(08/28/05) Clyde Prestowitz quoted in the Sunday Star Times (New Zealand)
Free-for-all comes at a price
Sunday Star Times (Auckland, NZ)
Fairfax Sunday Newspapers, Copyright of Fairfax New Zealand Limited 2005, All rights reserved.
August 28, 2005
Free-for-all comes at a price
AMERICAN ECONOMIST Clyde Prestowitz visited Auckland last week. Never heard of him? He's not exactly a household name.
These days, the venerable pundit runs an economic consultancy in
Washington DC, but his views are informed by his years as a trade
negotiator in the administration of Ronald Reagan. Read his new book -
it's called Three Billion New Capitalists, it's why he was here - and
one could easily see it just as a story about America's struggle to
recognise a changing world.
In a New Zealand election year, however, it's worth paying extra attention to what Prestowitz has to say.
The main thrust of his argument is that when it comes to the national
interest, free trade and laissez faire don't cut it. This is akin to
economic heresy in America, and even more so in New Zealand.
The Kiwi economy is wide open to international competition and our
businesses have become torch bearers for free trade, market access,
zero subsidies, zero protection. That's all well and good, says
Prestowitz, but other countries are busy using state power to build
economic power. A favourite anecdote of his involves IBM boss Sam
Palmisano, who went to Beijing in July 2003 to initiate the sale of the
company's PC division to China's Lenovo. The meeting wasn't to talk to
anyone at Lenovo, it was to talk to Chinese government officials.
The point? Palmisano didn't talk to anyone in the US government about
it. "Fascinating'" Prestowitz says. "Did he talk to George Bush? Why
not? Because America doesn't have a strategy."
Prestowitz laments the hollowing out of America's industrial strength
for want of federal leadership, noting how time and again American
technology and expertise has shifted overseas and most often to Asia.
New Zealanders may snort with derision at the idea of America as a free
trader blown this way and that by the interventionist policies of rival
powers. America is a subsidy junkie itself, and Prestowitz knows it.
"If you are an apostle of free trade then for sure America is a sinner,
but it is a venial sinner." The huge subsidies for lamb, or cotton, are
not the result of policy. "We're not doing it because we think that
cotton farmers are a strategic industry, we're doing it because cotton
farmers have a senator on every committee. It's political corruption,
but it's not strategic.
"On the other hand, every country in Asia has an economic strategy.
Every country is thinking about 'where we want our country to be in 20
For an example of how strategic thinking works, look no further than Korea.
"What's the difference here? About 15 years ago the Koreans said 'how
are we going to compete?'. They identified telecoms as a fundamental
infrastructure and broadband (internet) as an enabler of a quantum
Korea deregulated its telecoms industry, provided incentives to drive
broadband demand and imposed standards to ensure new buildings deployed
the new infrastructure. At the same time America was deregulating, but
looked at the process simply as a means of creating competition.
"So we spent 15 years fighting over unbundling and trying to get
companies to compete, we didn't think about developing our
infrastructure. So the result is we are far behind the Koreans in the
things that the internet - that we invented - can do and provide."
Prestowitz's description of American telecoms sounds like the situation
in New Zealand, only we're a decade behind. Users of telecommunications
infrastructure in this country regularly and frequently complain the
market has failed to produce anything like technological leadership, as
well as failing to produce genuine competition. This is not the fault
of the companies concerned, but it may be the fault of government
policy - or the lack of it.
But that's another story. Back to Prestowitz, who is worried America's
lack of strategy is producing brittle economic growth based on
consuming imports, which are paid for by borrowing from Asians'
savings. One of these days, says Prestowitz, the rest of the world may
want to purge its balance sheet of so much American debt - and when
that happens the global financial system could hit some serious
There are ways this risk could be mitigated and Prestowitz is
optimistic America can change. "You have to have some hope or you
wouldn't write a book."
But America is entering "a period of ferment".
"There's a lot of things that aren't working in the American frame of
mind. There probably needs to be some element of crisis, some
difficulty that will trigger a rethink. The question is whether that
trigger will be a minor crisis or a major one."
Prestowitz's ideas have two implications for New Zealand. One, we need
to think about what to do in case of an American crisis. Two, we should
think more about the government's role in driving industrial strategy.
Now is a good time for that.
Prestowitz has a final piece of advice. Watch out for the Republican
stronghold of Kansas, he says. Despite its adherence to the values of
independence, its frontier spirit and its free market economics, "the
truth is those guys are all dependent on government subsidies. Those
are the guys who are your problem in New Zealand".