Bring out the vim-o-meter

Is America Inc getting less dynamic, less global and more monopolistic?

We test three prevailing hypotheses about American business

CONCERNS ABOUT the health of corporate America are many and varied. 

Chief executives are chastised for their apparent short-termism. 

Their companies are berated for fetishising shareholders over everyone and everything else. 

Elon Musk, boss of Tesla, an electric-car maker, grumbles about a surfeit of business-school graduates who are stifling innovation. 

President Joe Biden frets as much about American companies losing out to China as Donald Trump did (albeit with less bile). 

He also worries about the concentration of power among America’s biggest firms.

All this paints a picture of America Inc that looks stodgier, more parochial and increasingly monopolistic. 

If true, that would be bad news for the spiritual home of free-market capitalism. 

But is it? 

The Economist set out to test all three hypotheses about American business: that it is less dynamic, less global and more concentrated. 

The results appear nowhere near as bleak as the doom-sayers would have you believe.

Start with dynamism. 

Scholars have long argued that it isn’t what it used to be. 

Ten years ago Tyler Cowen, an economist at George Mason University, warned that the American economy was in the midst of a “great stagnation”. 

The reasons cited by Mr Cowen and others range from more red tape to fewer transformative technologies such as aeroplanes and telephones, because the low-hanging fruit had been plucked. 

Symptoms of the malaise included fewer employers being created, fewer companies going public and fewer investments made by existing ones. 

The share of workers employed at firms less than a year old fell from 4% of total employment in the 1980s to around 2% in the 2010s. 

Around three-quarters of the workforce is employed by a company that is more than 16 years old, up from two-thirds in 1992.

Economists are still debating just how great the stagnation really was. 

One thing is certain, though: since the start of the covid-19 pandemic America Inc has been anything but stagnant. 

Applications to start new businesses have soared. 

In the first six months of 2021 around 2.8m new businesses were born, 60% more than in the same period in pre-pandemic 2019 (see chart 1, top left panel). 

Many are small enterprises created by people stuck at home during lockdowns. 

A third of the new applications were in retail, in particular the online variety. 

Business starts in other e-commerce-related areas, including trucking and warehousing, have surged, too, notes John Haltiwanger of the University of Maryland. 

The quit rate, which indicates churn in the labour market, is at a record high. 

Nearly 3% of workers left their job in July, presumably because they believe they can get a better one.

Larger contenders are also thriving. 

Take America’s biggest startups. 

CB Insights, a data firm, found that in 2019 a monthly average of five unlisted firms became “unicorns” with valuation of over $1bn. 

Since the start of 2020 that figure has swelled to 12 (chart 1, top right panel). 

Many older unicorns have gone public. Airbnb, a holiday-rental firm, was the biggest American initial public offering (IPO) of 2020. 

Its valuation surged past $100bn on the first day of trading. 

Since the start of 2020 the average number of monthly IPOs has climbed three-fold, to around 80 (bottom left panel). 

In that period American firms have raised nearly $350bn, more than they did in the preceding seven years added together.

Some of the ferment comes out of necessity. 

A survey by the Kauffman Foundation, a think-tank, finds that the share of new entrepreneurs who are starting businesses because they spy an opportunity rather than because they lost their jobs dropped from 87% in 2019 to 70% in 2020. 

But the “physiological shock” of the pandemic may also have led people to re-evaluate their lives, says Kenan Fikri of the Economic Innovation Group, another think-tank. 

Some of them handed in their notice and struck out on their own.

With the Federal Reserve flooding markets with newly created cash, investors had plenty of capital to back businesses of all sizes. 

According to Jim Tierney of Bernstein, an investment firm, the market is favouring disruptive new entrants such as Robinhood, a broker catering to day-traders. 

With fewer than one retail trader for every 70 at Charles Schwab, recently listed Robinhood already boasts half the incumbent firm’s market capitalisation. 

Small wonder American unicorns are eager to list, says Mr Tierney.

Cheap capital is also encouraging the established beasts of American business to boost their investment plans. 

American companies’ spending on equipment, structures and software grew at an annualised rate of 13% in the first half of the year, the fastest since 1984 (chart 1, bottom right panel). 

Apple, the world’s most valuable company, will spend $430bn in America over a five-year period, 20% more than it had previously planned. 

Intel is splurging some $20bn a year on new microchip factories.

Wave mechanics

If dynamism was ever in retreat, then, it no longer appears to be. 

Even Mr Cowen has all but declared the great stagnation over. 

What about American companies’ global stature? 

World trade as a share of planetary GDP peaked in 2008. 

In America imports and exports as a proportion of output have declined since an all-time high of 31% in 2011 to 26%. 

Mr Biden’s policies show a preference for jobs at home over free trade. 

Covid-19 has disrupted some supply chains, prompting some pundits to predict a wave of reshoring. 

“The era of reflexive offshoring is over,” declared Robert Lighthizer, Mr Trump’s trade representative, in the New York Times in 2020.

Before the pandemic some data were indeed hinting that corporate America was becoming less global. 

Dealogic, a research firm, estimated that cross-border mergers and acquisitions by American firms as a share of domestic M&A activity declined from 16% in 2014 to 9% in 2019. 

In the past 18 months, however, this figure has jumped back to around a fifth, thanks in part to all that cheap capital. 

Other indicators of internationalism have barely budged. 

Kearney, a consultancy, tries to capture the extent of reshoring by looking at the total value of manufactured goods imported from a list of 14 trading partners, including China, Vietnam and Malaysia, relative to American manufacturing output. 

Between 2018 and 2020 this ratio has stayed stable at around 13%.

Some companies are, it is true, adapting their supply chains. 

They are seriously considering moving manufacturing out of China, says Jan Loeys of JPMorgan Chase, a bank. 

But those companies are mostly eyeing nearby countries, often in addition to rather than instead of their Chinese suppliers. 

American imports from from Taiwan rose by 35%, or $11bn, in the first seven months of 2021, compared with the same period in 2019. 

But those from China increased by nearly as much in dollar terms.

American companies also continue to sell a lot to foreigners. 

The Economist looked at the share of revenue earned abroad for non-financial firms in the Russell 3000, a broad index of American firms. 

Some industries, such as professional services, have seen their domestic share of sales increase, as lockdowns around the world hampered foreign contracts. 

Others, such as entertainment, have become more reliant on foreign sales; Netflix now books 54% of its revenue abroad, up from 40% a few years ago. 

Imax, a cinema chain, has made over two-thirds of its revenue this year from Asia, up from two-fifths in 2017.

Overall, the median firm’s foreign sales as a share of its total sales has stayed roughly flat at 15%. 

So has the revenue-weighted average, which has oscillated around 35% (see chart 2, left panel). 

Two in five firms make more than half of their sales overseas, a proportion that has also remained more or less constant in the past four years. 

CEOs fall over themselves to signal their international ambition during earnings calls. 

On July 27th Tim Cook, who runs Apple, named 14 countries where the iPhone-maker’s sales reached a record high for the third quarter. 

“I could go on...It’s a very long list.” 

On the same day Kevin Johnson, boss of Starbucks, said he was “very bullish” about the coffee-pedlar’s prospects in China.

Power dynamics

The third area of concern is market concentration. 

In 2016 we published an analysis that divided the American economy into around 900 sectors covered by the five-yearly economic census. 

Two-thirds of them became more concentrated between 1997 and 2012. 

The weighted-average market share of the top four firms in each sector rose from 26% to 32%. 

The latest census data, which include years up to 2017, show that the trend did not reverse. 

But did it accelerate? 

Although concentration edged up in around half of industries between 2012 and 2017, the weighted-average market share across all industries remained at 32% (chart 2, right panel).

More recent census data will not be published for years. 

So in a separate analysis we looked at the market share of the top four firms in in the Russell 3000. 

In seven of the ten sectors, the revenue-weighted market concentration was a bit higher in the past 12 months than it had been in 2019. 

Similarly, Bank of America, which has tracked the Herfindahl-Hirschman index, a gauge of market concentration, for firms in the Russell 3000 since 1986, reports that it hit a new high in 2020.

This could be because deep downturns like last year’s covid recession tend to favour big firms with healthy balance-sheets. 

Big tech in particular has benefited from the pandemic shift to all things digital.

America’s five technology titans—Apple, Microsoft, Alphabet, Amazon and Facebook—notched up combined revenues of $1.3trn in the past 12 months, 43% higher than in 2019. 

They are America’s five most valuable firms, accounting for 16% of the country’s entire stockmarket value—considerably higher than the 10% attributable to the five biggest American firms in the past 50 years, according to calculations by Thomas Philippon of New York University’s Stern School of business.

In hard-hit industries, meanwhile, cash-rich survivors have been snapping up struggling rivals and contributing to an M&A bonanza. 

Between January and August American companies have announced deals worth almost $2trn. 

The sectors which saw the biggest rise in concentration were those disrupted by the pandemic, such as real estate and consumer goods (where the top four firms’ share has jumped by around four percentage points since 2019). 

Some big firms are getting a larger slice of a shrinking pie. 

Among energy-services companies, such as Halliburton, the top four increased their market share from 59% to 75%, even as the industry’s revenues fell by almost a quarter.

All this would be worrying—were it not for other concomitant trends. 

The tech giants, for example, are increasingly stomping on each others’ turf. 

Nearly two-fifths of the revenues of the big five now come from areas where their businesses overlap, up from a fifth in 2015. 

Facebook wants to become an e-merchant, Amazon is getting into online advertising, Google and Microsoft are challenging Amazon in the computing cloud, and Apple is reportedly building a search engine.

Such oligopolistic competition is not ideal, perhaps, but much better than nothing. 

And money flowing to newly listed disruptors and to corporate capital budgets implies that companies and investors are spying fresh opportunities for future profits, including at the expense of incumbents, should they become complacent. 

American business could use some more pep here or there—who couldn’t. 

But it does not scream sclerosis, either.

Turbulent waters

A perfect storm for container shipping

Will prolonged disruptions shift the pattern of trade?

A GIANT SHIP wedged across the Suez canal, record-breaking shipping rates, armadas of vessels waiting outside ports, covid-induced shutdowns: the business of container shipping has rarely been as dramatic as it has in 2021. 

The average cost of shipping a standard large container (a 40-foot-equivalent unit, or FEU) has surpassed $10,000, some four times higher than a year ago (see chart). 

The spot price for sending such a box from Shanghai to New York, which in 2019 would have been around $2,500, is now close to $15,000. 

Securing a late booking on the busiest route, from China to the west coast of America, could cost $20,000.

In response, some companies are resorting to desperate measures. 

Peloton, a maker of pricey exercise bikes, is switching to air freight. 

But costs are also sky-high—double those in January 2020—as capacity, half usually provided in the holds of passenger jets, is constrained by curbs on international flights. 

Home Depot and Walmart, two American retailers, have chartered ships directly. 

Pressing inappropriate vessels into service has proved near-calamitous. 

An attempt in July to carry containers on a bulk carrier, which generally carts coal or iron ore, was hastily abandoned when the load shifted, forcing a return to port. 

More containers are travelling across Asia by train. Some are even reportedly being trucked from China to Europe then shipped across the Atlantic to avoid clogged Chinese ports.

Trains, planes and lorries can only do so much, especially when it comes to shifting goods half-way around the planet.

Container ships lug around a quarter of the world’s traded goods by volume and three-fifths by value. 

The choice is often between paying up and suffering delays at ports stretched to capacity, or not importing at all. 

Globally 8m TEUs (20-foot-equivalent units) are in port or waiting to be unloaded, up by 10% year-on-year. 

At the end of August over 40 container ships were anchored off Los Angeles and Long Beach. 

These serve as car parks for containers, says Eleanor Hadland of Drewry, a shipping consultancy, in order to avoid clogging ports that in turn lack trains or lorries to shift goods to warehouses that are already full. 

The “pinch point”, she adds, “is the entire chain”.

For years container shipping kept supply chains running and globalisation humming. 

With shops’ shelves fully stocked and products from the other side of the world turning up promptly on customers’ doorsteps, the industry drew barely any outside attention. 

Shipping was “so cheap that it was almost immaterial”, says David Kerstens of Jefferies, a bank. 

But now, as disruption heaps upon disruption, the metal boxes are losing their reputation for low prices and reliability. 

Few experts think things will get better before early next year. 

The prolonged dislocation could even hasten a reordering of global trade.

Shipping is so strained in part because the industry, which usually steams from short-lived boom to sustained bust, was enjoying a rare period of sanity in the run-up to the pandemic. 

Stephen Gordon of Clarksons, a shipbroker, notes that by 2019 the industry was showing self-discipline, with the level of capacity and the order book for new ships under unaccustomed control. 

Then came covid-19. 

Expecting a collapse in trade, shipping firms idled 11% of the global fleet. 

In fact, however, trade held up and rates started to climb. 

And, flush with stimulus cash, Americans started to spend.

In the first seven months of 2021 cargo volumes between Asia and North America were up by 27% compared with pre-pandemic levels, according to BIMCO, a shipowners’ association. 

Port throughput in America was 14% higher in the second quarter of 2021 than in 2019. 

The rest of the world, meanwhile, has seen little growth, if any: throughput in northern Europe is 1% lower. 

Yet rates on all routes have rocketed because ships have set sail to serve lucrative transpacific trade, starving others of capacity.

A system stretched to its limits is subject to a “cascading effect”, says Eytan Buchman of Freightos, a digital-freight marketplace. 

Rerouting and rescheduling would once have mitigated the closure of part of Yantian, one of China’s biggest ports, in May and then Ningbo, another port, in August after covid-19 outbreaks. 

But without spare capacity, that is impossible. 

“All ships that can float are deployed,” remarks Soren Skou, boss of Maersk, the world’s biggest container-shipping firm.

Empty containers are in all the wrong places. 

Port congestion puts ships out of service. 

In July the industry moved 15m containers, more than before the pandemic. 

Yet the average door-to-door shipping time for ocean freight has gone from 41 days a year ago to 70 days, says Freightos.

Some observers think normality may return after Chinese new year next February, typically a low season. 

Peter Sand of BIMCO says disruptions could take a year to unwind. 

Lars Jensen of Vespucci Maritime, an advisory firm, notes that a dockers’ strike on America’s west coast in 2015 caused similar disruption, albeit only in the region. 

It still took six months to unwind the backlog. 

On the demand side much depends on whether the American consumer’s appetite for buying stuff continues. 

Although retail sales fell in July, they are still 18% above pre-pandemic levels, points out Oxford Economics, a consultancy. 

But even if American consumer demand slackens, firms are set to splurge as they restock inventories depleted by the buying spree and prepare for the holiday season at the end of the year. 

And there are signs that demand in Europe is picking up.

In a sea of uncertainty, one bedrock remains. 

The industry, flush with profits, is reacting customarily, setting an annual record for new orders for container-ship capacity in less than eight months of this year, says Mr Sand. 

But with a two-to-three year wait, this release valve will not start to operate until 2023. 

And the race to flood the market may not match torrents of the past. 

There are far fewer shipyards today: 120 compared with around 300 in 2008, when the previous record was set. 

And shipping, responsible for 2.7% of global carbon-dioxide emissions, is under pressure to clean up its act. Tougher regulations come into force in 2023.

The upshot is that the industry “will remain cyclical”, but with rates normalising at a higher level, says Maersk’s Mr Skou. 

Discipline may be more permanent both in ordering and managing existing capacity. 

More consolidation has helped—the top ten firms have 80% of capacity compared with 50-60% a decade ago.

The impact of higher shipping costs depends on the type of good being transported. 

Those hoping to buy cheap and bulky imported goods such as garden furniture might be in for a long wait. 

Mr Buchman notes that current spot rates might add $1,000 to the price of a sofa travelling from China to America. 

Moreover, the effects on product prices so far have been dampened, as around 60% of goods are subject to contractual arrangements with shipping rates agreed in advance and only 40% to soaring spot prices.

Nonetheless, for most products, shipping costs tend to be a small percentage of the overall cost. 

The boss of a large global manufacturer based in Europe says the extreme costs now are “bearable”. 

Nor might shipping rates rise that much further even if disruptions continue. 

CMA CGM, the third-largest container-shipping firm in the world, stunned industry watchers on September 10th when it said that it would cap spot rates for ocean freight. 

Others could follow suit.

Decarbonisation costs mean rates will eventually settle at a higher level than those before the pandemic. 

Yet research by Maersk suggests that this may not affect customers much. 

Even if sustainable fuel cost three times as much as the dirty stuff, increasing per-container fuel cost to $1,200 across the Pacific, for a container loaded with 8,000 pairs of trainers, the impact on each item would be minimal.

Instead it is the problem of reliability that may change the way firms think. 

“Just in time” may give way to “just in case”, says Mr Sand, as firms guard against supply shortages by building inventories far above pre-pandemic levels. 

Reliability and efficiency might also be hastened by the use of technology in an industry that has long resisted its implementation. 

As Fraser Robinson of Beacon, another digital freight forwarder, points out, supply chains can be made sturdier by using data to provide better “visibility” such as over which suppliers and shipping companies do a better or worse job of keeping to timetables and ordering goods earlier.

There is so far little evidence of “nearshoring”, except in the car industry, says Mr Skou. 

But the combination of trade war, geopolitics and covid-related disruptions may together lead trade patterns to tilt away from China. 

Some Chinese firms and the companies they supply are relocating production to lower-cost countries to diversify supply chains and circumvent trade barriers. 

Mr Kerstens of Jefferies notes that after America under President Donald Trump imposed tariffs on China the volume of trade from China to America fell by 7% in 2019, but American imports remained stable overall as places like Vietnam and Malaysia took up the slack. 

Hedging against covid-19 shutdowns, particularly given China’s zero tolerance for infections, could provide another reason to move away.

For their part, shipping firms may be preparing for more regionalised trade. 

The order book is bulging for ships of 13,000-15,000 TEU, smaller than the mega-vessels which can only be handled at the biggest ports. 

Vietnam opened a new deepwater terminal in January, which can handle all but those largest ships.

Finding new manufacturers is hard, however, especially for complex products. 

And building buffers into supply chains is costly. 

But conversations about deglobalising are said to be starting among some makers of low-cost clothing and commodity goods. 

If higher costs persist and reliability remains a problem, some will judge that the advantages of proximity to suppliers will start to outweigh the costs of shipping goods made far away. 

Even shipping companies admit that current high rates and poor reliability make customers feel fleeced. 

With few alternatives to ships to move goods around, the only choice will be to move the factories that make them.

Will the Federal Reserve Support Inclusive Prosperity?

Lael Brainard, one of two female governors on the Fed board, has consistently argued that it is premature to raise interest rates until inflation accelerates and stays high. For groups that have traditionally not done well in downturns – particularly women and people of color – the stakes of the debate could not be higher.

Simon Johnson

WASHINGTON, DC – A major debate is in the making – or, more accurately, beginning to be reopened – in the United States about the appropriate objectives and triggers for monetary policy in the modern American economy. 

The stakes are enormous, including whether prosperity in the US can really become more inclusive – and who should lead the Federal Reserve in 2022 and beyond.

One vision comes from Lael Brainard, a member of the Federal Reserve Board of Governors since 2014, who on September 27 reiterated her compelling case for not prematurely raising interest rates in a pandemic-damaged economy. 

Jobs are coming back, but the recovery is slow and erratic. 

The Delta variant did real damage, on top of the deep disruption caused by previous COVID-19 waves. 

Among other problems, continuing or repeated school closures and major childcare shortages mean that many parents cannot yet return to work in person.

As Brainard emphasizes, “the pandemic has taken a significant toll on the labor market status of many mothers, particularly Black and Hispanic mothers, mothers with younger children, and mothers with lower incomes.” 

We are far from genuinely full or maximum employment.

In the other corner is… well, we’ll see. 

During a major debate about monetary policy in 2015, Governor (now Chair) Jerome “Jay” Powell was among those who favored earlier tightening – in marked contrast to Brainard’s preference to keep rates low to achieve full employment. 

According to recently released transcripts, Powell was consistent in his pro-tightening views. 

As early as 2013, he was telling then-Chair Ben Bernanke and his colleagues, “we’ve got to jump” (tighten monetary policy). 

Bernanke’s 2015 memoir confirms that Powell emphasized the need for an “off-ramp” for monetary policy, and this may have been Powell’s view since 2012, when he joined the Fed board.

The issue back then was how to think about inflation risks and the potential costs of tightening policy too early, particularly for employment prospects for low-wage Americans. 

We face the same issue today. 

Brainard’s argument has consistently been that it is premature to raise interest rates until inflation accelerates and stays high. 

Short-term price movements due to temporary factors should be ignored.

What really stands out in Brainard’s view is the weight she places on labor-market outcomes for people who are at the “margins” of the economy, in the sense that they are the first to be laid off in an economic downturn and the last to be rehired in a recovery. 

Many of these people are women, among whom women of color are frequently hit the hardest when the economy stagnates or contracts.

When Brainard first articulated the importance of a more holistic assessment of employment outcomes and prospects, her argument was regarded with skepticism by the (mostly) men who run monetary policy in the US and other developed countries. 

The long-established tradition among this group, particularly Fed governors appointed by Republican administrations, has been to prefer acting “preemptively” against inflation. 

Traditionally, Republican appointees and their congressional supporters are more inclined to support tighter monetary policy when there is a Democratic president in office – in line with long-standing findings about political preferences.

Since 2015, however, Brainard’s view has become widely accepted in policy circles, effectively forming the basis for the Fed’s “new framework” in August 2020 – a notable shift in official thinking for which she often receives insufficient credit. 

It is particularly noteworthy that Brainard persuaded so many of her male colleagues – the six current governors include two women, while the chair and two vice chairs are men – to adopt her perspective, at least for now.

There are two main scenarios for US monetary policy in the coming months and years. 

The first is that the new framework will continue to prevail along the lines Brainard originally envisioned and restated in her September 27 speech. In that case, payroll employment should increase by 5-8.5 million – where it would have been, according to Brainard, “in the absence of the pandemic” – while inflation will remain under control.

The second scenario is that some combination of the five Republican-appointed Governors will lead the charge to tighten monetary policy before the economy is fully recovered. 

The latest economic projections from the Federal Open Market Committee already indicate movement in a hawkish direction, toward tightening monetary policy. 

If this view prevails, led by Powell or someone else, expect slower job growth and worse labor-market outcomes (fewer hours worked, lower wages) for groups that have traditionally not done well in downturns.

Thinking about what comes next, it is also significant that Brainard is among the few policymakers who have said that the 2015-18 interest rate hikes were a mistake in retrospect. 

Powell has made no such statement.

There is one obvious way to ensure that Brainard’s vision for a more inclusive economy prevails: Appoint her as Fed chair when Powell’s term expires in February 2022.

Simon Johnson, a former chief economist at the International Monetary Fund, is a professor at MIT's Sloan School of Management and a co-chair of the COVID-19 Policy Alliance. He is the co-author, with Jonathan Gruber, of Jump-Starting America: How Breakthrough Science Can Revive Economic Growth and the American Dream and the co-author, with James Kwak, of 13 Bankers: The Wall Street Takeover and The Next Financial Meltdown. 

Three Lessons from a Two-Decade Failure

The debacle in Afghanistan this summer confirmed what many have long suspected: that much of the West’s foreign policy since the September 11, 2001, terrorist attacks has been a failure. The task now is to reflect on past mistakes and forge a new strategy for wielding power and influence in a multipolar world.

Javier Solana

MADRID – Twenty years ago, the September 11 terrorist attacks shocked the world. 

“We are all American” became a global slogan of solidarity. Suddenly, the West’s post-Cold War invulnerability had been exposed as an illusion. 

Globalization, which had become the reigning paradigm and established Western economic dominance in the 1990s, turned out to have a dark side.

In one policy area after another – from trade to taxation to labor markets – the decades-old consensus in the United States has been replaced with something very different. 

But policymakers elsewhere would be wise to consider their own countries’ circumstances carefully before following America’s lead.

Two decades after the attacks, it is difficult to overstate their consequences for the West and the wider world. 

A violent non-state actor determined the international agenda to an extraordinary degree. 

While the hegemony of the West, led by the United States, remained unquestioned, the unipolar moment of the 1990s seemed to be coming to a close, and US foreign policy would be fundamentally reshaped by the “global war on terror.”

In the context of the time, it was no surprise that the US-led invasion of Afghanistan met with overwhelming international support. 

The 9/11 attacks could not go unanswered, and it was the Taliban who had provided a haven for al-Qaeda to plan, organize, and launch the operation.

But the war in Afghanistan will be remembered as a major failure. 

Its high costs and low returns raise an obvious question: What was it all for? 

More than 48,000 Afghan civilians, at least 66,000 Afghan troops, and 3,500 NATO soldiers were killed during the 20-year conflict. 

The US spent more than $2 trillion trying to build Afghan state institutions, only to watch them vanish within the space of weeks as the Taliban advanced to retake the country.

The re-establishment of a Taliban government in Kabul is further proof that the “global war on terror” was a misguided effort. 

Afghans – especially women and girls – have once again been left to confront the realities of life under a fundamentalist regime. 

For the West, the task now is to reflect on the lessons of this woeful experience.

The first lesson is that external military force is not a sensible way to produce effective and lasting regime change. 

The West utterly failed to create a modern, democratic, and resilient Afghan state capable of withstanding the Taliban threat. 

The US fell in the same trap after its illegal invasion of Iraq in 2003, where it soon faced an insurgency that would sow the seeds of the Islamic State. 

And then it did so again in Libya, where NATO’s fixation on toppling Muammar el-Qaddafi left behind a country in turmoil and poised for civil war.

In short, top-down nation-building has been widely discredited. 

This model assumes that establishing a military presence and pouring resources into a country will inevitably deliver security, development, and democratic governance. 

Yet because nation-building requires the support of the people, it can succeed only if it is conducted through local representatives who are perceived as legitimate.

This element was absent in Afghanistan. By backing warlords like Abdul Rashid Dostum, whose forces committed numerous atrocities, the West undercut its own nation-building efforts and alienated much of the Afghan population.

More generally, the idea that a country’s existing institutions could simply be replaced with new ones should have been recognized as implausible. 

Most states are built gradually and endogenously through cooperation and compromise over extended periods of time, not by foreign diktat. 

Emulation and seduction are far more potent than force and coercion.

Making matters worse, US President George W. Bush’s administration embraced military force after 9/11 at the expense of diplomacy, which had long underpinned America’s most valuable asset: its attractiveness to the rest of the world. 

The Berlin Wall fell not because of military force but because those living under communism realized that the Western economic model produced higher standards of living than they could aspire to.

The second lesson from 20 years in Afghanistan is that domestic state-building should be coupled with regional strategies. 

Approaches that exclude key regional players are not viable, particularly in today’s multipolar world. 

By going at it alone, the West failed to grasp the changing international balance of power.

Afghanistan’s neighborhood offered opportunities that went to waste. 

China was not in a position to contribute substantially at the war’s beginning, but with its rise as a global power, it could have been a useful partner. 

Closer coordination between US-led stabilization efforts and Chinese foreign investment in Afghanistan could have maximized the benefits of development projects for local people.

Similarly, greater Russian engagement could have allowed more resources to reach Afghanistan through the Northern Distribution Network, alleviating the need to go through Pakistan, which gained significant leverage as a result. 

Moreover, Saudi Arabia, a beneficiary of US arms and a major investor in Pakistan, could have exercised its influence over the Pakistani government to convince it to play a more constructive role in resolving regional issues.

A final lesson of the Afghan debacle concerns Europe, which has been reminded of the need to develop its own capabilities in accordance with its own strategic interests. 

The shift in American foreign policy away from serving as the world’s watchdog should make Europe think harder about its dependence on US capabilities and policies.

The evacuation from Kabul offers a crude example of what is at stake. 

Without US military planes, America’s allies could not have evacuated their personnel from the country. 

And with the prospect of another European refugee crisis now looming, the bill for lacking the capacity to act autonomously in Afghanistan may soon come due. 

The spirit of “learning by doing” should drive the European Union to enhance its civilian-military operations in key regions to avert instability coming closer home.

Though the world has changed considerably over the past 20 years, the issue of international terrorism is still far from resolved. 

The troubling security situation in the Sahel, for example, should make us all reflect on what course of action to take in the future. 

But one thing is clear: “Forever wars” are unsustainable, especially for those who must endure them. 

We were all American after 9/11, but we forgot to be Afghan, too.

Javier Solana, a former EU high representative for foreign affairs and security policy, secretary-general of NATO, and foreign minister of Spain, is President of EsadeGeo – Center for Global Economy and Geopolitics and Distinguished Fellow at the Brookings Institution.