The message that we got from Thomas Friedman in "The World is Flat" is that we are now - thanks to the internet, digitized work-flow software, and the supply-chaining of Fedex and UPS - on level playing field with billions of new capitalists in China, India, and Eastern Europe. The revised and more pessimistic message that we get from Clyde Prestowitz is that the playing field slightly favors the new capitalists. Why? They are willing to do the same work cheaper and better than their American counterparts. American companies are having to choose between setting up shop on the new frontiers of capitalism or go out of business. Prestowitz is a futurologist whose forecasts of the future have not always been realized ( remember "Trading Places," predicting the dominance of Japan), but I think now he is much closer to the mark. He thinks Americans have become to complacent about their economic superiority. Instead of spending so much time and resources in trying to fix the rest of the world it should start putting its own economic house in order.
The problems that Prestowitz focuses on in this book are a contuation of the same problems dealt with in "Trading Places" with the rise of Japan. The Asians - first the Japanese, and now the Tigers, China, and India - save, produce and export, and we still spend and consume. People were worried in the 1980's when the trade deficit was $50 billion, last year it was $600 billion - $150 billion with China alone. Clyde Prestowitz was concerned then, he is even more so now, and we should be too. Add this to a federal budget deficit of $400 billion, and one can conclude that we are living beyond our means to the tune of a trillion dollars a year. The fact that the dollar is the world's reserve currency has thus far exempted us from acting responsibly. And how are we financing these deficits? The Bank of China and the Bank of Japan are buying t-bills and other financial instruments so that we have more ready cash to buy their products.
The new capitalists produce and America consumes. At present both sides are happy with this arrangement, but, Prestowitz warns that the day of reckoning is coming. This imbalance cannot be sustained indefinitely. The subtitle of this book is "The Great Shift of Wealth and Power to the East." The question that one wants to keep in mind when reading this book is where will America be when the wealth and power has shifted to the East? Will it be impoverished or wealthy like the rest?
Prestowitz has long been dismissed as a promoter of "industrial policy," in which the government sets policies in place that pick "winners and losers." This is nonsense. He is promoting a strategy that takes into account the "export led" economic strategies of our trading partners. People in Washington are not keen on competitiveness strategy, instead they comfort themselves with the notion that the invisible hand deals economic justice in the marketplace. However, our trading partners have strategies and, not surprisingly, they are strategies in which they are the winners and we are losers. As we are playing our heroic role of the being the world's most ravenous consumer lifting billions out of poverty we should also keep our eye on mounting debts and our ability to pay them back.
Prestowitz makes many useful recommendations in this book that are necessary but, politics being what they are, difficult to implement. For example, the tax system should be taxing consumption and not income. This would increase our low savings rate. Instead of consumption more money needs to be invested in education, infrastructure, and wealth-generating projects. It is important that the economic ecosystem of top universities, high-tech infrastructure, venture capital, and manufacturing remains in this country in order to generate the "next big thing." If the ecosytem is weakened, our wealth generating capacity will be seriously impaired and the question of whether we will still be wealthy after the great shift will be answered. I loved this book.
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