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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  

Events & Activities

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.

(08/26/05) Clyde Prestowitz quoted in The National Business Review (New Zealand)

(08/26/05) Clyde Prestowitz quoted in The National Business Review (New Zealand)
Every Country Wants to Make Semiconductors and Some Shouldn't Try

 
Doomsayer economist Clyde Prestowitz says New Zealand should not try to become a technology leader or outsourcing destination because it can't compete.

"Every country wants to make semiconductors and airplanes and some shouldn't try. There's nothing wrong with the alternative."

Mr Prestowitz is predicting the collapse of the US dollar, possibly leading to a global recession, in his book Three Billion New Capitalists: the great shift of wealth and power to the East.

He lives in Hawaii which he says does very well from tourism. As with Hawaii he sees New Zealand as an attractive location for tourism, property development and offering services to Asia's ageing population - such as long-term care and assisted living.

Another possible revenue earner for this country would be medical tourism - an industry that has enormous potential and does use technology and sophisticated skills, Mr Prestowitz said.

But it would be a mistake for New Zealand to focus on business process outsourcing (BPO), as economists such as Kenichi Ohmae, have suggested (NBR, June 4, 2004).

"New Zealand would be competing with India but wage levels are not at Indian wage levels."

Of course whatever industries New Zealand pursues, it would not be able to avoid the fallout from a global financial meltdown of the kind Mr Prestowitz is predicting.

Mr Prestowitz, a former adviser to President Ronald Reagan, is leading a chorus of economists who say America's dominance of the world's economic system is coming to an end, with messy results.

He argues America's $US700 billion trade deficit and the Americans' appetite for consumption are pointing to an economic crisis and global recession.

The funding of the US deficit requires 80% of available global savings: "Once it hits 100% the music stops," Mr Prestowitz said.

As NBR has previously reported (NBR, July 22) some central banks are already diversifying away from the greenback, seeking to reduce their exposure to the currency by including more euros, yen and sterling in their reserves.

It is almost impossible to know for certain how widespread this strategy is, because many central banks are secretive and the data collected by the International Bank of Settlements in Basle is historical.

"But there are underground shifts already taking place," Mr Prestowitz said.

There are dream scenarios in which the world financial system rights the imbalance with the US without a recession, but he rated them unlikely.

One scenario involves Japan, China and the EU all experiencing robust economic growth to become net importers and the US beginning to save more and export more.

"This is unlikely because it requires enormous changes in the policies of the EU, Japan and the US and all of the changes changes have to happen ... so everything happens smoothly with no painful adjustment."

Other economists, such as former adviser to President George W Bush Glen Hubbard, are optimistic about the greenback because of continuing US productivity growth.

But Mr Prestowitz said he was sceptical about this because inflows of foreign capital were being invested in US Treasury bills, which did not reflect productivity growth.

The trade imbalance with the US could continue as long as Asian countries, pursing an export-led growth strategy, were prepared to offer a form of "vendor financing" in which they finance the US to fund their own sales.

"America has a privileged position [as reserve currency]... the question is: will the rest of the world indefinitely accept this?"

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