A Rising Global Tide of Capitalism Lifts All Boats

From an Anonymous comment on CD:

"Isn't it better that the world economy is becoming less dependent on the U.S.? Isn't a multi-polar world more economically resilient than a uni-polar world? Other countries that have been helped by the U.S. in the past are now able to help the U.S. through their sovereign wealth funds. That would seem to be an improvement from a world where the U.S. is responsible for all of the world's ills and gets little thanks for its efforts either philanthropic, diplomatic or military."

The top chart above shows the decline in the U.S. share of world stock market capitalization from more than 50% in 2001, to less than a third in 2007 (32.8%), using data from the World Federation of Exchanges. Even though the U.S. Stock market capitalization has increased in each of the last five years, the explosive growth in many of the emerging markets has caused the U.S. share of world stock value to decline. In other words, the relatively poor countries are getting richer, and the relatively rich U.S. gets richer, but the "poor" are getting rich even faster. That's great.

Likewise, even though U.S. GDP has increased this year at a healthy 3.1% rate, our share of world GDP growth has fallen below 30% (see bottom chart above), due to the even greater growth in the emerging economies like China and India.

One result of all of that economic and stock market growth around the world?

According to the NY Times, "Last year, foreign investors poured a record $414 billion into securing stakes in American companies, factories and other properties through private deals and purchases of publicly traded stock. That was up 90% from the previous year and more than double the average for the last decade.

The influx is the result of a confluence of factors that have made the United States both reliant on the largesse of foreigners and an alluring place for opportunistic investors. The weak dollar has made American companies and properties cheaper in global terms, particularly for European and Canadian buyers. Even as Americans confront the prospect of a recession, economic growth remains strong worldwide, endowing oil producers like Saudi Arabia and Russia and export powers like China and Germany with abundant cash."

Bottom Line: Globalization and the spread of market capitalism has both united the world economies in important ways, while at the same time helping to strengthen and support the U.S. economy. We have the advantage of selling American products to the growing middle and upper classes around the world at a time when U.S. demand is slowing, and also being the recipients of massive foreign investment at a time when it is needed here. Yes, it is better that the world economy is less dependent on the U.S., and it is also better that the U.S. economy can become more dependent on the world economy.