(04/21/05) Clyde Prestowitz mentioned on Voice of America

(04/21/05) Clyde Prestowitz mentioned on Voice of America
Voice of America
Copyright 2005 Federal Information & News Dispatch, Inc.
April 21, 2005
Radio Scripts - BACKGROUND REPORT 5-56800
U-S DEBT/ECONOMY
MIKE O'SULLIVAN
LOS ANGELES

HEADLINE: Business Leaders, Analysts, Warn of Mounting US Debt, Consumer Spending

INTRO: Some US business leaders and financial analysts say the US economy may be heading for trouble if the country keeps consuming and borrowing, while China and India expand as manufacturing bases and service providers. VOA's Mike O'Sullivan reports from Los Angeles, where a conference of the Milken Institute, a private research center, focused on the state of the global economy.

TEXT: Richard Iley, a North American economist for the French bank BNP Paribas, says the United States is the technological envy of the rest of the world. He adds that on the surface, there seem to be few problems on its horizon. But he says the US economy is fueled by borrowing, which could spell trouble in the future.

[ILEY ACT]

The bottom line for me is that the US economy is under-saving and over-consuming. Effectively, this is an economy that is living well beyond its means and has been for some time.

[END ACT]

He says credit market debt in the United States has reached a record 300 percent of the nation's gross domestic product, and mortgage debt is growing faster than the economy as a whole. Another speaker at the forum, Clyde Prestowitz , was a Commerce Department official and trade negotiator in the Reagan administration. He says Americans have become too good at spending and consuming, while the rest of the world is saving and producing. The US household savings rate, at under two percent, is among the lowest in the industrial world.

Former US trade official Charlene Barshefsky, who negotiated the historic US trade deal with China, says political leaders in Washington do not fully appreciate how China's dramatic growth is changing the world. She says China's fast expansion as a manufacturing power is unique in history, and says the United States cannot continue building debt as it runs up ever-higher trade deficits with China and other countries. The US trade deficit, which measures the funds that flow out of the country in exchange for the goods and services that Americans buy, reached a record 617 billion dollars last year. One-quarter of the deficit stems from trade with China.

Outsourcing and offshore production by U.S. companies is part of the reason. Barry Sternlicht, the chairman of the US-based Starwood Hotels and Resorts, buys furniture from China and may turn to India for high-end services. He recently visited the Indian technology company Infosys, which he says has an advantage in the global marketplace because its skilled workers are paid just a fraction of what U.S. workers receive. He says outsourcing to India could help his corporation stay competitive.

[STERNLICHT ACT]

I came back and I said, I've got to move all their (Starwood Hotels and Resorts) accounting functions to India because I can do it for one-fiftieth of the cost.

[END ACT]

Conference speakers worried that the United States is lagging in high tech infrastructure such as broadband connections, which increasingly are used for sharing information, distributing entertainment, and carrying telephone calls.

But the chairman of one growing Internet firm, Terry Semel of Yahoo!, says the United States remains a technological leader, despite its challenges. He says commerce today is global, and is facilitated by technology.

[SEMEL ACT]

And one of the big questions would be, how dominant will the U.S. be ? And part of the answer is, quite dominant, although there are major challenges for many countries throughout the world.

[END ACT]

One financial analyst says the United States retains an advantage in the global economy because of its high productivity, and some look to U.S. growth to reverse trade imbalances. Others, however, warn that inflation and rising oil prices could dampen U.S. growth or cause recession. Yet others say the unbalanced trade relationship between the United States and China could mean trouble for both nations in the future.