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Manufacturing is still critical to the economy United States. Clyde Prestowitz, says it's time to start realizing the positive spillovers that manufacturing creates... Read more  

Events & Activities

Stephen Olson at Chinese Development Institute Conference


 Clyde Prestowitz giving presentation to CDI...


Steve Olson teaching trade negotiations at the Mekong Institute...


Stephen Olson to speak at upcoming workshop organized by the International Institute for Trade and Development on 

"Economics of GMS Agricultural trade in goods and services towards the world market"

Chiangmai, Thailand Sep 8-12.

(08/30/10) Betrayal of American Prosperity reviewed in Manfacturing and Technology News

Manufacturing and Technology News

August 30, 2010

Book Review: ?The Betrayal of American Prosperity,' By Clyde Prestowitz

In the late 1980s at the height of the competitive challenge posed by Japan, America's lead Asia trade negotiator Clyde Prestowitz wrote a seminal and best-selling book Trading Places on the industrial and economic strategies Japan used to become a world power. The book thrust Prestowitz into the national policy limelight. Prestowitz's views on the nature of global economic competition have grown recently in stature, due to the financial industry meltdown, the rise of China and with the publication of a new book, The Betrayal of American Prosperity, Free Market Delusions, America's Decline and How We Must Compete in the Post-Dollar Era.

In it, he provides a personal and fervent rebuke of the economic leadership of the country -- a leadership that refuses to admit that its ideological embrace of free markets and free trade has been proven wrong, and destroyed the prospects for tens of millions of Americans.

He describes how the "best and brightest" American free-market economists -- the people he has debated directly for a generation -- have been "invoking false doctrines that are systematically undermining American prosperity." He notes that his views have been considered "alarmist and outside the mainstream." Now, however, "it looks as if we may not have been alarmist enough," he writes early in the book. "Our best and brightest have been betraying our productive base and over committing us geopolitically. Now we are at a crossroads where the future of America truly is at stake."

The "loyal disciples of a false faith" continue to sell their ideas, however. Yet their faith has been rejected by the Asian nations that are now thriving off America's depleted wealth. "In a fascinating display of denial, most U.S. economists have rejected the Asians' explanation of their own success," he writes. "Just as the science of aerodynamics says bumblebees can't fly (the equations argue that a bumblebee's structure should keep it grounded), so conventional economic wisdom argues that Asian industrial policy and strategy trade can't work."

Prominent U.S. economists such as Lawrence Summers, President Obama's chair of the National Economic Council, have tried to rationalize Asia's economic success by saying it was due to "good execution of the Washington Consensus," writes Prestowitz. They have even labeled the Korean government's interventionist economic policies that created huge and thriving industries as being a "failure." But one of Korea's leading economists, Ha-Joon Chang, a professor at Cambridge University, says "nothing could be further from the truth." The Asians have pursued aggressive industrial and trade policies involving subsidized export loans, access to cheap capital and barriers to imports and foreign investment. U.S. economists that have discounted these policies, which have led to Asia's dominant economic strength, "don't have a clue about Asia and its success," according to Prestowitz's quoting of Chang.

Prestowitz skewers others: President Clinton's top economic advisors Robert Rubin and Laura Tyson (who is now being considered as a replacement for Christina Romer, Obama's Chair of his Council of Economic Advisors); the McKinsey Global Institute, whose main proponent of outsourcing (Diana Farrell) is now a Deputy Director of Obama's National Economic Council; Greg Mankiw, President Bush's chair of the Council of Economic Advisors; and other implacable economic ideologues who have steadfastly held the grip of political power.

Prestowitz enlivens the book by weaving personal experiences into the narrative. He describes the relationships he had with some of America's most important industrialists in the 1980s, and how they helped create his company (the Economic Strategy Institute) and other organizations such as the Council on Competitiveness. (Even that group has been corrupted by members who were "mostly believers in the win-win free trade doctrine," he writes.)

He makes the important point that the reason the competitiveness issue dissipated in the 1990s was because "many of the companies making the fuss (Cincinnati Milacron, Zenith, Perkin Elmer (etcetera) had gone out of business. There was no one left to make a fuss."

He tells the story of Motorola king Bob Galvin having "a heart-to-heart talk" with President Reagan's Commerce Secretary Mac Baldrige. "Galvin wanted the United States to adopt an economic strategy to improve America's prospects, but Baldrige, frustrated with the Reagan administration, could not help him. Baldrige . . . responded by saying frankly that an effective administration strategy was unlikely. 'I understand,' he said, 'that you have to do what you have to do.' With that, Galvin was off to Asia, and especially to China."

Providing a clear elucidation of an observation made by William Baumol and Ralph Gomory in the 2001 book Global Trade and Conflicting National Interest, Prestowitz describes how CEOs of U.S.-headquartered multinational companies no longer act in the interest of the country. Yet they continue to hold prominence at the policy table, directly advising President Obama and his team about what they see as the folly of "Buy American" provisions in federal government spending bills. "As I write, the U.S. Commerce Department and the Office of the U.S. Trade Representative have batteries of industry advisory groups that are supposed to counsel them on what would be good for the United States to get or to avoid giving up in international negotiations like those for the U.S.-Korea Free Trade Agreement and the Doha Round of WTO negotiations," Prestowitz writes. "Most of the members of these advisory groups represent companies that have large interests in China."

The Obama economic team shows few signs of knowing how to address the current recession. With the departure of White House economist Christina Romer, Obama would do well to give Prestowitz a call.

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The Betrayal of American Prosperity.

The Trans-Paific Partnership and Japan.

Making the Mexian Miracle.

Industrial Policy and Rebalancing in the US and China.

The Evolving Role of China in International Institutions.


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