Book Reviews & Citations
Three Billion New Capitalist reviewed in Business Week
Why Asia Will Eat Our Lunch
JUNE 20, 2005
Why Asia Will Eat Our Lunch
THREE BILLION NEW CAPITALISTS
The Great Shift of Wealth and Power to the East
By Clyde Prestowitz
Basic Books; 321pp; $26.95
(Readers' Reviews below)
The Good A clear, unbiased, and scary look at the threat that China and India pose to the U.S. economy.
The Bad It may be a tad pessimistic, given the author's tendency to assume current trends will continue.
The Bottom Line A persuasive argument that Washington's disdain for industrial policy is shortsighted.
Clyde Prestowitz says he had a revelation in 2003 when his oldest son,
a software developer living on Lake Tahoe in California, asked him to
co-invest in a snow-removal company. Why, wondered Prestowitz, would
his high-tech offspring go into a business "as mundane as snow
removal?" Explained the son: "Dad, they can't move the snow to India."
It's an example of the angst spreading among America's technology
professionals as they watch India snare big chunks of the U.S. services
sector while China runs off with America's manufacturing patrimony. His
son's fears, Prestowitz asserts in Three Billion New Capitalists: The
Great Shift of Wealth and Power to the East, are all too rational.
Actually, Prestowitz didn't need the heads-up from his son. He has been
mulling over America's competitiveness problems for 30 years, most
recently as head of his own think tank -- the Economic Strategy
Institute in Washington. Before that he was an international executive
for U.S. multinationals, a trade negotiator in the Reagan
Administration, and author of a ground-breaking, although ultimately
alarmist, 1988 book about U.S.-Japan relations, Trading Places.
Prestowitz writes with clarity, historical perspective, and an uncommon
ability to extricate himself from the intellectual straitjackets that
hobble so many Washington economic policymakers. Free trader or
protectionist? Democrat or Republican? Keynesian or supply-sider? He
doesn't fit in any of those boxes.
Governments have long been creating comparative advantages for their
own economies, Prestowitz notes, but U.S. policymakers have apparently
forgotten this. Despite today's fashionable disdain for industrial
policy, Washington was once an active participant in boosting the gross
domestic product. The federal government created Radio Corporation of
America and established U.S. dominance in radio technology, launched
Boeing (BA ) and nurtured it with government contracts, and created
AT&T ( ) and its genius pool at Bell Laboratories ( ), cradle of
microelectronics. Then there's the Internet. "The apparently effortless
technological supremacy Americans assume as a birthright...had nothing
to do with market forces and everything to do with targeted policy
decisions," Prestowitz notes.
Prestowitz also challenges one of the most popular and soothing myths
in Washington -- that U.S. workers can compete with any in the world if
given "a level playing field." The truth: Western workers won't be able
to compete without accepting wage cuts, since, in the area of labor
costs, China enjoys a "fifteen to thirtyfold advantage" over the
China and India, which together accounted for 75% of the world's GDP
before the discovery of America, are on a steep trajectory to regain
their prominence. "The potential size of their markets, their endless
supply of low-cost labor, the unique combination of many highly skilled
but low-paid professionals, and the investment incentives offered by
their governments will constitute an irresistible package" that will
soak up global investment.
Another central theme of the book is the value of "linkage" among
technologies. Development of the VCR by Japanese companies led that
country into the semiconductor business, Prestowitz says. Japan
continues to understand the importance of linkage, while U.S. leaders
seem not to: Contrast Sony Corp.'s (SNE ) dogged efforts to link its
PCs with TVs, camcorders, and other technologies to create a multimedia
terminal with IBM's (IBM ) sale to China's Lenovo Group Ltd. (LNVGY )
of its laptop business. Which is the better strategy?
India, meanwhile, is moving rapidly up the value chain with its
emphasis on software and computer services, along with processing of
tax returns, medical X-rays, and the like. Want a new kidney or a hip?
Visit one of India's high-tech "medical tourism" hospitals and get the
procedure for less than half the cost in the U.S. or Canada, even
figuring in the airfare. Surprisingly, there are already more info tech
engineers in Bangalore (150,000) than in Silicon Valley (130,000).
There is reason for hope, Prestowitz allows. America's technology is
often the best, as are its universities. The U.S. leads in biotech, and
it retains an entrepreneurial culture. That said, Prestowitz still
could be too pessimistic. As with Trading Places, he tends to project
current trends far into the unknowable future.
But the U.S. government is dangerously shortsighted. The country's
savings rate, secondary-education system, energy and water
conservation, critical infrastructure, research investment, and worker
training lag behind those in too many other nations.
You won't want to pick up Prestowitz' book if you seek reassurance that
America is going to stay No. 1 -- because, dammit, we just are, Bud! In
fact, as he points out, even as U.S. scores in math sink, American high
school students continue to think that they are ranked first.
Depressing, but if all else fails, remember: There's always snow