(05/30/05) Clyde Prestowitz quoted in the Albuquerque Journal
Author says U.S. has become lazy
Albuquerque Journal (NM)
Copyright © 2005 Albuquerque Tribune
May 30, 2005
Section: Business Outlook
Author says U.S. has become lazy
Tech Bytes Andrew Webb Of the Journal
A former Reagan administration official has a bleak take on the
business of invention -- the work many believe will save the U.S.
economy as large, existing industries, such as semiconductor
manufacturing, seek cheaper overseas locales.
U.S. economists have relied on the assumption that countries like
China, India and former Soviet bloc nations such as Poland would never
catch up to America's research and development capabilities. But they
have, says author Clyde Prestowitz.
And in the meantime, the United States has not only done nothing to
lower the cost of doing business, it has neglected its key research
infrastructure, as evidenced by failing schools and plummeting
"We have been complacent," said Prestowitz, who served as counselor to
the Secretary of Commerce in the Reagan Administration and is now
president of the Economic Strategy Institute, a Washington, D.C. think
Prestowitz was in town last week speaking to the Albuquerque branch of
the American Committee on Foreign Relations, a nonprofit group that
aims to stimulate debate on international issues. He is on tour to
promote his recent book, "Three Billion New Capitalists: The Great
Shift of Wealth and Power to the East."
In an interview with the Journal after the luncheon, Prestowitz said
the country has rested on its laurels as other nations slowly rose out
As production of commodity items such as computer chips, and the supply
of customer services such as airline reservations and technical support
have moved overseas, economists here have assumed the United States
would remain the center of innovation.
"The assumption has been that if we invent new things, they'll
commercialize them here and manufacture them here until they become a
commodity, and that will employ people," he said.
But with technologies, such as the Internet, making communication
virtually instantaneous; and great leaps in skills in countries like
China, duties such as commercialization can be handled there, where it
is much cheaper.
"So here, we end up with just a few jobs and no industry," he says.
Furthermore, much innovation takes place further along a product's
lifetime, meaning that if it is manufactured overseas, new developments
will occur there as well.
"Things really happen on the factory floor," he says. "If the shop
floor isn't here, the innovation is not going to happen here."
Education in countries like China has begun to outpace the U.S. system,
which Prestowitz says is plagued by poor discipline, uninvolved parents
and underpaid teachers. This phenomenon will eventually allow engineers
in other countries to do the same development and research done here,
at a fraction the cost.
Furthermore, the U.S. government has actually ratcheted down R&D
spending and closed major facilities. Currently, about 2.7 percent of
the U.S. Gross Domestic Product is spent on basic research and
development, with about two-thirds of that privately funded.
"Twenty years ago, it was the other way around," Prestowitz said.
Traditional barriers to outsourcing, such as quality control and
difficulties with foreign accents and languages, are crumbling, he
says. And even though some companies, such as Dell, have brought
services back to the U.S., business will, in the long term, seek the
"Language can be taught. Quality can be dealt with," he said.
Exacerbating this uncomfortable news, he says, is the fact that the
United States is weakened by hundreds of billions in trade deficits,
and $3 trillion in international debt.
"The foreign claim on U.S. income streams will continue to grow, the
tech base will continue to erode, and the industrial base will continue
to move overseas," he said. "These people are coming into the system
just at a time when the system is stressed. They are a highly
The result, he says, will be a dramatic drop in the value of the U.S.
dollar, rising interest rates and plummeting housing prices.
"And serious recession and depression when it falls apart," he said,
adding that it is hard to predict when this downturn will begin.
Some business leaders, among them former Intel CEO Craig Barrett, have
embraced Prestowitz's philosophy and have joined in calling for
improvements in education and changes to policies on taxation and other
factors affecting U.S. business. Political leaders, such as Sen. Jeff
Bingaman, D-N.M., have also been carefully observing the rise of
business in China, India and elsewhere, Prestowitz says.
"These 3 billion people are very interesting and unique, and while most
are poor and low-skilled, high numbers of them have high skills -- yet
they're cheap," he said. "It really changes the competitive dynamics of
the global economy."