Click Here to Read the Review at the Australian
Three Billion New Capitalists
US strategy adviser Clyde Prestowitz tells Bruce Stannard that China's emergence at the top of manufacturing could bowl over a complacent West
SINCE the fall of the Berlin Wall in 1989, three billion new capitalists have joined the world's economy and, if economic analyst Clyde Prestowitz is right, we have only just begun to feel their influence.
"The virtually endless supply of labour, much of it skilled, in China and India, combined with the negation of time and distance by the internet and global air delivery will create a new and challenging competitive environment for countries, companies and individuals," he says.
In his book Three Billion New Capitalists: The Great Shift of Wealth and Power to the East, Prestowitz provides a litany of detail to illustrate his point that China is well and truly on its way to becoming the world's premier manufacturing and industrial power.
"The dwindling role of the [US] dollar in international finance will mean a decline in living standards for the United States for the simple reason that America will no longer be able to run chronic trade deficits if other nations don't have to accept dollars as payment. And no industry will be safe from competition. Services, research and development, and basic research, in which the West now leads the world, could all follow manufacturing to Asia.
"Whether slowly or quickly, the forces now bringing wealth and power to the East will also bring crisis and painful adjustment to the West. Although the East will regain its historic place as the centre of the world, it will also face huge challenges and crises that cannot be avoided." They can be managed, he says, "if we wake up".
Trouble is, Prestowitz doesn't see that happening anytime soon. The West in general and the US in particular have what he sees as a head-in-the-sand approach to China and India. "While American business leaders say they want to be part of China's strategy of economic development, the fact is America doesn't have a strategy," he says.
"In fact, the economic views now dominant in the United States hold that the very consideration of such a strategy would be contrary to America's interests.
"Right now China is maybe 20 per cent the size of the US economy or maybe 30 per cent depending on how you handle purchasing power parity. This is an economy which, in my view, is likely to be bigger than the US economy in 20 to 25 years. There's a true Great Leap Forward going on in China and it's powered by investment in manufacturing.
"The result has been an explosion of production that is bringing China back to its historic position as the world's largest economy. Over the past decade, China has generated more than 30 per cent of world [gross domestic product] growth while more than doubling the size of its own economy. Today, depending on whether you convert the [Chinese] yuan into dollars at the market rate or in terms of its domestic purchasing power, it's either the world's seventh largest economy or the second largest. The International Monetary Fund believes China can easily maintain a 7 to 8 per cent annual growth rate for another decade and perhaps longer.
"At that rate, China's GDP by the most conservative measure would pass Japan by around 2010 and would be approaching the size of the United States as soon as 2040. If you look at this in terms of China's domestic purchasing power, however, its GDP could be effectively as large as America's by 2025."
China already produces two-thirds of the world's photocopiers, shoes, toys and microwave ovens; half of its DVD players, digital cameras, cement and textiles; one-third of its DVD-ROM drives and desktop computers; and one-quarter of its mobile phones, television sets, steel and car stereos.
Much of this production goes into exports, which have increased eightfold to $US400billion since 1990. Last year China shipped more than 30 per cent of Asia's exports of electronic goods and slipped past Germany to become the world's second largest exporter, just behind the US. Much of China's production is also for its own rapidly growing domestic market, the world's largest for more than 100 products, including mobile phones, machine tools, cement and TV sets. China has become the second largest national market for personal computers and, Prestowitz predicts, will pass the US in this category in the not too distant future.
Cheap labour is not the only factor. Labour is cheaper in Vietnam, Africa and parts of South America but, as Prestowitz points out, Chinese labour is well disciplined and largely literate, with the ability to learn skills quickly.
"A significant portion of the Chinese factory work force is as skilled as US production line workers," he says. "But while Americans earn $US15 to $US30 an hour, in China they are paid US25c to $US1 an hour. This labour force is effectively non-union, with little ability to strike, complain or take legal action against the employer. It is accustomed to grindingly long hours and prepared to work under difficult conditions. Furthermore, China's labour supply is virtually endless."
Prestowitz says the big story between now and 2025 is going to be China but after that, he says, it will be India. "Indian demographics are pretty powerful. Half the Indian population is under the age of 20. Whereas China will age rapidly in another 10-15 years, India doesn't age very much at all. India will surpass China in population somewhere around 2030, so in the latter half of the century India is likely to be the biggest economy. I know there's still something of a socialist hangover in India but it's very much a capitalist economy, one which is driven by entrepreneurs rather than government fiat, which is still very much the case in China."
Where does Australia stand in all this? "There are a lot of positives in this for Australia as a supplier of commodities," he says. "But manufacturing? Forget it. The whole world is packing up and moving its manufacturing base to China, so Aussie manufacturers might as well join 'em. With wages like 20c to 30c an hour, they sure as hell can't beat 'em. The Chinese and the Indians are going into hi-tech big time. They're building elite universities, copying Caltech [the California Institute of Technology], and turning out more scientists and engineers than the US. They're going to be hotly competitive and if Australia hopes to grab a slice of that sophisticated gh-tech market it had better lift its game.
"Whenever I visit Australia I'm always struck by the time warp. It's like the '70s in America. It makes me nostalgic for the way we were. I stayed in one of Melbourne's finest hotels but nowhere could I find a high-speed internet connection. That's not smart."