(06/01/05 - TV) Clyde Prestowitz interviewed on Wake Up Call on CNBC
Business; Economy; China
Byline: Michelle Caruso-Cabrera
Guest: Clyde Prestowitz
Spec: Business; Economy; China
MICHELLE CARUSO-CABRERA, CNBC ANCHOR: The United States has long been
held as the engine of global economic growth, but now a series of
internal and external factors threaten to shift the power from West to
East. For a look at the implications we are joined now by Clyde
Prestowitz. He is the author of Three Billion New Capitalists: The
Great Shift of Wealth Power to the East.Good morning, nice to have you
CLYDE PRESTOWITZ, ECONOMIC STRATEGY INSTITUTE: Good morning, glad to be here.
CARUSO-CABRERA: Let`s go over the basic premise of your book, which is
that you suggest that there is this great shift of power. Why do you
think that is happening?
PRESTOWITZ: Well, you know, the world is kind of tilted. And what we
have is a global system which is one consumer, that is the United
States, and all the other countries in the world are pursuing policies
of gaining growth by exporting to the U.S. So they manage the dollar,
so they intervene in markets to keep the dollar high. That, and they
also offer enormous financial incentives. So for example we think of
our futures being in high-tech, and yet we see big U.S. high-tech
factories moving to China, Singapore, elsewhere, why? Because they are
getting tax holidays. They are getting free capital grants. They are
getting free land. So there is a strategy, if you will, to try to draw
these out of the U.S.
CARUSO-CABRERA: And why is that problematic in your mind, what are the implications of that?
PRESTOWITZ: Well, if our future is supposed to be in high technology,
and our future is supposed to be in innovation and new products, and if
that technology is moving rapidly to Asia, then it suggests that maybe
that is not where our future is going to be.
CARUSO-CABRERA: OK. But haven`t we found answers in the past? Haven`t
we found -- hasn`t the capital gone to areas where there has been a
need and we have answered that before, right? Manufacturing left and
there were more.
PRESTOWITZ: Well, I mean, that is a very interesting point.
Manufacturing has been leaving the U.S. for a long time. And as that
has been happening, we have been telling ourselves, hey, don`t worry
about it, sweaty, dirty work, let it go. Our future is in services and
PRESTOWITZ: OK. But right now you can do all the software work in
Bangalore for 20 percent of the price of doing the software in the
U.S., and it is two seconds to Bangalore. The Internet, FedEx, the
advent of India and China in the global system have revolutionized...
CARUSO-CABRERA: Are you suggesting a reduced standard of living here in the United States.
PRESTOWITZ: Well, there is a thing called factor price equalization of
economics, which means that -- you know, why do haircuts cost more in
the United States than they do in India? And the answer is that you
can`t easily get to India to get your hair cut.
PRESTOWITZ: But if you could, the price of haircuts in the United States would drop also.
PRESTOWITZ: But with the Internet and with global express delivery,
FedEx, in fact, you can get to these places very quickly. So if you are
a software developer in the U.S., there is really no reason why you
should get paid more than a software developer in India if you are
doing exactly the same thing.
CARUSO-CABRERA: And we`ve already started to see that.
PRESTOWITZ: Delivering the products. So there is going to be this kind
of pressure on wages. And so the issue for the U.S. is, OK, what is it
that is really -- we`re going to do that is unique, what is going to be
our niche where we do it better or faster than anybody else?
CARUSO-CABRERA: Which brings me to my last question, we are running out
of time. What is -- you have made some recommendations in the book,
what are they?
PRESTOWITZ: Oh, my recommendations are the U.S. needs to begin to get
strategic about this. I mean, for example, IBM (IBM) recently sold its
PC division to China`s Lenovo. And after doing that, IBM`s CEO made the
statement to The Wall Street Journal that IBM wants to be part of
China`s strategy. Interesting statement. If I were IBM, I would like to
be a part of China`s strategy too, but the question is does anybody
want to be a part of America`s strategy? And the answer right now is
that nobody could if they wanted to because America doesn`t have a
strategy. We need a strategy.
CARUSO-CABRERA: OK. So some policy makers out there need to start thinking a little bit more you think?
PRESTOWITZ: A little more strategically.
CARUSO-CABRERA: All right, terrific. Thank you so much for coming in.
PRESTOWITZ: Thank you.
CARUSO-CABRERA: Clyde Prestowitz is author of Three Billion New Capitalists: The Great Shift of Wealth Power to the East.