Book Reviews & Citations
(07/24/05) Three Billion New Capitalists reviewed in the Washington Times
Will the East's new capitalists put America in second place?
Washington Times (DC)
Copyright (c) 2005 Washington Times. All rights reserved.
July 24, 2005
Section: BOOKS
Will the East's new capitalists put America in second place?
By William H. Peterson, SPECIAL TO THE WASHINGTON TIMES
Slant of this work can be seen in its Chapter One heading,
"Icebergs Ahead." Yes, the giant U.S. economy is cast here as the
Titanic, speeding through the night while ignoring warnings of looming
icebergs. Clyde Prestowitz, head of Washington-based Economic Strategy
Institute, supportee (one of many) of billionaire textile protectionist
Roger Milliken of South Carolina, author of this well-written first
person singular book, ticks off some iceberg warnings, some in the form
of headlines from January 2005 newspapers:
* New York Times, January 25: DOLLAR'S STEEP SLIDE ADDING TO TENSIONS U.S. FACES ABROAD
* Financial Times, January 24: DOLLAR AT THE MERCY OF SMALL GROUP OF CENTRAL BANKS
* Wall Street Journal, January 24: CHINA ON PATH TO OVERTAKE U.S. ECONOMY
* Wall Street Journal, January 24: BIG SILICON VALLEY FIRMS THRIVE BUT JOBS ARE FEW
Granted these headlines portend a gloomy U.S. outlook. Granted
too our economy - to invoke a winked comment by J. P. Morgan asked to
forecast the economy during Congressional testimony back in the 1930s:
"It will fluctuate." But the Prestowitz "icebergs" are still selective,
backing up his subtitle, "The Great Shift of Wealth and Power to the
East."
Which raises the question: Is that shift, if that's what it is,
with its "globalization" bad for America? Mr. Prestowitz weighs the
case of communist China, boasting a population of 1.3 billion. China
almost collapsed from Mao's disastrous postwar "Great Leap Forward" of
all out socialism. Deng Xaioping rescued it in 1978 (Mao died in 1976).
Deng got the Chinese Communist Party to adopt "4 Modernizations:"
increasing rural incentives and incomes; boosting new private
enterprises; slashing central direction; and sparking foreign direct
investment, soon luring in GM, GE, Motorola, Starbucks, etc. Deng
brazenly said heretical things like "to get rich is glorious" and my
gem: "It makes no difference whether a cat is white or black as long as
it catches mice." Anyway, the Chinese economy has taken off like a
rocket. Is that bad for America?
Ditto India with its population of 1.1 billion. After World War II it
tried socialism under Prime Minister Jawaharlal Nehru. The result was
what my New York University mentor Ludwig von Mises called "planned
chaos." A statistic that tells it all. In 1938 India's share of world
trade was almost three percent; in 1980 it was 0.5 percent. Much credit
for India's turnaround today goes to its present Oxford-educated prime
minster, Manmohan Singh, an admirer of Margaret Thatcher and an
authority on free trade. Recently he put before India's parliament a
plan to free up free enterprise by - to quote Mr. Prestowitz -
"slashing tariffs and other trade barriers, deregulating and
privatizing, attracting foreign investment, and fostering export-led
growth." Free trade worked. India has become a trading power. So is
India an economic threat to America? Mr. Prestowitz thinks so. I
don't.
The free trade case, made by classical economist David Ricardo
with his law of "comparative advantage," has stood the test of time for
almost two centuries. Mr. Prestowitz retells the Ricardo case: Suppose
Portugal could outsell Britain in both wine and textiles. Ricardo saw
comparative advantage would soon direct private investors so that
Portugal specialize in wine and Britain in textiles with the two
countries trading their respective surpluses with each other as well as
it with others.
But recent public agitation over "Exporting America" in terms of
jobs and capital to places like China and India has scored hits for the
Democrats, even though the White House had Chairman Gregory Mankiw of
its Council of Economic Advisers defend the practice with many big-name
economists endorsing his stand. Mr. Prestowitz was not among them. His
supporters include MIT's Lester Thurow, Nobel economist Paul Samuelson,
and a surprise: ex-Treasury official in the
Reagan regime and a founder of supply-side economics, Paul Craig
Roberts. Mr. Roberts holds "for comparative advantage to work, a
country's labor, capital, and technology must not move
offshore."
Who's right, who's wrong? I recall Jean Baptiste Say, godfather
of supply side economics and author of Say's Law (supply creates
demand), lamenting theplight of huge richly endowed Brazil whose
government constantly overruled its entrepreneurs and capitalists to
set back Brazil's growth in the 19th century. Had Brazil prospered,
reasoned Say, not only would Brazilians have thrived but so would the
French and nations generally, trading with a vast vibrant Brazilian
economy. I also recall Thomas J. Watson, founder of IBM, pointing up
another gain of free trade with his ringing call for "World Peace
Through World Trade" during the interwar period. Protectionism does not
come cheaply; it breeds distrust, possiblly war.
Laissez-faire thinking by Say and Watson counterpoints that of
interventionist Clyde Prestowitz. He here touts a "new Bretton Woods
Conference" to cut the impact of the dollar's role in world business
and so offset America's huge persistent trade deficit (which excludes
investment). A no-brainer! Would you,
Dear Reader, entrust the fate of the U.S. dollar to sharp
international politicians at such a conference? Lots of luck,
America.
William H. Peterson is an adjunct scholar at the Heritage
Foundation and the winner of the 2005 Schlarbaum Award for Lifetime
Achievement in Liberty from the Mises Institute of Auburn,
Alab.
+++++
THREE BILLION NEW CAPITALISTS: THE GREAT SHIFT OF WEALTH
AND POWER TO THE EAST
By Clyde Prestowitz
Basic Books, $27.50, 416 pages
20050725082311-072405