BOOK REVIEW--THE LAST ECONOMIC SUPERPOWER by Joseph P. Quinlan

Reviewed by Bill Breakstone, December 24, 2010


The Last Economic Superpower is a brand new economics book written by Joseph P. Quinlan, a Senior Fellow at the Paul H. Nitze School of Advanced International Studies of Johns Hopkins University. It reinforces the vast economic impact that the Great Recession is having on the world’s economy.

The narrative begins by analyzing the two eras of economic globalization that took place since 1870. The first, beginning during the last three decades of the 19th Century, was marked by rapid global growth, robust trade, and strong cross border flows of investment. The economic leaders at that time were the United Kingdom, Germany and France. With the onset of World War I, that era of globalization came to an end, nor would it return after the War. World War II finally brought an end to The Great Depression, but both wars did massive damage to the world’s economy, and it was not until the 1950s that the developed nations were finally getting back on their feet.

The second era of globalization had its roots in the late 1960s. At that time, the U.S. dollar acted as the world’s reserve currency. It was backed by gold, “meaning that the United States was committed to exchanging gold for dollars at a fixed rate of $35 per ounce. The system worked as long as foreign claims matched the size of U.S. gold reserves. Late in the 1960s, however, the fixed exchange rate came under increasing strain. As Europe and Japan healed from the ravages of war, they made rising exports to the United States the key to their recovery, and as a result their dollar holdings gradually exceeded the U.S. stock of gold. This important shift, along with rising inflation, slowly eroded confidence in the U.S. dollar and America’s commitment to the Bretton Woods system. President Nixon capitulated in August 1971 by ‘closing the gold window,’ thereby effectively ending the Bretton Woods system.”

The new era of globalization began in the first part of the 1980s, as “the holy trinity of deregulation, privatization, and trade and investment liberalization raised world output, bolstered global trade and investment, and lifted millions out of poverty in India, China, and other developing nations.”

“As globalization blossomed over the last 25 years of the twentieth century, so did the economic superpower status of the United States . . . with the America taking the lead in designing, creating, and dominating the multilateral institutions governing the global economy. It was the United States, albeit with support from Europe and Japan, that largely set the rules of global economic engagement for the rest of the world in the last half century.” With the collapse of the Berlin Wall in 1989 and the disintegration of the Soviet Union a few short years later, Democracy had triumphed over communism and free-market capitalism had trumped central planning. “The world had shifted from a bipolar world to a “unipolar” world, and the United States—the world’s lone superpower—unequivocally stood above the rest.”

During the 1990s, America’s economy, one that produced steady growth, low inflation, and booming asset prices, became once again the envy of the world. As Quinlan notes “the rest of the world jumped quickly on the bandwagon. A global consensus emerged around the notion that the best way to promote growth and create prosperity was through the embrace of free-market capitalism and its central tenets. This overriding assumption helped convince many emerging markets to embrace and pursue the ‘Made in America’ brand of globalization.”

The author then proceeds to discuss the build-up of bubbles in the U.S. economy that lead to the eventual collapse of the economy of the West. His writing is full of precise economic data and references to the many other excellent economic books that have been published over the past two-plus years. It makes the point that the Great Recession threw the world’s economic axis totally off kilter, placing the economic status of the United States and its European Union allies in grave danger. With the resulting decline of the West came the rise of “the Rest.” The Emerging Market nations, notably the BRIC countries (Brazil, Russia, India and China) now stand on an equal footing with the western economies. The United States is no longer in a dominant position. Indeed, with its huge debt problem, which is being financed for now by China, the West’s currencies are coming under increasing pressure from both China and the debt-rating agencies.

The final two chapters of the book discuss two possible future scenarios. The first foretells an end of globalization and a coming economic cold war. The second lays out the possibility of future era of economic cooperation between the West and the Rest, but one during which a new set of road rules will apply.

The Last Economic Superpower makes excellent reading for anyone interested in economics and global politics. If read along with Ian Bremmer’s excellent The End of the Free Market, it gives a whole new perspective to the future of the world’s economy.