More than two hundred years after the Declaration of Independence, the United States has lost its position as an independent power. While we are still without question the world’s leading military power, our predominance in weapons does not give us the freedom to act on our own. The hundreds of billions of dollars we have spent on weapons systems were simply part of an escalating process by which nuclear and conventional weapons were manufactured to deter and neutralize their corresponding equivalents in Soviet military power. Few of these weapons systems are ever likely to be used, or indeed could be used without causing unimaginable disaster to both sides. However, the drain on our economy created by the combination of high levels of defense spending, large tax cuts, and continuing growth in entitlement programs is turning the US into a historical anomaly: a first-rate military power and a second-rate economic power.
The military stalemate between the two superpowers, each with serious, though different, domestic problems, has in recent years created a new situation in which independence of action for the other advanced countries depends on the economic power generated by surplus capital, technology, education, and discipline. Japan and West Germany have been generating huge trade and capital surpluses and have become leading, independent world powers. The fact that they still rely on our military power, while we rely more and more on their capital, creates a situation of relative equilibrium and mutuality of interests between the US, Japan, and West Germany.
But this situation is changing: our dependence on foreign capital is growing while the threat of Soviet military force seems to be receding, and arms reduction agreements may be more feasible than they have been in the past. The economic power and the independence of action of Japan and West Germany, relative to the US, are bound to increase; so will our own dependence on their capital. What is at stake is not only the loss of our position as the leader of the Western democracies, but the loss of our independence of action both in economic and in foreign policy. The dependence of the US on foreign capital while it tries to maintain military superiority over the Soviet Union has eliminated the distinctions between foreign and domestic policy as well as the line between domestic economic policy and national security. Our increasing dependence on foreign capital is not just an economic issue. It is also a security issue, as well as a political issue with major implications for foreign and domestic policy.
The extent to which the US is a prisoner of foreign capital becomes apparent when we consider three facts: our net foreign debt is now the largest in the world; the outflow of financial payments (dividends, interest, etc.) is now greater than our inflow; the dollar is at, or near, its lowest level since World War II. We need not dwell on how this situation came about. For too many years the US has had consistently …
'Restoring American Independence': An Exchange May 12, 1988