Page 192 - Global Political Economy_Understanding The International Economic Order

SYS TEMS O F POLI TICAL ECONO MY
economic growth throughout most of the 1990s, they were hit by a
severe financial crisis and recession in the fall of 1997. The economic
pace slackened in China, and the Russian economy was a disaster.
Thus, for a period in the late 1990s, the United States was an eco-
nomic oasis in a global economic desert.
American officials, business leaders, and popular commentators at-
tributed the prolonged success of the American economy to funda-
mental changes that had occurred in the 1980s and the 1990s. Propo-
nents of the “New American Economy” argued that the American
economy had been transformed by several factors: deregulation, in-
creased openness to the global economy, downsizing and restructur-
ing of American corporations in the 1980s, and rapid technological
advances (especially in the computer and information technologies)
that increased national productivity. The globalization or openness
of the American economy to imports kept prices down, decreased
inflationary pressures, and hence permitted the Federal Reserve to
pursue expansionary economic policies. Deregulation of the Ameri-
can economy made it better suited than its Japanese and European
competitors to take advantage of the digital revolution. Some alleged
that the productivity and international competitiveness of the Ameri-
can economy have significantly increased and surpassed the rest of
the world. Many even proclaimed that the American economy had
transcended the boom-and-bust business cycles of the past.
There is no dispute about the overall success of the American econ-
omy in the 1990s. Excellent management of the economy by the Fed-
eral Reserve as well as an upswing in the business cycle certainly
played an important part in this success. However, it has not yet been
demonstrated that the United States has created a superior economic
model; indeed, good luck has played a role in American success. For
example, the victory over inflation and consequent low interest rates
can be attributed in large part to the fact that the rest of the world
economy was in recession in the 1990s. Moreover, the American
economy benefited greatly from a huge inflow of foreign capital that
buoyed the stock market; indeed, by the late 1990s, America’s na-
tional foreign debt had reached approximately $1 trillion. Economic
expansion was also funded by the virtual elimination of personal sav-
ings and a huge buildup of consumer and corporate debt. Rapid eco-
nomic expansion was accompanied by increasing income inequalities,
job insecurity, and serious social problems. Despite the impressive
achievements of the American economy in the 1990s, one must re-
member that it is dangerous to argue that the American or any other
economic model is and will be, for all time, superior to others.
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