organizations like the WB, IMF and the United nations considerably decreases the powers of hegemony and may subsequently lead to its demise. These organizations develop rules that states adhere to, they also formulate principles governing the behavior of states (Breslin 1).
These institutions have taken the responsibility of negotiating treaties and also they can punish states that violate those agreements. These institutions maintain the stability of the global economic system a role that was to be performed by the hegemon (Foreign policy 1).
Following the economic recession in 2008, the developed countries and the BRICs recovered from the shock of the financial crisis. This was not to happen in the USA since it has found it hard to recover from the great recession of 2008 despite it being hardly. Furthermore several countries have developed protectionist policies which will make it hard for the USA to venture in the foreign markets.
This protectionism has been implemented in Brazil where the central bank of Brazil instituted policies that will make it hard for any country to invest in the country. The main reason was that too much capital in the country may lead to inflation by weakening their currency which hinders their rise to power (Rjjrdq 1).
Is the American power hegemonic?
In hegemony, there existed a hegemon who could control and regulate the activities of other states to ensure that discipline was maintained and states operated based on the established principles made.
Since the theory of hegemonic stability posits that the collapse or the decline of hegemony may only happen due to factors like economic closure and the inevitable creation of regional economic blocs. In the current political economy and also political and economic stabilities this has come to pass and it is a clear indication that the US hegemony is no more (Overbeek 116).
As evidenced from history, before the USA, there was the British hegemony which flourished due to the development of the multinational corporation and the stable political activities that characterized Europe at that time. Just as explained by the proponents of hegemonic stability that hegemony can collapse due to instabilities, the British hegemony collapsed due to the World War 1 (Foreign policy 1).
From the illustrations, it is evident that the USA is no longer hegemony. This is because from the theory of hegemonic stability discussed above, the USA no longer possesses the qualities of hegemony which include establishing the international norms and rules that countries should follow (Overweek 1). This is demonstrated by emergence of world bodies and economic integration blocs like the BRICS, the European Union.
These have heavily challenged the hegemonic power of the USA (Toye and Toye 65). The ability of Brazil’s central bank to institute policies that will deter any country from investing in its country, though this policy does against the principle of trade liberation America could not raise any objection.
Consequently the voting power of the USA in international organizations like the World Bank (WB) and the international monetary fund (IMF) has been diminished by the evolution of the European Economic Community who have developed a tendency of similarity in the voting stance; this greatly reduced the influence of the USA in these institutions and its decisions will not go unchallenged (Cambridge 1).
Conclusion
Despite the United States of America still maintaining dominance in the global economy, its engagement in the costly wars on both terror and uncooperative governments, its grip as the leader of the global economy is diminishing at a faster rate, in fact it has made the USA to change from the biggest lender in the 20th century to the biggest borrower in the 21st century. The American war on Iraq and their subsequent occupation meant that the elephant share of the national resources was diverted to military.
Resources is becoming a major resource in production and more so a competitive commodity in the international market, the radical approach by the USA to Islamic has worked to its disadvantages since the lion supply of oil is produced by Islamic countries.
This was evidenced in 2005 when the price of oil in the global market increased and threatened the economy towards inflation and unemployment since this interfered with the consumer budget.
Some other factors that have threatened the hegemony of the USA are its sizeable market, stagnant economic income and its budget deficits. The last time that the USA had trade surplus was in the year 1975 and in the 21st century, it (USA) has been experiencing trade deficits like $819 and $821 in the 2007 and 2008 respectively.
The USA financial sector has also been deteriorating as seen during the economic meltdown of 2008 where several financial institutions collapsed, a phenomenon that was not seen in other fast growing economies otherwise known as the BRICS like Brazil, India and China. The dollar has also continued to deteriorate in value as juxtaposed with other world currencies like the Euro (Young 69).
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