US financial power: a bang and a whimper

No one denies America's economic power. The US holds more than a third of the world's stock value, headquarters nearly a third of its top 100 nonfinancial companies, and produces a quarter of its goods and services.

American views and values have shaped everything from world trade agreements to key international economic institutions such as the World Bank and the International Monetary Fund (IMF).

What's less clear is whether the US abuses that economic power, as its critics charge, for control in an imperial manner.

The most obvious trend is that since the end of World War II, the economic rise of the rest of the world has trimmed America's power, forcing it to seek compromises. And when the US has thrown its weight around - imposing embargoes and trade sanctions on other nations or by bargaining hard in trade and other international deals - it has met with mixed results. But the nation retains, not control, but a marked influence in the world economy. Sometimes subtle, sometimes bald (especially in the case of oil), America's economic clout is more pronounced than since Britain ruled the world.

"Our ability to use our economy as a weapon is limited," says Clyde Prestowitz, president of the Economic Strategy Institute in Washington, D.C. In his recent book "Rogue Nation," he writes: "Empires are something Europeans or Chinese or Japanese have, but not Americans. Nevertheless, if it looks, walks, and quacks like a duck, chances are it's a duck."

Fear of domination by an economic behemoth is nothing new. In the 1960s, Europe was alarmed by the scale of investment by US companies. In the 1980s, Americans talked of the invasion of Japanese investors. And in the 1990s, European purchases of American companies began to attract attention.

But the situation is more balanced than six decades ago. Right after World War II, the US accounted for half of world output. Since then, its dominance of the globe's economy gradually diminished as Western Europe revived and came together; Japan flourished; and India, China, and many other developing nations moved ahead.

Now the US produces about a quarter of total world output of goods and services. American stock markets account for about 36 percent of global market value.

The US has employed trade and financial sanctions against other countries probably more than any other industrial nation in modern times. Sanctions probably help end apartheid in South Africa. Libya may have been influenced by sanctions to end its effort to build nuclear bombs - perhaps also by the US action in Iraq. But US success in changing other nation's policies has been limited, especially when other industrial nations don't go along. Fidel Castro, for one, still governs Cuba despite a 40-year US embargo.

"The US is very big, but not as big as it was 20 to 25 years ago," says Zbigniew Zimny, chief investment issues analyst at the United Nations Conference on Trade and Development in Geneva (UNCTAD). Today's world "is more balanced."

For example, of the world's top 100 nonfinancial multinational companies (ranked by the value of their foreign assets), 28 have their headquarters in the US - 29 if DaimlerChrysler is regarded as American rather than German.

True, US multinational companies (MNCs) have more plants and equipment and other "direct" investment assets in foreign countries ($1.5 trillion) than do the MNCs of any other nation. Britain is next with $1 trillion. But as a group, the European Union has invested more than twice as much ($3.4 trillion). Much of European MNC money is invested in the US.

Indeed, those investment flows represent a key difference between the US and previous empires. While Britain exported investment money to the rest of the world, including its empire, America has been a huge importer of capital (see sidebar).

As a result, the US is the world's biggest "debtor nation." Foreigners own far more of its direct investments (plants, equipment, office buildings) and financial assets than Americans own in other nations. That fact was noted last week in an IMF report warning that the voracious appetite of the US for borrowing money could push up world interest rates.

Not surprisingly, most US analysts see America using its economic might relatively benevolently, even absent-mindedly. American MNCs and government representatives are "very haphazard" and "not terribly organized" in employing US economic and political power to protect US interests, says John Walsh, director of the Group of Thirty, an international body of experts in international economics. It's less organized than European nations or Canada, he adds.

The view that MNCs are "instruments of US imperialism is fundamentally mistaken," says Michael Mussa, a former top economist at the IMF. Unlike the British East India Co., which ran India for about 150 years in cooperation with the British government, today's American MNCs have as their prime goal making money for stockholders, says Mr. Mussa, now at the Institute for International Economics, a Washington think tank.

Not everyone agrees the US is so disorganized or benevolent, especially when it comes to oil. "A core concern of US foreign policy since World War II has been to control Middle East oil - control, not use," says Noam Chomsky, author of "Hegemony or Survival: America's Quest for Global Dominance."

Even in the 1920s, the US maneuvered "to weaken the British imperial system and take over some of its international role," he charges, with its "capitalist institutions" emerging after World War II with "overwhelming influence."

Few analysts believe President Bush went into Iraq to take over its giant oil reserves. Nonetheless, "the US is looking for reliable sources" and would like to see a "friendly government" in Iraq, Mr. Walsh says. "Oil companies and the government work hand in hand."

Prestowitz, in an interview, says: "Through military might, unequal treaties [with other nations such as South Korea and Japan], intellectual excellence, entrepreneurial reward, and friendly persuasion, America has established unprecedented condominium over the globe."

Its condominium, or joint rule, is "not malevolent in a sinister sense," he adds. Rather, it is ideological, aiming to spread democracy and freedom to other nations.

How does the United States hegemony compare with the famed British Empire of the 19th and early 20th century?

Niall Ferguson, a British historian now teaching at New York University's Stern School of Business, finds both similarities and differences:

• At its peak, when the sun literally did not set on its empire, Britain accounted for 10 percent of total world output of goods and services. The US now produces 25 percent of world GDP.

• Militarily, British imperial power never dominated the world like that of the US military today.

• In 1881, about 220,000 British troops were stationed overseas. Today, the US has somewhat more than 250,000 military personnel abroad.

• Britain was a net exporter of capital to its empire, acting as a "world banker" channeling funds to relatively poor countries. In contrast, the US is a massive importer of foreign money. A new IMF report suggests US foreign indebtedness will soon reach a level equivalent to 40 percent of its GDP.

• The US empire is one without colonists or settlers. US service personnel tend to regard foreign postings as "rare and unpleasant duties." About 4 million Americans live abroad, but mostly in Canada, Mexico, and Europe. The British Empire deployed its military, civil service, and businessmen abroad for long periods of time. More than 15 million British subjects were settled in the temperate zones of its empire a century ago.

Mr. Ferguson sees the US as managing an "empire in denial" with an "attention-deficit disorder," unable to maintain for long a public commitment to foreign intervention.