Book Reviews & Citations
(Summer 2005) Three Billion New Capitalists reviewed in the Wilson Quarterly
Wilson Quarterly, Summer 2005
Page 118
Three Billion New Capitalists: The Great Shift of Wealth and Power to the East
By Clyde Prestowitz. Basic.
321 pp. $26.95
Economist Clyde Prestowitz has reason to be pessimistic about the
future of the U.S. economy - three billion reasons, in fact. With the
rapid entry of China, India, and the former Soviet bloc nations into
the international economy, three billion "new capitalists" have emerged
to compete with Americans on the world stage. Prestowitz worries that
the United States has no strategy to deal with these new competitors -
and that the ultimate losers will be America's workers.
Drawing on an impressive command of economic trends, as well as
countless interviews with political and business leaders worldwide,
Prestowitz highlights the two problems that he sees facing the United
States and the global economy. First, America's de facto economic
strategy is to ship key industries overseas. It was bad enough when
manufacturing industries began leaving, but now the service sector and
even high-tech and R&D are going too, enticed by the East's low
wages, high levels of education, tax breaks, and huge potential
markets. To his credit, Prestowitz doesn't begrudge India and China
their growth and progress - he just wonders what jobs and wages his
grandchildren will find in an increasingly "hollowed out" America.
The second problem Prestowitz identifies is that China and India are
rising at a time of a simple yet fundamental imbalance in the global
economy: "Americans consume too much and save too little while Asians
save too much and consume too little." The deep trade and budget
deficits reflect and exacerbate these conditions. "The nightmare
scenario - the economic 9/11 - is a sudden, massive sell-off of
dollars," Prestowitz warns, "a world financial panic whose trigger
might be as minor, relatively speaking, as the assassination of a
second-rate archduke in a third-rate European city." Yes, 9/11 meets
World War I in a single sentence! At times, Prestowitz can be
positively Thomas Friedmanesque in his overheated metaphors, but while
Friedman has made his mark as globalization's Pangloss, Prestowitz is
more like its gloomy Eeyore.
His evidence is sometimes shaky - for instance, he uncritically accepts
rosy growth projections for India and China but embraces the direst
forecasts for the U.S. economy - and his policy proposals range from
daring to goofy. In a time honored Washington tradition, he calls for
blue-ribbon commissions and international conferences to do everything
from boosting America's "competitive potential" to eliminating the
dollar in favor of a new international currency. He argues that the
United States must eliminate the mortgage interest deduction on second
homes, drop income taxes in favor of consumption taxes, slash defense
spending, and introduce national health insurance. He encourages Japan
and India to join the North American Free Trade Agreement, and he wants
Japan to adopt the U.S. dollar as its currency - though it's unclear
how his new international currency would fit into that scheme. Running
throughout is a call for greater government intervention in the U.S.
economy, particularly in the realm of industrial policy, which
Prestowitz thinks gets a bad rap in Washington. For American business,
his overriding recommendation is "Sell things no one else makes," and
he chastises narrow-minded corporate leaders for not considering the
national economic interest.
Prestowitz has sounded such alarms before. In his 1988 book Trading
Places, he argued that Japan had become a juggernaut, a "kind of
automatic wealth machine" that could topple the United States from the
world's top economic perch. History has not been kind to that
prediction. For America's sake, one can only hope that Prestowitz's
latest forecast will prove similarly off the mark.
-Carlos Lozada