Even before the outbreak of the global Covid pandemic, it was widely recognized that the American hegemony had been in irreversible decline.  Since then, the pace of hegemonic decline has accelerated.  In August 2021, Taliban captured Kabul as the American forces hastily withdrew in a chaotic mess.  Twenty years of US intervention in Afghanistan and the Middle East ended with a humiliating defeat.  Only about half a year later, Russia-Ukraine war broke out and the potential economic and geopolitical consequences threaten to destabilize entire Europe.

We are observing the utmost failure of the incumbent hegemonic power to prevent a major military conflict initiated by another major power in a geopolitically important area.  This is the definitive proof that the decline of American hegemony has entered into its final phase – the phase of collapse.

In the past, the collapse of a hegemonic power had brought about major conflicts between major powers, global economic crisis, popular uprisings and revolutions, as well as miseries and devastations for hundreds of millions.  As the American hegemony collapses, what consequences can we expect? Can the system manage to return to some form of “equilibrium” or will itself collapse as well? 

Inter-State Competition and Hegemonic Power

A hegemonic power is much more than just being the “strongest” power in the capitalist world system.  According to the world system theory, the capitalist world system is based on inter-state competition.  But to prevent excessive competition between national states, historically the capitalist world system has required successive hegemonic powers to preside over the system to manage and promote the system’s common interests.

cannot be effectively addressed simply by allowing each national state to pursue its individual “national interest.” Such common interests include maintaining system-wide “peace” (prevention of major conflicts between major powers), management of global macroeconomic stability, construction of global social contract and, in the context of the 21st century, management of global ecological sustainability.

A system without an effective governance structure would be one that is subject to the “tyranny of small decisions” or unable to provide “system-level solutions” to “system-level problems” (Arrighi and Silver 1999: 26-31).  A system that regularly fails to provide “system-level solutions” to its own “system-level problems” is likely to fall apart and cease to function as a coherent system.

How can capitalism have a system-wide governance structure without abandoning the world system based on inter-state competition?  Historically, the capitalist world system has managed to deal with this dilemma by periodically having one of the strongest states to function as the system’s hegemonic power.

At its peak, a hegemonic power has overwhelming advantages relative to other states in industry, trade, finance, and military. The overwhelming advantages allow the incumbent hegemonic power to impose its will on other big powers.  The incumbent hegemonic power has overwhelming advantages in these areas because the power and wealth at its disposal are sufficiently large relatively to other national states.  To the extent that the industrial and financial resources at the disposal of the hegemonic power account for a relatively large proportion of the overall resources in the system, one can reasonably expect that the hegemonic power’s national interests largely overlap with the system’s common interests. Thus, during its best years, the hegemonic power is both strongly motivated and adequately equipped with the necessary resources to manage and promote the system’s common interests (Li 2008: 113-115).

When a hegemonic power declines, it becomes less and less capable of managing the system’s common interests.  A collapse happens when the declining hegemonic power seems to have lost control of the course of events and, therefore, completely loses the capacity to manage the system’s common interests. Consequently, the system becomes the victim of erratic interactions of various spontaneous forces.

The Decline of the American Hegemonic Power

When the United States emerged from the Second World War as the indisputable new hegemony, it led the restructuring of the capitalist world system. 

The US-led restructuring contributed to unprecedented boom of global capitalism in the 1950s and 1960s.  However, by the late 1960s, the capitalist world system was confronted by a new wave of economic and political instabilities. The combination of long economic boom and welfare state institutions encouraged the western working classes to undertake militant struggles.  From the mid-1960s to the early 1980s, the US and the other core capitalist countries (Western Europe and Japan) suffered from sustained decline of profit rate.

The US defeat in Vietnam revealed the limit of US military power.  Revolutionary movements threatened to destabilize capitalist as well as socialist governments from Eastern to Western Europe, from China to Latin America, and from Portugal to its African colonies. 

The oil shocks in 1973 and 1979 provided the initial indication that depleted resources and environmental space might impose insurmountable limits to future economic growth.  As the US international balance of payment became increasingly unfavorable, the US had to abandon the nominal link between the US dollar and gold under the Bretton Woods fixed exchange rate system.  Throughout the 1970s, the global economy struggled with “stagflation” (the combination of rising unemployment and rising inflation that traditional Keynesian policy was unable to deal with).

In response to what Giovanni Arrighi referred to as the “signal crisis” of the American hegemony (Arrighi 1994: 214-217), the American ruling elites shifted the focus of capital accumulation from material expansion towards financial expansion.  The US Federal Reserve drastically raised interest rate to contain rising inflation.  The policy of monetary austerity led to deep recessions at home and debt crises from Latin America to Eastern Europe.  Recessions and the following economic stagnation helped to depress the working class bargaining power in the core countries of the capitalist world system. On the other hand, “structural adjustments” and “shock therapies” imposed by the International Monetary Fund and the World Bank impoverished peoples in Latin America, Eastern Europe, and Africa but forced financial capital to flow back to the United States (Chossudovsky 1998).

By the mid-1990s, profit rates in the United States and Western Europe had returned to or exceeded the levels in the 1960s.  Global capitalist economy enjoyed a period of relative boom from 1995 to 2007.  At the turn of the century, the United States accounted for about two-fifths and the US and its allies together accounted for about three-quarters of the world’s total military spending (Council on Foreign Relations 2014).  At the time, the US hegemony appeared to be beyond challenge.

However, unlike in the early postwar years when the US-led restructuring promoted not only the national interests of American capitalism but also the system’s common interests, the transition from material expansion to financial expansion after the 1970s helped to restore the profit rate by intensifying inter-state conflicts and social conflicts that would eventually lead to hegemonic breakdown (Arrighi 2005).

The global neoliberal restructuring (that included policies of privatization, de-regulation, trade liberalization, and financialization) in the 1980s and 1990s depressed global effective demand and created conditions for frequent financial crises (Crotty 2000).  As a result, stabilization of the global economy required the US acting as global “borrower of last resort” by running large trade deficits and the US domestic demand had to rely upon debt-financed consumption.  When the US internal and external financial imbalances became no longer sustainable, the US and global economy were hit by the “Great Recession” of 2008-2009.  The US hegemony entered into accelerated decline (Li 2008: 72-87).

The Perils of Nuclear Proliferation

Measured by market exchange rate, the US share of the global economy declined from 30 percent in 2000 to 25 percent in 2020.  During the same period, China’s share of the global economy rose from 4 percent to 17 percent (World Bank 2022).  It is widely expected that China will overtake the US to become the world’s larges economy in the next few years.

During the previous hegemonic transitions, the new hegemonic power was able to replace the old, declining hegemonic power only after one or two major wars that involved all the major powers at the time. 

In the next few decades, we are unlikely to observe “World War Three” in the form of a total war between the declining hegemonic power (the United States) and a major challenger (such as China or Russia).  This is partly because in the era of nuclear weapons, the costs of a total war between major powers have dramatically increased to include not only the death of millions but also an almost certain mutual destruction of all the major combatants. Despite the decline of the American hegemony, the US is likely to remain the world’s predominant military power in the coming decades (Beckley 2018).  This is likely to discourage potential hegemonic challengers from engaging in direct military confrontation against the United States. 

Even though “World War Three” is not about to break out any time soon, hegemonic decline will have and, in some ways, has already had major consequences.  As explained above, in a world system based on inter-state competition, hegemonic power is indispensable to provide “system-level solutions” to “system-level problems.”  In the past, maintaining system-wide “peace” mainly had to do with preventing major military conflicts between major powers.  But in the era of nuclear weapons, maintaining long-term, sustainable system-wide “peace” also requires effective containment of nuclear proliferation.

As the Soviet Union disintegrated and the US hegemony has been in irreversible decline, the world’s major powers can on longer limit the access of nuclear weapons to the five permanent members of the United Nations Security Council.  In addition to the five “legal” nuclear powers, India, Pakistan, and North Korea have become “illegal” but openly declared nuclear powers.  Israel never declared to have nuclear weapons but is widely assumed to be a de facto nuclear power.  In addition, a number of other countries have developed some capacity in nuclear weapon technology (Wallerstein 2014a).  As nuclear proliferation becomes gradually but steadily getting out of control, the probability of “accidental” regional or even global nuclear war has increased as well as the possibility that some of the nuclear weapons may fall into the hands of non-state armed groups. 

Towards Geopolitical Collapse

In the 20th century, oil had been the lifeline of the global capitalist economy.  Despite the recent development of renewable energies, oil remains an indispensable energy resource in transportation and several industrial sectors (Heinberg 2016: 81-114).

During much of the second half of the 20th century, stabilization of the Middle East – the world’s main oil- and natural gas-producing region – had been a major US diplomatic and strategic concern. After the September 11 attack in 2001, the US ruling elites (through the Bush and Cheney Administration) decided to embark upon a strategic gamble – using military power to control much of the Middle East directly in order to establish permanent global hegemony before any other big power had a chance to match the US in economic and military resources.  The gamble failed spectacularly.  Instead of securing permanent hegemony, the US defeat in the Middle East turned a slow and gradual hegemonic decline into a precipitous one (Wallerstein 2003: 13-30). 

During the Obama administration, the US efforts to reverse its decline in the Middle East through intervention in Libya and Syria again proved to be futile (Wallerstein 2014b).  After the disastrous withdrawal from Afghanistan, the US has abandoned any pretension to be the dominant external power in the Middle East.

Currently, the Middle East is left with a highly unstable and vulnerable situation.  Several regional powers, such as Iran, Saudi Arabia, Israel, Egypt, Turkey, have engaged in complicated interactions with each other through either hostilities or constantly and rapidly shifting tactical alliances. Deadly conflicts continue in Yemen, Palestine, and Syria.  As Iran moves closer to becoming an actual nuclear power, there is the growing risk that Israel’s threat of direct military action could be turned into reality.

If the US withdrawal from the Middle East has made a future geopolitical collapse in the Middle East (with devastating consequences for global energy supply and the global economy) highly likely, the current Russia-Ukraine war has brought geopolitical catastrophe to the doorstep of Europe.

Since the disintegration of the Soviet Union, the US ruling elites have adopted the strategy of eastward expansion of NATO (North Atlantic Treaty Organization) to absorb not only the East European countries but also some of the former Soviet Republics.  While the US and NATO officials repeatedly claimed that NATO expansions were not directed towards Russia, from the Russian ruling class’s point of view there is little doubt that the ultimate intention of the West’s ruling elites is to isolate and weaken Russia to pave the way for the US dominance in Eurasia (Mearsheimer 2014).

Whatever one thinks about the current Russia-Ukraine war from the moral perspective, it is clear that Putin would not have made the decision if he had not perceived the dramatic weakening of the US power exposed by the disastrous withdrawal from Afghanistan.  It is reasonable to infer that before the current war started, Putin had convinced himself that the right moment of counter-offensive had arrived.

It is still too early to evaluate the likely long-term consequences of the Russia-Ukraine war.  But the war and the sanctions imposed by the West on Russia have further damaged global supply chains that have yet to recover from the disruptions caused by the global Covid pandemic.

Even before the Russian-Ukraine war, the European capitalism had been on a trajectory of relative decline.  The European Unions’ share of the global economy (measured by market exchange rate) declined from 25 percent in 2005 to 18 percent in 2020 (World Bank 2022).  The economic prosperity of the European capitalism largely depends on its capacity to maintain advantages in certain high-tech manufacturing sectors, which in turn depend on supply of cheap energy as well as a relatively stable and peaceful geopolitical environment.  The Russia-Ukraine war has destroyed both conditions required for European prosperity.

If the European economy collapses, it is unlikely for the European capitalist countries to remain politically and socially stable.  The architecture of European Union itself may become a question.  Europe is the geographical origin of the modern world system. The disintegration of European capitalism could very well symbolize the ultimate collapse of the existing world system.

Challenges of the 21st Century

During the first half of the 20th century, in addition to two world wars, global capitalist economy suffered from increasingly devastating economic crises ending with the Great Depression in the 1930s.  It remains to be seen whether the current hegemonic breakdown would lead to depression-like global economic crisis.

In the current world historical conjuncture, the greatest threat to civilization does not come from economic but comes from environmental collapse.  The global average surface temperate is currently about 1.1 degrees Celsius higher than the pre-industrial time and rising at a pace of about 0.2 degrees per decade.  If global warming rises above two degrees Celsius, it will be too late to prevent some major climate catastrophes (such as a sea level rise threatening to submerge most of the world’s coastal cities).  If feedbacks from ocean and terrestrial ecological systems are triggered, climate change could become out of human control and eventually much of the earth surface would no longer be suitable for human inhabitation (Spratt and Sutton 2008).

It is well known that the current climate change crisis has been caused by the massive consumption of fossil fuels that have been taking place since the beginning of the industrial revolution. Despite technological advances in recent years that have improved energy efficiency and promoted the use of renewable energies, it is highly unlikely for the world to reduce greenhouse gas emissions at a sufficiently rapid pace unless major emitters (such as China and the core capitalist countries) are committed to zero or negative economic growth (Li 2020).  However, in a world system based on inter-state competition, it is virtually impossible for any national state to voluntarily impose zero or negative economic growth on itself.

Will the humanity have sufficient time to save itself from the impending environmental collapse before capitalism destroys the material foundation of civilization?

In the past, capitalism had survived hegemonic collapses by producing a new hegemonic power capable of providing “system-level solutions” to “system-level problems.”  However, to be able to provide “system-level solutions,” the new hegemonic power needs to be sufficiently powerful in order to impose its will on other big powers when necessary.  This requires the new hegemonic power have overwhelming advantages relative to other big power including the former hegemony.  In each of the previous hegemonic transitions, in terms of territorial size, industrial resources, and military power, the new hegemonic power was several times larger or more powerful than the preceding hegemony (Arrighi 2005).

The US is a continent-sized power that is several times larger than any one of the European national states.  Russia has a territory that is about one and half times that of the US.  Given that the Russian population is about one-half of the US population and the Russian economy remains relatively weak, Russia does not have a realistic chance to challenge the US position as the dominant global power though Russia could be a formidable power in the northern and western part of Eurasian continent that denies US influence in this area.

China’s population is about four times as large as the US population.  But this means that China’s per capita endowment of various natural resources and per capita economic output is only a fraction of the US per capita endowment and output.  Although China’s aggregate economic output will overtake the US in a few years, China’s population and labor force are projected to decline in the coming decades. As a result, China will probably never establish overwhelming economic superiority relative to the US and declining investment efficiency implies that China’s per capita economic output will peak at about one-half of the US level (Rajah and Leng 2022).

Because per capita economic output is highly correlated with level of technological development, China’s relatively low level of per capita output implies that China’s overall military power is likely to remain inferior to the US military in the coming decades (Beckley 2018: 62-97).

As the US hegemonic power collapses but there will not be a new hegemonic power to replace the US to supply “system-level solutions,” the existing world system will lose its capacity to solve “system-level problems.”  To the extent that a world system cannot function as a coherent system without constantly and effectively solving its “system-level problems,” we have reached the historical turning-point of transition from the existing system towards something else.

What will be this “something else”?  Will capitalism be replaced by a new system or systems?  Will the new system or systems be more egalitarian and more democratic than the current system?  Or, will it or they be more oppressive and more exploitative?  Will the humanity have sufficient time to complete the coming world historical transition before the material foundation of civilization suffers from irreparable and irreversible damage?

The answers to all these questions will depend on the global class struggle in the next few decades.