HighIs the United States in a permanent decline? When MSN Money asked that question just six months ago, at the outset of its Twilight USA series, the evidence seemed overwhelming.
The U.S. auto industry was wobbly in the face of foreign competition, London was dueling Wall Street for dominance as a global financial center, and the dollar was so low that European shoppers were flooding American malls on bargain-hunting binges.
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Now it's official: The U.S. economy is in recession. But the rest of the world has tumbled, too, and the resulting landscape shift raises new questions.
On the one hand, London is suffering as much as Wall Street, and the U.S. dollar has roared back from its lows amid the global uncertainty. But Detroit's carmakers are now in intensive care -- considering bankruptcy, mergers, a bailout or anything else just to survive another day -- and retailers are slashing prices as American shoppers stay away in droves.
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Economists disagree on how long the downturn will persist, but they do believe the slump will, eventually, end. So the question is: How will the U.S. be positioned on the other side?
One thing is sure: After an unprecedented multitrillion-dollar government intervention, the virtual nationalization of many industries and a massive shakeout of industries ranging from financial services to retailing, don't expect the post-recession economy to resemble the pre-crisis one.
Here's what the experts are predicting.
1. More foreign ownership
"The economy will be different, not just in what gets made here but who owns the assets," says Mauro Guillen, a professor of international management at the University of Pennsylvania's Wharton School. One change to expect, according to Guillen and other economists, is that emerging-market countries such as China, India and Brazil, which were already flexing their muscles, will accelerate their investments in U.S. industries.
Although hit by the recession as well, these countries have more savings and safer investments in securities and Treasury bills, which will enable them to scoop up companies on the cheap. Chinese car companies, for example, are said to be looking at buying assets of foundering U.S. automakers.
That's not necessarily a bad thing, as the U.S. needs foreign investment, but "it will change the game considerably," Guillen adds, as these countries take on a larger role in an increasingly multipolar global economy.
2. More regulation
A fundamental question that will face the U.S. is the type of economic model it wants to embrace. After all, it was the deregulatory, hands-off approach that helped get the country into this mess. Yet the immediate path -- heavy government control, driven by bailouts and greater government ownership of company assets -- isn't a viable long-term way forward either.
"This crisis demonstrated that financial markets left unencumbered are likely to continue to take on risk that is beyond what is prudent," notes Doug Rediker, a former investment banker and a co-director of the Global Strategic Financial Initiative at the New America Foundation, a Washington, D.C., think tank.
But measures to constrain that freewheeling attitude shouldn't go as far as "socialized capitalism," Rediker says. "There is a healthy need for some government regulation in a free-market capitalist system."
If we don't get that mix right and learn from our mistakes, the rest of the world might conclude that it can't rely on the U.S. anymore as an anchor and engine of the global economy. But if we can find that balance and stabilize financial markets, "then the U.S. has the opportunity to retain and even strengthen its position as the world's economic leader," Rediker adds.
Brian Hamilton, the chief executive of Sageworks, a Raleigh, N.C., research company, says the government will pull back from its current level of involvement but maintain "a slight interventionist approach." That's not a bad idea, he says, given that "we have proven that the finance guys can't govern themselves." Hamilton says certain regulations, if they don't go too far, are needed to correct economic ills.
One potential downside of overregulation: slowing innovation, a main driver of economic growth. The risk, says Brian Bethune, the chief U.S. financial economist for Global Insight, an economic and financial forecasting company, is that continued heavy-handed oversight when the economy moves into a recovery phase "could make companies less competitive and creative and nimble in terms of product development." That would hurt, Bethune says, because in terms of profitability and productivity, the economy wasn't in all that bad of shape before the crisis, with the notable exception of the housing bubble.