The Decline of the West and Shifting Dynamics in the Global Political Economy 

By Dr Kalim Siddiqui 

I. Introduction 

By the end of the Second World War, the limitations of free-market and non-interventionist economic policies had become apparent. In response, a Keynesian interventionist approach was adopted by major capitalist countries, ushering in a period of economic prosperity. Over the following quarter-century (i.e. 1945-1972), these policies spurred growth in employment and incomes across leading economies. However, international developments—including the Cold War, decolonization, and rising inflation—introduced new challenges for global capitalism (Siddiqui, 2023a). And by the mid-1970s, the Keynesian model was struggling to address the deeper structural crises of monopoly capitalism. In its place, neoliberal “free market” policies began to emerge across major economies and were later imposed on developing nations in the 1980s as they grappled with debt crises and external repayment pressures. 

Colonial capitalism, in its earlier forms, tolerated some level of dissent within its colonies. Leaders of independence movements—such as Mahatma Gandhi, Jawaharlal Nehru, Maulana Abul Kalam Azad, Sardar Patel, Sukarno, Mossadegh, Ben Bella, Nkrumah, and Nelson Mandela-advocated for social equality, freedom, and independence. Despite facing oppression and undemocratic policies, they were not eliminated by colonial authorities. However, contemporary instances, such as Israel’s treatment of Palestinians, reflect a harsher approach toward occupied populations and their leaders. 

Since 1948, Israel has implemented policies that have systematically undermined Palestinian rights, with actions including ethnic cleansing and land expropriation. This settler-colonial project, initially supported by Britain and later by the United States (US), has allowed Israel to pursue expansionist policies—displacing populations and controlling land and water resources. For years, Israel has imposed a blockade on Gaza, tightly controlling its contact with the outside world through military means. The recent conflict in Gaza has highlighted the extent of Israel’s actions, with reports of targeted destruction of hospitals, schools, playgrounds, mosques, and refugee shelters. The humanitarian situation in occupied Palestine underscores the global community’s failure to address the ongoing violence and the continued displacement of Palestinians in Gaza and the West Bank (Siddiqui, 2024a). 

II. Capitalism, Imperialism, and Hegemony 

Capitalism is a system in which private owners control production and resource distribution, with economic activities driven by market competition. At its core, capitalism is founded on private property rights, encouraging efficiency as resource owners seek to maximize the value of their assets. Profit serves as the primary motivation for individuals to engage in economic exchanges, with the expectation of mutual benefit. 

Imperialism marks a phase in capitalism characterized by monopolistic control and dominance of financial capital. In this stage, European powers divided the world among themselves, extending their influence over other countries and territories to benefit their own economies. This imperialist expansion led to significant global economic inequalities and the restructuring of colonized economies to serve metropolitan capital. (Siddiqui, 2023b) 

The concept of hegemony, explored by Paul Kennedy in The Rise and Fall of the Great Powers (1987), has been central to discussions of global power dynamics. Hegemony describes periods in which one power exerts dominance over others, shaping international policies. Following World War II, this idea gained prominence in the context of the decline of European colonial empires and the rise of a postwar liberal international economy under US leadership. Economic historians and theorists such as Immanuel Wallerstein and Charles Kindleberger expanded on the concept, with Kindleberger’s analysis of the Great Depression of 1930s sparking the “hegemonic stability theory” debate among neorealist and liberal scholars. 

While Britain and other European powers pursued direct military control over overseas territories, the United States adopted a model of informal empire after World War II. Although the US did not engage in traditional colonialism, it exerted considerable influence over other countries through economic and military means. Countries, particularly in Latin America, gained political independence but remained economically subordinated to foreign powers. The neocolonial approach enabled metropolitan powers to maintain economic dominance, fostering global inequalities and regional tensions even after the formal end of empire. 

The US hegemony has been sustained through its economic, political, and military leadership, along with the cooperation of allies and economic rivals. The 1944 Bretton Woods Agreement exemplified the US vision for a postwar economic order, establishing frameworks that would enable it to lead the global economy. 

More recently, Fukuyama (2021) observed that the peak of American hegemony spanned less than two decades—from the fall of the Berlin Wall in 1989 to the 2007–2009 financial crisis. During this period, the United States held significant power across military, economic, political, and cultural domains. The height of this influence was marked by the 2003 invasion of Iraq, in which the US aimed not only to reshape Iraq and Afghanistan but also to remake the broader Middle East (Fukuyama, 2021). 

The European Union could have countered US hegemony by opposing NATO’s eastward expansion, potentially mitigating tensions with Russia and averting the Ukraine conflict. However, collective EU action failed to align with its long-term interests. The Ukraine war has subsequently drawn the EU closer to the US, both economically and in terms of defence. As a result, the EU’s reduced trade and cooperation with Russia has led to energy crises, inflation, and economic instability within Europe (Siddiqui, 2022a). 

III. Decline of the West as an Economic Power 

The decline of Western economic dominance and the waning of US hegemony is a subject of ongoing debate. Some scholars argue that emerging economies in the Global South, particularly China, will succeed the US in leading the world economy, potentially dominating future cycles of capitalist accumulation. Others suggest that this shift will be fraught with challenges and may not unfold peacefully (Siddiqui, 2022b). 

The decline of manufacturing in the US and UK began in the 1980s due to economic factors, and globalization and trade liberalization since the 1990s accelerated this shift, moving manufacturing bases from the US and EU to East Asia, China and India. East Asian economies, by contrast, achieved remarkable growth starting in the 1980s, with substantial increases in per capita incomes, exports, and living standards driven by expanded trade and the influx of foreign capital and technology. After the collapse of the Soviet Union in 1991 and the global spread of neoliberal policies, a new cycle of economic growth and prosperity was anticipated. Instead, inequality and economic crises deepened in advanced capitalist economies. The prolonged wars in Afghanistan and Iraq, followed by the 2008 global financial crisis, further exposed the signs of US decline, reflected in slowed productivity, stagnant wages, growing trade deficits, and mounting foreign debt. (Siddiqui, 2019)  

Historically, the West’s economic dominance has shifted. From 1814 to 1914, British hegemony, or Pax Britannica, relied on superior naval power and technology to control colonies and exploit their resources, often through force. This era was marked by significant violence, two World Wars, and the Great Depression. After World War II, the US emerged as the new global hegemon, with its rivalry with the Soviet Union resulting in the Cold War (1947–1990). In the aftermath of the Cold War, the US stood as the sole superpower, ushering in a unipolar world order. 

IV. Major Theories of International Geopolitics 

Various influential theories address the dynamics of international geopolitics. The first, Hegemonic Competition Theory, often referred to as the “Thucydides Trap,” draws on the work of classical political theorist Thucydides (c. 460–400 B.C.E.), who examined the moral questions surrounding the Peloponnesian War (431–404 B.C.E.) between Athens and Sparta. According to proponents of this theory, China’s rise is likely to lead to a confrontation with the US, echoing Athens’ challenge to the dominant power of Sparta. Currently, the US is seen as weakened both economically and militarily, diminishing its role in global affairs and creating instability. This situation mirrors the decline of Britain after World War I, when it shifted from being the world’s top creditor and capital exporter to becoming one of the largest debtor nations (Siddiqui, 2019). 

The second, Realist Theory posits that geopolitics is shaped by power politics, with emerging economies like China, Russia, and India expected to play increasingly significant roles. Realists view states as the main actors on the international stage, prioritizing national security, self-interest, and power. Realism also tends to be sceptical about the influence of ethical norms in international relations. Growing superpower tensions have revitalized the realist-idealist debate, sparking renewed interest in the realist approach. Realists consider maintaining a balance of power essential during shifts in global economic and military capability. For instance, in 1908, Germany’s GDP surpassed Britain’s, while Russia’s rapidly growing economy reached a GDP on par with Germany’s by 1880, leading Britain to view these rising powers as potential threats to its dominance. 

The third theory, Marxist Theory, offers a distinct critique of geopolitics, examining it through the lens of global financial capital. Academics such as Samir Amin and Immanuel Wallerstein, with his core-periphery model, contribute to this perspective. Marxist theory approaches geopolitical economy through historical-materialist analysis, examining the trajectory of capitalism from its origins to the current era of global financial capitalism and imperialism (Siddiqui, 2023b). Marx’s critique of political economy emphasizes production over exchange, value over prices, and classes over individuals. In contrast, mainstream economic theories often depict the economy as isolated from broader social realities, adopting an ahistorical and abstract approach. 

Following the Second World War, the US emerged as the dominant economic power. Economist Angus Maddison estimated that in 1950, the US produced 27.3% of global output despite comprising only 6% of the world’s population. In comparison, the Soviet Union, the second-largest economy, produced only a third of the US output, with China producing around one-sixth. However, US economic supremacy began to wane in the 1950s as Western European and Japanese economies gained ground in terms of productivity, skills, and growth. 

V. The Rise of China in the Global Economy

Neoliberalism emerged in the late 1970s in the UK and US as a new framework of contemporary capitalism, arising from the perceived failures of post-war Keynesian policies. Under neoliberalism, the state’s role in resource allocation, particularly between consumption and investment, diminished, while capitalists gained greater control over production and finance across national borders. This control has been systematically bolstered by globalized financial corporations, operating with minimal state oversight. 

Since the early 1990s, financialization has further solidified US economic dominance. Neoliberalism imposed strict social and fiscal disciplines, such as adherence to austerity policies, reduced welfare spending, and deregulation of the financial sector (Siddiqui, 2017). These policies have led to increased job insecurity, declining real wages, a reduced share of wages in national income, and growing inequality within many countries. The collapse of the Soviet Union in 1991 and the subsequent global expansion of markets, known as globalization, was seen as solidifying a US-led world order underpinned by free markets and finance.  

Over the past three decades, China’s rise has fundamentally reshaped global politics. Economic reforms initiated in 1987 led to a gradual opening of China’s economy to investment and trade, culminating in its accession to the World Trade Organization in December 2001. Since then, China has transformed from a low-cost manufacturing hub into a global leader in advanced technologies. This shift has restructured global supply chains and altered international diplomacy, establishing China as a key trade and development partner for emerging economies across Asia, Africa, and Latin America. (Siddiqui, 2024d) 

In 1978, China began opening its economy to market forces, initiating a period of unprecedented growth that defied expectations. Between 1990 and 2022, China’s GDP (in constant US dollars) expanded by 14.2 times. By 2022, the IMF estimated that China’s GDP (in constant 2017 US dollars) was 18% larger than that of the US Additionally, China’s GDP per capita rose from 3.8% of the US level in 1990 to nearly 28% by 2022. Over this period, China has made significant advancements in high technology, skill development, innovation, and quality education, challenging both the US and the EU in these areas. 

Today, China represents 20% of the global population and produces one-sixth of global GDP. In comparison, the US, with 6% of the world’s population, generates one-fifth of total global output. When measured in purchasing power parity (PPP) terms, China’s share of global output stands at 19%, compared to 16% for the US and 15% for the EU, marking a substantial shift towards Asia in a single generation. Thirty years ago, China’s share of the global economy was a modest 5%, while the US and EU each represented 20% (IMF, 2024)  

China’s rapid economic rise and the relative decline of US and Western dominance have reshaped the global economic landscape. The shift of manufacturing to East Asia has boosted economic growth but also widened global inequalities. The legacy of colonialism and the ongoing disparities between the Global North and South highlight the complexities of today’s global economy. As emerging economies continue to grow and challenge traditional powers, the future of global economic leadership is uncertain, likely marked by challenges and potential conflicts. 

Following the September 11 attacks, the Bush administration’s decision to invade Afghanistan and Iraq marked a significant shift in US foreign policy. These military interventions, combined with domestic and global economic challenges, contributed to a gradual erosion of US economic dominance. The global financial crisis of 2008 further exacerbated these issues, resulting in lower investments and slower growth. The mainstream economists believed that a free-market system led by the US would ensure long-term prosperity.  

In 2024, the global economic landscape is defined by the following top five economies: The US remains the largest economy with a GDP of approximately $26 trillion (as shown in Table 1). Its economic growth rate was 2% in 2023. The US economy is diverse, with strong sectors in finance, manufacturing, technology, and services. The US dollar’s role as a global reserve currency enhances its international economic influence (Siddiqui, 2024b). The statistics underscores the significant shift in global economic power over recent decades (See Figure 1a and Figure 1b), particularly the rise of Asia as a dominant economic force and the evolving roles of established and emerging economies (IMF, 2024). 

China is the second-largest economy, with a GDP approaching $18.53 trillion in 2023 and an annual growth rate of 4.6%. China’s economic success is driven by its manufacturing sector, technological advancements, and a growing consumer market. China’s rise has significantly impacted global supply chains and international diplomacy (Siddiqui, 2024d). 

Germany, as the third-largest economy, excels in export-oriented industries such as engineering, automotive, chemicals, and pharmaceuticals. Known for its precision and quality, Germany leads in exporting automobiles, machinery, and chemicals, playing a crucial role in global trade. Japan, the fourth-largest economy, is characterized by its innovations and high technology. With a strong emphasis on research and development, Japan excels in high-tech industries including automotive, electronics, and robotics. Its annual GDP growth rate is 0.9% (Siddiqui, 2024c). 

India has emerged as the fifth-largest economy with a GDP exceeding $3.94 trillion in 2024. The country’s rapid economic advancement is driven by key sectors such as information technology, services, agriculture, and manufacturing. India benefits from a large domestic market, a skilled labour force, and a growing middle class.

Figure 1a: Real GDP growth Annual Percent Change. 

Figure 1b: Shift of World Output Towards Asia, 1990-2024.   

Source: IMF data, July 1, 2024. 

Table 1: The Top Ten Largest Economies in the World in 2024 

It is estimated that world top economies will change. According to IMF (2024) study in 2050 Chinese economy will emerge as the top in terms of PPPs, followed by India, US, Indonesia, Brazil, Russia and so on (See Figure 2) This would mean these emerging economies share contribution to the world economy will greatly change (See Figure 3). All these economic changes will lead to change in their participation in international trade and their spending in R & D. Indeed, their struggle for greater power share in the world body and making rules to favour their economies and enhancing their position and influence on global sphere.   

Figure 2: World’s Top 10 Economies in 2050 as estimated by IMF, GDP at PPPs.  

Figure 3: Share of World’s GDP (PPPs) Changes from 2016 to 2050, as estimated by IMF.  

Those developing countries that have proved most adept at learning, absorbing, using and enhancing such knowledge are in East Asia, China and South Asia. Asia including China has half of the world’s population. Moreover, Asia continues to be the world’s fastest-growing region. Region ability to learn and increase productivity is outstanding. It is clear from the past decades experience of economic expansion, the centre of gravity of the world economy is continuing to shift in the direction of these regions. As a result, it is expected that economic rise of the region will inevitably create political shifts. Indeed, it is already happening. For instance, China’s rapid economic rise is the big geopolitical fact of our era. In recent decades, China has become the worlds’ manufacturing hub and the largest investor in Africa. China has been recently involved in bringing Iran and Saudi Arabia in peace negotiations and reducing conflicts in Middle East. 

It is predicted that China, India, Indonesia and Turkey will account for the majority of the region’s expected GDP in 2050. The fastest growing economies in Asia during the 2050s will be India (more than 3.1 annual growth), and Bangladesh (3% annually). These countries are expected to thrive thanks to their high population growth rates and would be able to take advantage of larger workforce. Latin America will account for a relatively small 7% of global GDP in 2050.  

However, growth always does not mean expansion of employment. For example, we need to draw a distinction between “a mere increase in production” and “a large remuneration of labour”. A high GDP growth, it is argued, would raise the rate of growth of employment, which would reduce the relative size of the labour reserves, create tightness in the labour market, and raise the real wage rate. But, under neoliberal policy and free market regime, agriculture and petty producers are squeezed on the name of global competition. Therefore, the agricultural growth depends on the international market and to the consumption demands of the consumers in the rich countries. The employment in agriculture is getting reduced thanks to increased automatization and innovations. Even high rates of GDP growth under neo-liberal globalisation generate very little employment growth which is often referred to as “jobless growth”.  

With a worsening distribution of income, that is, a rise in the share of economic surplus, an ex- ante slowing down of the growth of aggregate demand relative to income growth becomes inevitable. The economist Mikhail Tugan-Baranovsky had contested this proposition by highlighting the possibility of a rise in investment growth to compensate for the decline in consumption growth. However, this is possible, but there is no reason to believe that investment under capitalism would change, since capitalists invest only when there are prospects of finding a market and expecting higher profits. The government can intervene to undermine the adverse impact of neoliberal policy, but the global finance opposes any move towards government control and to a larger fiscal deficit or higher taxes on the rich, which are the only means of financing larger government expenditure that would increase aggregate demand.  

VI. Conclusion 

From early colonialism to modern capitalism, economic growth among colonizers has often occurred at the expense of other nations. Colonizers violently occupied foreign lands, creating an artificially cheap supply of resources from their colonies and semi-colonies. While these processes generated significant wealth and economic development in Europe and the United States, but they exacerbated poverty, hunger and economic inequality in the colonized regions, fostering tension and potential conflict (Siddiqui, 2022b). 

The structural inequalities in production, reproduction, and global finance continue to perpetuate the divide between the Global North and South. This stratification, deeply rooted in colonialism and slavery, has left lasting imprints. For instance, the average annual income in the Congo is $785 per capita, whereas in Belgium—the Congo’s former colonizer—it stands at $47,400 in 2023, according to World Bank data (World Bank, 2024). 

The study concludes that a significant economic and power shift is gradually taking place, with the Western economy facing steep decline. Many emerging countries are assuming larger roles in the global economy, warranting closer scrutiny of their rise. Notably, China’s re-emergence as a great power is unprecedented in both scale and speed, contributing significantly to the relative decline of US economic power.

About the Author

Dr Kalim Siddiqui is an economist specialising in International Political Economy, Development Economics, International Trade, and International Economics. His work, which combines elements of international political economy and development economics, economic policy, economic history and international trade, often challenges prevailing orthodoxy about which policies promote overall development in less-developed countries. Kalim teaches international economics at the Department of Accounting, Finance and Economics, University of Huddersfield, UK. He has taught economics since 1989 at various universities in Norway and the UK. 

References 

1. Fukuyama, F. (2021) “On the end of American hegemony”, Economist, 18th August, London.  
2. IMF (2024) World Economic Outlook, International Monetary Fund, Washington DC. 
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