(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
WILLIAM J. HOLSTEIN
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
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
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
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
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.