[Namsan Ddalggakbari] Can the US Truly Make a Comeback?

'The History of American Capitalism', written by Allen Greenspan and Adrian Aldridge

[Asia Economy Reporter Lee Ji-eun] On the 16th (local time), when fear of the spread of the novel coronavirus infection (COVID-19) dominated the stock market, the Dow Jones Industrial Average, which consists of leading American companies, plunged 12.93%, marking the largest drop since the 1987 'Black Monday.' Just a month ago, the index was approaching the 30,000 mark, but on the 18th, even the 20,000 level was breached.

The concerns about a 'recession' in the U.S. economy, which had been hidden under abundant liquidity until now, have resurfaced due to COVID-19.

What problems is the U.S. economy, which seemed destined to rise endlessly, currently facing? Alan Greenspan, who served as chairman of the Federal Reserve (Fed) for 20 years from the late 1980s, and Adrian Aldridge, political editor of the economic magazine The Economist, point out in their new book, The History of American Capitalism, that the cause is the disappearance of dynamism. They argue that the pioneering and adventurous spirit that transformed the U.S. from a wilderness and a marginal country 300 years ago into the center of the global economy today has vanished. Instead, they warn that the U.S. is becoming closer to a 'fortress society,' characterized by reduced geographic and social mobility. The fortress society was also a feature of European societies that Americans had turned their backs on and left.

The history of American capitalism is, in many ways, a history of creative destruction. Productivity was increased through creative destruction, and the economic repercussions, such as the destruction of existing jobs, were politically managed, resulting in repeated cycles of boom and bust. The U.S. expanded its territory through land grants to individuals, pioneering the West, and simultaneously sustained a long period of rapid growth unmatched by any other country in history.

Until the mid-19th century, the U.S. was divided into an industrialized North and a South that maintained slavery. The catalyst that led this divided America toward capitalism was the Civil War. Ultimately, it was a battle to decide 'which form of America would prosper.' As a result, the North, which had developed industry and education, defeated the South, where investment was sluggish due to the nature of slavery. American-style capitalism emerged victorious.

Great founders such as 'Steel King' Andrew Carnegie and 'Oil King' John Rockefeller led the U.S. in the late 19th century. However, the anger of workers marginalized during this growth process exploded. Labor disputes were severe, with 37,000 strikes occurring between 1881 and 1905. This was a social backlash against creative destruction. In response, the political sphere shifted toward progressivism and introduced various corporate regulatory laws. President Theodore Roosevelt ordered the prosecution of railroad mergers for antitrust violations in 1902. In 1906, the Hepburn Act, which regulated railroad rates, was passed.

[Image source=Yonhap News]

In the 1920s, the U.S. enjoyed an unprecedented boom as a result of creative destruction. However, the Great Depression (1929?1939) awaited at its end. When Franklin Roosevelt took office during the height of the Great Depression, he implemented the famous 'New Deal' policy. This transformed the previously laissez-faire U.S. government into a large government. However, the New Deal led to the creation of public sector jobs that resulted in the destruction of private sector jobs, causing a second depression. What saved the U.S. was World War II. The U.S. emerged as the undisputed number one country by taking over global manufacturing and finance instead of war-torn Europe.

The emergence of new competitors challenging the U.S. came in the 1970s. The rise of manufacturing competitors such as Japan and Germany, combined with the defeat in the Vietnam War, led American society into stagflation (a phenomenon where economic stagnation and inflation occur simultaneously). What rescued the U.S. from this crisis was companies that once again embraced creative destruction. Microsoft (MS) under Bill Gates and General Electric (GE) under Jack Welch rose rapidly. In Silicon Valley, 'startup capitalism' blossomed. The Dow Jones index rose endlessly, and in the era of globalization, the U.S. took on the role of 'guardian.'

The History of American Capitalism lists how American capitalism has grown. Reading it reveals a clear cycle of growth and decline. It was always the pioneering spirit of entrepreneurs that pulled the U.S. from decline back to growth. But the current crisis is complex. Starting a company has become more difficult than a generation ago. Entrepreneurs dream more of growing and selling companies than becoming 'another Bill Gates.' The bloated welfare system makes reform difficult, and companies are reluctant to make long-term investments. Corporate regulations are increasing. The challenge from China, which has grown into a major global power (G2), is also threatening.

The authors emphasize that to fix the rising welfare costs and financial system instability and to revive America's growth potential, the U.S. must make a decisive choice. Ultimately, creative destruction is necessary again. However, creative destruction often comes with significant costs as well as benefits. Whether American society can overcome these political burdens and resolve these issues is a question only Americans themselves can answer.

This content was produced with the assistance of AI translation services.