(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
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
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
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
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
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
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
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?
CLYDE PRESTOWITZ: Yes, exactly.
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
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
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?
CLYDE PRESTOWITZ: No.
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.
BILL MOYERS: Right.
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.
CLYDE PRESTOWITZ: Very.
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
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
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
BILL MOYERS: I gave the commencement at the CUNY graduate center in New
York this spring and three-fourths of the [graduates] were from
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
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.
BILL MOYERS: Why?
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
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
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?
CLYDE PRESTOWITZ: Four.
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
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
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.
BILL MOYERS: Why?
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
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
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
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
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
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
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
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
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.