WSJ: US global influence is waning
By Frederick Kempe (The Wall Street Journal)
Updated: 2005-10-17 13:34

NEW YORK – My new office window looks down on Ground Zero, a useful perspective on America as it grapples with the globe.

The place where America once reached highest is now its most controversial construction site. Design disputes, security concerns and political squabbles have delayed building and watered down the boldest blueprints. It's a metaphor for a larger problem: America is more capable than ever before of grand achievements, yet it's finding them harder to execute for reasons that are as often as not self-inflicted.

My new office view is a daily reminder -- upon returning home after a 15-year assignment abroad -- that America 2005 is a dramatically different place than the country I left. Like the World Trade Center, America 1990 spoke of limitless possibilities. The Berlin Wall had fallen and the Soviet bloc was imploding, leaving just one superpower standing. America now is no less powerful, and by many measures it is mightier. Yet at the peak of its power, it has become a more vulnerable, apprehensive and polarized place. What's changed most is the U.S. ability to translate muscle into clout, strength into influence.

The evidence is ample:

U.S. military superiority doesn't produce proportional results. America's annual military spending is greater than that of the 25 countries of the European Union, China and Russia put together. Yet the U.S. is woefully ill-equipped to take on its greatest new threat, non-state actors (diplo-speak for "terrorists"). Some Pentagon planners doubt they have the resources for a new major military engagement simultaneous with Iraq. They privately concede the political costs may be too high and their weaponry and intelligence insufficient to block Iran's nuclear ambitions.

New rivals are eroding American economic influence. The U.S. importance to the global economy in some respects is greater than ever before. It still accounts for 21% of world output, and though Americans make up just 5% of the world population they buy 18% of its exports. Yet America's ability to exert influence has been reduced by the rise of an increasingly aggressive China, whose companies are growing more acquisitive and whose officials are striking trade deals abroad with U.S. friends and foes. Meanwhile, an expanded European Union has become a trade and regulatory superpower.

The U.S. has "globalized" faster than policy makers have been able to adjust. The U.S. economy has never been so dependent on foreign money and companies. Foreign direct investment has flooded the country since 1990. Foreign buyers -- Japan and China leading the pack -- are the primary holders of expanding American debt. American companies have come to rely more on profits earned abroad. For all that change, however, U.S. politicians think less globally than business people, although everything from mortgage rates to gasoline prices is in foreign hands. U.S. diplomats are too frequently outmaneuvered on multilateral issues of central importance, ranging from global warming to Internet governance.

Foreign influence on U.S. economic health has grown dramatically while the American policy response hasn't kept pace. The U.S. economy has never been so dependent on foreign capital and companies. Foreign direct investment has flooded the country since 1990 -- more than $1.6 trillion in fifteen years, and foreign-owned assets have quintupled in that time to $12.5 trillion. Foreign buyers -- Japan and China leading the pack -- have become primary holders of expanding American debt. American companies have come to rely far more on profits earned abroad. For all that change, U.S. officials often introduce domestic policies -- such as Sarbanes-Oxley rules on corporate accounting -- without sufficiently considering their negative impact on foreign investment. U.S. diplomats are too often outmaneuvered on multilateral issues from global warming to, most recently, Internet governance. Caught off-guard, the U.S. and its global technology-industry allies are now waging a fight to block a European Union-inspired effort to shift Internet governance from a California nonprofit known as Icann to a multilateral institution -- an effort to make oversight more governmental and less American.

America's technological gap is shrinking. American retains its innovative lead, and no country comes near America's quota of miracle startups and world-beating entrepreneurs. Yet China and India are churning out an army of well-educated scientists and engineers, and both countries are showing remarkable technological and entrepreneurial creativity. International testing confirms U.S. declines in math and science. A new OECD report shows the U.S. as eighth and ninth respectively in the share of its people between ages 25 and 34 who have college and high school diplomas. It was first and second by those measures 20 years ago.

Political polarization hurts U.S. leadership. The ability to exert influence is also a matter of political will. One of the great changes in today's America is political rancor, which accelerated during the Clinton years and has grown since, reducing friendships and collaboration across the ideological divide. A new Council on Foreign Relations report warns that partisan politics is endangering U.S. primacy. At a time when the world must draw the contours of a new era, Americans are fighting over the pen. "The tough questions are not being probed," the report says.

You don't need a dictionary to know that global clout is the mixture of power and the ability to exert it. To understand the current situation, says James Hoge, editor of Foreign Affairs magazine, imagine the U.S. as the still-mightiest truck on a superhighway clogged with so many new obstacles and increased traffic that it has grown harder to deliver the goods.

"We have this overwhelming economic and military power, but it's a power that's not as easily useable," says Brent Scowcroft, who was George H.W. Bush's national security adviser back in 1990. He concedes his job would be a much more complex and difficult one today. Back then the greatest threat was that of nuclear war between the Soviet Union and the U.S. "But beneath the apocalyptic threat of nuclear conflagration it was a pretty tidy world." Fewer people lose sleep today over mutually assured destruction, but that's been replaced by a range of lesser-order nightmares.

Iran is as good a place as any to watch the new world's forces at work.

America's dominant military produces miracle weapons like bunker-busting bombs that theoretically could stop Iranian nuclear ambitions in a flash. Yet one former U.S. administration official concedes Washington faces barriers to its efforts to block an Iranian bomb. They grow out of insufficient ability to find and hit Iran's buried and dispersed nuclear sites and, barring the military option, a growing difficulty to apply other pressures to Iran when Tehran's political and economic clout is growing.

Soaring oil prices have helped Iran fund insurgents and terrorists in Iraq. At the same time, Iran has negotiated new economic and trade deals with energy-hungry China and India. These expanding relationships make the prospect of U.S.-driven economic sanctions against Iran via the United Nations Security Council all the more unlikely. "The principal beneficiary of the overthrow of Saddam has been Iran," says the Niall Ferguson, author of "Colossus, the Price of America's Empire."

However, Mr. Ferguson, a financial historian, doesn't agree with those who argue that America's clout has been significantly hurt yet by its mounting external debt, of which some 45% is held by foreigners compared with some 18% in 1990. "If you are the world's greatest power and borrowing in your own currency, you are in a different position than Argentina," he says. Indeed, China by acquiring so much American debt has become a stakeholder in America's continued economic success. The point isn't so much the debt but the cost of servicing it, which has been low thus far. Thus, American consumption and borrowing perhaps have been the most important drivers of global growth.

More troubling and lasting in its impact is the growing "skills deficit," says Goldman Sachs International Vice Chairman Robert Hormats. Though U.S. elite universities remain the world's best, primary education results are falling. If America doesn't address this problem in a global-knowledge society, it may well lose its innovation lead over time. "We have the greatest entrepreneurs in the world, but without a well-educated society they would be like jockeys without a horse."

Indeed, perhaps the most dramatic difference between America 2005 and 1990 is that the U.S. must move faster and smarter to avoid falling further behind. "America is the Red Queen," says Mr. Hormats.

For the uninitiated, the "Red Queen principle" applies to an evolutionary system where continuing development is needed just in order to maintain fitness relative to others. It arises from what the Red Queen told Alice in Wonderland in Lewis Carroll's "Through the Looking Glass": "In this place it takes all the running you can do to keep in the same place."

Write to Frederick Kempe at Fred.kempe@wsj.com