A review of Thomas L. Friedman and Michael Mandelbaum's That Used to Be Us: How America Fell Behind in the World It Invented and How We Can Come Back.

As the Great Republic prepares for its quadrennial presidential election cycle, the American voter will decide who will be the leader of the free world, the most powerful person on the planet. This book is a policy platform by Thomas L. Friedman, the New York Times columnist and author of best-selling books like The Lexus and the Olive Tree, The World Is Flat, Hot, and Crowded, and Michael Mandelbaum, a leading foreign policy academic from Johns Hopkins University.

This ambitious book is their call to arms, not in a military sense but in a plea for a rejuvenated political system and even a third party movement against the two establishments of the duopoly of the Republican and Democratic parties.

For non-Americans, the presidential electoral result is not an idle outcome. For Canadians, a compliant partner in increased economic integration of the North American continent, the direction of the American economy is vital to domestic job creation, the capacity for a small open economy to compete and the financial resources to maintain its own standard of living. For the first time in a generation, Canadians and countries around the world face the spectacle of the giant US economy having Soviet-style growth rates, rising unemployment among educated citizens and Third World levels of debt. What, indeed, is going on? What has happened to the vaunted American dream? A society of rampant obesity, deadbeat unqualified teachers, lobbyists galore, greedy bankers, stunningly over-compensated CEOs and corporate executives, regulators on the take — a catalogue of superpower decline that calls for super-human leadership, bold vision and big thinking.

That theme forms the core of this book. Their work is fascinating and chilling, frustrating and daunting. The best-selling authors of this tome — a form of popular literature disguised as policy analysis — are public intellectuals with easy access to major media outlets, speaking tours, and university symposia. They write with earnest optimism about America’s capacity to re-invent itself, to address, as they put it, “our big challenges today [that] require the kind of national responses that wars have evoked.” Yet, in truth, “faced with era-defining challenges,” they write, “the country has responded with all the vigor and determination of a lollipop.”

This book and a series of pre-election works ranging from Bill Clinton’s Back to Work to Pat Buchanan’s Suicide of a Superpower address America’s position in the world, inevitable comparisons with China (and to a lesser extent India, together representing 40 percent of the world’s population) and the possibility for slow, continuous, but inevitable relative decline. Policy wonks in the US and around the world look at these books, and the Friedman and Mandlebaum prescriptions in That Used to Be US with a mixture of disbelief in America’s decline, even though serious Americans say that is the case, and a sense of envy, because they don’t accept the premise of the argument. By any standard, despite its internal problems and challenges, the United States has great strengths and willing partners in the West with legal principles and courts, a robust civil society that protects dissent and political discourse, deep financial markets, excellent universities and research institutes, and a range of institutions from labour unions and think tanks to charities, church groups and personal foundations that constantly dissect America’s structural problems.

But is the real problem one or two big issues, such as declining social mobility, with the poor in the US really poor, with little chance of climbing the social ladder, or an imbalance between what is best left to the market and what is best left to public institutions and government? And how do the two mix as a close partnership, in industries like pharmaceuticals, aerospace, new research efforts in nanotechnology, medical science and bioengineering? Or is it a series of errors which, in and by themselves, create challenges but collectively accumulate over the decades to create a real crisis, not only of events, but of confidence. The Wall Street protests and the Tea Party movement, despite their ambiguous goals and leadership, are popular expressions of optimism but also of despair.

Despite a super-abundance of clichés, repetitive catchwords and artificial alliterations, and little of the sarcastic subtleties and humour of another public intellectual, J.K. Galbraith, Friedman and Mandelbaum try to connect the policy dots with a series of telling anecdotes, statistics and compelling stories of a reporter facing a deadline. Education is seen as the key, and the flavour is expressed in the national study Rising Above the Gathering Storm, no doubt copied from Churchill’s first book of his six-volume history of the Second World War. Here are examples of their daunting analysis: “69 percent of US public school students — the fifth grade through eighth grade — are taught mathematics by a teacher without a degree or certificate in mathematics. Ninety-three per cent of US public school students in the fifth through eighth grade are taught the physical sciences by a teacher without a degree or certificate in the physical sciences.”

In their view, the United States faces four core challenges: how to adapt to globalization, how to adjust to the IT revolution, how to cope with soaring budget deficits and how to manage an economy of rising energy consumption and climate change. In truth, these issues confront every nation today, developed or developing, rich or poor, or small or large.

How did the Americans reach this state of affairs, with social mobility lower than the leading states of Europe or Canada? How does 1 percent of the population control or own so much of the wealth of the United States? How do up to 50 million people end up without access to basic, primary health care when spending on health care is almost double every advanced industrial country, with lower real outcomes? Has American society become a vast landscape in a state of denial? Clearly there is no one cause and no simple answer to America’s real challenges. The Wall Street crisis of 2008 exposed the fundamental flaws and excesses of American capitalism, in the same way that the New Orleans Katrina flooding exposed the deep, hidden underbelly of poverty and social deprivation in American society at large because it was televised and repeated on every television screen, mobile phone and satellite dish in the world.

Open markets, like team sports, need a referee. Deregulation does not mean an open free for all, lack of transparency and executive hubris. In fact, under the Bush administration, by appointing like-minded club members to the Cheney doctrine of excessive secrecy, people like Harvey Pitt at the Securities and Exchange Commission (SEC) signalled to Wall Street and Corporate America that a kinder and gentler SEC would look the other way at a series of dubious accounting practices, opaque financial engineering and transferring private risk to the taxpayer public. Today’s crisis stems from these mistakes a decade ago.

Gradually, Wall Street and corporate America were gathering a firestorm of debt, leveraged assets (including private homes) and corporate liabilities. Much is made of the housing bubble in key cities, but Detroit’s car companies were following similar practices: no down payment, interest-free loans for three years, even if the buyer didn’t hold a job. Across the board, companies could conceal real losses, American banks could use off-balance sheet techniques and the White House could appeal to patriotism because the US was fighting two foreign wars.

It simply couldn’t last. At the macro level, America’s triple deficits — in government deficits, in the trade account and in energy imports — required overseas money to finance rising US debt. China, India and, most importantly, Japan could play along if interest rates remained low, and inflation was stable. But here was the rub: at the micro level, the US financial system had to be able to maintain the financial flow of over-leveraged assets. Slowly, but at a quickening pace, falling house prices — where personal equity fell below asset prices — exposed Wall Street’s huge risk profile. Executive hubris at all levels, starting in the White House, but extending to Wall Street and to too many foreign central banks (including the Bank of England), disguised the extent of the over-leveraged assets of government, corporations and consumers. The US economy has become part credit card, part casino capitalism, far removed from the real economy of autonomous competitive firms.

The huge bailout of Wall Street forced the Federal Reserve and the US Treasury to raise trillions in new loans, and Wall Street banks went cap in hand to foreign money markets to recapitalize their balance sheets. Today there are enormous differences between countries with huge cash balances (much of Asia and the Gulf countries) and high debt countries (much of Europe, Canada and South America). Greece and Italy are the symptoms of these massive financial imbalances, and only policy coordination at the highest level, but especially the G20, can cope with this crisis.

Unlike the situation only a generation ago, the United States is intimately linked to the economies of both the advanced world and the developed world, not just through trade and investment (the core components of an Apple iPod or a Boeing jet come from many countries, including Canada), and US banks and financial institutions are linked to foreign financial institutions through ownership, shared loans and liabilities, and customers. Slogans like “Too big to fail” really mean that failure through insolvency or a bank run can bring down the entire system — precisely what happened in New York in 2008 or what might happen in Europe too soon to make policy-makers have sleepless nights.

Canada has much to learn from the challenges facing the Great Republic. History is a guide, and the lessons of the 1930s have informed policy-makers since the Wall Street crisis of 2008. Unlike the 1930s, central bankers, finance ministers and political leaders meet regularly and talk frequently. Global finance is a new policy paradigm, and it is truly a work in progress. But policy direction still requires political direction. Political parties may have political and economic principles but they shouldn’t be guided by political ideology alone. This problem is the challenge facing US politicians. For Canada, so integrated with the US in key industries like oil and gas, electricity, automobiles and many forms of manufacturing through two-way trade of parts and components, the US system remains awesomely frustrating, as Congress enacts Made in America mandates, combined with a striking level of NIMBY — not in my backyard, affecting border crossing, pipelines and tourism, to name three.

Will the complicated system of political checks and balances, and the financial fortunes of the moneyed class, be channelled into further bifurcating of the electorate, and thus exacerbating the divisions that prevent the United States from facing up to its real domestic challenges? The themes addressed by Friedman and Mandelbaum are not really new. Norman Macrae, the great editor of The Economist magazine, wondered in his 1976 survey of the United States that the Great Republic had designed a truly strong set of institutions for the 75 percent of the economy that produces the most productive and innovative society in the world, and one of the worst for the 25 percent of society that truly makes an economy produce clean air, a healthy population and streets that are safe.

But what of the future? Canadians will look at the US political system with mixed feelings, wondering how a neighbour can become so polarized in politics as a society. If the United States faces a period of slow growth, or even a lost decade, as many analysts forecast as the country slowly de-leverages its huge debt burden, Canadian complacency and a sense of arrogance should not be watchwords as the Americans work through the problems. Betting against the US is sheer folly. Still, Canada will have no choice but to seek out new markets and new economic alliances, while protecting its hard-won place in North America. That will require a measure of global thinking at all levels of Canadian society.

Thomas L. Friedman and Michael Mandelbaum. That Used to Be Us: How America Fell Behind in the World It Invented and How We Can Come Back. New York: Farrar, Strauss & Giroux, 2011.

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