(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
"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
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
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
"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
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?"