Customer Reviews

Fortune Favors the Bold: What We Must Do to Build a New and Lasting Global Prosperity

5 star:		(3)
4 star:		(4)
3 star:		(6)
2 star:		(3)
1 star:		(11)

 

 

Professor Thurow has written one of the better books on improving global prosperity as knowledge-based industries and third-world industrialization expand through broader use of capitalism and new communications technologies. He accurately points out the major risks (including not participating in global trade, the out-of-control U.S. trade deficit and plunging dollar, Japan's unwillingness to clean up its bankrupt borrowings, lethal global viruses, poorly protected intellectual property rights, and the need for less expensive drugs for poor people). His prognosis is grim. "Those who leap sometimes lose, but those who do not leap always lose. Fortune favors the bold."

The solutions he proposes are extreme and bold.

Countries that are opting out of globalization had better find some way to participate. This problem will be most difficult in sub-Saharan Africa. To help with this, underdeveloped countries should focus on improving education. The World Bank should focus solely on facilitating this shift towards improved education. The IMF should provide insurance for international liquidity rather than micromanaging individual economies. New growth should focus away from exporting commodity items based on low cost labor.

After an inevitable crash in the dollar, he foresees much manufacturing returning to the United States to take advantage of newly lowered costs (in dollar terms) here. Imports will be permanently more expensive, and the standard of living in the United States will fall by at least 20 percent. The only likely palliative is to create advance plans with the IMF to handle the crisis when it occurs. The other alternative is for foreign countries to stimulate their economies more than they are, and this is unlikely to occur.

Intellectual property rights should be adjusted to reflect the ability of the purchaser to pay and the country's track record in honoring intellectual property rights. In addition, global industries should get better at protecting themselves by making piracy harder to accomplish. The film industry should focus on this now.

Income differentials can be reduced through a combination of more education, skill enhancement and replacing payroll taxes for benefits with value-added (sales-based) taxes.

Cultural threats will be overcome as countries make more efforts to export their own cultures . . . creating a newly-merged global culture.

As for American hegemony, Europe and Japan have to be willing to commit people and resources to share the costs and efforts of solving worldwide problems . . . including military ones.

As an institutional mechanism for making these adjustments, Professor Thurow proposes adding Chief Knowledge Officers for countries and companies. While companies often have such roles, countries seldom do. The national CKO "provides honest intelligence about technology and its interaction with the economies and society." With thoughtful direction, he feels that countries can create national advantages as Singapore and Ireland have done.

The potential solutions in many cases are not developed in much detail. Many readers will wonder why take those directions, rather than some other ones. The basic logic seems to be to enhance the global economy in ways that more fairly reward all countries and companies than the current system does. Such balance, while desirable, will probably have to be created by tough negotiations and competition rather than greater international cooperation.

I found the proposed solutions to be naive about how willing countries, companies and financial institutions are to change. I suspect that these potential compromises would only occur after a long period of global problems . . . such as an extended global depression, breakout of wars using weapons of mass destruction, or population-decimating epidemics.

A more realistic direction is to focus on what to do when the U.S. economy crashes after the dollar plunges. Companies will probably continue to look out for themselves. For U.S. companies, the advantages of selling more abroad will be irresistible when nondollar earnings become so much more valuable. Those who depend on exporting into the U.S. will have big problems. Professor Thurow is probably right that we are headed for a period of weak global economic growth. Currency instability will probably get worse before it gets better. Who's going to pay for stability in an impoverished world? No one, I suspect.

I graded the book at five stars for identifying important issues, and three stars for the proposed solutions and their explanations. Those two grades averaged to four stars for the book.

I do recommend this book. It will help you grasp the difficult times and choices ahead. Forewarned is forearmed. Get started now!

Let me share one final caution about this book. Although there are no misspellings, it has an annoying number of misused words (principle for principal and vice versa). It could have used some more careful proof-reading.

Let me first confess: I have retired from a career as a physicist/engineer and approach economics for the sole purpose of guiding my investments. Up front, this book provides the most crystal clear explanation I have ever seen of the interplay between trade deficits, dollar exchange rates, foreign investments (in US debt & equities), and US budget deficits. There is also an inspired, if brief, explanation of the advantages accruing to the US by having the US dollar as the principle medium of international settlements. For this perceptive and lucid discussion of international trade and payments, alone, this book is worth its price. The author's view that we are on a slippery slope to prolonged recession is widely if not universally held among economists of sound reputation.

The book lays out some ideas for averting the worst of possible economic futures. I would agree that many are idealistic and probably unworkable. But if this book does no more than prime an intelligent public dialog on the subject of deficit financing, it will have helped this democracy function with it's collective eye on the most important questions.

The reviewer who gave this volume such a low score is himself a "part of the problem." Everywhere I wander in search of economic enlightenment, I find doctrinaire petty political philosophers who are captured by this or that "school" of economics, finding truth exclusively in Keynes, M. Friedman, Laffer/Gilder or some other. The problem is that none of these "schools" or their mindless proponents would recognize a real dynamic model capable of prediction. Economics has not yet become a mature science: it has no equivalent to quantum mechanics which can predict the outcome from a set of initial conditions. So almost all economic writings are anecdotal and filled with special terminology that poorly substitutes for mathematical precision. One can comfortably adopt any particular "school" that fits one's world view because there is no predictive test to say that one or the other is wrong. I have the intuition, admittedly unschooled, that both Keynes and Friedman contribute to an accurate set of expectations.

Thurow certainly does NOT advocate prolonged US trade deficits of the sort we have now. But his view that foreign investment in the US drives our trade deficit, and not the other way around, is supported by none other than the libertarian, Ayn Rand disciples at the CATO Institute. See, for example, work of Daniel Griswold. The CATO work also sees global economic health in a balance which favors capital investment in the US and a constrained non-zero trade deficit.

Let me begin by saying that I admire and like Dr. Lester Thurow. I would love to have had the opportunity to take a class or two from him. He writes well and he has had some impact on the public economic policy debate over the past couple of decades. I am willing to consider what he has to say not only out of respect, but because I believe one should seek to understand a range of opinions and not just those that endorse our own prejudices and even our own considered conclusions.

Are you waiting for the "But"? Well, here it is. My problem with this book is that I can't find a structured argument for its proposals and even its proposals aren't all that specific. It seems to me that serious proposals also need to consider the expected best criticisms to their plan. Great chess players don't make moves hoping their opponents will not see their plan. They make their moves believing that their plan will defeat even the best moves of the opponent.

Here, Dr. Thurow makes some anecdotal analysis of the economic problems of the United States, Europe, and Japan (which are not bad, as far as they go), and winds up with a call bold government action being needed to turn things around. Given all his public writing, wouldn't his desire for more government be predictable? He tackles a variety of issues, but comes back to the solution being some kind of government action. Given the mammoth bureaucracies we take for governments nowadays, is it really likely that they will even desire bold action let alone be able to overcome their massive inertia even if they desired act?

The way he defines some terms frustrates me as well. I find his describing capitalism being based upon greed a biasing argument, glib, and unpersuasive. Certainly, socialist bureaucrats, tyrants, and anarchists can be greedy as well. Saying that Capitalism is based upon competing self-interests rather than using "greed" would have been a more useful term with a bit more subtlety in making the debate.

Also, he lumps big corporation executives into the capitalist class. That could only be true if they actually believed in private enterprise. However, most mega corporations today work hard to use the government to protect them from competition or failure (both required under capitalism). They want to use the power of government to enhance their rewards and distort markets. That isn't capitalism, but it is human nature. While he does touch on this phenomenon on page 42 vis-?-vis the California electricity crisis, I think he sees it as a part of capitalism rather than a corrupting human tendency that needs to be managed and guarded against in any economic system.

But this big-government big-business monstrosity is what we have now. However, this is another topic and a debate that is not really germane to this review.

His notion of a Chief Knowledge Officer (chapter 9) is, I think, a pipe dream. I cannot conceive of a real world political way for such an office to exist successfully in a decision making process. What would make this person's view of the future any better than anyone else's? Who would anoint such a person as effective? And if they were, wouldn't they seek the CEO role? And if they weren't why would anyone listen to them? He or she would be marginalized quickly and ignored in practice. Dr. Thurow does cite Bill Gates, but Mr. Gates has a unique position as a founder and owner of a huge portion of the company's stock. Mao also ran China after stepping down as Chairman and resigning from the party. That is also not a typical way for a despot to wield power. Both are exceptions that serve to prove the rule rather than provide models for others.

Only those on the extreme right would deny a role of the government in creating and enforcing property rights and in promoting competitive markets. And only a few would argue that government ownership of the means of production makes much sense. The debate we all really participate in is the proper role of government in this process and Dr. Thurow states his beliefs and his reasons for them with clarity and energy.

However, I don't believe this book is going to persuade anyone on the right. It may be useful to those who agree with Dr. Thurow on the need for more International Government and want to have some more debate material. But I really would have liked to hear more debate on the horrors of the Terror, The Great Leap Forward, and the Cultural Revolution rather than simply saying Socialism is good on infrastructure investment, but poor on infrastructure maintenance. To me, that just seems to be an odd conclusion.

Don't get me wrong. Just because I read the book and found myself disagreeing with Dr. Thurow doesn't mean I didn't find things of value in the book or that I don't think you should read it. There are things to think about that will force you to flesh out your position. I am willing to state that he may well be right and I might be wrong, but of course I don't think so. However, I do believe the book could have used a somewhat tighter focus and a more explicit structure to its argument and conclusions. There are footnotes citing reference materials for further reading.

Here is an interesting thought by Thurow, from p. 210: "Because of its history, China has less infrastructure (communications, transportation, and electrification) than have even smaller, poorer countries such as India. China is three times as large as India yet has 20% fewer miles of railways." Here are the figures from the CIA World Factbook:

Railways (km): India, 64,000; China, 72,000
Airports: India, 334; China, 500
Main telephone lines: India, 28 million; China, 130 million
Cell phones: India, 3 million; China, 65 million
TV broadcast stations: India, 562; China, 3,240
Internet users: India, 7 million; China 46 million
Electricity production: India, 533 billion kWh; China, 1.4 trillion kWh

China clearly beats India hands down with infrastructure, except in the mileage of highways, which India has twice the figure. But this does not take into account the quality of India's highways, which is often dreadfully poor (though good enough for donkeys and cows). Thurow's out-of-whack statistics are equally matched by his explanation why he thinks China's infrastructure is poor: China, unlike Inida, was not a real European colony! By this incredible reason, Africa should have excellent infrastructure, having been thoroughly colonized by Europeans in the 19th century!

This one example should be enough to give one pause, not only about Thurow's odd way of analysing his data but also about data themselves. Ironically, Thurow is skeptical about China's official statistics. "Published annual growth rates of 9.7% grossly exaggerate Chinese success in the decade of the 1990s." (p. 207) Based on things like electricity consumption, the figure ought to be about 5%, Thurow suggests. But...."Even a 5% growth rate will be difficult to match in the years ahead." (p. 208)

Gregory Chow is America's leading expert on the Chinese economy, the former chief of Princeton's econometrics program, a professor emeritus of economics at Princeton, and a member of the American Philosophical Society (a high honor for distinguished scholars). In his book, "China's Economic Transformation" (Blackwell, 2002), Chow states: "During the two decades of reform [1979-1998], economic growth took place at a phenomenal rate of 9.6 percent per year on average." (p.62) In the chapter in which this sentence appears, he explains what happened to maintain this rate of growth. As for Thurow's forecast that even a 5% is hard to sustain, Chow suggests various possibilities, the most realistic of which is thus: 2001-10: 6.9%; 2010-20: 5.5%; 1996-2020: 6.6% (p. 103) Since China is currently growing at 8% according to official statistics (9-10% according to Western analysts, who now see China as UNDER-REPORTING growth), with very low inflation into the bargain, Chow's forecast is on track if slightly pessimistic. The notion that China cannot maintain even a 5% growth is absurd. If China managed a near 10% growth in the last two decades, as Chow claims, it is hard to conceive how China should have trouble sustaining 7% for the years until 2020, a figure which Jiang Zemin recently declared to be the chief goal for the Chinese economy to reach for the next two decades. (He called for a quadrupling of the economy from 2000 to 2020, from $5 trillion to $20 trillion in 2000 dollars, which is what a 7% a year growth can do precisely.) 7% per year can quadruple China's current $6 trillion economy (in 2004) to $24 trillion easily.

As for Thurow's belief that things like electricity consumption are better measures of real GDP growth, perhaps he should be reminded that China's electricity consumption, oil and gas consumption, and the like are growing at faster-than-GDP-growth rates. To use one example, China's 2002 industrial production growth rate was 12.6% (CIA), while its oil imports for the first 10 months of 2003 are up 30% from the year-earlier period. (Wall Street Journal, Dec 3, 2003, frontpage) As for his claim that few foreign firms make money selling products to the Chinese customer (p. 213), Thurow should read more newspapers: As reported in today's Wall Street Journal, GM sold 46% more cars in China than last year, while GM's American sales slipped. Large corporations do not knock one another over in their rush to China if they think this is a money-losing strategy. Even Warren Buffett is investing in China now.

Thurow says China is not going to be an economic power of any importance except perhaps in the "distant" future. I beg to differ.

In the International Energy Outlook 2003 published by the Energy Information Administration of the US Department of Energy, China's GDP is projected to be $5,085 billion in 2025 - the third largest in the world after the US and Japan, and considerably larger than Germany's $3,811 billion, France ($2,781 billion), Britain ($2,528 billion), or India ($1,775 billio). And these figures are in nominal GDP in constant 1997 dollars and assume the exchange rates to be unchanged.

Will the world's third largest economy not be considered an economic powerhouse except perhaps in the "distant" future, as Thurow asserts? To put it in perspective, Germany is the world's third largest economy today, and yet its nominal GDP is only 25% America's (about $2.5 trillion). Few people would dispute that Germany is an economic powerhouse, small as it is.

To be sure, America will still be much bigger than everyone else (except for the EU): $19,285 billion. Japan in 2025 will only be worth $6,680 billion - a bit bigger than China and still far behind the US. (Japan will be one third the size of America, but then Japan's population will likely be only one third as large as America's - or less.)

China's $5 trillion will be just over one-quarter America's GDP. But this assumes China's renminbi to remain the same and not to rise - an unlikely prospect. Also, in purchasing power parity, China's $5 trillion can easily balloon to $20 trillion (based on today's PPP calculations) in 2025, thus making China's real gross GDP to be slightly larger than America's by the end of the first quarter-century of the 21st century.

How Thurow can claim that China will not matter economically from now to the end of this century is beyond me. It is absurd. To repeat, by 2025 China will have the third largest economy in the world in GDP based on exchange rates, and the largest economy in the world in GDP based on PPP. In 2025! Now, if this is "distant future," wait till you see China's share of world GDP continues to grow after 2025, even at a lowering rate. It is almost certain that China will take the lead from the US both in nominal GDP and in PPP before this century is out, if not in per capita income.

Thurow argues that only the per capita income counts. I have trouble accepting this. If you're the biggest guy on the block, you start making the rules, even if you don't wear fancy clothes like the smaller guys. In the real world, absolute size matters as much as per capita income; otherwise Luxembourg instead of the US should be considered the superpower.

Books written by Professor Gregory Chow of Princeton and Professor Angus Maddison of the OECD draw the same conclusion about China's future PPP figures. The US Department of Energy and Professor Richard Cooper of Harvard base their projections on nominal GDP. All four predicts China's growth rate to be twice that of the US for the next two decades. The first two decide that China's PPP will equal America's by 2020. The latter two decide that China's nominal GDP will be the world's THIRD largest by 2020 (not 2025), as long as components of the EU are counted as separate economies. (Otherwise the EU will be #1, America #2, Japan #3, China #4, Brazil/India #5, etc. in nominal GDP, and the EU will be #1, China #2, America #3, Japan #4, etc. etc. in PPP.)

In each case, the implication is the same: China is going to be a BIG deal soon enough for most of us if not for Thurow. This is what Margaret Thatcher means when she writes that China is "undoubtedly on course to become an economic superpower" ("Statecraft"). This is what Paul Wolfowitz meant when he told the Washington Times that China is going to become a superpower in the next quarter-century to half-century, adding "and that's pretty fast by historical standards." This is what Jack Welch of GE means when he writes that China is going to wield enormous influence in this century, and warns managers "doing pie charts" to "leave half the pie open for the Chinese" ("Jack: Straight from the Gut"). And this is also what Lee Kuan Yew of Singapore, Ora Namir (former Israeli Minister of Labor), and Jeffrey Garten, Dean of Yale School of Management, mean when they proclaim today's China to be "the second most important country in the world." (Various news sources)

I bought this book recently while in Thailand, hoping that Thurow would offer-up something interesting - more or less along the lines of the early 90s work, such as "Head to Head." Not here. I checked the date and the book was initially published in 2003, which means he probably wrote the mainstay in 2002. To me, if you have never thought about globalization and its implications, then buy it. If you have already, then this is nothing more than a collections of truisms that anybody with any interest in the subject would know already.

Globalization is here to stay. You have three options - accept it, reject it or shape it. The author suggests the third option.

With the demise of communism in the last decade of the twentieth century, capitalism is the only remaining vehicle of economic development that appears to have succeeded in creating prosperity in the developed world. Globalization in the context of the third industrial revolution led by knowledge based industries is the spread of capitalism across boundaries. Capitalism has three basic traits as outlined by the author - greed, optimism and herd mentality. It is this combination that drives capitalists to establish global supply chains - produce where it is cheap and sell where it is attractive; and everyone has something to sell. Globalization is driven by businesses and not by national governments. While governments can play a catalytic role in attracting businesses, it is business that fuels the engine of growth.

The distribution income and wealth has never been so skewed in the history of mankind. While just a couple of hundred years ago the per capita incomes across nations was almost uniform, and perhaps uniformly low, today the top 20 percent of the nations control 80 percent of the planet's wealth, and this disparity is increasing. While America with over 32 percent of global GDP in dollar terms is the locomotive of global growth, the author emphasizes the urgent need to kick start two other big locomotives- Europe and Japan, that can pull the global economy faster into prosperity. The American locomotive is now struggling with a huge trade deficit and a overvalued dollar. It can stop. Europe and Japan are shut. It is this scenario of no locomotive in action that threatens to bring global economies to a halt, and into a recession. The third world countries will be hit hard should this happen.

There are conflicting interests between the developed world and developing countries when it comes to some vital issues on global prosperity. Capitalism aims at rewarding intellectual properties, and there is no limit to such rewards. Capitalism ignores human aspects. On the other hand there are billions of poor people in developing countries for whom a square meal a day is a luxury. They just cannot afford health care and drugs at international prices. Governments in these countries need to find a way for providing health care though it may not satisfy the prices demanded by global pharmaceutical companies. Intellectual property is important but human life is priceless. Similarly when it comes to agriculture, developed nations protect and subsidize their farmers, which denies a huge opportunity for developing countries to export their production and earn higher incomes.

Singapore and Taiwan receive accolades as models of globalization and growth in Asia. The picture on china is mixed. Growth statistics projected by China are shown as suspect in accuracy and bordering on intentional exaggeration. Despite attracting huge FDIs, China has inherent weaknesses in her banking system and continued government support to inefficient State Owned Enterprises weakens it further. Growth is confined to certain pockets and has not reached large provinces in the interior. China's bet on an export led economy is also not sustainable according to the author.

The IMF and the World Bank are heavily criticized for their outdated policies. The author is in agreement with some observations by Prof. Joseph Stiglitz in his book " Globalization and Its Discontents" on this aspect.

The chapter on the role of a Chief Knowledge Officer for companies and governments is not convincing and there appears to be a lack of continuity with other chapters. Strategic planning in the perspective of a global economy based on knowledge assets is of course very clear, but strategies for managing knowledge in that scenario is a huge topic by itself.

The book starts by drawing an analogy between globalization and the construction of the tower of Babel. According to mythology, the Lord came down, saw the tower and decided to scatter the men who built the tower across the globe and confused the languages of all the earth so that they may not understand each others speech. Hope this time the Lord is pleased by the new tower and shall bless humanity with all prosperity into posterity. This is the tower of the twenty first century.

This book is a call upon all nations to join in this exciting journey. There is no guarantee for success. " Those who leap sometimes lose, but those who do not leap always lose. Fortune favors the bold."

It is not very often that I read a book on economics that doesn't make my head hurt. This is one of those books. I found it eminently readable and interesting. Economics is a geeky affair, but this book teaches us that it is as much humanities as it is science. Although this book is a treatise on global markets--with China featured predominately--it is something else, too. You will find it interesting to read about why countries steal technology from one and another.

It was fascinating to learn about how patents can be used as weapons or strategic pawns in the race to innovate. Cluster, picket, and submarine patents are all strategies that can allow one to deny an innovator his innovation.

During a recent Christmas season Amazon suddenly announced it had a patent on one click checkout and sought to stop other online retailers from using the one click checkout system. Now, Amazon expected to loose their case, but they gained tremendous advantage by disrupting others. Smart!

You will, I trust, enjoy this book as much as I did.

China in fact has 135 million main telephone lines, compared to India's 28 million - almost 5 times as many for a population only 1.3 times India's. Since the Internet is often carried through phone lines, China is clearly poised for an explosive growth in Internet use while India must first work harder on getting a dial tone.

Thurow is completely ignorant about China. Not just partially ignorant, but completely ignorant. On the few things he happens to be right, such as China's needs for better infrastructure, this is just common sense and applies to just about every developing country on Earth. The notion that not having been completely colonized by European powers left China at a "disadvantage" in infrastructure would have been laughable if Thurow's books had been less widely read: By this logic, Japan should have no infrastructure at all. As for Thurow's criticism of China's export strategy, he is right to the extent that this cannot be China's basis for economic growth forever - sooner or later the American consumer will run out of money (like the Japanese and Germans) for Chinese products. But what this export strategy is doing for China is that it is creating a genuine industrial base (on top of what it had before 1978, chiefly with heavy industries) that is consumer-oriented, as well as building a growing middle-class for which a workable banking and legal system (that respect private property) can now exist. China is roughly at the point where America, in the post-bellum industrial boom, once was when it received massive FDI and technical know-how from Europe, especially Britain. Eventually China must produce for Chinese customers rather than for foreigners - exactly what happened in America after the two world wars. But the American economy did not stop growing after that because its own consumption led to massive demands, more than making up for the (temporary) loss of foreign markets.

It wasn't too long ago that Gunnar Myrdal, the Nobel Laureate in Economics, concluded that it was not possible for Asia to export its way out of poverty. He wrote just when Japan was taking off as an exports giant. Lester Thurow faults China for its dependence on exports for economic growth, seeing it as a dead alley. He is wrong for two reasons. First, this strategy makes sense for China for now because of its vast cheap but hardworking (& fast-learning) labor force. What else could China be doing to grow? The Soviet model? China already tried that. Let's do what the Japanese and Taiwanese have been doing with success. Second, this strategy is only temporary. Once China has reached a certain stage in development, its labor force will begin to produce for its own consumers instead. The United States certainly did not rely on exports for economic growth in the 19th century. And I may add that China, the world's most successful economy for three thousand years (read Margaret Thatcher's "Statecraft" for those of you who dispute this), did very little trade with the outside world historically. Its famed silk trade added next to nothing to its domestic economy, even during its height in the 9th century AD. China stayed rich simply because its people worked hard. Thurow would learn more economics if he would only read more history - a typical problem when it comes to economists.