Consequently, Americans tend to be less comfortable with bailouts (if there are no state companies, then the state has less of an interest in, and means of, keeping troubled companies afloat). This makes surviving firms that much more efficient in the long run. It hardly means that bailouts do not happen, but they happen rarely, typically only at the nadir of economic cycles, and it is considered quite normal for businesses — even entire sectors — to close their doors.
Another effect of the hands-off attitude is that the United States has more of a business culture of smaller companies than larger ones. Because of the lack of state champions, there are few employers who are critical specifically because of their size. A large number of small firms tends to result in a more stable economic system because a few firms here and there can go out of business without overly damaging the economy as a whole. The best example of turnover in the American system is the Dow Jones Industrial Average (DJIA). The DJIA has always been composed of the largest blue-chip corporations that, collectively, have been most representative of the American economic structure. The DJIA's specific makeup changes as the U.S. economy changes. As of 2011, only one of its component corporations has been in the DJIA for the entirety of its 115-year history. In contrast, German majors such as Deutsche Bank, Siemens and Bayer have been at the pinnacle of the German corporate world since the mid-19th century, despite the massive devastation of Europe's major wars.
Because the American river systems keep the costs of transport low and the supply of capital high, there are few barriers to entry for small firms, which was particularly the case during the United States' formative period. Anyone from the East Coast who could afford a plow and some animals could head west and — via the maritime network — export their goods to the wider world. In more modern times, the disruption caused by the regular turnover of major firms produces many workers-turned-entrepreneurs who start their own businesses. American workers are about one-third as likely to work for a top 20 U.S. firm as a French worker is to work for a top 20 French firm.
The largest American private employer — Wal-Mart — is the exception to this rule. It employs 1.36 percent of U.S. workers, a proportion similar to the largest firms of other advanced industrial states. But the second largest private employer — UPS — employs only 0.268 percent of the American work force. To reach an equivalent proportion in France, one must go down the list to the country's 32nd largest firm.
The U.S. laissez-faire economic model also results in a boom-and-bust economic cycle to a much greater degree than a planned system. When nothing but the market makes economic apportionment decisions, at the height of the cycle resources are often applied to projects that should have been avoided. (This may sound bad, but in a planned system such misapplication can happen at any point in the cycle.) During recessions, capital rigor is applied anew and the surviving firms become healthier while poorly run firms crash, resulting in spurts of unemployment. Such cyclical downturns are built into the American system. Consequently, Americans are more tolerant of economic change than many of their peers elsewhere, lowering the government's need to intervene in market activity and encouraging the American workforce to retool and retrain itself for different pursuits. The result is high levels of social stability — even in bad times — and an increasingly more capable workforce.
Despite the boom/bust problems, the greatest advantage of a liberal capital model is that the market is far more efficient at allocating resources over the long term than any government. The result is a much greater — and more stable — rate of growth over time than any other economic model. While many of the East Asian economies have indeed outgrown the United States in relative terms, there are two factors that must be kept in mind. First, growth in East Asia is fast, but it is also a recent development. Over the course of its history, the United States has maintained a far faster growth rate than any country in East Asia. Second, the Asian growth period coincides with the Asian states gaining access to the U.S. market (largely via Bretton Woods) after U.S. security policy had removed the local hegemon — Japan — from military competition. In short, the growth of East Asian states — China included — has been dependent upon a economic and security framework that is not only far beyond their control, but wholly dependent upon how the Americans currently craft their strategic policy. Should the Americans change their minds, that framework — and the economic growth that comes from it — could well dissolve overnight.
The laissez-faire economic system is not the only way in which the American geography shapes the American economy. The United States also has a much more disassociated population structure than most of the rest of the world, developed and developing states both. As wealth expanded along American rivers, smallholders banded together to form small towns. The capital they jointly generated sowed the seeds of industrialization, typically on a local level. Population rapidly spread beyond the major port cities of the East Coast and developed multiple economic and political power centers throughout the country whose development was often funded with local capital. As large and powerful as New York, Baltimore and Boston were (and still are), they are balanced by Chicago, Pittsburgh, St. Louis and Minneapolis.
Today, the United States has no fewer than 20 metropolitan areas with an excess of 2.5 million people, and only four of them — New York, Philadelphia, Boston and Washington-Baltimore — are in the East Coast core. In contrast, most major countries have a single, primary political and economic hub such as London, Tokyo, Moscow or Paris. In the United States, economic and political diversification has occurred within a greater whole, creating a system that has grown organically into a consumer market larger than the consumer markets of the rest of the world combined.
And despite its European origins, the United States is a creature of Asia as well. The United States is the only major country in the world that boasts not only significant port infrastructure on both the Atlantic and the Pacific but also uninterrupted infrastructure linking the two. This allows the United States to benefit from growth in and trade with both Pacific and Atlantic regions and partially insulates the United States when one or the other suffers a regional crash. At such times, not only can the United States engage in economic activity with the other region, but the pre-existing links ensure that the United States is the first choice for capital seeking a safe haven. Ironically, the United States benefits when these regions are growing and when they are struggling.
When all these factors are put together, it is clear how geography has nudged the United States toward a laissez-faire system that rewards efficiency and a political culture that encourages entrepreneurship. It is also clear how geography has created distributed economic centers, transportation corridors and a massive internal market and provided easy access to both of the world's great trading basins. Byproducts of this are a culture that responds well to change and an economy characterized by stable, long-term growth without being dependent on external support. In short, there is a geographic basis for U.S. prosperity and power, and there is no geographic basis to expect this condition to change in the foreseeable future.
Current Context: Threats to the Imperatives
Normally, Stratfor closes its geopolitical monographs with a discussion of the major challenges the country in question faces. The United States is the only truly global power in the modern age, but there are a number of potential threats to American power (as Stratfor founder George Friedman outlined in his book "The Next 100 Years"). Indeed, over the next century, any number of regional powers — a reunified Germany, a reawakened Turkey, a revitalized Japan, a rising Brazil, a newly confident Mexico — may well attempt to challenge American power.
But rather than dwell on the far future, it is more instructive to focus on the challenges of today and the next few years. Stratfor now turns to challenges to the United States in the current global context, beginning with the least serious challenges and working toward the most vexing.
The war in Afghanistan is not one that can be won in the conventional sense. A "victory" as Americans define it requires not only the military defeat of the opposing force but also the reshaping of the region so that it cannot threaten the United States again. This is impossible in Afghanistan because Afghanistan is more accurately perceived as a geographic region than a country. The middle of the region is a mountainous knot that extends east into the Himalayas. There are no navigable rivers and little arable land. The remaining U-shaped ring of flat land is not only arid but also split among multiple ethnic groups into eight population zones that, while somewhat discrete, have no firm geographic barriers separating them. This combination of factors predisposes the area to poverty and conflict, and that has been the region's condition for nearly all of recorded history.
The United States launched the war in late 2001 to dislodge al Qaeda and prevent the region from being used as a base and recruitment center for it and similar jihadist groups. But since geography precludes the formation of any stable, unified or capable government in Afghanistan, these objectives can be met and maintained only so long as the United States stations tens of thousands of troops in the country.
Afghanistan indeed poses an indirect threat to the United States. Central control is so weak that non-state actors like al Qaeda will continue to use it as an operational center, and some of these groups undoubtedly hope to inflict harm upon the United States. But the United States is a long way away from Afghanistan, and such ideology does not often translate into intent and intent does not often translate into capacity. Even more important, Afghanistan's labor, material and financial resources are so low that no power based in Afghanistan could ever directly challenge much less overthrow American power.
The American withdrawal strategy, therefore, is a simple one. Afghanistan cannot be beaten into shape, so the United States must maintain the ability to monitor the region and engage in occasional manhunts to protect its interests. This requires maintaining a base or two, not reinventing Afghanistan in America's image as an advanced multiethnic democracy.
Most Americans perceive China as the single greatest threat to the American way of life, believing that with its large population and the size of its territory it is destined to overcome the United States first economically and then militarily. This perception is an echo of the Japanophobia of the 1980s and it has a very similar cause. Japan utterly lacked material resources. Economic growth for it meant bringing in resources from abroad, adding value to them, and exporting the resulting products to the wider world. Yet because very little of the process actually happened in Japan, the Japanese government had to find a means of making the country globally competitive.
Japan's solution was to rework the country's financial sector so that loans would be available at below-market rates for any firm willing to import raw materials, build products, export products and employ citizens. It did not matter if any of the activities were actually profitable, because the state ensured that such operations were indirectly subsidized by the financial system. More loans could always be attained. The system is not sustainable (eventually the ever-mounting tower of debt consumes all available capital), and in 1990 the Japanese economy finally collapsed under the weight of trillions of dollars of non-performing loans. The Japanese economy never recovered and in 2011 is roughly the same size as it was at the time of the crash 20 years before.
China, which faces regional and ethnic splits Japan does not, has copied the Japanese finance/export strategy as a means of both powering its development and holding a rather disparate country together. But the Chinese application of the strategy faces the same bad-debt problem that Japan's did. Because of those regional and ethnic splits, however, when China's command of this system fails as Japan's did in the 1990s, China will face a societal breakdown in addition to an economic meltdown. Making matters worse, China's largely unnavigable rivers and relatively poor natural ports mean that China lacks Japan's natural capital-generation advantages and is saddled with the economic dead weight of its vast interior, home to some 800 million impoverished people. Consequently, China largely lacks the capacity to generate its own capital and its own technology on a large scale.
None of this is a surprise to Chinese leaders. They realize that China depends on the American-dominated seas for both receiving raw materials and shipping their products to global markets and are keenly aware that the most important of those markets is the United States. As such, they are willing to compromise on most issues, so long as the United States continues to allow freedom of the seas and an open market. China may bluster — seeing nationalism as a useful means of holding the regions of the country together — but it is not seeking a conflict with the United States. After all, the United States utterly controls the seas and the American market, and American security policy prevents the remilitarization of Japan. The pillars of recent Chinese success are made in America.
Iran is the world's only successful mountain country. As such it is nearly impossible to invade and impossible for a foreign occupier to hold. Iran's religious identity allows it considerable links to its Shiite co-religionists across the region, granting it significant influence in a number of sensitive locations. It also has sufficient military capacity to threaten (at least briefly) shipping in the Strait of Hormuz, through which roughly 40 percent of global maritime oil exports flow. All of this grants Iran considerable heft not just in regional but in international politics as well.
However, many of these factors work against Iran. Being a mountainous state means that a large infantry is required to keep the country's various non-Persian ethnicities under control. Such a lopsided military structure has denied Iran the skill sets necessary to develop large armored or air arms in its military. So while Iran's mountains and legions of infantry make it difficult to attack, the need for massive supplies for those infantry and their slow movement makes it extremely difficult for the Iranian military to operate beyond Iran's core territories. Any invasion of Iraq, Kuwait or Saudi Arabia while American forces are in theater would require such forces — and their highly vulnerable supply convoys — to march across mostly open ground. In the parlance of the U.S. military, it would be a turkey shoot.
Mountainous regions also have painfully low capital-generation capacities, since there are no rivers to stimulate trade or large arable zones to generate food surpluses or encourage the development of cities, and any patches of land that are useful are separated from each other, so few economies of scale can be generated. This means that Iran, despite its vast energy complex, is one of the world's poorer states, with a gross domestic product (GDP) per capita of only $4,500. It remains a net importer of nearly every good imaginable, most notably food and gasoline. There is a positive in this for Iran — its paucity of economic development means that it does not participate in the Bretton Woods structure and can resist American economic pressure. But the fact remains that, with the exception of oil and the Shiite threat, Iran cannot reliably project power beyond its borders except in one place.
Unfortunately for the Americans, that place is Iraq, and it is not a location where Iran feels particularly pressured to compromise. Iran's Shiite card allows Tehran to wield substantial influence with fully 60 percent of the Iraqi population. And since the intelligence apparatus that Iran uses to police its own population is equally good at penetrating its Shiite co-religionists in Iraq, Iran has long enjoyed better information on the Iraqis than the Americans have — even after eight years of American occupation.
It is in Iran's interest for Iraq to be kept down. Once oil is removed from the equation, Mesopotamia is the most capital-rich location in the Middle East. While its two rivers are broadly unnavigable, they do reliably hydrate the land between them, making it the region's traditional breadbasket. Historically, however, Iraq has proved time and again to be indefensible. Hostile powers dominate the mountains to the north and east, while the open land to the west allows powers in the Levant to penetrate its territory. The only solution that any power in Mesopotamia has ever developed that provided a modicum of security is to establish a national security state with as large a military as possible and then invade neighbors who may have designs upon it. More often than not, Persia has been the target of this strategy, and its most recent application resulted in the Iraq-Iran War of 1980-1988.
Simply put, Iran sees a historic opportunity to prevent Iraq from ever doing this to it again, while the United States is attempting to restore the regional balance of power so that Iraq can continue threatening Iran. It is not a dispute that leaves a great deal of room for compromise. Iran and the United States have been discussing for five years how they might reshape Iraq into a form that both can live with, likely one with just enough military heft to resist Iran but not so much that it could threaten Iran. If the two powers cannot agree, then the Americans will have an unpalatable choice to make: either remain responsible for Iraq's security so long as Persian Gulf oil is an issue in international economic affairs or leave and risk Iran's influence no longer stopping at the Iraq-Saudi Arabia border.
At the time of this writing, the Americans are attempting to disengage from Iraq while leaving a residual force of 10,000 to 25,000 troops in-country in order to hold Iran at bay. Iran's influence in Iraq is very deep, however, and Tehran is pushing — perhaps successfully — to deny the Americans basing rights in an "independent" Iraq. If the Americans are forced out completely, then there will be little reason for the Iranians not to push their influence farther south into the Arabian Peninsula, at which point the Americans will have to decide whether control of so much of the world's oil production in the hands of a single hostile power can be tolerated.
Russia faces no shortage of geographic obstacles to success — its wide-open borders invite invasion, its vast open spaces prevent it from achieving economies of scale, its lack of navigable rivers makes it poor, and its arid and cold climate reduces crop yields. Over the years, however, Russia has managed to turn many weaknesses into strengths.
It has consolidated political and economic forces to serve as tools of the central state, so that all of the nation's power may be applied to whatever tasks may be at hand. This may be woefully inefficient and trigger periods of immense instability, but it is the only method Russia has yet experimented with that has granted it any security. Russia has even turned its lack of defensible borders to its advantage. Russia's vast spaces mean that the only way it can secure its borders is to extend them, which puts Russia in command of numerous minorities well-aware that they are being used as speed bumps. To manage these peoples, Russia has developed the world's most intrusive intelligence apparatus.
This centralization, combined with Russia's physical location in the middle of the flat regions of northern Eurasia, makes the country a natural counterbalance to the United States and the state most likely to participate in an anti-American coalition. Not only does Russia's location in the flatlands of Eurasia require it to expand outward to achieve security (thus making it a somewhat "continent-sized" power), its natural inclination is to dominate or ally with any major power it comes across. Due to its geographic disadvantages, Russia is not a country that can ever rest on its laurels, and its strategic need to expand makes it a natural American rival.
Unfortunately for the Americans, Russia is extremely resistant to American influence, whether that influence takes the form of enticement or pressure.
- Russia's lack of a merchant or maritime culture makes any Bretton Woods-related offers fall flat (even today Russia remains outside of the WTO).
- Russia is the biggest state in its region, making it rather nonsensical (at least in the current context) for the United States to offer Russia any kind of military alliance, since there would be no one for Russia to ally against.
- Russia's maritime exposure is extremely truncated, with its populated regions adjacent only to the geographically pinched Baltic and Black seas. This insulates it from American naval power projection.
- Even the traditional American strategy of using third parties to hem in foes does not work as well against Russia as it does against many others, since Russia's intelligence network is more than up to the task of crippling or overthrowing hostile governments in its region (vividly demonstrated in Russia's overturning of the Kremlin-opposed governments in Ukraine, Georgia and Kyrgyzstan in recent years).
This means that the only reliable American option for limiting Russian power is the same strategy that was used during the Cold War: direct emplacement of American military forces on the Russian periphery. But this is an option that has simply been unavailable for the past eight years. From mid-2003 until the beginning of 2011, the entirety of the U.S. military's deployable land forces have been rotating into and out of Iraq and Afghanistan, leaving no flexibility to deal with a resurgence of Russian power. The American preoccupation with the Islamic world has allowed Russia a window of opportunity to recover from the Soviet collapse. Russia's resurgence is an excellent lesson in the regenerative capacities of major states.
Merely 12 years ago, Russia was not even in complete control of its own territory, with an insurgency raging in Chechnya and many other regions exercising de facto sovereignty. National savings had either disappeared in the August 1998 ruble crisis or been looted by the oligarchs. During the American wars in the Islamic world, however, the Russians reorganized, recentralized and earned prodigious volumes of cash from commodity sales. Russia now has a stable budget and more than half a trillion dollars in the bank. Its internal wars have been smothered and it has re-assimilated, broken or at least cowed all of the former Soviet states. At present, Russia is even reaching out to Germany as a means of neutralizing American military partnerships with NATO states such as Poland and Romania, and it continues to bolster Iran as a means of keeping the United States bogged down in the Middle East.
Put simply, Russia is by far the country with the greatest capacity — and interest — to challenge American foreign policy goals. And considering its indefensible borders, its masses of subjugated non-Russian ethnicities and the American preference for hobbling large competitors, it is certainly the state with the most to lose.
The United States
The greatest threat to the United States is its own tendency to retreat from international events. America's Founding Fathers warned the young country to not become entangled in foreign affairs — specifically European affairs — and such guidance served the United States well for the first 140 years of its existence.
But that advice has not been relevant to the American condition since 1916. Human history from roughly 1500 through 1898 revolved around the European experience and the struggle for dominance among European powers. In the collective minds of the founders, no good could come from the United States participating in those struggles. The distances were too long and the problems too intractable. A young United States could not hope to tip the balance of power, and besides, America's interests — and challenges and problems — were much closer to home. The United States involved itself in European affairs only when European affairs involved themselves in the United States. Aside from events such as the Louisiana Purchase, the War of 1812 and small-scale executions of the Monroe Doctrine, Washington's relations with Europe were cool and distant.
But in 1898 the Americans went to war with a European state, Spain, and consequently gained most of its overseas territories. Those territories were not limited to the Western Hemisphere, with the largest piece being the Philippines. From there the Americans participated in the age of imperialism just as enthusiastically as any European state. Theodore Roosevelt's Great White Fleet steamed around the world, forcing Japan to open itself up to foreign influence and announcing to the world that the Americans were emerging as a major force. Once that happened, the United States lost the luxury of isolationism. The United States not only was emerging as the predominant military and economy of the Western Hemisphere, but its reach was going global. Its participation in World War I prevented a German victory, and by the end of World War II it was clear that the United States was one of only two powers that could appreciably impact events beyond its borders.
Such power did not — and often still does not — sit well with Americans. The formative settler experience ingrained in the American psyche that life should get better with every passing year and that military force plays little role in that improvement. After every major conflict from the American Revolution through World War I, the Americans largely decommissioned their military, seeing it as an unnecessary, morally distasteful expense; the thinking was that Americans did not need a major military to become who they were and that they should have one only when the need was dire. So after each conflict the Americans, for the most part, go home. The post-World War II era — the Cold War — is the only period in American history when disarmament did not happen after the conflict, largely because the Americans still saw themselves locked into a competition with the Soviet Union. And when that competition ended, the Americans did what they have done after every other conflict in their history: They started recalling their forces en masse.
At the time of this writing, the American wars in the Islamic world are nearly over. After 10 years of conflict, the United States is in the final stages of withdrawal from Iraq, and the Afghan drawdown has begun as well. While a small residual force may be left in one or both locations, by 2014 there will be at most one-tenth the number of American forces in the two locations combined as there were as recently as 2008.
This has two implications for the Americans and the wider world. First, the Americans are tired of war. They want to go home and shut the world out, and with the death of al Qaeda leader Osama Bin Laden on May 2, 2011, they feel that they have the opportunity to do so. Second, the American military is battle-weary. It needs to rest, recuperate and digest the lessons of the wars it has just fought, and American politicians are in a mood to allow it to do just that. But while the U.S. military is battle-weary, it is also battle-hardened, and alone among the world's militaries it remains easily deployable. Three years from now the U.S. military will be ready once again to take on the world, but that is a topic to revisit three years from now.
Between now and then, potential American rivals will not be able to do anything they wish — American power is not evaporating — but they will have a relatively free hand to shape their neighborhoods. American air and sea power is no small consideration, but inveterate land powers can truly be countered and contained only by ground forces.
- Russian power will consolidate and deepen its penetration into the borderlands of the Caucasus and Central Europe. While the Americans have been busy in the Islamic world, it has become readily apparent what the Russians can achieve when they are left alone for a few years. A U.S. isolationist impulse would allow the Russians to continue reworking their neighborhood and re-anchor themselves near the old Soviet empire's external borders, places like the Carpathians, the Tian Shan Mountains and the Caucasus, and perhaps even excise NATO influence from the Baltic states. While the chances of a hot war are relatively low, Stratfor still lists Russia's regeneration as the most problematic to the long-term American position because of the combination of Russia's sheer size and the fact that it is — and will remain — fully nuclear armed.
- Iranian power will seek to weaken the American position in the Persian Gulf. A full U.S. pullout would leave Iran the undisputed major power of the region, forcing other regional players to refigure their political calculus in dealing with Iran. Should that result in Iran achieving de facto control over the Gulf states — either by force or diplomacy — the United States would have little choice but to go back in and fight a much larger war than the one it just extracted itself from. Here the American impulse to shut out the world would have imminent, obvious and potentially profound consequences.
- Stratfor does not see Chinese power continuing to expand in the economic sphere on a global scale. China suffers under an unstable financial and economic system that will collapse under its own weight regardless of what the United States does, so the United States turning introverted is not going to save China. But America's desire to retreat behind the oceans will allow the Chinese drama to play itself out without any American nudging. China will collapse on its own — not America's — schedule.
- German power will creep back into the world as Berlin attempts to grow its economic domination of Europe into a political structure that will last for decades. The European debt crisis is a catastrophe by all definitions save one: It is enabling the Germans to use their superior financial position to force the various euro nations to surrender sovereignty to a centralized authority that Germany controls. Unlike the Russian regeneration, the German return is not nearly as robust, multi-vectored or certain. Nonetheless, the Germans are manipulating the debt crisis to achieve the European supremacy by diplomacy and the checkbook that they failed to secure during three centuries of military competition.
The Americans will resist gains made by these powers (and others), but so long as they are loath to re-commit ground forces, their efforts will be half-hearted. Unless a power directly threatens core U.S. interests — for example, an Iranian annexation of Iraq — American responses will be lackluster. By the time the Americans feel ready to re-engage, many of the processes will have been well established, raising the cost and lengthening the duration of the next round of American conflict with the rest of the world.