There is much talk at the moment about US decline, especially at the recent Davos meeting.  Some are arguing that it is relative decline, with the rise of emerging economies like the BRICs (Brazil, Russia, India and China), while others are even arguing that absolute decline is setting in.

As often occurs, all these “policy wonks” miss the real trends.  America is really bouncing back.  Let me just give you a few examples.

In the last quarter of 2009, the US economy grew at its fastest rate for six years, an annualised rate of 5.7%.  Although the road ahead may be full of bumps, there are very few economies with the same “bounce-back” capacity as the US.

The IMF's latest forecasts show the US growing by 2.7% this year, recovering from a 2.5% fall in 2009.  By contrast, both Europe and Japan are having much worse crises.  The Euro area will only grow by 1.0% in 2010, after shrinking by 3.9% in 2009.  After suffering a GDP collapse of 5.3% in 2009, Japan will only recover by 1.7% in 2010.

Some major dynamic US enterprises are reporting big profits.  Microsoft has reported a 60% jump in profit in the last quarter of 2009, thanks largely to "exceptional demand" for Windows 7.  This follows on from strong performances by other tech firms like Yahoo, Apple and Google.  Amazon’s profits also leapt by 71% in the last three months of 2009 -- millions of people now own Kindles.  No country has so many innovative enterprises like the US, certainly China does not.

Bill and Melinda Gates announced at Davos that they will donate $10bn (£6.2bn) over the next 10 years to develop and deliver new vaccines.  Their goal is to see 90% of children in developing countries immunised.  They already committed $4 1/2bn to the development of vaccines over the last decade.  Even if the US government seems to lack interest in international organizations, private initiatives abound.

If further proof were needed of America’s capacity for successful creativity and risk-taking, the film Avatar provides that very proof.  In the midst of global economic crisis, Hollywood has been able to release a film which has smashed all records and become the world’s best-selling film (even if it was directed by a Canadian).

The immense power of the US entertainment industry is evident from the sales of Michael Jackson’s discs.  In 2009, he was the biggest selling musical act in the US, UK, Europe, Japan, and globally.  He outpaced the nearest competition by over double.

And in the recent Australian Open tennis tournament, Serena Williams proved her immense fighting spirit by winning the lady’s singles championship, thereby equaling Billie Jean King’s record of 12 grand slam singles titles.  She also won the doubles with her sister Venus.  Two Chinese girls made it to the semi-finals – Na Li and Jie Zheng – but they were demolished in the semi finals by the old tennis warriors of Serena and Justine Henin.

These observations may seem somewhat flippantly anecdotal.  But they do fit in with some of the analysis of James Fallows in his recent article in The Atlantic.  America has a very open and dynamic society.  This can be seen in its never-ending attractiveness to immigrants, especially highly skilled scientists, engineers and so on.  They are lured by the US’s world leading universities, which remain unrivaled.  They are also lured by a society which is the most racially open.  It is not a society which is based on ethnicity like Japan or Korea, but a society which is based on freedom and meritocracy.

These highly skilled migrants are also key to the US’s impressive innovation performance.  And while huge corporate interests play a powerful role in the US, they are able to join forces with its leading universities to generate path-breaking innovations.  China’s model of open economy and closed politics and media cannot compete.

But it is not just America’s openness to migration that counts.  It is an open and tolerant society for its own nationals, even if political correctness seems to have gone almost crazy.  The private sector is matchless in its power to adapt, and the society matchless in its capacity for renewal.

For Fallows, while the US society is in “fine shape”, its polity most certainly is not.  He describes a political system that is now 200 years out of date, and incapable of making the decisions that the nation needs.  Witness the US’s creaking infrastructure, the power of lobby groups, the apparent lack of strategy and so on.

But government is not easy.  Europe’s governments are saddled with debt and the contingent liabilities of ageing populations.  Innovation performance is weak, and the integration of migrant populations increasingly problematic.  The Japanese government has won the world record for the developed world’s highest level of debt.  China’s government may seem the world’s most effective.  But it is becoming increasingly paranoid as it tries to balance economic freedom, with political repression.

Fallows recognizes that public research was behind the Internet (Pentagon), the Human Genome Project (National Institutes of Health) and the GPS network (Air Force).  But he doubts that this will be possible again.  He may be right.  But the outrageously expensive wars in Iraq and Afghanistan are likely to give birth to very many innovations that we can never imagine today.  And as private contractors have played such an important role in these wars, the commercialization of these innovations may well be easier than anyone can imagine.

Perhaps Fallows most powerful observation is the following:

“Everything we know about future industries and technologies suggests that they will offer ever-greater rewards to flexibility, openness, reinvention, “crowdsourcing,” and all other manifestations of individuals and groups keenly attuned to their surroundings. Everything about American society should be hospitable toward those traits—and should foster them better and more richly than other societies can. The American advantage here is broad and atmospheric, but it also depends on two specific policies that, in my view, are the absolute pillars of American strength: continued openness to immigration, and a continued concentration of universities that people around the world want to attend.”

Watch out world, America is really bouncing back.

References:

Various BBC reports – www.bbc.com

World Economic Outlook Update, Tuesday January 26, 2010 -- www.imf.org

“How America can rise again” by James Fallows.  The Atlantic, January/February 2010.  http://www.theatlantic.com/doc/201001/american-decline