Is the rapid economic and social development of China, India, and other Asian countries a threat or an opportunity for the West? For many, the answer is mixed. But for former trade negotiator Clyde Prestowitz, president of the Economic Strategy Institute, a non-partisan research organization, the trend lines all add up to a weakened America that is even a second-rate player in territory it now owns: innovation.
Prestowitz has sounded the Asia alarm bells before. In 1989, his Trading Places warned that Japan's manufacturing strengths, protected markets, and weakness on the part of U.S. government would turn that country into a powerhouse at America's expense. It didn't quite work out that way, although Prestowitz would argue the dot-com bubble successfully hid from view a multitude of fault lines underpinning America's real competitive situation.
Now, Prestowitz sees a perfect storm. Working against the United States are an unsustainable trade deficit, low savings rate, dependence on foreign oil, the growing amount of dollar reserves held by Japan and China, loss of innovation, and the outsourcing of increasingly skilled and technical jobs to India and elsewhere. In other words, America is losing control of its future. Meanwhile, China, India, and the former Soviet Union—with a combined population of three billion—have tilted toward capitalism. "Although these people are mostly poor, the number having an advanced education and sophisticated skills is larger than the populations of many first world countries," Prestowitz writes. "All of this has generated a whole new wave and model of globalization that is turning the world upside down." A wave that "if not handled carefully, could bring the whole system crashing down."
What's a fading superpower to do? Prestowitz's to-do list is formidable, including creation of national competitiveness policy, achievement of energy independence, abolishment of corporate and personal income taxes in favor of taxes on consumption, reformation of the education system—and these are just a start.
Prestowitz, as always, is an engaging writer who will make your blood boil—whether you agree with him or not. But his analysis is worth considering by any global business manager who lies awake at night wondering what could go wrong next. After reading Three Billion New Capitalists, a peaceful night's sleep might be a long way off.
- Sean Silverthorne