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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  

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Chiangmai, Thailand Sep 8-12.

(06/01/05 - TV) Clyde Prestowitz interviewed on Wake Up Call on CNBC

(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
Time: 05:52:00

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 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 software, right?


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.


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