What follows is Robert Heilbroner’s interview with Professor Kennedy ran in the September/October 1988 issue of American Heritage. Late last winter, I spoke with Professor Nye in his neat, severely appointed office at Harvard’s Center for International Affairs, which he runs.

In recent years, historians and political scientists have debated whether the United States has paralleled Edwardian Britain as a power moving from hegemony to decline. Professor Kennedy’s book has been taken to represent the pessimists’ case, and now your book has been taken to represent the optimists. Does it?

First I should say that Paul Kennedy in reviewing my book drew a distinction between the declinists, among whom he listed himself, who believe that the American position will continue to worsen over time, and the revivalists, among whom he enrolled me, who say that while the United States has major problems, it does still have the capabilities to overcome them.

I believe the analogy to the decline of Britain fails on three counts: One is that Britain at the beginning of the century was never as large as the United States in terms of its overall preponderance in the world. Britain by the time of World War I was the fourth-largest economic and military power in the world. The United States is still the largest economy and the largest military power.

The second difference is that British power in 1914 rested very heavily on its empire. That empire rapidly succumbed to nationalistic pressures, so that, by 1926, the British Imperial General Staff, when engaging in military planning, could no longer count on the prospect of a unified force that would include New Zealand and Australia, South Africa, and Canada. American power—at least since 1865—is not susceptible to problems of secession or to nationalistic fissure.

The third difference, and one that perhaps is as important as any, is that Britain at the beginning of the century was very hard pressed by its rival, the kaiser’s Germany, which had passed Britain both economically and militarily, while the United States is in fact facing a military rival that has suffered severe economic decline and economic rivals in Europe and Japan that are not major military rivals. Since power is relative, that makes a huge difference in terms of the type of environment in which American power is measured.

So, for all three of those reasons, I think the metaphors or analogies with Britain are misleading.

Kennedy points out that the size of an economy in gross terms is perhaps less significant than the efficiency of

It’s commonly argued that American industry is going through the same problem that British industry went through at the turn of the last century. I think this is a mistake. If you look at the idea that American industry has been hollowed out, it’s worth noticing that American industry has held the same share of our GNP for the last 15 years, about 22 percent. What’s more, manufacturing productivity rose by 3.5 percent a year during the 1980s. Those are not signs of a declining industrial sector.

What is true is that there are some subsectors in manufacturing where there has been serious decline. Consumer electronics would probably be the most dramatic, but automobiles have also had a serious loss in market share. But there are other industries, such as chemicals, aircraft, biotechnology, and computer software—actually, the computer industry as a whole—where the Americans still have a leading role.

So, in that sense, what we’re going to see is not something analogous to Britain, where the British economy stayed at the low end of the manufacturing sector to export essentially simple goods to colonies and the less developed countries. American markets are primarily in developed countries, and I think that American export competitiveness has been increasing for the last ten years. Our share of world exports has been going up—not just in agriculture but in higher-end industry, as well.

If we were to push the analogy, it would be to highlight the loss of Britain’s innovation by the turn of the century in the electrical and chemical industries versus her dominance in the production of railway engines or textiles or steel. Bound to Lead makes the argument that the United States continues to lead in innovation in information technology, particularly computers. But isn’t it possible that the pertinent analogy to Edwardian Britain may be our domination in desktop machines and mainframes, older and in fact obsolescent technology, where we remain the leading manufacturer, compared with the newer laptop machines or flat-screen display technologies, where we can no longer compete?

I think that’s a valid concern. There are some economists who say that it doesn’t matter if your economy produces computer chips or potato chips. In fact, I believe there are many more benefits to the economy as a whole in the area of silicon chips than in potato chips. On the other hand, if one looks in the area of computers, it’s now very hard to distinguish between what’s manufacturing and what’s services. Indeed, much modern electrical or computing equipment is a strange mixture. Switching equipment is such an area, and one where the Americans have remained ahead. We have lost ground in the areas of miniaturization

But to your question, would I be concerned with the American loss of an ability to keep the computer market, the answer is yes.

You believe that part of America’s strength in the world market lies in its free-trade initiatives, even though competing nations have adapted a neo-mercantilist strategy—that is to say, their governments protect and assist businesses whose long-term health they see as important. The parallel case might be when the British statesman Joseph Chamberlain was worried about the same thing at the turn of the century. Chamberlain urged the British government to step in and protect its industries as international competitors became more capable. Do you think the neo-mercantilist argument has any merit today?

To some extent, free trade is a misnomer. When we look carefully, we notice that all major countries have large areas of protection. The area of protected goods in the United States is probably something like 25 percent of our imports. Europe and Japan also have large areas of protection, and so we all to some extent have neo-mercantilist as well as open trading aspects of our economies.

The key question is whether we are worse off for this. My feeling is that maintaining an open international economy and competing in it is still in our interest. It’s in our interest because it keeps our own industries competitive.

And this means that when you think of an open international economy, you have to think of direct investments as well as free trade as classically defined. In that sense the growing interdependence among Europe, Japan, and the United States, which still represent two-thirds of the world economy, is something that has been a part of our growth, that brings new technology and keeps us competitive. Right now we are in a period of domestic recession, although there is continuing economic growth in Germany and Japan, and it’s interesting to see that the export sector in the United States, particularly manufactured exports, is one of the areas that have stayed buoyant as a result of this interdependence.

I think the general view that we should follow Chamberlain’s advice and give various businesses their own protected market niches when the competition gets tough is mistaken. I think that it would have been a mistake if Britain had fully followed Chamberlain, and it would be a mistake for us today.

The minor qualification is that within an open economic regime you do have to be willing to retaliate when others are being unduly discriminatory; free trade does not proceed on the basis of goodwill alone. I’ll give you an example. Motorola, an American corporation, developed a superior product in hand-held telephones that the Japanese tried to exclude from

In your book, you make the argument that the extent of British power in the nineteenth century was commonly overstated and that American power, in retrospect, similarly looks to have been greatly overstated after World War II.

Yes, it’s often said by people who use the word hegemony loosely, or simply toss the term around, that the Americans were hegemonic in the period after 1945 just as the British were hegemonic in the nineteenth century. In both cases, if hegemony means the ability to control the international system, it’s overstated.

Britain was hegemonic to an extent in its relationship to overseas developing countries in the nineteenth century because of its naval and financial power. But it certainly wasn’t hegemonic in terms of being able to control the center of the global balance of power, which was Europe. In fact, quite to the contrary, it was constantly being involved in what A. J. P. Taylor called “the struggle for mastery in Europe.”

Similarly, in the period after 1945, the United States was balanced by the Soviet Union. If America had been a truly hegemonic power, one would have expected that it would have prevailed at least in bargaining with its allies. And yet if one notices America’s inability to see European integration go forward on as liberal terms as we wanted, or when one looks at the inability of the Americans to sway the allies to enter into warfare with the Soviets in 1950 or at the inability to prevent France from developing its own nuclear weapons, it becomes a bit odd that we see this as a hegemonic situation.

And this is not even to mention the other types of failures, such as our inability to prevent the communists from coming to power in China, in Vietnam, in Cuba, and so forth. So this picture of the past when America becomes the hegemon bestriding the world, doing whatever we wished, is really a mythological view of postwar history. The reason it matters is that if one has an exaggerated view of the past, then one is obviously going to have a diminished view of the present.

One of the arguments about British decline holds that it was not that British power decreased so much as that the sort of power that Britain held became less relevant. For example, naval power became less critical after the development of railways and the industrialization of the European continent. Do you think there are any analogies to the kind of power the United States has possessed in the postwar period?

That’s the other area where I sometimes disagree with the declinists. Their assumption is that the only power that we have is military. In fact, it’s hard to see any other country that has the same degree of “soft power” the Americans have, in the sense of the

You mean that our culture is in some sense universally attractive, versus the closed character of Japanese culture?

There are many aspects of American popular culture that are not admirable, and one would hope that others don’t admire them, such as the sometimes excessive consumerism, drug use, the falling savings rate, and so forth. But despite this, what’s interesting is that there are other aspects of American culture—the commitment to democracy, the professed commitment to human rights that sometimes we do live up to in our foreign policy, the concern about material welfare, and the openness to new ideas, to new people—that I think are enormously attractive to others. It’s not that American culture or popular culture is perfect. Far from it. But it’s hard to see any other popular culture in the world that has so seized the minds of many peoples as the American culture has.

You speak about American receptivity and openness, compared with Japanese insularity, but don’t the Japanese themselves contend that their racism serves them well, sparing them the tensions and indeed the occasional miseries of a multinational society?

I think there are two sides to that coin. The Japanese do extremely well with the human resources that they have. Ninety-five percent of Japanese high school students graduate. A quarter of our own high school students don’t, making them virtually helpless in an information-based economy. And the test scores indicate that another quarter probably graduated from high school but didn’t learn as much as they should have. Frankly, we cannot get along in the future if only half our population is adequately equipped to participate in our economy.

On the other hand, if the Japanese do well with the human resources they have, they’re not very good at importing more. And this is an area where the Americans are quite good. We are a nation of immigrants, and we have been very successful in importing human resources, and what’s more, allowing them to rise quite rapidly. It’s a negative comment on the American education system that nearly one-fifth of the engineers in the United States today are foreign-born. But it’s a positive comment on the openness of the American society that these newcomers could rise so quickly to such high-prestige, high-status occupations.

If one looks ahead to the future, one notices that all three areas of the industrialized world—Europe, Japan, and the United States—will face certain demographic problems when the population ages and birthrates decline. And in the long run the United States will be the best placed of the three to profit from imported talent from the rest of the world.

There’s a notion that one of the difficulties that Britain had at the turn of the century was that although her best universities were still the best in the world, she had lost the ability to produce large numbers of technically educated people. Germany produced engineers in quantity; Britain did not. Does this disturb you

Yes, it does, and this may be one of the places where the analogy to Britain is useful, although the British situation was never wholly comparable to the American one; Britain never sent half of its population into some form of community college or better. But the general concern is real. While we spend a lot on education—more than many other countries —we’re getting worse results for our money, which has to do with the organization and bureaucratization of the school system. That is something we absolutely have to remedy.

In your book, you suggest that Americans have traditionally chosen to preserve an eighteenth-century political structure on the grounds that it produces large quantities of liberty at the expense of efficiency. It has similarly been said that Britain long retained what was in fact a seventeenth- and eighteenth-century political culture and social structure, with the same result: a great deal of liberty and rather less efficiency than its Continental rivals.

I think the founders designed the government to be inefficient. And that indeed is what we have. But in counterbalance to that, there is not only the value of liberty but also the point that much of the creativity of American society is outside government. Entrepreneurship, social mobility, social integration—these are things that are not dependent on central government.

With that said, the governmental situation is serious in the following sense: The United States is currently a rich country that acts poor. There is a chapter on domestic problems in my book that essentially says that just because we remain the largest and the most powerful country and are likely to remain so for some time doesn’t mean that all is well. We have very severe problems, and the one that I placed most emphasis on is the budget deficit; we are unwilling to tax ourselves to pay for what we spend. The fall of the savings rate is partly attributable to the government’s eating up too much of our savings in financing the budget deficits. And our inability to tax ourselves to pay for the services that we want is a reflection of the impasse between Congress and the presidency, as well as a result of the broader mood in the body politic.

Given our sense of being taxed to the limit, it is important to remember that we have one of the smallest proportions of GNP going to government of all the advanced industrial countries, about 31 percent, whereas in countries like Britain and France it is closer to 44 percent. President Bush has said that the problem is that the Americans have the will but not the wallet. In some ways it’s the opposite of

You have made an especially persuasive argument about what you call the World War II effect; you suggest that our vision is distorted by that huge, aberrational bulge in American power.

If one asks, “Has American power declined since World War II?” clearly the answer is yes. We don’t have very good measures for 1945, since this was such a disruptive period, but many people think that we produced half of the world product in 1945. By 1950, when we had some good measures, we had about 35 percent of the world product. Today, we have about 23 percent. Clearly there has been a decline as measured from 1945.

But 1945 or 1950 is a strange place to start measuring, because World War II had strengthened the United States and weakened everybody else. As others regained their health, the American share of the world product went down closer to what had been its pre-war level. We had about a quarter of the world product in 1938. It got back to that level, about 23 percent, by 1975, and it has remained there since. So, rather than a continued downward slope, you have a plateau and then a mountain called World War II, then a return to the plateau since 1975, which would suggest that it took about a quarter of a century or so for the World War II effect to work its way through the system.

Another way to think about the World War II effect is that it makes for quite a just parallel to Britain’s advantages from having been the first industrializer. And alas, what matters for those of us born or come of age on the mountain or on its downward slope is that the return to the plateau does not seem like a return but like a fall into the abyss.

I think that’s the reason it’s important to have an accurate sense of history. I mean, if we have this exaggerated view that the position of the United States in the fifties and sixties was normal, then we’re bound to feel dread when we consider the present.

If we understand that the position after World War II was abnormal, we’ll realize that the world is necessarily going to be more competitive, that we’re not going to have the automatic and easy lead across every area of international economics and international industrial sectors. It’s going to be a world in which in some areas we’ll be ahead and some areas we’ll be behind.

Both you and Professor Kennedy make reference to the economist Mancur Olson’s notion that societies with long successful runs—especially one victorious in war—become sclerotic. The argument runs that our rivals have become more dynamic in responding to certain challenges by dint of past failure, indeed by dint of their past shattering.

Olson’s thesis is interesting. He argues that what happens over time is that interest groups use government to protect themselves from competition, creating sclerosis, and that it sometimes takes a major disruption like depression or war to break this sclerosis, or to clean the arteries, if you will. The examples he gives are Germany and Japan, as contrasted with Britain.

I think there’s something in that thesis, but again I think it can be too simple. There are other paths to success and other paths to dynamism. There is what the economist Joseph Schumpeter called creative destruction, the constant tearing apart of industries in capitalist societies that is a function of markets. To the extent that countries actually deprive themselves of the creative destruction that goes along with markets, they may become sclerotic.

Now, for all the excesses of the markets in the 1980s in the United States, they did make major changes in industrial structure. And I think in that sense, if one asks, “Has the United States become sclerotic, with its long string of success?” it’s a much more mixed picture than Olson’s theory would suggest. Part of the reason for this is that markets still work quite strongly in the United States—or more so than in many other societies that are often touted as being great successes.

It’s been said for years that markets are brilliant advisers in the short term and poor ones in the long. On this theory, British economic behavior from the 1870s to 1914 was absolutely rational, but the long-run consequence of following economic signals can be quite horrifying for the power of a national state.

For instance, Britain was a capital exporter in a period when, in retrospect, one wishes that it had invested domestically; in the 1980s our tax code encouraged the accumulation of vast amounts of debt, and this may have stirred up a great deal of trouble for the next decade.

The analogy of Britain is again flawed, because we’ve been capital importers rather than capital exporters. But the interesting thing is that the Americans financed their government budget deficit by importing capital. That had the effect of keeping the investment rate up, so that gross investment in the American economy stayed at a constant level of about 17 percent, pretty much what it had been since the 70s or so. One of the questions now that we’ve entered a capital-scarce world is, Will the investment rate in the United States fall off? The answer may be that it will fall off unless we find ways to increase our savings and therefore get interest rates down, making investments more attractive.

It is sometimes suggested that British decline stems in part from the fact that manufacturing carried so much less prestige in Edwardian Britain than either government service or the professions. It is similarly said that over the last fifteen or twenty years the disturbing shifts of Americans of talent into the professions

Well, the trouble with that cultural explanation is that it changes too rapidly. If culture is to be a useful explanatory variable, it had best be something that you change quite slowly. Clearly, the rewards that were paid to young college graduates going into investment banking in the 80s were wildly excessive and had a very strong skewing effect in directing talent away from manufacturing companies into financial investments. But if you look at the situation now—eight years later—or even five years later, that has turned around. The investment banking sector is rather ill right now, and the interest in manufacturing is increasing. It’s interesting that Harvard Business School, for example, in its admissions process, has been discouraging students who want to go into investment banking and preferring people who show interest in the manufacturing sector. I am skeptical of a cultural explanation if American culture is taken to be so volatile that it changes that quickly over so short an amount of time.

Another culturalist argument about Britain points to the polarization of class attitudes in Edwardian Britain, which stored up a great deal of trouble. In contemporary America one would presumably not point to class tension in the traditional sense, but isn’t racial and ethnic tension our parallel?

I think the United States has very serious questions to resolve in terms of racial differences. And I think these are particularly serious when we get into what is sometimes called the underclass, or people who are in a culture of poverty. But here we’re talking about, well, it’s hard to know what percent of the population, but it’s in single digits. And that’s quite different from the class of plebeians that Britain faced at the beginning of the century, which was certainly in the double digits.

Frankly, it is not clear to me that these tensions are having a major effect on the international power position of the United States. They obviously would if we were totally preoccupied with internal racial and ethnic cleavage or if the proportions of the population in question were so high that they were then unable to be effective members of the labor force. But as it is, these very pressing social issues are not nearly as important in determining the international power position as they are in determining the quality of civic life.

The title of your book is Bound to Lead. If the United States retains its position, what will it do as it leads for the next thirty or forty years?

Bound to Lead is a double entendre, which is seen

The problem is not who’s going to replace us as number one, but who wants the power that is leaking out all over the bottom. Private actors, lots of new states, the proliferation of technology, and so forth are making it more difficult for any large country to control world politics. What that suggests is that the largest country has to take a role in forming coalitions.

Whether it’s issues like Saddam Hussein in the Persian Gulf, or global warming, or helping less developed countries, or debt problems that are just breaking out in the international banking system, the Americans aren’t going to be able to do this alone, but if we don’t do our share as the largest, it’ll be much harder for anybody else to organize coalitions to get things done. Certainly the war in the Gulf demonstrates this. So, we’re bound to lead, not in the simple sense of the term but in the sense of being tied into this position by our very size.

One of the very persuasive sections of your book is the way you look with a cold eye at the alleged predetermined successes of our rivals. Would you care to run down those arguments?

The short form would assess the other contenders for the leading position as follows: China is a less developed country, and likely to remain so for quite a long time. Russia is a country that is in serious economic decline, a decline based on such deep-rooted factors that it’s not likely to reverse in the course of a decade or more and is now leading to dangerous political fragmentation. Europe has the capability, in terms of human resources and economic scale, to be the size of the United States. It lacks only one thing, and that’s unity, and even with progress of the Common Market in 1992, Europe will be a long way away from being a single state. In order to give a sense of proportion on that, Germany, even in its unified form, is just over one-quarter the size of the United States.

The other major contender would be Japan, which has had a remarkable economic performance, which is the second-largest economy in the world, roughly half the size of the U.S. economy, and which is the world’s largest creditor nation, the world’s largest aid donor, and ahead in many areas of manufacturing technology. But the Japanese remain very much a unidimensional power, their power being concentrated in the economic areas of financial and manufacturing capabilities. This is not a very diversified portfolio of power. It is

So, perhaps the Japanese, with a mere 3 percent of the world’s population and .03 percent of its area, might be a more suitable case for the Britain analogy.

You mean in the sense of a Japanese decline?

Yes. If someone is scripted to follow Britain, Japan is far more likely than anyone else, given its current brilliant performance versus its natural resources.

What an interesting thought. There is a book written by a British journalist that argues—well, the title of the book says it: The Sun Also Sets. He essentially argues that the dominance of Japan is likely, after the turn of the century, to turn out to have been somewhat ephemeral, that the savings rates are coming down, that many of the inefficiencies of the Japanese economy are coming to the fore, that the population is aging, that they are less able to import people from abroad, and that Japan may suffer in that sense.

I am still profoundly skeptical of historical analogies; what we do with analogies often anesthetizes our minds to the importance of differences. Basically, it’s important to have a sense of history, to sensitize ourselves to things that do recur. But our nature is that we get too pat about the analogies, and we don’t pay enough attention to the differences.

I don’t think the Japanese are in cultural or societal ways similar to Edwardian Britain. And therefore, I don’t think they’ll follow that path. Maybe the best response is that which is attributed to Mark Twain: “History never repeats itself; at best, it sometimes rhymes.”