THREE BILLION NEW CAPITALISTS: THE GREAT SHIFT OF WEALTH
AND POWER TO THE EAST
By Clyde Prestowitz
Basic Books, $27.50, 416 pages
REVIEWED BY WILLIAM H. PETERSON
Slant of this work can be seen in its Chapter One heading, “Icebergs Ahead.” Yes, the giant U.S. economy is cast here as the Titanic, speeding through the night while ignoring warnings of looming icebergs. Clyde Prestowitz, head of Washington-based Economic Strategy Institute, supportee (one of many) of billionaire textile protectionist Roger Milliken of South Carolina, author of this well-written first person singular book, ticks off some iceberg warnings, some in the form of headlines from January 2005 newspapers:
-New York Times, January 25: DOLLAR’S STEEP SLIDE ADDING TO TENSIONS U.S.
FACES ABROAD
-Financial Times, January 24: DOLLAR AT THE MERCY OF SMALL GROUP OF CENTRAL BANKS
-Wall Street Journal, January 24: CHINA ON PATH TO OVERTAKE U.S. ECONOMY
-Wall Street Journal, January 24: BIG SILICON VALLEY FIRMS THRIVE BUT JOBS
ARE FEW
Granted these headlines portend a gloomy U.S. outlook. Granted too our economy — to invoke a winked comment by J. P. Morgan asked to forecast the economy during Congressional testimony back in the 1930s: “It will fluctuate.” But the Prestowitz “icebergs” are still selective, backing up his subtitle, “The Great Shift of Wealth and Power to the East.”
Which raises the question: Is that shift, if that’s what it is, with its “globalization” bad for America? Mr. Prestowitz weighs the case of communist China, boasting a population of 1.3 billion. China almost collapsed from Mao’s disastrous postwar “Great Leap Forward” of all out socialism. Deng Xaioping rescued it in 1978 (Mao died in 1976). Deng got the Chinese Communist Party to adopt “4 Modernizations:” increasing rural incentives and incomes; boosting new private enterprises; slashing central direction; and sparking foreign direct investment, soon luring in GM, GE, Motorola, Starbucks, etc. Deng brazenly said heretical things like “to get rich is glorious” and my gem: “It makes no difference whether a cat is white or black as long as it catches mice.” Anyway, the Chinese economy has taken off like a rocket. Is that bad for America?
Ditto India with its population of 1.1 billion. After World War II it tried socialism under Prime Minister Jawaharlal Nehru. The result was what my New York University mentor Ludwig von Mises called “planned chaos.” A statistic that tells it all. In 1938 India’s share of world trade was almost three percent; in 1980 it was 0.5 percent. Much credit for India’s turnaround today goes to its present Oxford-educated prime minster, Manmohan Singh, an admirer of Margaret Thatcher and an authority on free trade. Recently he put before India’s parliament a plan to free up free enterprise by — to quote Mr. Prestowitz — “slashing tariffs and other trade barriers, deregulating and privatizing, attracting foreign investment, and fostering export-led growth.” Free trade worked. India has become a trading power. So is India an economic threat to America? Mr. Prestowitz thinks so. I don’t.
The free trade case, made by classical economist David Ricardo with his law of “comparative advantage,” has stood the test of time for almost two centuries. Mr. Prestowitz retells the Ricardo case: Suppose Portugal could outsell Britain in both wine and textiles. Ricardo saw comparative advantage would soon direct private investors so that Portugal specialize in wine and Britain in textiles with the two countries trading their respective surpluses with each other as well as it with others.
But recent public agitation over “Exporting America” in terms of jobs and capital to places like China and India has scored hits for the Democrats, even though the White House had Chairman Gregory Mankiw of its Council of Economic Advisers defend the practice with many big-name economists endorsing his stand. Mr. Prestowitz was not among them. His supporters include MIT’s Lester Thurow, Nobel economist Paul Samuelson, and a surprise: ex-Treasury official in the
Reagan regime and a founder of supply-side economics, Paul Craig Roberts. Mr. Roberts holds “for comparative advantage to work, a country’s labor, capital, and technology must not move offshore.”
Who’s right, who’s wrong? I recall Jean Baptiste Say, godfather of supply side economics and author of Say’s Law (supply creates demand), lamenting theplight of huge richly endowed Brazil whose government constantly overruled its entrepreneurs and capitalists to set back Brazil’s growth in the 19th century. Had Brazil prospered, reasoned Say, not only would Brazilians have thrived but so would the French and nations generally, trading with a vast vibrant Brazilian economy. I also recall Thomas J. Watson, founder of IBM, pointing up another gain of free trade with his ringing call for “World Peace Through World Trade” during the interwar period. Protectionism does not come cheaply; it breeds distrust, possiblly war.
Laissez-faire thinking by Say and Watson counterpoints that of interventionist Clyde Prestowitz. He here touts a “new Bretton Woods Conference” to cut the impact of the dollar’s role in world business and so offset America’s huge persistent trade deficit (which excludes investment). A no-brainer! Would you,
Dear Reader, entrust the fate of the U.S. dollar to sharp international politicians at such a conference? Lots of luck, America.
William H. Peterson is an adjunct scholar at the Heritage Foundation and the winner of the 2005 Schlarbaum Award for Lifetime Achievement in Liberty from the Mises Institute of Auburn, Alab.
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