American Hegemony: How to Use It, How to Lose It

Abstract

To SPEAK TO the distinguished and learned members of the American Philosophical Society is a great honor. Let me thank you in advance for this rare privilege. As the title of my lecture indicates, I want to share with you an assessment of both the nature of American power and how best to use it. The topic has gained an urgency over the last four years that is, fortunately, rare, but one that we neglect at great peril. America's global hegemony is generally accepted as a fact. Only its duration is in question. The answer will not be given by a new rising threat from China or by terrorism. The quality of American leaders will provide it. How they use it will determine whether or not we lose it. America has acquired an empire inadvertently, not a traditional one, but a sui generis empire, a type of regime heretofore unknown. Four characteristics define it. First, it is ideological, not territorial. Its ideology is classical liberalism, not democracy. Our founding fathers did not use the word democracy in the Constitution. They sought to limit the state and guarantee individuals' rights. Once rights were secure, voting would follow, not the other way around. This empire, therefore, consists of constitutional states, not dictatorships and illiberal democracies. Second, the American empire has been a money-making, not a money-losing, regime. Throughout the Cold War, when the defense budget on average consumed 7.2 percent of GDP, the United States sustained unprecedented growth. So too did Western Europe and Northeast Asia. Both had their longest periods of peace and their greatest prosperity. Contrary to popular belief, however, Japan and Europe did not get rich at our expense. Throughout this period, we have maintained between 20 and 30 percent of the world's gross product. Third, countries have fought to join the American empire, not to leave it. Since the U.S. invasion of Iraq, however, that may be changing. This empire has no formal boundaries or membership. Any country with a constitutional order, stable property rights, and effective dispute adjudication in autonomous courts may consider itself a member. Switzerland and Austria, for example, are included. Some countries with constitutional orders that are not yet mature liberal regimes also belong because they are within our military alliances. Of the roughly forty countries that can claim membership, only about two dozen have stable constitutional systems, that is, systems that have lasted a generation or more. The others, mostly new members of NATO, are committed to constitutional development but still struggling to last for more than a generation without a relapse, the usual standard for assessing whether or not a lasting constitutional order has been achieved. Fourth, our military alliances in Europe and Northeast Asia have supplied supranational political-military governance for our allies, many of whom are old enemies. These U.S. military umbrellas allow them mutual trust that lowers business transaction costs, thus permitting them to capture greater gains from trade. This role is still needed in both regions, even without an external military threat. Additionally, the United States created a governing network of economic and judicial governance institutions-the WTO, the IMF, the World Bank, the United Nations, international courts, and others. These organizations have also facilitated economic growth through rulebased decision-making rather than by imperial dictates. That practice lowers the costs to the United States for managing them, as well as the cost for managing its military alliances. When American leaders belittle and condemn those organizations, they endanger the very foundations of this remarkable system of mutually beneficial liberal governance. The cost is not just damage to our ideals. It also involves billions of dollars in unnecessary expenses. How and why is this true? The Nobel laureate economist Douglass North has demonstrated that governance by rule-based, third-party enforcement actually lowers transaction costs for business and makes long-term economic growth possible. …