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Manufacturing is still critical to the economy United States. Clyde Prestowitz, says it's time to start realizing the positive spillovers that manufacturing creates... Read more  

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(05/30/05) Clyde Prestowitz quoted in the Albuquerque Journal

(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 public-research spending.

"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 tank.

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 of poverty.

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 lowest-cost option.

"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 disruptive force."

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."

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