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The End of Dollar Capitalism?

Basil Enwegbara

The end of the second world war brought with it the emergence of the American empire. Bases in Japan and Europe were vital for the imperial takeoff and consolidation. Like previous imperial powers, trade and commerce successfully followed the flag.

With ease, both Japanese and Western European economies were linked to the American economy, and most of the peripheral economies were forced to fall in line for their own benefit. So the dollar became not just the universal standard which replaced the gold standard, it also became the unit of international exchange, with the Federal Reserve acting as the world’s central bank.

With mass production and mass consumption already at full speed, supported by the newly emerged industrial, organizational, and management structures, corporate America and citizens came to enjoy an unprecedented economic growth and prosperity.

America’s political and economic dominant power -- accounting for half of the world’s industrial production and more than half of its gold reserve, and firmly entrenched at the forefront of technological advancement -- remained unchallenged. Little wonder, then, that America easily passed its domestic problems to the rest of the world without resistance. And the burdens of budget deficits, balance of payments deficits, and inflationary monetary policies were easily passed on to other nations. The dollarized impact of oil crises were equally other nations’ problems.

The end of the Cold War changed everything. And America’s economic and political hegemony became challenged. Europe’s single market and, later, the “euro zone” economy emerged as a power challenger. While Japan, in deep economic crisis, could not pose immediate threat, China’s emerging economic powerhouse became an unexpected surprise. And countries that previously could not stand to challenge America economically now could do so with little or no fear. Further complicating the already difficult situation was America’s embracing of globalization. Without well thought out checks and balances governing it, American-led globalization moved from the market for goods and services to the financial markets and now to the labor markets. Besides the “race to the bottom” manufacturing sector, this new development now allows plenty of foreign labor to increasingly compete in America’s huge service sector, which accounts for a large percent of the U.S. payroll.

The free competition nature of globalization means that it is only those companies that can cheaply produce the best in quality that can command the market. Since U.S. businesses no longer have the power to pass off the higher costs of rising health care benefits, Social Security, and workers’ compensation, few options are left for them if they still hope to remain competitive. They can engage in total outsourcing. (Just imagine the huge financial benfits that accrue to giant U.S. businesses whose major competitive advantage seems to be cheap labor. GM, for example, now saves over a thousand dollars extra on each car made in China) They can invest heavily in technologies to minimize the costs of human labor and catch the tax deductions that accompany them. They can adopt strategies to get around the real costs of labor by employing more temporary and contract workers. Or they can take a politically extreme direction -- invade Washington with a new army of lobbyists to minimize fallout with politicians and counter the influence of the electorate just as they did when Washington wanted to regulate them.

None of the above strategies seem to be politically popular here in the U.S. It’s not surprising because in the short-run they fail to promote the middle-class economy which has sustained American capitalism. But does America really have an option? Can it afford to be an economic island like medieval China? Not recognizing that business as usual is over will lead to colossal consequences, including the endangerment of the power of the dollar as a global currency. Leading global investors like George Soros and Warren Buffett have already figured out the danger ahead, and as a result they are now investing more in currencies other than the dollar. OPEC’s growing fear about the fate of the dollar is equally real. A nation so dependent on foreign investment to keep up with the gaps cannot afford measures that slow the flow. The only good news -- at least for now -- is that in the weak European economy, the euro is too weak to truly replace the dollar.