Free In Defense of America by Bronwen Maddox Page A

should deal with each other, competition between telephone companies is still patchy. The United States may have driven the rise of the Internet, but was slow to develop networks of cellular phones and, now, broadband.
    The hidden cost of federalism was a theme thoughtfully developed by John Donahue, an associate professor at Harvard University’s John F. Kennedy School of Government, in his book
Disunited States,
which argued that competition between the states often hurt the American economy overall. Donahue pointed to the huge amounts of money that states were using to lure businesses —and jobs —across state borders, including, famously, Alabama’s successful courtship of Mercedes, counterbidding against almost every state in the South. Alabama’s package of subsidies and tax breaks eventually approached $300 million, a cost per job approaching three times the previous record.
    In February 2008 the Supreme Court ruled that federal laws should prevail over often tougher state laws aimed at protecting consumers’ health and safety, when it barred a suit from a man injured by a heart catheter which had been approved by the Food and Drug Administration. The Court “showed its appreciation for the problem of the Balkanization of the economy by state laws and the difficulties of having to comply with inconsistent state laws in a national economy,” said Robin Conrad, executive vice president of the National Chamber Litigation Center, the legal arm of the U.S. Chamber of Commerce. 16
    I don’t cite these examples to show that American capitalism does not work; manifestly, it does. But they do show that the United States has often, in industries that are at the heart of its economy, put that pursuit of profit below the principle of states’ independence.
    Wounded Giant?
    Even before the sudden slowing of the American economy in early 2008, the United States’ share of the world economy was beginning to shrink. The contribution it makes to the world’s overall economic growth is dropping —from 19 percent to just 12 percent in the past decade. The International Monetary Fund expects the world’s economic growth to be 4.8 percent in 2008, but within that, the United States will be expanding at less than 2 percent, and the rest of the world together almost three times as quickly. The United States will lose its claim to some of the superlatives (and that was on the cards even before the slowdown of early 2008). It is indeed set to be overtaken by China as the world’s biggest economy, although that depends on how you measure size and translate Chinese figures —and as I discuss in chapter 9, those projections rely on a lot of questionable assumptions about China’s ability to manage its own growth. Germany is already the world’s biggest exporter, despite having an economy less than a quarter the size of the United States’.
    But for America, that is neither a source for humiliation nor a reason for gloom. It is easy to exaggerate the potential of China, India, and indeed Asia. For all the uncertainties of the sudden slump in 2008, the proved success of the United States’ economic engine is not about suddenly to dissolve. Rather, the quick reaction of the Federal Reserve, in using taxpayers’ money to rescue Bear Stearns, Wall Street’s fifth-largest bank, shows the poverty of the usual caricature of American capitalism as unbridled, unaided, and unregulated. America is the heart of capitalism, but woven through it is a long, messy history of intervention and regulation.
    The pity of critics’ resentment of American economic strength is that they regard it as a zero-sum game: as if America’s gain is their loss. But it isn’t. They do not comfortably acknowledge that the United States could be better off for its innovation, or for the success of its companies, or for its trade —and so could they. That is the hopefulness of American society; it is a shame that this is not one of its more successful