Shutdown of US, shutdown of democratic capitalism
Fear is spreading around the world since the U.S. government shutdown might trigger a relapse of the global recession. And it is intensifying as there are only two days before the American Treasury is scheduled to run out of money. If Congress fails to raise the debt limit this Thursday, an economic calamity of uncertain consequences is almost given. What we are going through is not only the shutdown of the U.S. economy, but a symptom of two much deeper problems. In domestic terms, it reflects the shutdown of the American political system and in global terms, the crisis of liberal democratic capitalism.
Democrats and Republicans in Congress are so polarized that they failed to agree on a deal to fund the government by midnight on the last day of the fiscal year, October the 1st, and therefore paralyzed the entire system. As a result, the government shut down and all non-essential government functions got suspended. The shutdown affects everyone except astronauts, zoo animals and national security employees. Worse news is that Republicans are not likely to accept to raise the debt limit and likewise, Obama is not likely to accept a plan to extend the debt ceiling only temporarily without lifting the shutdown. So they are running towards a catastrophe hand in hand. Apparently Admiral Mike Mullen, the former head of joint chiefs of staff, was right when he said in 2010 that the U.S. debt is the greatest strategic threat the country faces.
The current situation is first and foremost a domestic political crisis. Due to the polarized lawmaking process, battles over spending are not uncommon in American history. But this time, Republicans primarily object to Obama’s health-care system, the so called Obamacare, which has been his biggest achievement so far. The already existing confrontation between the two political camps on Obamacare has reached its peak now since Republicans see this as their last chance to get rid of it. Hence they refuse to negotiate unless the health-care law is defunded or delayed.
The current impasse also reflects a global phenomenon. In the last 3 decades, Western democracies have been backed by two major global trends: Information revolution and globalization. From the early 80’s on, the widespread use of computers and global access to the internet have transformed the global economy by increasing productivity and growth. Similarly, globalization benefited the West by opening up new markets of cheap labor. With the U.S. being at the center, we have witnessed the enormous expansion of the global economy. However the West has consumed much more than it has produced. And borrowing and cheap credit emerged as the magical formula. As a result, advantages provided by information technology and globalization turned out to be challenges rather than opportunities, ending up with the crisis of democratic capitalism. Now it is the developing countries who are advantaged. Among the G-20 countries, the average debt-to-GDP ratio of developing countries is 35 percent whereas it is 3 times higher among the developed ones. On top of this, developed countries are aging at a pace never seen before in human history.
Last year right after the American elections, The Economist featured a picture on its front cover of President Obama looking into a mirror and asking himself: “How will history see me?” If Obama overcomes the current impasse, history will certainly see him as a transformative figure. If not, he’ll be identified with disaster. Yet, it is not Obama who should look into the mirror and ask this question to himself. It is all of the West.