ACTION ASIA : The shrinking world – Three billion new capitalists, (almost) three years on

Two years after its publication, Clyde Prestowitz still bristles at the title of his own book. In fact, the man who in 2005 penned the groundbreaking work Three Billion New Capitalists remains more than tad miffed about its name. His publishers, he says, rejected his first pick, ‘The World Turned Upside Down’, which would have signalled its position as neat counterweight to Thomas Freidman’s book The World is Flat which came out at the same time.
Then Prestowitz sidestepped the publishers’ suggestion ‘The Way the West was Lost’. “That title would have inevitably branded me as anti-Asian and especially anti-Chinese,” he says. “It wasn’t the right one.”
Prestowitz and publishers eventually settled on Three Billion New Capitalists: The great shift of wealth and power to the east. It’s bit of mouthful really and, as Prestowitz knows, hard for readers to remember. The three billion refers to the massive tide of people flooding into the world’s capitalist market system from China, India and the former Soviet bloc.
To be fair, Prestowitz’s resistance may have something to do with the stark reality that the book carries scant analysis of the impact of the former Soviet bloc escapees. Instead, and quite rightly, it focuses heavily on China’s far more influential 1.3 billion or so new capitalists and, to lesser extent, India’s one billion. It spells out the practical implications of globalisation and explains why America’s global economic prowess is wilting in its tracks.
The anecdote about the book’s title comes as bit of surprise from man whose conversation reveals formidable intellect and the uncanny knack of connecting disparate global dots to help drive home big ideas into smaller minds.
Founder and president of the Economic Strategy Institute in Washington, DC, Prestowitz was in Auckland recently as keynote speaker at the Asia New Zealand Foundation’s Action Asia Summit.
He’s already packed several careers into one lifetime. Prestowitz kicked off as journalist in the United States on the Wilmington Morning News and the Honolulu Star Bulletin. family interest in languages – he’s fluent in Japanese, Dutch, German and French – enticed him into the US foreign service. He passed his diplomatic exams in Japanese so diplomatic logic, he once commented wryly, meant that he was immediately posted to the Netherlands.
He segued into business career with, among others, Scott Paper and American Can. Then in 1981 he joined the Reagan administration where, as counsellor to the Secretary of Commerce, he led trade negotiations with Japan, China, Latin America and Europe.
Now he’s gone full circle, regularly popping up as commentator in the New York Times, the Washington Post, Fortune and Foreign Affairs.
When it comes to globalisation, Prestowitz agrees he’s probably at the less rosy end of the spectrum than Friedman. The two men, says Prestowitz, live within mile of each other. In telling example of global shrinkage, when they were researching their respective books they were frequently at the same hotels interviewing the same people at the same time. “So we both knew what was coming,” says Prestowitz.
“If you read the two books side by side there are lot of similarities. They’re both talking about the same phenomenon. Tom calls it ‘the world is flat’. I say the world is shrinking. It’s the phenomenon of the impact and interaction of China, the Soviet bloc and India coming into the global economy at the same time that the internet and express air delivery have made for instant communication and very fast delivery.
“But the difference is that Tom has really embraced what I think is somewhat romantic view of globalisation, which is that it’s wonderful, it provides enormous opportunities, it connects the knowledge centres and the brains of all the world, and it is going to accelerate innovation and productivity.”
By and large, says Prestowitz, the United States, the western world and even to some extent Japan, have taken Friedman’s themes on board.
“Tom contends that globalisation will make us all rich. That being rich will make us all democratic and being democratic we won’t have any more wars because everybody knows that democracies don’t fight each other.”
It’s beautiful viewpoint, says Prestowitz. Shame, then, that he reckons it’s wrong. One of his key contentions is that many people think globalisation equals Americanisation “and that if this keeps on going everybody will become like us. We’ll benefit because we’ll be leading the charge.
“That tends to suggest there is one globalisation. In my view there are different globalisation scenarios and some of them work better than others.”
The trajectory of one of today’s dominant forms of globalisation, argues Prestowitz, is pointing ‘Anglo’ countries like the United States, Australia and New Zealand towards rocky times.
“Tom says the world is flat and this is really great because it’s going to make everybody richer. Well, I’m saying, yes, in way that’s right. The world is flat but it’s tilted. And it’s tilted in such way that jobs, wealth and technology are sliding from west to east. And because the world is flat, they slide faster. And there’s the argument: Why is it tilted and what can you do about it?”
Prestowitz reckons the tilt comes from different teams playing different games. It’s bit like one side playing baseball while the others turn out for spot of cricket. In macro-economic terms that’s stuff like many of the Asian players pursuing export-led growth strategies while many of their Western counterparts stick with consumption-led ideologies.
Two years after the release of both books, the world is waking to the precarious east-west trade imbalance that threatens to tip us collectively into scary economic times if the world’s central bankers try to call in the huge wobbly stack of US dollars distributed around the globe by the United States.
“People are now more knowledgeable about what I was talking about than they were,” says Prestowitz. “What they don’t seem to grasp fully is what the implications are.”
For one thing, few folk appear to have cottoned on to the notion that global companies are more responsive to authoritarian governments with export-led economic growth strategies than they are to democratic governments following consumption-led economic models.
“We’re seeing that the economic structure can be distorted because for global company there may not be good economic reason to produce in China. It may not be cheaper to produce there or you may have worse quality there but they lean on you. You feel that you need to keep them happy, whereas in the democratic system, as global company you’re
a player.
“So part of what’s happening is that rather than globalisation strengthening democracies it’s maybe strengthening authoritarian systems.”
More obviously, the debate on trade imbalances has recently shifted to new ground.
“There are problems with lot of Chinese exports. Toothpaste has poison in it. The fish you buy has melanin in it. These are issues of quality and safety.
“For long time in international negotiations the United States was trying to establish labour standards. Whenever we talk about this the developing world thinks we are trying to hold them back and that’s protectionist. But now we’re talking about how people can die if they use that toothpaste.”
That, he acknowledges, is far harder position to defend. “It’s not protectionist to be worried about whether your food is pure or not. Those issues are coming up.”
Nor, in Prestowitz’s view, is the current ‘fad’ for Free Trade Agreements without loopholes.
“I tend to be cautious about Free Trade Agreements between Adam Smith or Ricardian countries [such as New Zealand] and export-led growth countries [such as China] because they’re not playing the same game.
“The ‘Anglos’ go into these negotiations with bunch of assumptions,” he says. “They think ‘China is becoming capitalist and market oriented so they’r