Prometheus 6

Three Billion New Capitalists: The Great Shift of Wealth and Power to the East author: Clyde Prestowitz asin: 0465062814 binding: Hardcover list price: $26.95 USD amazon price: $17.79 USD

One Global Game, Two Sets of Rules
By WILLIAM J. HOLSTEIN

GLOBALIZATION is imperfectly understood by many American policy makers, with dangerous consequences for the United States economy, says Clyde Prestowitz, author of "Three Billion New Capitalists: The Great Shift of Wealth and Power to the East" (Basic Books, 2005, $26). A former trade negotiator in the Reagan administration, he is president of the Economic Strategy Institute in Washington. Here are excerpts from a conversation:

Q. Why do you say that many American policy makers don't understand globalization?

A. There are two different concepts of globalization. One concept is based on the American experience, which is one of a democratic country under a rule of law that holds to market principles. This view holds that the objective of economic policy is to improve consumer welfare and believes in the thinking of David Ricardo and Adam Smith about comparative advantage and free trade maximizing consumer wealth.

Q. Doesn't everybody embrace that view?

A. No, there's a second concept, which is a strategic-trade, export-led, growth kind of globalization. This concept is held by many countries around the world, particularly in Asia. It focuses on economic development as a matter of strategic significance. It explicitly aims to achieve trade surpluses and large dollar reserves. It's aimed at fostering production and a high savings rate but suppressing consumption.

There are two different games going on. The difficulty in the United States is that frequently the second game is not recognized or acknowledged or, if it is, it's dismissed as being not significant.

Q. What are the consequences of not speaking the same language about globalization?

A. We have a very distorted global economy. It is tilted. There's one consumer, which is the United States. All the other major countries are producers and net exporters. The United States consumes far more than it produces and has to borrow money from the rest of the world to finance that consumption. The rest of the world, particularly Asia, and particularly the central banks of Japan and China, provide a kind of vendor financing to the United States to enable it to continue buying their exports. You have a kind of Ponzi scheme that constitutes the global economy. Like any Ponzi scheme, it's not indefinitely sustainable. At some point, the world will run out of savings to finance American consumption, or the rest of the world will begin to doubt the ability of the United States to make good on its obligations. There will be a collapse of one kind or another.