(07/08/2005) Clyde Prestowitz mentioned in the Seattle Post-Intelligencer
GLOBAL FORCES ALTER U.S. ECONOMY
Seattle Post-Intelligencer (WA)
(c) Copyright 2005 Seattle Post-Intelligencer (http://seattlep-i.com).
All rights reserved. Reproduced with permission of the Seattle
July 8, 2005
GLOBAL FORCES ALTER U.S. ECONOMY
TOM THOMPSON Guest columnist
The war on terror is so visually dramatic that its gruesome headlines
and sound bites actually limit our view of the larger world. In fact,
those life-and-death themes often mask an otherwise mustard-or-mayo
complacency about broader, even revolutionary change.
The global economic forces that with increasing speed are now altering
the United States' economic future are an example. The trends are
downright alarming as the post-World War II prosperity that so many
Americans still take for granted is clearly imperiled - in my view,
Because each year the United States consumes roughly $700 billion more
than it produces, it must borrow from abroad to finance its excess
consumption. Foreign central banks provide the financing by buying U.S.
Treasury bills and other financial assets. For the first time in
history, they are reducing their dollar holdings. The nervousness of
the European Union, Russia, OPEC, Japan and China about the possibility
of a sell-off of dollars as the world's reserve currency may not make
for bold headlines, but that doesn't mean that the dangers are any less
The chronically overvalued dollar and the export-driven growth and
prosperity of so many other countries is causing a steady and sustained
transfer of production and technology abroad while putting enormous
downward pressure on U.S. salaries.
As a result, the question of how long an international economic system
that even mainstream analysts call a massive Ponzi scheme can go on is
worrisome, to say the least. The problem is that U.S. household debt is
at an all-time high of 120 percent of household income. At some point
it will not be possible to consume more unless salaries start rising,
which for other reasons is not going to happen.
Strains in the system have been described in terms of a generally
"shrinking" world, a "flat" world (by New York Times columnist Thomas
Friedman) or as "the great shift to the east" (by strategic analyst
Clyde Prestowitz). The essence of these notions is that billions of new
entrepreneurial world economic players from China, India and the former
Soviet bloc look to compete head-on in the globalization process that
for the interests of many U.S. citizens is simply broken.
The Internet and global air express (and faster-than-ever containerized
ocean transportation) have negated time and distance, along with
standard economic assumptions that labor, capital and technology don't
move between countries.
In virtually any manufacturing industry, the notion of "the China
price" has become common. It is the price U.S. suppliers to other U.S.
businesses have to match to keep their customers. The phenomenon is
hardly limited to the consumer goods found at Wal-Mart.
These days Chinese imports mean not just products from low-tech
industries with inexpensive labor. In addition to China's masses in the
countryside, several hundred million urban Chinese have first-world
skills. These are often well-trained mathematically oriented engineers
and experimentalists. More significant, industrial solutions with high
rates of brainware to hardware mean sophisticated results using simple,
cheap equipment - an investor's dream.
Not to worry. For years we have been told by one pundit after another
that the oallowing out of U.S. manufacturing capacity is not a problem,
that we are becoming more of a service economy.
While that may sound reassuring, it ignores any fair-minded analysis of
India's new, specialized role in the globalization process. There, a
combination of skills, low cost, quality work and instant communication
means that few aspects of our lives in Seattle will remain untouched as
India has become the location of choice for global software and
information technology services. India has become for the service
industry what China is for U.S. manufacturing.
Even in agriculture, the United States, once the granary of the world,
is under attack. We can expect to have a more or less permanent
agricultural trade deficit as a result of shifts in world food
production. In South America, Argentina and Brazil have become
world-class beef-producing heavyweights. Additionally, Brazil in
particular has the potential to bury much of the world in low-cost
soybeans, as well as other grains.
The message is not that the United States has ceased to be the richest
and most powerful nation the world has seen. But U.S. prominence and
continuing high rates of consumption cannot be taken for granted. In
every aspect of our lives, we have many very capable new competitors
changing how smart and how hard we have to work.
Clyde Prestowitz suggests that we impress upon our children that among
industrialized countries, U.S. 12th-graders are now in the zero
percentile in science and only the 10th percentile in math. Their own
self-assessment "feel-good" scores rank them No. 1, which leads me to
remind my own high-schoolers that while they are very special to me,
what they should want for themselves is to be very, very specialized,
so that their jobs and careers are less likely to be outsourced. Their
classmates and peers are now in China, or India, and the sooner they
appreciate this significance the better prepared for the future they
Tom Thompson of Bainbridge Island writes frequently on foreign affairs. He has made more than 60 trips to Asia.