East of Suez

The Wilsons and Nixons at the White House, 1970In 1967, PM Harold Wilson announced that Britain would withdraw forces from major bases “East of Suez”, and the process of ending the British Empire that began around the end of the war was more or less complete. It was brought down by a combination of forces political and economic; among the latter was the enormous cost of the war which left Britain an economic basket case with huge trade deficits that caused several currency devaluations. Even if it had had the will to counter the explosion of nationalism in places like India (and Palestine), it could not afford to do so.

Today, Britain’s successor empire, the United States, finds itself in a similar predicament. The present financial crisis was triggered by a particular problem in one segment of the economy, but its continued progress is a kind of domino effect facilitated by the huge amounts of leverage — inadequately secured debt — in the system. The government is attempting to prop up strategic dominoes, but it can only do so by increasing its own massive indebtedness (only in part created by the enormous cost of the war in Iraq). If it is successful, then there will not be a sudden cataclysm (I don’t even want to think about what that would look like), but there is no question that even if the maneuver succeeds the standard of living of all but the upper classes will be significantly reduced as the need to pay for the bailout will result in either heavy inflation, higher taxation, reduced services and entitlements (Social Security, veterans’ benefits, etc.)  — or probably all of the above.

It’s important to understand that although the present debacle may seem to be a one-time occurrence caused by ‘mistakes’, greed, or even criminal behavior in the financial establishment, this event was only the push needed to send a house of cards flying. The economy’s weakness is structural, caused by every sector — government, business and consumers — financing a level of consumption far above what it can afford by borrowing. In each cases the holders of the debt — trade partners, banks, etc. were always ready (until recently) to refinance and extend more and more credit.

The US, having replaced its manufacturing economy with one primarily made up of services, is no longer adding sufficient value to its products to maintain its lifestyle, especially since so much of it depends on one commodity — oil — whose price is rising dramatically. This price rise is also structural, a result of increased worldwide consumption meeting up with finite supply.

It’s worth pointing out that the  ‘solution’ to high oil prices in the US that is being pushed by some politicians — that the US should drill more — would have almost zero effect. The price of oil is set on the world market by multinational corporations.  Any increase in supply that could be expected from domestic drilling would be the proverbial drop in the bucket, too small to affect the price. Unless we are prepared to nationalize our oil supplies and infrastructure, we are stuck with the world price.

There is also a geopolitical crisis to go along with the fiscal one. The rise of radical Islamism — fueled, ironically by the huge amount of cash transferred to the oil-producing countries of the Middle East — represents a direct challenge to Western influence in the region. The US is finding — the war in Iraq is a case in point — that its own economic weakness, combined with the ability of formerly weak states like Iran to buy sophisticated weapons, exacerbated by the psychological power of the Islamist ideology, and aided by mischief done by its traditional opponent, Russia, is making it  harder to exert effective control over events in the Middle East.

The expansion of Iran’s influence in recent years has been striking. Syria’s foreign policy is entirely subject to Iranian wishes, and Iran’s agent, Hezbollah, now is the single most powerful element in the Lebanese government and can be said to rule the country in all but name. Iran has also made an alliance of convenience with Hamas, which is contending for control of the Palestinian movement (only military action by Israel can stop it).

As a result, there are suggestions that the US, like Britain in 1945-1967, is overextended. That the days of being “the world’s only superpower” are over. That we no longer have the ability — militarily, economically and psychologically — to maintain our influence in the Mideast, and that we should — also like the British, stand down “East of Suez”. This point of view holds that rather than confronting Iran, we should make accommodation with it.

Unfortunately, the parallel with Britain breaks down at this point. Britain was not endangered by an independent India the way we are endangered by a nuclear Iran. Britain was able to hand off control of critical areas to the US, which shared its worldview to a great extent. Britain was able to take advantage of assistance from the US to dig itself out of the economic pit into which it had fallen by the end of the war.

The US, on the other hand, needs to face its crises alone. And the growing power of radical Islamism in the Middle East does represent a threat to the US. The Iranian regime certainly does view itself as our bitter enemy, and it will soon be armed with nuclear weapons. Although Islamism is also a threat to Russia, there is no reason that Iran and the Russians can’t work together to our detriment. Ideology cannot be such a barrier to an Iran which can fund both Sunni Hamas and Shiite Hezbollah (and don’t forget the Molotov-Ribbentrop pact of 1939)!

America is on the verge of a protracted struggle, which may be fought as much with economics as with missiles. Our new President will need an understanding of the proper use of both.

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One Response to “East of Suez”

  1. Shalom Freedman says:

    This is the most realistic and impressive analysis of the present U.S. economic and political situation I have read. The pointing out that the weakness of the U.S. economy is structural is most important. Also , the point that the United States is in effect truly alone in contending with these challenges is a sobering one.
    Everyone else is if not a declared enemy like the Islamists in some sense a rival.
    What is especially troubling for someone in Israel is that the U.S. will not have time, attention, resources, will to deal effectively with the Islamist threat.

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