The Atlantic Think. Again. Contest

Congratulations to Rand Pearsall at BASF whose entry was selected as the best question by Atlantic editors in The Atlantic's Think.Again.Contest.

Winning Question:

"Is Capitalism Dead?"

Reason:

"The U.S. appears to have socialized much of its financial industry."

Read an Atlantic editor's response to this question below:

Is capitalism dead? The US appears to have socialized much of its financial industry.

On the one hand, let.s not confuse measures taken to tame capitalism.s excesses with efforts to destroy it. After all, even though his fellow patricians regarded FDR as a traitor to his class because of his New Deal measures to reform and regulate capitalism, in fact those measures saved capitalism. Similarly today, the Federal government.s various initiatives are designed to protect.and yes, modify.the free market, not destroy it. Having said that, there.s no question that capitalism faces its most perilous challenges since the 1930s, and this financial catastrophe could bring about the end of capitalism.but not for the reasons most people think.

This global crisis, we.re constantly reminded, has shown how interdependent is the world economy. But every economic order is based on a political order, and the global prosperity and the economic and technological innovation accompanying it depend on American power.

There.s a contradiction between capitalism and international politics. Capitalist economies thrive most when labor, technology, and capital are fluid.so they are driven toward international integration. But international politics drives states to insure that economic power is distributed in their favor and at the expense of their rivals. This restricts production and markets and thereby fragments the global economy.

In the normal course of world politics, in which states must compete for security, a global economy is impossible to achieve. In fact, international capitalism has enjoyed only two golden ages: the periods following the Napoleonic wars and the two world wars. The key to both these episodes of peace and prosperity has been the same.the ability and will of a single state to become a hegemonic power, taking over the security problems of weaker states so they need not pursue autarkic policies nor form trading blocks to improve their international position. Since 1945 the United States.through its hegemony or .global leadership..has essentially suspended power politics.

But America can no longer sustain that role. First, the global economy that American power has nurtured has augmented the wealth and power of multiple states, spurring the relative decline of US power even as it has contributed to the absolute growth of America.s (and the world.s) economy--in this way, a global economy bites the hegemon that feeds it.

Furthermore, the current economic crisis will enormously accelerate the decline in America.s preponderance. The federal government will of necessity be spending astronomical and unprecedented sums to stimulate the economy and shore up a teetering financial system. Once this crisis ends, the United States, to avoid ruinous inflation, will have to restore fiscal discipline either by raising taxes and/or by cutting spending. Although some tax increases in the future are inevitable, if they are excessive economic growth will be stunted. Therefore, down the road, extraordinary cuts in federal spending will be required. Inevitably this will mean huge cuts in defense spending. Defense spending now accounts for more than 50% of federal outlays. Combined, defense spending, entitlement programs, and national debt service account for 80% of federal outlays. It will be impossible to restore fiscal discipline by cutting the discretionary spending (education, infrastructure, etc) that accounts for the remaining 20% of federal outlays. The decline in its relative power, combined with this future diminution in its military spending, mean that America.s global preeminence will be ending.and probably ending more quickly than experts had previously forecast.

This will shatter the very foundation upon which global capitalism rests. Today.s complex web of trade, production, and investment is truly, to borrow from Lenin, the highest stage of capitalism. But this genuinely interdependent economy is extraordinarily fragile. The high technology industries, for example, have been the most powerful engines of world economic growth, but they require a level of specialization and a breadth of markets that is only possible in an integrated world economy. It.s difficult to see, therefore, how capitalism can survive the end of the Pax Americana.

Over ninety years ago, Lenin argued that international capitalism would be economically successful but, by growing in a world of competitive states, it would plant the seeds of its own destruction. Though the empire he built is in ruins and his revolution discredited, Vladimer Ilyich may yet have the last laugh.

Contest Prizes:

• GRAND PRIZE:
  • 2008 Smart Car

  (A PERSONALIZED e-mail response by an editor will go to contestants submitting the top five best questions as determined by the editors. The top scoring entry from among the top five best questions will be declared the Grand Prize winner.)

• RUNNER-UP PRIZE:
  
  ALL ELIGIBLE ENTRIES will be entered into a random drawing for a chance to win the Runner-up Prize (a choice of one of these incredible prizes):
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  • A hand-selected gourmet gift basket with offerings to be paired with wines recommended by The Atlantic spirits expert Wayne Curtis
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