How economists kept their doubts about globalization quiet, and ushered in Trump.

Washington Monthly, January 2018

Clyde Prestowitz

Two decades ago, the Harvard political economist Dani Rodrik wrote a book, Has Globalization Gone Too Far?, in which he argued that global trade was creating dangerous fissures in developed nations between the better educated, who prosper under the new regimes, and the less educated, who do not. If not addressed, he warned, these fissures could lead to “social disintegration.” As is customary, Rodrik requested an endorsement for the book’s back cover from a well-known fellow economist. This person declined the request, not because of significant disagreement with the book’s analysis, but because he was worried that Rodrik’s book might “provide ammunition for the barbarians”—that is, protectionists, mercantilists, and other enemies of free trade.

Open Networking Summit 2017

April 3-6, 2017 - Santa Clara Convention Center

Robert B. Cohen, Ph.D
Senior Fellow, Economic Strategy Institute

Click here to download the full presentation

This presentation makes five points:

1. Software innovations have become central to business operations. obtaining high performance software, such as Open Source Software, is nearly zero if a firm uses an online exchange such as GitHub and has access to a permissive license. This speeds up software development and reduces its cost because firms can often avoid paying licensing costs.

2. Software innovations are employed in such a wide range of industries that software should be a General-Purpose Technology.

3. Software behaves unlike other products. It is part of a continuing development process with developers adding code as needed. This ongoing process can be seen in new Internet-related software, such as Linux, Open Source, and Docker/containers.

4. The time it takes to complete software innovations is dropping sharply. 

5. Businesses take swift advantage of software innovations

Since its founding, America has swung from protectionism to free trade. What’s next?

The Atlantic, Dec 12
Clyde Prestowitz

A large number of American voters are tired of globalization—that much is clear. With Donald Trump calling for the abandonment of the North American Free Trade Agreement (or, more commonly, NAFTA) and Hillary Clinton turning her back on the Trans Pacific Partnership (TPP) free-trade agreement she herself had originally helped launch, both major-candidates abandoned what had come to be the standard pro-globalization position of those vying for the nation’s highest office. Most economists and many think-tank researchers have bemoaned this development, insisting that globalization generally leaves most nations—and most people—better off. But a review of American economic history suggests that something fundamental has changed: Increased globalization may make less sense now than it did in the recent past.

In the earliest days of the United States, globalization and competitiveness were some of the biggest issues on its founders’ minds. Adam Smith’s The Wealth of Nationswas published in 1776, and the framers later debated Smith’s arguments for deregulation, free markets, and open trade. Thomas Jefferson saw the United States as primarily an agricultural producer and spoke for the Southern planters, who depended on foreign markets and who embraced Smith’s notion of minimal government. Alexander Hamilton felt differently: Aware of the mercantilism-fueled Industrial Revolution in the U.K. and the unprecedented wealth it created, he took the side of the nascent manufacturers of the Northern colonies by calling for subsidies to support the development of technology and manufacturing industries, as well as high tariffs to protect them.

Published in Boston Globe, March 22, 2016

FOR MANY YEARS, American presidents of both parties have sold free trade deals by claiming they would create jobs, raise living standards, and strengthen national security. Now most of the presidential candidates of both parties are saying these were bad deals that off-shored millions of jobs while capping wages for most Americans and strengthening the country’s biggest challengers, like China. What gives?

For starters, the United States runs an annual trade deficit of about $500 billion. The Commerce Department estimates that every $1 billion of exports creates 6,000 jobs. By extension, one might expect that every $1 billion of imports would eliminate 6,000 jobs. This is not entirely true, because imports of things like rare earth elements in which the United States is not self-sufficient actually create jobs rather than eliminating them. On the other hand, economists at MIT and the Economic Policy Institute in Washington conclude that imports from China eliminated about 2.4 million US jobs between 1999 and 2011.

Published in USA Today, March 27, 2016

Donald Trump is correct to raise the larger question.

Donald Trump is mistaken to suggest that a president could easily force Apple to make iPhones in America by slapping tariffs on imports from China. But he is correct to raise the larger question of whether America could be manufacturing and exporting more than it does while importing less.

The answer is yes. 

Take Intel’s investment in a microprocessor chip factory in China. A very large portion of the chips that power the world’s computers is made by Intel in the United States. Chip production is highly capital and technology intensive and not at all labor intensive, so cheap Chinese labor is not a reason for producing there. In terms of production costs and quality, the U.S. is quite competitive. Before Intel’s facility in China started up, America had a large trade surplus with China in semiconductors largely due to the export of microprocessors.

CASE STUDIES ON HOW IOT HELPS FIRMS OPTIMIZE THEIR DIGITAL PERFORMANCE AND HOW IOT WILL HAVE A LARGE ECONOMIC IMPACT IN THE FUTURE

Using several case studies and quantitative analysis, this talk offers examples of how businesses are using IoT to improve their performance and optimize digital operations. It also explores how moving to IoT pushes firms to become more involved with analytics for big data lakes and delivering software upgrades through using enhanced workflows, such as DevOps and Continuous Service Delivery (like Netflix and Amazon). The talk also explores how much industries such as finance, healthcare, aircraft and autos plan to invest in IoT over the next decade. It describes what this is likely to mean for revenues, economic growth, labor productivity and jobs.

For more info visit: IoT Slam 2016 session or the conference home page.

Click image to see interview

From The Japan Times
December 9, 2015

Japan needs to stop relying on the U.S. for its defense and form a security alliance with other Asian nations if it is to become a respectable global leader in the decades to come, according to the founder and president of Washington-based think tank Economic Strategy Institute.

Clyde Prestowitz said U.S. defense budget cuts could mean a reduction in its presence in the Asia-Pacific region, where it is currently focusing its foreign policy.

In that scenario, Washington, with its own interests in mind, won’t be as reliable if and when a military conflict arises between Japan and China, said Prestowitz in an interview with The Japan Times last month.

“Japan should have mutual security treaties with South Korea, with India, with Vietnam” to compensate for a possible falling U.S. presence, he said, adding that Washington should be the “call of second resort.”

Our Incoherent China Policy: 

The proposed Trans-Pacific Partnership is bad economics, and even worse as containment of China.

By Clyde Prestowitz

In the summer of 2009, I was invited with a few other policy analysts to the White House for a briefing on the newly proposed Trans Pacific Partnership (TPP). At that time, the potential participants included Canada, Mexico, Peru, Chile, New Zealand, Australia, Singapore, Brunei, Malaysia, Vietnam, and, of course, the United States. Whether or not Japan would be invited to join had not yet been decided.

Noting that the United States already had free trade agreements with Canada, Mexico, Peru, Chile, Australia, and Singapore, I asked why we needed an agreement that added only the tiny economies of New Zealand, Brunei, Malaysia, and Vietnam. The reply from a member of the National Security Council staff was that it would reassure our Asian allies that America was back; that this agreement would be the economic complement to the increased military deployments of the recently announced “Pivot to Asia” foreign policy, obviously aimed at counterbalancing the spread of Chinese power and influence. Along with health care and a possible treaty on nuclear weapons with Iran, TPP would be a major part of the president’s hoped-for legacy.

To read the article in its entirety in The American Prospect, please click here.

Japan Restored: How Japan Can Reinvent Itself and Why This Is Important for America and the World

Clyde Prestowitz, Author

Labor economist Prestowitz (Rogue Nation) projects visions of Japan’s future in this well-handled study of sensitive politico-economic issues disguised as a love letter to the country. Japan’s economic decline after the 2011 tsunami spurred this peek into a crystal ball. Prestowitz opens with a snapshot of the nation in 2050 as a world leader in technology, medicine, athletics, and education. These strides follow a series of potential crises in 2016 that prompt the government to appoint an Extraordinary National Revitalization Commission. The commission introduces changes that strengthen Japan’s regional power and promote women into management positions, as well as transforming it into an English-speaking nation like Singapore. Finally, the 20th-century zaibatsu model that guaranteed citizens jobs for life is replaced by the profit-driven model that turned Nissan around in 2001. While there’s nothing in this big-themed fabulist tale that seems out of reach, it remains to be seen whether Prestowitz’s well-intentioned advice will make an impact among Japan’s decision makers. (Nov.)

Clyde Prestowitz
Wednesday, April 29, 2015

To persuade Congress to give him authority for concluding negotiation of a proposed Trans Pacific Partnership (TPP) free trade agreement, President Obama is emphasizing that such an undertaking is essential to national security.

The appeal to patriotism is always powerful, but in this instance it is being used as the last refuge of a weak economic argument.

The most optimistic estimates of potential U.S. economic gains from a TPP put them at only 1-3 percent of GDP in ten years. But experience suggests this forecast is wildly optimistic, and that while the agreement might be good for some global corporations it could well be a disaster for average citizens. The 2001 deal to bring China into the World Trade Organization was forecast dramatically to reduce the U.S. trade deficit while creating lots of new American jobs. In actuality, the trade deficit soared and millions of jobs were off-shored to China. Like the TPP, the 2012 U.S.-Korea free trade agreement was billed as a super modern deal that also would cut America’s trade deficit while again creating lots of jobs. The reality has been the reverse of the forecast.The most optimistic estimates of potential U.S. economic gains from a TPP put them

The president himself has acknowledged that previous deals didn’t fulfill expectations, but is arguing that “this time will be different.” Unfortunately, he doesn’t say why except to label the TPP a “21st century” agreement.

Rob Hotakainen

SENDAI, Japan -- When Manabu Matsumoto took his fiancé to dinner at the Kisuke cow-tongue restaurant in the Japanese city of Sendai recently, the Tokyo couple faced 28 menu choices.

Among them: mashed tongue, tongue sausage, tongue gravy, tongue salad, tongue stew, fried tongue, salted tongue, tofu slathered with tongue sauce, roasted tongue, smoked tongue, barbecued tongue, tongue mixed with fried egg and the traditional shabu shabu - thinly sliced tongue boiled in water.

In a country where many once regarded Americans as barbarians for eating meat from four-legged animals, Japanese consumers are gobbling up U.S. cow tongue as never before, signaling a rebound for the nation's beef industry.

Only 11 years ago, Japan banned all American beef after the discovery of bovine spongiform encephalopathy, commonly known as mad-cow disease, in one cow in Washington state. 

By Clyde Prestowitz

June 2, 2014 -- Japanese Prime Minister Shinzo Abe is now following through on actions laid out in his recent bold speech calling for Japan to defend allies who might be under attack.

But wait, you may ask, hasn’t the United States had a mutual security treaty with Japan for more than half a century?

Well, not quite. Yes, Washington has had a mutual defense-security treaty with Tokyo since 1951. But Japan is not committed to defending the United States or any of its armed forces. In fact, Japanese forces are prohibited from helping Washington in time of war — even if the war is in defense of Japan.

This goes back to the postwar U.S. Occupation of Japan and the creation of the Japanese constitution. Determined that Tokyo would never again pose a threat to its Asian neighbors or the United States, Occupation leader General Douglas MacArthur and his staff were sympathetic to Japanese pacifists’ proposal to include a no-war making article in the constitution, then being written with oversight by the Occupation authorities. This worked with the policies of then-Prime Minister Shigeru Yoshida, who wanted to focus on rebuilding the Japanese economy — without the distraction of creating a major defense force.

By Clyde Prestowitz

May 25, 2014 -- By charging five Chinese military officers with hacking into U.S. corporations on behalf of Chinese industry, the Obama administration claims it is taking a tough step to protect the intellectual property of American companies. In fact, the move isn't so much tough as toothless.

Given the massive U.S. snooping program revealed by former National Security Agency contractor Edward Snowden, the Justice Department took pains to explain why China's cyberespionage is bad but America's isn't. Its argument: The U.S. hacks only for national security purposes, whereas China is stealing trade and technology secrets at the behest of Chinese companies.

"This is a tactic that the U.S. government categorically denounces," said Atty. Gen. Eric H. Holder Jr. "We do not collect intelligence to provide a competitive advantage to U.S. companies, or U.S. commercial sectors."

April 23, 2014

President Barack Obama will spend the next few days on an awkward mission to Asia. Essentially, he is going to try to tell the Koreans, Japanese, Filipinos and Malaysians that their lives and welfare are more precious to America than those of the Afghans, Ukrainians and Syrians to whose rescue America has recently declined to come. That may not be the truth.

The White House says the president will reassure our Asian allies that they are the country’s top foreign policy priority and that America will act as a protection against the power and influence of China. It says the US will further integrate its economy with those of Asia by concluding the Trans-Pacific Partnership trade deal with 11 North American and Asia-Pacific countries. This is in response to Asian leaders’ laments that they feel neglected by Washington and uncertain of its commitments to them.

Excerpt:

Members of Congress and Experts - April 16, 2014 Press Call on President Obama’s Trip to Asia

Moderator:

Thank you very much, Congressman. Now I’d like to introduce Clyde Prestowitz. Clyde Prestowitz is very well known as one of our country’s lea ding experts on the intersection between geopolitics and economics. He had a long and some might say difficult experience as a U.S. trade negotiator in Japan and Korea and China during the Reagan Administration. And as President of the Economic Strategy Institute, hebrought that negotiator’s experience now to many books and professorships. Clyde, take it away.

Clyde Prestowitz:

Thank you for kindly inviting me. It’s a pleasure to be with the congresspersons. When the TPP was first raised as a possibility, I was among those consulted by the White House on what the objectives of the TPP should be. I asked the officials in charge at the time what the real objective of the U.S. was.

It’s important to understand that the history of the TPP actually began in Singapore. Singapore had been proposing a variety of free trade agreements in the South Pacific and Southwestern Pacific, and for a long time the U.S. ignored these, but then a couple of years ago the White House picked it up as a major objective. And so my question was “why?”

The answer was not that we’re going to create jobs for the United States, not that we’re going to stimulate the U.S. economy, but that we’re going to reassure our friends and allies in Asia that, quote, “we’re back." This was to be in response to a complaint that had arisen in Southeast Asia that we, America, had somehow gone away and had not been attending all the top conferences in Asia and so forth.

So the objective is really a geopolitical objective, not an economic objective. But because the mechanism to express this “we’re back” feeling is a trade agreement, it has to be presented and sold as something that’s going to create jobs in the U.S. and that’s going to benefit the U.S. economy.

So in my mind there are two questions. One is, will a TPP as we understand it at the moment actually be a plus for the US economy? And two, will it in any way affect our security position in the Pacific, in the world, and in some way strengthen that position? I think the answer to both questions is no.

To read transcript of press call in its entirety, please click here.

To listen to audio from the press call, please click here.

April 10, 2014

Typically, countries pursue free trade agreements (FTA) with each other because they share common negotiating objectives and subscribe to broadly similar economic principles.

And based on those commonalities, they see benefit in deepening their trade and investment relationship by taking on a higher degree of mutual commitments within the context of an FTA or regional trade agreement (RTA).

Today, however, more and more countries in Southeast Asia appear to be pursuing or considering FTAs based on an entirely different set of considerations. Trade policy has become increasingly driven not so much by a full-hearted embrace of common principles or the objectives of the trade initiative at hand, but rather by a desire not to be left out or left behind as other ASEAN neighbours move forward with bilateral or regional FTAs.

Click here to continue reading article in its entirety.

January 30, 2014

In his State of the Union message, President Obama suggested apprenticeships, tax reductions on new investments, and building new infrastructure as ways to increase jobs and reduce inequality in America.

But he said virtually nothing about what is probably the single biggest cause of lost jobs and stagnating earnings for all but the richest of America's citizens: the U.S. current account deficit, which includes the trade deficit.

Although the Federal Reserve Bank says we're in the midst of a recovery, and the official unemployment rate has fallen below 7%, the economy is far from being out of the woods. That official rate — technically known as U-3 — doesn't begin to tell the real story. It is only one of six unemployment measures kept by the U.S. government and counts all those who say they are unemployed and looking for work. But it does not include those discouraged unemployed workers who have given up looking for a job or those who would like to work full time but are only able to find part-time work. The rate that includes all those people — U-6 — is about 13%. Granted, that is below the 17% of 2010, but it is still far above the 8% of 2007, as we navigate what is being called a recovery — albeit an abnormally slow one.

American Review April 29, 2013 - Conventional wisdom says that America is in decline, that the American century is over, and that the future belongs to the rest, especially the rest in Asia. Dates vary, but predictions that China's gross domestic product will soon surpass that of the US to become the world's largest economy are legion. In 2011, the International Monetary Fund predicted it will happen in 2016.

More recently, The Economist put the date at 2019. Regardless of the exact time, prominent authors such as CNN commentator Fareed Zakaria (The Post American World) and Lee Kuan Yew School dean Kishore Mahbubani (The Great Convergence: see review page 66) have rushed to publish books predicting an historic shift in the global balance of power as a result of this change in relative share of global GDP. Indeed, the Australian government recently indicated its agreement with this thinking by moving to redeploy its resources and reorient its policies in response to a white paper on Australia in the Asian Century.

Click here to read the entire article at American Review 

1 November 2013

Emerging markets from Latin America to Southeast Asia breathed an audible sigh of relief when the US Federal Reserve – contrary to most market expectations – refrained from initiating its much anticipated policy of "tapering" at its last FOMC meeting in September. Tapering would have in essence signaled the beginning of the end for the Fed's extraordinary and unprecedented stimulative effort known as Quantitative Easing. Through its monthly purchases of $85 billion in securities, the Fed has been pumping massive amounts of capital into the economy and keeping interest rates near zero – all in effort to spur economic activity in the sluggish post-global financial crisis environment.

The implications of QE, however, have been felt far beyond the shores of the US. Much of the capital pumped out by the Federal Reserve has ended up in emerging markets, in search of higher rates of return. Equity markets and various asset classes – real estate, in particular – have surged, especially in key growth markets in Southeast Asia. "Easy money" from the US has funded everything from condo developments and shopping malls, to generous government programs paid for with a credit card.