Rise and Fall of Nations: Is China Next?

By Shlomo Maital

   The historian Arnold Joseph Toynbee wrote a monumental 12-volume history recounting the rise and fall of civilizations (A Study of History, 1934-61).  It took him 27 years.  Toynbee was also a consultant to the British government on the Mideast and was hostile, to say the least,  to the Jewish state.  

   Toynbee’s main themes were: a) all civilizations rise, flower and then decline, inevitably, and b) nationalism, modern statehood, is a ‘false god’. 

     The post-WWII period have proved Toynbee right.  America’s powerful economy, the only one still intact, dominated the world in the 1950’s and 1960’s.  Then, Japan took over, with its stranglehold on precision manufacturing, leveraging innovations America originated but could not manufacture.  As Clyde Prestowitz notes, in his Foreign Affairs blog,   “In the 1970s-80s, American industry often came out first with new technologies and products like transistors, color TV, and video recording. But it lost out to the Japanese in actually commercializing the products and especially in making and selling them. Over the past thirty years, the Japanese have been first with products like the Walkman, DVDs, advanced memory chips, and flat panel television, and they subsequently dominated these markets globally.”

 The Japanese property bubble burst in 1990 and ended Japan’s reign, beginning two decades of Japanese stagnation.   As Prestowitz notes, Amazon, Apple, Google and Samsung have pioneered the Kindle, iPhone, Android, Galaxy and advanced semiconductors, while Sony, Sharp and Panasonic lost $20 b. (together) last year. 

    There are signs South Korea has embraced Japan’s old winning model and used it to capture markets Japan once ruled.   While once-innovative Japanese companies like Sony now shun risk, Korean companies innovate boldly and challenge even Apple.  Samsung now sells more smartphones than Apple.  The decline of Japan was accelerated by the rise of the yen, from its once-cheap level of 360 yen per dollar to today’s 79.5 yen per dollar.  This, more than anything, sank Japan.  Note how China and Korea have learned this lesson and have aggressively bought dollars to keep their currency cheap. 

   The big question is, are we now seeing the beginning of the decline of  Europe, America and  China?  The financial crisis of 2007-11 continues; all America has done is shift bad debt from banks’ balance sheets to the government’s (and the taxpayers’) doorstep.    Europe’s dysfunctional leadership is incapable of meaningful action. And China – its perilous reinvention of itself, from export-driven to middle-class consumption-driven, has only now begun, and may well not succeed. 

   When the four largest economies of the world – America, Europe, China, and Japan   —  struggle, the rest of the world struggles, too.  Out of this mess, and out of all the countries in decline,  which countries will rise and flourish, according to Toynbee’s model?  Can any nation flourish when most of the world is stagnating?