Book Reviews & Citations
(09/05/05) Three Billion New Capitalists reviewed in The Miami Herald
The Miami Herald
September 5, 2005
BUSINESS BOOKS: Ominous signs of an economic catastrophe
Trends in the U.S. economy paint a grim picture for sustained growth,
especially with powers in the East eager to surpass their Western
By Richard Pachter
Three Billion New Capitalists: The Great Shift of Wealth and Power to the East. By Clyde Prestowitz.
Scary book. If it's correct, the United States is just a step or two
from economic disaster. Clyde Prestowitz, founder and president of the
Economic Strategy Institute, served as counselor to the secretary of
commerce in the Reagan Administration, leading many trade and
investment negotiations with Japan, China, Latin America and Europe.
His conservative credentials are solid, lest anyone label him a
wild-eyed liberal alarmist.
He lays out his case clearly and surprisingly painlessly -- though the
facts themselves are rather chilling. Basically, a confluence of
factors are leading to our impending doom: the shift of manufacturing
to the Far East, subsequent transfer of strategic technologies,
establishment of the dollar as the international monetary standard,
termination of the gold standard, lack of government support for
competitive industries, huge government and private debts, lack of
savings and a laissez faire approach to international trade.
China and India are the most populous nations on the planet. For
several hundred years, for a variety of reasons, they've been economic
lightweights. But over the past decade, they've made rapid progress and
are becoming economic powerhouses. We have already witnessed Japan's
prowess, despite recent setbacks. After all, Toyota, Honda and
Mitsubishi are still doing quite well, thank you very much. But India
and China are making hay while we blithely assume that our dominant
status will be everlasting, since our productivity is higher than ever,
the economy is growing and unemployment is low.
Prestowitz writes: "It is comforting to Americans to keep telling
themselves they have the best productivity and GDP growth and will
therefore remain the location of choice for foreign investment. But is
it true? While there is much evidence to indicate that U.S.
productivity has indeed taken a jump, there is also cause for prudence
about this conclusion. While American productivity per worker per year
is improving faster than that of Europe, on a per hour basis the
Europeans are starting to come out ahead.
"This once again raises the issue of living standards. Americans are
not only working more hours than Europeans or Japanese, they are
working six more weeks a year today than they did 20 years ago. Yet
median family income has not risen much. As for unemployment, it's easy
to keep it low if you put 2 percent of all the men in the country in
jail and don't count them as unemployed -- which the United States
currently does. Further, we only count as unemployed those receiving
unemployment benefits or who tell poll takers they are actively seeking
"To see how this works, look at Kannapolis, North Carolina. When the
town's only mill shut down, reported unemployment soared. A year later,
however, unemployment magically disappeared -- not because people got
jobs, but because their benefits ran out. The real story of the U.S.
economy is rising hours worked, rising debt and job creation largely
restricted to low-paying categories like retail sales and fast-food
restaurants. This is not a formula for long-term prosperity."
Then there's that little matter of America's present economic "growth"
being based on consumption and not production or savings, plus the
mounting federal deficit.
Is it too late? Perhaps not, but given the current administration's
reluctance to put the brakes on "growth," I may start paying closer
attention to the Mandarin-language lessons on my local cable access