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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.

(7/14/11) Prestowitz cited in the New Republic about American industrial policy

Stop Blaming Wall Street

It isn't the reason our economy is in shambles.

John B. Judis

Senior Editor
 
July 14, 2011 | 12:00 am 

As the U.S. economy fails to recover, there is a growing fear that the United States has entered a phase of long-term decline. Conservatives blame big government for throttling entrepreneurship; liberals tend to take aim at Wall Street. Rolling Stone writer Matt Taibbi memorably described Goldman Sachs as 'a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.' Among less inventive critics, the term in vogue is 'financialization.' According to author Kevin Phillips, who popularized this notion, financialization is 'a process whereby financial services, broadly construed, take over the dominant economic, cultural and political role in a national economy.'

Elements of this thesis can be found in scores of books, articles, and blog posts on the state of the U.S. economy. Phillips blames financialization not just for the 'Great Recession,' but for 'excessive debt, great disparity between rich and poor, and unfolding economic decline.' In their book, 13 Bankers, former International Monetary Fund (IMF) chief economist Simon Johnson and James Kwak blame financial factors for the 'anemic growth' in the overall economy prior to the crash. And, in an influential essay titled 'WHAT GOOD IS WALL STREET??' The New Yorker economics writer John Cassidy pointedly contrasts the period when regulators restrained the growth of the finance sector (when wages, investment, and productivity grew, lifting tens of millions of working Americans into the middle class) with the period of growth experienced by the finance sector since the early 80s (when financial blowups have proliferated and living standards have stagnated).

One thing is clear: Financialization, in some form, has taken place. In 1947, manufacturing accounted for 25.6 percent of GDP, while finance (including insurance and real estate) made up only 10.4 percent. By 2009, manufacturing accounted for 11.2 percent and finance had risen to 21.5 percent?an almost exact reversal, which was reflected in a rise in financial-sector employment and a drop in manufacturing jobs. It is also clear that high-risk speculation and fraud in the financial sector contributed to the depth of the Great Recession. But Phillips, Johnson, and the others go one step further: They claim that financialization is the overriding cause of the recent slump and a deeper economic decline. This notion is as oversimplified, and almost as misleading, as the conservative attack on the evils of big government.

Click here to read the entire article at the New Republic.

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