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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.

(09/09/05-TV) Clyde Prestowitz interviewed on Wide Angle

(09/09/05-TV) Clyde Prestowitz interviewed on Wide Angle   
September 9, 2005: Clyde Prestowitz, founder and President of the Economic Strategy Institute, discusses social, political, and economic development in India with anchor, Bill Moyers.

BILL MOYERS: With me now is Clyde Prestowitz, founder and president of the Economic Strategies Institute in Washington and his most recent book is Three Billion New Capitalists: The Great Shift of Wealth and Power to the East. Welcome to Wide Angle.

CLYDE PRESTOWITZ: Thank you, Bill, good to be here.

BILL MOYERS: Three billion new capitalists?

CLYDE PRESTOWITZ: Three billion: 1.3 billion in China, another billion in India and another 700,000 in Russia, the countries of Central Asia and Eastern Europe, the former Soviet Bloc. And all of them have abandoned communism or socialism and moved on to the capitalist road.

BILL MOYERS: Well, one would think this is immediately good news. And yet when you open your book to page 21 you say the world economy is like the Titanic.

CLYDE PRESTOWITZ: Well it's good news, but the problem is that the structure of the current global economy is unbalanced. You have right now in the global economy one consumer. It's the United States and the Americans are the greatest consumers of all time. They're consuming 7 percent of GDP -- $700,000 a year more than they earn.

Think of a family that spends $130,000 a year and only earns $100,000. That's essentially what the United States is doing. The rest of the world, particularly Asia, is producing, saving like crazy. Singapore has a 50 percent savings rate; China has a 45 percent savings rate. They're saving, they're investing, they're producing and they're exporting to us.

The difficulty here is that because we're buying more, spending more than we earn, we have to borrow money. And we're borrowing it, essentially, from the central banks of China and Japan. We're borrowing at the rate of $700 billion a year, and this has to keep increasing in order for global growth to keep rising.

The difficulty is we are now, as a country, soaking up about 80 percent of the available savings in the world and obviously if you hit 100 percent the music stops. So that's why I'm saying this is an unstable situation. It's not that globalization is bad. These 3 billion people coming into capitalism is very positive. We've seen the growth in China, the growth in India is now lifting hundreds of millions of people out of poverty, but we need to get it on a balanced basis.

BILL MOYERS: If the global economy, as you say in your book, is like the Titanic, is the outsourcing that we just saw in that film, to use another figure of speech that brought the Titanic down, the tip of the iceberg?

CLYDE PRESTOWITZ: Well, in a way it is. But you have to look at this outsourcing, I think, in a balanced manner. Outsourcing is a very natural thing. You and I get our hair cut, we don't do it ourselves; we go to a barber. We outsource the haircut. We launder our clothes, we don't do it ourselves, we send it to the laundry, we outsource them.

And that increases our productivity and it creates jobs and employment for the people who do the haircutting and the laundering.

BILL MOYERS: In both cases, just around the corner from where I live.

CLYDE PRESTOWITZ: Right, but there's nothing different in principle. If you could send your haircut to India and have it done less expensively, you would do it. If you could send your laundry to China and have it done less expensively, you would do it. You can't do that. It's hard to send your laundry by FedEx to China and get it back competitively. But there are a lot of things that you can send to India or China and have them done less expensively and thereby save you money and increase your productivity. The key thing here, I think, is this: The outsourcing can be a very positive thing. Think about medical care. Medical costs in the United States are skyrocketing. We know we're going to have a tremendous challenge in the U.S. to cover the skyrocketing Medicaid and Medicare costs that we anticipate for the future.

One way of keeping those costs under control is outsourcing things like reading of x-rays and reading of brain scans to India or to China or to other low cost places. So, in that sense, it can be very complementary and very supportive of long term U.S. economic welfare.

The key thing here is that we also have to be selling things to people outside the United States. There are a number of areas in which the United States is very competitive -- production of things like aircraft or semiconductors. We're very competitive in these areas. We need to be able to take advantage of our strengths to produce things -- products or services -- that we're good at doing and selling them abroad.

The way the current economic structure is set up, the U.S. dollar tends to be chronically overvalued. There tend to be subsidies given abroad to attract American factories or American laboratories to foreign shores. These are not market-based kinds of factors; these are policy-based kinds of factors. And they tend to tilt the playing field or tilt the floor against the competitive U.S. industries.

So what we need to do is to create a global structure in which "Let's outsource those things that are positive for us to outsource, let's do it." But let's also sell the things or produce the things in which we are very competitive.

BILL MOYERS: What is the scope of what we're talking about? I mean how many American jobs are being outsourced, sent overseas, shipped out every year?

CLYDE PRESTOWITZ: Nobody really knows. You have two categories. One category is jobs that are essentially shut down here and sent abroad. But there's a whole other category, which are jobs that might have been created here, but aren't created here and are created abroad. And it's very hard to count that number, and I think that's the bigger number.

BILL MOYERS: I've seen something like 14 million from one academic study out in California.

CLYDE PRESTOWITZ: Fourteen million is one estimate, but these estimates are all over the lot. I think the most important thing is not really how many jobs are outsourced. This operates at the margin and the real question here is what is the impact on overall income levels.

BILL MOYERS: Here in this country.

CLYDE PRESTOWITZ: Here in the United States. So the way this works is that some jobs are outsourced. That creates the threat of outsourcing, which means that the next time you come around for a salary review and a salary increase, you know that it's possible that your job could be outsourced, and therefore your demand for a raise might be mooted.

So, this operates at the margin in such a way that whether the number of actual, concrete number of jobs outsourced is high or low, the potential of outsourcing puts a downward pressure on income levels and disciplines you the worker and disciplines, you know, the entire workforce.

BILL MOYERS: You know, just the other day -- well, this summer -- the government's new figures about income said that people at the top are still doing very well and in fact, income is slightly up across the country. But for the 80 million people who live paycheck to paycheck, [income] is down almost 9 percent since 1999. Do you think outsourcing is a factor in that?

CLYDE PRESTOWITZ: Globalization is definitely becoming a factor in, kind of, stagnation of wages and salary levels. And what we've been seeing in the last several years is rising returns to capital, but kind of constant or stagnating returns to labor. One effect of these 3 billion people coming into the global labor force is that it creates a surplus of labor and it creates deflationary pressures in labor markets.

So, the real absolutely essential thing here is that if we're going to maintain high and rising standards of living in the United States, we have got to be doing things that others can't do. We've got to be doing things much better, much more productively than other people do them. We've got to be training, educating. But we also have to be clever about how we structure our trade policies, structure our international investment policies, so that in the things that we're good at doing we maintain our competitive edge.

And that's an area where we have not really been thinking as hard as we should.

BILL MOYERS: Do you think most Americans even grasp the scale of this potential phenomenon? I mean, here are these thousands of young Indians, we just saw some of them, who are training every year to take these jobs. Do you think we understand?

CLYDE PRESTOWITZ: People do not get this. Our leaders don't get it; some of our most sophisticated economists don't get it. Certainly the man on the street hasn't seen this yet.

BILL MOYERS: And some who get it, like Tom Friedman, say it's the best thing since chicken soup. I'm paraphrasing ...

CLYDE PRESTOWITZ: Well, some who see part of the potential of globalization embrace it, and I embrace globalization. But my point about this is that we have to be as strategic in our thinking about globalization as other countries are.

So, I mean, for example, we're very good at aircraft production in the United States. We've ruled the commercial aircraft industry for a long time.

BILL MOYERS: And that employs a lot of people in manufacturing.

CLYDE PRESTOWITZ: It employs a lot of people, it's high tech, it's high productive, it's high wages and high salaries. But what we've been seeing over the last twenty, twenty-five years is that the European Airbus, which has been highly subsidized by the European Union governments, has gradually been eating away at the market share of Boeing and the U.S. producers.

And recently, Boeing has increasingly been moving some of its production offshore. In fact, its new airplane, the 787 Dreamliner, which has been receiving a very enthusiastic reception in the marketplace, is being largely produced in Japan.

BILL MOYERS: Is that because labor's cheaper?

CLYDE PRESTOWITZ: No. I mean, Japanese labor's more expensive than U.S. ...

BILL MOYERS: What's it have to do with outsourcing then?

CLYDE PRESTOWITZ: What it has to do is that the Japanese government for years has been trying to create an aircraft industry in Japan and so the U.S. government has been very reluctant to respond in any way to offset the subsidies that the European Union has provided to the Airbus. The U.S. government has been very reluctant to respond to the European industrial policies by challenging them in the World Trade Organization.

The Japanese government provides subsidies to Japanese aircraft parts makers, which then induce Boeing to move the production to Japan in order to get the benefit of those subsidies. So we don't have a policy in the United States, but the Europeans have a policy and the Japanese have a policy. And de facto, their policy becomes our policy in the sense that it moves production out of the U.S., which rightfully ought to be done in the U.S.

BILL MOYERS: For all of my life, the United States government has subsidized, protected textiles in this country and that didn't stop textile jobs from going overseas.

CLYDE PRESTOWITZ: No, it didn't. Because the truth of the matter is that in textiles, the United States does not have any kind of a comparative advantage. We're a high cost producer in textile, we don't have a technological advantage, we're just not really competitive in textiles.

Let me give you another example: cotton. We subsidize our cotton farmers. We're not the low-cost producer in cotton. We're the high-cost producer in cotton, but we subsidize this.

BILL MOYERS: So we're doing inefficiently what somebody else could do much more efficiently?


BILL MOYERS: So it is as good as chicken soup, isn't it? I mean, going to where you can get it done cheaper?

CLYDE PRESTOWITZ: Well, going to where you can get it done cheaper is absolutely the way to go, but the point is that if you can get it done cheaper in the U.S. or more productively in the U.S. then that's where you want to be. And what we have not done is to pay adequate attention to the things that we do well in the U.S. We have enabled and fostered a global system in which the dollar is consistently overvalued. So that means that U.S.-based production is consistently priced higher than it should be. It's a penalty on U.S. exports.

BILL MOYERS: Now are people going to say, well you're arguing for lower wages in this country?

CLYDE PRESTOWITZ: I'm not. I'm arguing for higher wages, but what I'm arguing for is a level playing field, a global marketplace in which American producers operate and compete on even terms with foreign producers. So the things that we're not good at, like cotton for example, those things we should let go.

The things that we don't have any particular advantage in, we shouldn't artificially try to protect them. That's just a penalty on our own economy. But the things that we're good at, the things like aircraft manufacturing, the things like biotechnology, the things like semiconductor manufacturing, software production -- those things we're good at. We're as good as anybody else in the world. But we are not able to exploit our advantages in the global marketplace as well as others can exploit their advantages because the structure's been set up to put a high penalty on U.S. production.

BILL MOYERS: I'm a cotton farmer in the South where I come from. Look me in the eye, Clyde Prestowitz, and tell me it's good for me to let my farm be shipped abroad to India or...

CLYDE PRESTOWITZ: It's not good for you, but it's good for the United States.

BILL MOYERS: You mean I've got to be patriotic and let my livelihood go?

CLYDE PRESTOWITZ: Well, you've already made a lot of money because the average worth of a cotton farm in the United States is about a million dollars.

BILL MOYERS: I chose the wrong business.

CLYDE PRESTOWITZ: So, you've already made a lot of money, but let's take the textile industry as maybe a better example. Or the steel industry, where a lot of workers have lost their jobs over the years and some are continuing to lose their jobs. And you're right; these people have to pay an adjustment.

For these people, losing their job is painful. And while there may be some benefit to the overall U.S. economy, for those people this is very painful. What we need to do -- and have not done -- is to compensate these people, buy them out.

You know, the theory is that because free trade creates more winners than losers that the winners should compensate the losers. We haven't really had the winners compensating the losers. We need to do that.

BILL MOYERS: How do you compensate a steel worker in Pittsburgh whose job goes abroad?

CLYDE PRESTOWITZ: Buy 'em out. Buy 'em out.

BILL MOYERS: What do you mean?

CLYDE PRESTOWITZ: Pay him his wage until retirement. We did that. If you recall -- you're old enough to remember this -- the longshoremen union, back in the '50s and 1960s was resisting automation of unloading of ships. And the solution to that was that the employers simply bought out the longshoremen. They agreed that all present longshoremen would be paid their normal wage until retirement and would have their pensions and so forth taken care of.

So you just buy the existing people out so that they don't pay the penalty for what is, after all, a big productive shift for the whole economy.

BILL MOYERS: Cotton is unique, however. The jobs we saw being done in India are jobs of software programmers, designers, you know. We couldn't afford to buy out all of them could we? Should we?

CLYDE PRESTOWITZ: Well, in the United States, the software industry continues to be quite dynamic, and we're creating more jobs ...

BILL MOYERS: These call centers, I mean, there're a lot of people who work at jobs at call centers.

CLYDE PRESTOWITZ: Sure, sure, but there are a lot of people ...

BILL MOYERS: We can't pay them for the rest of their lives or a pension, can we?


BILL MOYERS: Is that what you're arguing?

CLYDE PRESTOWITZ: No. What I'm saying is, in the case of cotton, the government provides a subsidy.


CLYDE PRESTOWITZ: So, that's a policy measure.

BILL MOYERS: So we're taking that away.

CLYDE PRESTOWITZ: We're taking that subsidy back and, and we're saying, "OK, you know, this is going to be an adjustment here and so we understand that you're in a particularly tough situation, so we can take care of that so we can make the adjustment."

But in markets that are pretty free markets and where we have relative strong competitive capability, no, you don't want to buy people out. The key here is this, Bill. U.S.-based production and U.S. supply of services is still very dynamic. We have a lot of good cards to play here. We have good technology, we have highly productive manufacturers, we have innovative service providers.

BILL MOYERS: They're hard workers, too.


BILL MOYERS: Americans are a hard-working people.

CLYDE PRESTOWITZ: Hard-working and, you know, good work ethic and highly educated and productive workers. But we've penalized these people because we have participated in the creation of a global economic system, which essentially depends on an overvalued dollar.

The export-led growth strategies of China, of Southeast Asia, of Korea, of Taiwan -- all these countries have grown based on exporting things to the U.S. And they manage the dollar. When the dollar looks like it's getting too weak, they intervene in the global exchange markets to push the dollar up.

So the dollar, it tends to be chronically overvalued, which means that the price of U.S.-based exports is higher than it normally should be. Again, we've created a structure in which the U.S. is the world's consumer, the rest of the world is a producer. This is good in the short term because we get to consume more than we produce, but in the long term it means that you wind up in a disadvantageous situation in which eventually the production tends to move abroad.

BILL MOYERS: The film took us to India, but we could have gone where, to China, to Russia?

CLYDE PRESTOWITZ: You could have gone to China, you could have gone to Vietnam, you could have gone to Malaysia, you could have gone to Mauritius ... lots of places.

BILL MOYERS: What would we have seen in those places?

CLYDE PRESTOWITZ: Similar things. You would see business processing, outsourcing things like processing of medical claims, insurance claims. You would have seen call center activity. What you might increasingly see is laboratories -- research and development laboratories doing cutting-edge development in biotechnology or in nanotechnology ...

BILL MOYERS: My hospital in New York, my hospital, sends its records to be read in India.

CLYDE PRESTOWITZ: Yeah, I mean, even beyond that you can have a brain scan done right here in Washington, D.C. and that brain scan will be read online, in real time, in Bangalore or in, in some other far location.

BILL MOYERS: So are these people racing us to the bottom, as so many others say -- so many critics say -- or are they racing us to the top?

CLYDE PRESTOWITZ: Both things are happening.

BILL MOYERS: Both things?

CLYDE PRESTOWITZ: Both things are happening. The trick here is that we want to adopt a policy posture that pushes it toward racing to the top and away from racing to the bottom.

BILL MOYERS: Have you been to India?

CLYDE PRESTOWITZ: I have. I've spent a lot of time there.

BILL MOYERS: How do you explain what we saw in that film -- bright, motivated, hard-working, aspiring young people, eager for these jobs?

CLYDE PRESTOWITZ: Oh yeah, and I mean, it's very uplifting. Because you see these people have hope. They've suddenly been given opportunity. You know, after literally hundreds of years of stagnation and going nowhere, suddenly these bright young people see an opportunity and they're grabbing it and it's great to see because there's enthusiasm and there's creativity here and, you know, many of these people have been trained at American universities and institutions, and they're creating wealth and opportunity in their home countries and it's something you have to embrace.

I mean, in fact, think about this: the most threatening thing in the world to the United States would not be the success of India or China. The most threatening thing would be the failure. Just think of-

BILL MOYERS: What do you mean?

CLYDE PRESTOWITZ: Think of SARS, think of the SARS scare or avian flu-

BILL MOYERS: Yeah, right. Avian flu -- that's subject of our next film in this series.

CLYDE PRESTOWITZ: These are diseases that arise out of poverty, that arise out of despair. And because we live in a global economy, these things can travel just like that. So a failing China, a failing India, with these huge populations, could quickly become breeding grounds for epidemics, could be the source of millions of refugees fleeing their desolation and destruction in their home countries, creating enormous disruption in not just the global economy, but in the global politics and even military challenges.

That would be really dangerous. A China or an India dying in pollution ... just not having enough water or choking on pollution, you know, that would be really dangerous. We want them to be successful.

The trick here is that we want them to be successful and we want a win-win solution. We want to remain successful while helping them to become successful.

BILL MOYERS: Yeah, because as you talk, and I hope you don't think this too vulgar, I was thinking well, if I were working in a call center in Fargo -- and I've actually been on the line recently with a call center out there -- and I heard Clyde Prestowitz talking about what we're doing to help raise the standard of living and help these people achieve their potential as coming at my expense. I'm going to lose my job to one of those kids in India, one of those kids in Asia ...

CLYDE PRESTOWITZ: Right. But what we have to do in the United States is something that we're good at doing. We have always been very good at moving on to the next area of productivity.

BILL MOYERS: Creative destruction?

CLYDE PRESTOWITZ: Well, I mean, we used to be an agricultural country. In the nineteenth century we were a great agricultural country. Came the Industrial Revolution, we became a great industrial country. We moved people from the farm to the factory and we greatly increased the wealth of everybody in doing so.

We have moved from commodity manufacturing to high-tech manufacturing to high-tech services and we've created Silicon Valleys and we have ...

BILL MOYERS: With new jobs?

CLYDE PRESTOWITZ: We have been tremendously productive in creating new jobs. If you compare the United States, for example, to Europe where there's been an emphasis on, kind of, maintaining existing structures, we have created more wealth and more jobs than most of the other economies in the world. We're good at doing this.

But what we have been falling down on in recent years are two or three things. One is, as I said earlier, we have not insisted internationally on a level playing field. We've acquiesced in a global situation in which the U.S. pays a bit of a penalty for its exports.

Second thing we've been falling down tremendously on is we have not been investing in our infrastructure, we have not been investing in research and development, we have not been investing in education. We talk about ourselves as having the best universities in the world. And that may be true. Our elite universities probably are the best in the world, but there are two points that are really important in this. One is if you look at the students in those elite universities, more than half of the students at MIT or Caltech who are studying engineering or science are foreign students. They're Indians and Chinese. They're not Americans.

BILL MOYERS: I gave the commencement at the CUNY graduate center in New York this spring and three-fourths of the [graduates] were from somewhere else.

CLYDE PRESTOWITZ: Yes. Yes. And the key thing here is, on the one hand thank God we have those foreign students because they help to pay the freight and they keep those faculties going, but we need to be in a position where we're putting more American students in those programs as well.

BILL MOYERS: Yeah, where are they?

CLYDE PRESTOWITZ: Our secondary education in the United States is not that good. A student graduating from high school in the United States is, on average, not as well educated as a student graduating from high school in France or Japan or Singapore.


CLYDE PRESTOWITZ: Our secondary education system has just become very weak. We don't pay teachers as much as we should. We haven't invested in the course development. We haven't kept up with the international standard of education.

BILL MOYERS: I think you say in here that if a kid comes out of MIT and makes a $100,000 with an MBA in his first year why shouldn't a teacher come out of Columbia Teachers College and make $75,000 a year?

CLYDE PRESTOWITZ: Exactly. You know, why don't we pay teachers the way we pay investment bankers?

BILL MOYERS: Yeah, how does that trickle down to the kid not getting a good education in secondary school so he or she can't compete in a college that turns out good scientists?

CLYDE PRESTOWITZ: Well, you know, if you don't pay your teachers a salary competitive with other professions then you're going to tend not to get the best people going into teaching. If you don't have any kind of a standard or a mark that you're kind of benchmarking yourself against. You know, when we test American students against foreign students, the American students typically score in the bottom percentiles.

In fact, what's really scary is that if you test progressively, you find that American students in primary school are scoring better than American students in middle school who are scoring better than American students in high school. So the longer they stay in school, the worse the American students do in international testing.

BILL MOYERS: As they go up the ladder, they come down.

CLYDE PRESTOWITZ: Exactly. So, that points to fundamental, profound problems in our secondary education that we really desperately need to address and we're just not doing that.

BILL MOYERS: What you're saying is that our graduates are coming out of our educational system, on the whole, without the skills they need to cope in this global economy?

CLYDE PRESTOWITZ: Not as competitive as they need to be to compete with other students who are graduating from Korean or Chinese schools. And think about this: the United States graduates about 100,000 engineers a year. China is gearing up to graduate 600,000. India will be graduating about 600,000.

Now, we don't have as big a population as they do, so it's not necessary that we graduate as many engineers as other countries, but it points to a weakness in U.S. education. We're not giving our kids the foundation in middle school and high school that would enable them to go on to be in these advanced programs at MIT or Stanford or wherever.

This is a serious, serious weakness.

BILL MOYERS: I've got five grandchildren. How many do you have?


BILL MOYERS: Are our nine grandchildren going to be unpatriotic if they major in English?

I'm serious. Are they not going to be competitive in this competitive global economy?

CLYDE PRESTOWITZ: We're going to need English majors, and if our grandkids happen to be particularly gifted in English then they should certainly be English majors. But what we don't want to do is be in a position in which, let's suppose our grandkids want to be scientists and engineers and they graduate from high school and they find out that their mathematics training is not sufficient to allow them to get into an engineering or science program.

So that, by default, they have to become English majors. That's where we are right now. Right now, we're in a position where we have really smart kids who just haven't had the foundation in science and math in middle and high school so when they go on to advanced education, since they don't have that foundation, by default, they move into other areas of specialization.

BILL MOYERS: You talked about these kids in India who have hope because they have jobs. I want your four grandchildren and my five grandchildren to have hope. Tell us in terms they might understand, what are the cards America holds?

You talk about the cards we hold that we're not playing, what are they?

CLYDE PRESTOWITZ: Well, if you looked at the international economy as a bridge game and you asked yourself whose hand would you want to play? The Indian hand, the Chinese hand, the U.S. hand? I'd take the U.S. hand. Look, the United States, with all of its weaknesses, the United States is still the leader, generally, in technology.

The United States has an entrepreneurial culture. We have transparent, open institutions. We have a rule of law with predictability here that makes investment safe in the U.S. We have a huge -- the world's biggest -- market, in the United States. We have abundant trained people: a workforce with a good work ethic. And we have management talent and management techniques that the rest of the world comes here to study. So we have very good cards.

We're playing them very badly right now. The incentives that we put into our economy, for example, are all on the consumption side.

We allow you to, for example, you get a home equity loan and you buy a nice vacation and you can write off the interest on that against your taxes. We subsidize your vacation in that sense. In other countries, they subsidize saving. If you have a high savings rate, you get a tax break.

BILL MOYERS: We have a miserable savings rate, right?

CLYDE PRESTOWITZ: We have zero savings as a national economy. So the incentives that we're putting into our economy are, in many respects, the wrong incentives. We're subsidizing cotton farmers, but we're not providing the same kind of incentives for investment in advanced technology in the United States.

We're, in some cases, actually kind of encouraging an overvalued dollar, which tends to penalize our production. Think about technology or the internet, which we invented. The United States is number seventeen in deployment of high-speed internet access.

BILL MOYERS: What do you mean?

CLYDE PRESTOWITZ: I mean that of all the countries in the world, we rank seventeenth in the ability of a household to have a high-speed internet line coming into its house.


CLYDE PRESTOWITZ: Because our policies have essentially been negative in terms of encouraging deployment of high-speed internet. Korea, for example, has made getting the high-speed internet into every home a high priority. In the United States, the FCC has spent most of the last 20 years trying to figure out how to create competition in the local telephone loop and there has been no incentive provided to make it attractive for investment in high-speed internet deployment, to encourage households and consumers to use the internet.

So, for example, in Korea if you do your taxes online -- send your tax return in online -- you get a tax break. In Korea, if you're a company and you invest in providing high-speed internet capacity, you get a tax incentive. This is not true in the United States. If anything, you get a penalty in the United States. So, again, the policy incentives have just been focused on the wrong things.

BILL MOYERS: You're on the policy advisory board of Intel, one of the huge companies in this country. What do you tell your colleagues about getting ready, about competing in the world today?

CLYDE PRESTOWITZ: Well, I mean, Intel of course is a huge leader in this area. And Intel's been very, very active in trying to encourage the U.S. government to adopt more favorable policies for high-speed internet broadband deployment. We all have a great frustration with the political leadership, both Democrat and Republican, in the United States and we all have a great frustration with the regulatory process of the U.S.

The policy vision in the United States tends to be focused on process rather than on an end picture.

BILL MOYERS: The outcome.

CLYDE PRESTOWITZ: So, the tendency in U.S. policy-making is that if you can create kind of a fair procedure, or create competition, that that's where you want to be. And there's an assumption that if you have competitive markets then these are the most efficient ways to get to a technologically advanced and rapid production of investment and production of more capacity and more services.

Now, what we've seen in a number of other countries is an identification, a realization that something like high-speed internet access, or something like cell phones, is a disruptive technology. A whole new kind of infrastructure, which if widely disseminated will not only create a lot of new business for telephone calls or for internet, email and what have you, but will affect every part of the economy and make every part of the economy more competitive.

We used to do this kind of thing. When aircraft were first being developed in the United States, the government used to provide contracts for air mail in order to create a market to foster the production and the development of aerospace and aircraft technology.

Other countries, Korea for example, Singapore another example, European Union another example -- these countries are looking upon high-speed internet, they're looking upon cell phones in the same way that we looked upon aircraft back in the 1920s and 1930s, and they're fostering their development in a similar way. We're not doing that.

BILL MOYERS: So where do you come out on: is outsourcing is good for the economy or is it just producing more pink slips for workers in Fargo and other places?

CLYDE PRESTOWITZ: Depends on how outsourcing is done. If outsourcing is being done based on true market forces, it's good for the economy. If work is being shifted overseas on the basis that it can be done better and less expensively overseas than in the U.S., then that's what we ought to do. Just like you and I send our haircuts down to the local barbershop, but if outsourcing is being based on- for example, many governments provide capital grants.

If you're a high tech manufacturer and you're thinking about building a new factory and maybe the factory costs four or five billion dollars. A new semiconductor plant is a four or five billion dollar bill. Now if a foreign government comes to you and says, "Hey we'll give you two and half billion of that, or if you put your plant in our country, no taxes for 50 years." That's not a market-based decision.

BILL MOYERS: They're buying those jobs.

CLYDE PRESTOWITZ: They're buying those jobs. And that kind of outsourcing is not necessarily positive.

BILL MOYERS: But it happens in this country, too. New Jersey buys jobs by hiring, by giving subsidies to companies in New York to move out there.

CLYDE PRESTOWITZ: It's true that the states in the United States do provide these kinds of incentives, but typically they're moving the job from California to New Jersey, it stays in the United States. The really important thing, however, is this: the states have nothing like the resources that foreign governments have.

So, what we don't have in the United States is any kind of a policy at the federal level to analyze this kind of thing. So, for example, recently IBM sold its personal computer division to China's Lenovo. And when they did that, the chairman of IBM, Sam Palmisano, gave an interview to The New York Times explaining how this happened.

Sam made the point that he had gone to China a couple years in advance to talk, not to Lenovo, but to speak with the top leaders of China and talk to them about their plans for developing the Chinese economy and how IBM could help. And whether this kind of an acquisition or sale of the PC division to Lenovo would be compatible with their plans. And the Chinese leaders said yes.

So after getting that kind of a green light, then he went ahead and made the deal with Lenovo and at the end of the interview he made this interesting comment. He said IBM wants to be part of China's strategy. Now, I understand that. If I were the chairman of IBM, I'd want to be part of China's strategy, too. China's big, it's going to get a lot bigger and I would want my company to be a main piece of that kind of action.

But here's the interesting question. If you asked any U.S. CEO, "Do you want to be part of America's strategy?", he or she can't give you an answer because America doesn't have a strategy.

BILL MOYERS: I hear you saying that the United States government is, in effect, deliberately sending the country's most important jobs overseas.

CLYDE PRESTOWITZ: Well, not consciously, but de facto, yes.

BILL MOYERS: So are the three billion new capitalists a threat to America?

CLYDE PRESTOWITZ: They're a challenge. They may be an opportunity. They may be a threat. It depends on how we play our cards. They could be 3 billion new customers; they could be 3 billion new joint venture partners; they could also be 3 billion people who take jobs away. It depends on how we play our cards. Right now, we're not playing our cards very well, but we've done this in the past. We know how to do this. We just need to, kind of, turn back a few pages in our history and look at how we used to compete and start thinking about doing that again.

BILL MOYERS: When we think of the jobs that are going abroad we used to think of, you know, very low-level jobs, very simple jobs. But a lot of these new jobs that we see in the film and we know about elsewhere are better jobs than that. In fact, one of the things you say in the book is that not only are these jobs that they're getting overseas, or creating overseas, better paying jobs for themselves. They're also producing a better product -- better quality. What kind of jobs are going abroad now?

CLYDE PRESTOWITZ: Virtually all kinds of jobs. I mean, research, scientist jobs are going abroad. Engineering development jobs are going abroad. Biotechnology management jobs are going abroad. Another good example: financial analyst jobs are going abroad; journalist jobs are going abroad.

BILL MOYERS: Now I'm getting worried.

CLYDE PRESTOWITZ: Teaching jobs are going abroad. I mean, virtually any category of a job is increasingly a potential job to move abroad.

BILL MOYERS: So it's not just the low rung jobs anymore?

CLYDE PRESTOWITZ: It is not just the lower rung. We have a paradigm in our heads that has been fostered by our economists, our academic economists, which is the notion that developing countries, we say, have low-cost labor because it's unskilled. Therefore they specialize in labor-intensive productions.

So they'll produce things like textiles or shoes or toys, leaving the high-tech, the high-value-added production and services to the advanced countries. Because the advanced countries have high-skilled work forces that can do those kinds of production more efficiently while leaving the lower-value-added production to the developing countries.

Well there may have been some truth to that paradigm in the past, but ...

BILL MOYERS: They're not just doing the bad jobs better, they're doing good jobs better.

CLYDE PRESTOWITZ: What we're finding is, I mean, I've talked to CEO after CEO who have said to me, you know, we began by kind of outsourcing the menial tasks -- you know, just the data input, the very simple stuff -- to India or China. And then we found they did it so well that we sent them more advanced, and they did that so well. And so now our question is, "What is there that we can hang on to here?"

BILL MOYERS: That's the scary question.

CLYDE PRESTOWITZ: Because they're doing it not only less expensively but better. And they're doing it from top to bottom. And that is the challenge to which we need to respond.

BILL MOYERS: So if they're doing it from top to bottom, they're also doing it from bottom to top. They're improving their lives, their jobs.

CLYDE PRESTOWITZ: Right. They're doing it from bottom to top. Exactly. You're exactly right.

BILL MOYERS: Last question. Looking back at those young people in the film, how significant is this for India? I mean, isn't it just a drop in the bucket when you've got 300 million people in that country -- more than the population of the United States -- living on one dollar a day or less? When the average per capita income in India is $500 a year? I mean, what difference does a few thousand more millionaires make in that?

CLYDE PRESTOWITZ: Well a few thousand more millionaires doesn't make a lot of difference. But what I see happening in India is a broad-based profile change in psychology and in orientation.

What I see happening in India is a bureaucracy -- a government bureaucracy -- that in the past was wedded to socialism, was wedded to bureaucratic control, which is now promoting entrepreneurialism. Which is now trying to work with business instead of trying to control business.

I see young people who are enthusiastic, who are on fire. And they're inspiring other young people.

BILL MOYERS: Yeah, we saw them in the film.

CLYDE PRESTOWITZ: Children who previously would have had no hope, no thought of getting any kind of an education are now beginning to think, "Wow, maybe I could do something, too." I mean, this is kind of the American dream transported to India and it's very uplifting when you see it happening.

Now, India faces enormous challenges. China faces enormous challenges. This is where I come back to my earlier point that the success of these people is important to us. A billion people living on a dollar a day is a source of enormous potential difficulty in every area -- environmentally, politically, medically. It's just a source of tremendous potential misery. We want to fix that. We want to improve that.

I must say, I've seen in my career in the last 40 years -- I went to Japan in the 1960s when it was a poor country. I've seen the Japanese get rich. I've seen the same thing in Korea and Taiwan, and it has just been fantastic, what's happened in those places. We want that to happen to China and India as well. But we want it to happen while we also maintain the hope of the American dream here in the United States.

And to do that, we need to be thinking strategically about long-term U.S. economic opportunity. We need to be thinking strategically about how we respond to this challenge. We need to be playing our cards -- which are very good cards -- we need to be playing them a lot better than we're playing them now.

BILL MOYERS: The book is Three Billion New Capitalists: The Great Shift of Wealth and Power to the East. Clyde Prestowitz, thank you for being with us on Wide Angle.

CLYDE PRESTOWITZ: Thank you, it's been a pleasure.

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