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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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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.

(08/14/05) Clyde Prestowitz Interviewed in the New York Times

(08/14/05) Clyde Prestowitz Interviewed in the New York Times
New York Times (NY)
Copyright (c) 2005 The New York Times. All rights reserved.
August 14, 2005

OFFICE SPACE: ARMCHAIR M.B.A.; One Global Game, Two Sets of Rules

GLOBALIZATION is imperfectly understood by many American policy makers, with dangerous consequences for the United States economy, says Clyde Prestowitz, author of "Three Billion New Capitalists: The Great Shift of Wealth and Power to the East" (Basic Books, 2005, $26). A former trade negotiator in the Reagan administration, he is president of the Economic Strategy Institute in Washington. Here are excerpts from a conversation:

Q. Why do you say that many American policy makers don't understand globalization?

A. There are two different concepts of globalization. One concept is based on the American experience, which is one of a democratic country under a rule of law that holds to market principles. This view holds that the objective of economic policy is to improve consumer welfare and believes in the thinking of David Ricardo and Adam Smith about comparative advantage and free trade maximizing consumer wealth.

Q. Doesn't everybody embrace that view?

A. No, there's a second concept, which is a strategic-trade, export-led, growth kind of globalization. This concept is held by many countries around the world, particularly in Asia. It focuses on economic development as a matter of strategic significance. It explicitly aims to achieve trade surpluses and large dollar reserves. It's aimed at fostering production and a high savings rate but suppressing consumption.

There are two different games going on. The difficulty in the United States is that frequently the second game is not recognized or acknowledged or, if it is, it's dismissed as being not significant.

Q. What are the consequences of not speaking the same language about globalization?

A. We have a very distorted global economy. It is tilted. There's one consumer, which is the United States. All the other major countries are producers and net exporters. The United States consumes far more than it produces and has to borrow money from the rest of the world to finance that consumption. The rest of the world, particularly Asia, and particularly the central banks of Japan and China, provide a kind of vendor financing to the United States to enable it to continue buying their exports. You have a kind of Ponzi scheme that constitutes the global economy. Like any Ponzi scheme, it's not indefinitely sustainable. At some point, the world will run out of savings to finance American consumption, or the rest of the world will begin to doubt the ability of the United States to make good on its obligations. There will be a collapse of one kind or another.

Q. What do you think of the current China debate?

A. As with Japan back in the 1980's, I think Washington has too much faith in theoretical macroeconomic models. There's a lot of emphasis on getting the Chinese to revalue the yuan, which they have recently done. This reminds me of the pressure put on Japan to revalue the yen. If you look at the history, the yen has strengthened by more than 100 percent since the mid-1980's but we still have a huge trade deficit with Japan.

What's not recognized in Washington is that the world is tilted. The United States has built an economic structure of consumption. The rest of the world, particularly Japan and China, have built economic structures favoring production and exports. Currency revaluations have not reduced these trade imbalances so far.

Q. Can there be such a thing as fair trade in these relationships?

A. I think there can be, but there has to be a recognition by the American side of the existence of these different concepts of globalization.

Q. What should the American government be doing?

A. Insist that the rules of the World Trade Organization and the International Monetary Fund and all the various global institutions be observed. Japan is part of the Organization of Economic Cooperation and Development. It's supposed to be floating its currency. But it intervenes periodically in currency markets to manage the value of its currency. There ought to be some discipline. When countries are engaging in offering financial investment incentives, those are arguably indirect export subsidies and are of questionable validity under globally agreed trade and investment rules.

Q. Should the real debate be about China or about how the United States is competing?

A. This quintessentially is a debate about American competitiveness. The biggest single thing we should do is to get our own fiscal house in order. We are overconsuming. That is making us very dependent on foreign financing.

Q. Why is it a problem if other people want to sell the United States their things and finance the purchases?

A. It's not a problem for a while. In fact, it feels really good for a while because you get free consumption. But as Warren Buffett has pointed out, in the long term, it turns you into a sharecropper. To finance the consumption, you keep selling off your assets. You sell the garage. Then you sell the guesthouse. After a while, there's nothing left to sell and you have to go to work and earn real money to pay your debts. Your kids and grandkids will have less opportunity and lower standards of living.

Q. Aside from fiscal policies, what are the other elements of a response?

A. We need to have a strategy. When I.B.M. sold its PC division to China, C.E.O. Sam Palmisano told The New York Times that I.B.M. wants to be part of China's strategy. I don't blame him. If I were the head of I.B.M., I'd want to be part of China's strategy, too. But it raises an interesting question: If you ask an American C.E.O. if he or she wants to be part of America's strategy, none of them can answer the question. Because America doesn't have a strategy.

Q. In a nutshell, what should America's strategy be?

A. We have to maximize American strength. The United States is innovative. We have strengths in high technology, research and development and entrepreneurial undertakings. We should be making the investments in R.&D., technology infrastructure and education to maintain and maximize those strengths.

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