After the turn of the millennium, the United States suffered its weakest decade of economic growth in the post-World War II era, and served as ground zero of the global financial crisis. Forecasters predicted a long American decline. Instead, over the course of the 2010s, the United States staged a comeback as an economic superpower and, even more, as a financial superpower.
The United States economy grew faster than other rich countries and navigated the decade without suffering a single recession — a first since records began in the 1850s. Defying the declinists, the United States was one of only two major countries, alongside China, to expand its share of the global economy in the 2010s.
With central banks, consumers and investors around the world increasingly eager to hold dollars, the greenback ruled global money flows as never before. The American stock market rose 200 percent in the 2010s while the rest of the world’s stock markets, including those of China and Germany, registered meager gains. Today, seven of the world’s 10 largest companies by stock market value are American, up from three in late 2009.
But if history is a guide, the 2020s will be anything but another American decade. Economic trends that define one decade rarely define the next. This cycle has repeated itself throughout the postwar era.
America was the hottest story in the world economy and markets in the 1960s, but gave way to emerging nations in the 1970s and Japan in the 1980s before rising again in the 1990s. After the turn of the millennium, emerging nations made another strong run, and by 2010 forecasters were predicting that emerging markets would be the story of the next century.
Excluding China, emerging countries as a group saw their share of the global economy shrink during the 2010s. The average annual gain for emerging stock markets was close to zero, their worst decade since the 1930s.
Why does this cycle play out in such a predictable way? The answer is straightforward. After a good run national leaders grow complacent and start spending irresponsibly; businesses and consumers run up debts; investors end up overpaying for stocks; and the dominant companies get lethargic and fall back into the pack.
The United States at the dawn of the 2020s is a complacent land with a rising government deficit, spreading corporate debts and swollen prices not only for the stock of megacorporations like Amazon and Alphabet but also for financial assets of all kinds.
Meanwhile, many other countries, particularly in the emerging world, were forced by pressing financial circumstances to spend the last decade reducing deficits and debt, and enacting reforms that should put their economies in a position to grow more rapidly. Quietly, global economic forces are shifting in ways that could set the stage for a comeback by smaller nations and businesses in the 2020s.
As the United States and China battle to contain each other, their titanic struggle is scaring off trade and investment that is instead shifting to smaller countries, including Vietnam, Taiwan, Mexico, the Netherlands and Ireland. To insulate themselves from the superpower trade war, nations like Brazil and Japan are signing regional and bilateral trade deals.
The big American tech companies, in contrast, face a global regulatory backlash against their monopolistic power. These giants have bought out smaller rivals and driven many out of business. But they also enable many others because their platforms allow millions of entrepreneurs to reach wide audiences, often catering to specific national or regional tastes.
It used to be that big companies competed for limited shelf space in retail stores by winning consumer trust in multiyear, multibillion-dollar TV ad campaigns. Now, internet platforms allow small companies to bypass stores, win public trust instantly through consumer reviews, and build a brand on cheap internet ads, even free YouTube videos.
Globalization is thus gradually giving way to localization, which makes this a promising time for countries with domestic markets large enough to support significant expansion in local businesses. That’s especially true of countries where the population is still relatively young and fast growing, like Indonesia, the Philippines, Egypt and Mexico.
Though stock markets worldwide are still dominated by “mega caps” — companies with a market value or “capitalization” above $200 billion — they face an emerging challenge from companies below that threshold. In finance, the hottest companies are digital payment apps and the small banks that back them. In insurance, the hot subsector is mobile internet insurance services — “insurtech.”
The fastest-growing American food and beverage manufacturers are small ones. Search “ketchup,” an American staple once virtually synonymous with a single brand, and you will find more than 680 results including local purveyors selling flavors such as bacon. Driven by apps that serve as gateways to food delivery services, a similar rise of the solo chef is underway worldwide.
Many internet platforms also provide cloud computing, which allows entrepreneurs to build back-office operations like customer relations and bill collection much more quickly and cheaply. Barriers to entry are falling, particularly since many of the hottest internet companies own few physical assets. Uber, the world’s largest taxi company, owns no taxis — but that means future rivals won’t have to buy them either.
At the same time, the rise of populist nationalism is injecting patriotic fervor into “buy local” movements. In an October survey, Chinese consumers cited “national loyalty” as the main reason they would “rethink U.S. brands.” An ad from an Indian food company urged customers to “perform your patriotic duties” and “boycott products made in China, USA, UK & Europe.”
These forces conspire to unseat the global giants, which are mainly American. The United States market accounts for well over half of the global value of stock markets, and has never been more expensive relative to other national markets. But remember, churn is the norm. Among the world’s 10 largest companies today, only one (Microsoft) was on the top 10 list in December 2009.
If the usual pattern holds, it’s likely that America will peak and smaller nations and companies will make a comeback. If the 2010s were a golden age for the world’s largest economy and its megacorporations, the 2020s are likely to be remembered as the decade when smaller was beautiful again.
Ruchir Sharma, author of “The Rise and Fall of Nations: Forces of Change in the Post-Crisis World,” is the chief global strategist at Morgan Stanley Investment Management and a contributing opinion writer. This essay reflects his opinions alone.
