The Betrayal of American Prosperity: Free Market Delusions, America’s Decline, and How We Must Compete in the Post-Dollar Era, Clyde Prestowitz, Free Press, 340 pages
How the Economy Was Lost: The War of the Worlds, Paul Craig Roberts, CounterPunch, 264 pages
By Eamonn Fingleton
George W. Bush’s under secretary of commerce for international trade, Frank Lavin, was once described in an official press release as “America’s Salesman-in-Chief.” He emerges in a less glorious light in Clyde Prestowitz’s new book, The Betrayal of American Prosperity.
In a lengthy anecdote, Prestowitz cites Lavin as an archetypal example of the sort of thinking that engineered America’s economic trainwreck. Prestowitz, who is president of the Washington-based Economic Strategy Institute, recounts how he contacted Lavin on behalf of FormFactor, a small American technology firm whose patents were being stolen by a Korean competitor. A weakened FormFactor was considering drastic layoffs and being tempted by large grants to move its operations to Singapore. But the firmfounder, a fiesty Russian émigré named Igor Khandros, wanted to save as many American jobs as possible.
Naïvely, perhaps, he set out to enlist the U.S. government’s help in cracking down on Korean intellectual property theft. So, accompanied by Prestowitz, he did the rounds in Washington. Lavin was more or less their last hope. Prestowitz writes: “If there was one person in the U.S. government responsible for promoting American exports and the interests of American business abroad, he was the guy. Imagine our surprise then when he responded to our request for help by asking: ‘Have you considered moving your operations to Korea or maybe Singapore?’
“Igor nearly fell out of his chair. We didn’t bother to tell Lavin that we were talking to him in an effort to avoid moving the company, jobs, and technology out of the United States. … He wouldn’t have understood our values and intentions.”
The anecdote goes some way toward explaining why America’s trade deficits went from disastrous under Bill Clinton to totally catastrophic under George W. Bush. The result is what will surely be seen by future generations as the fastest implosion of any great power in history.
Again and again Prestowitz shows how for nearly 40 years the American economy has been sold down the river by a dogma-crazed American elite. It is hard to imagine a more depressing story—until you read How the Economy Was Lost, a compilation of fiery essays by Paul Craig Roberts.
The two authors share similar backgrounds in that they both served under Ronald Reagan in the “morning in America” years of the early 1980s. In his capacity as an assistant Treasury secretary, Roberts was a principal architect of supply-side economics; Prestowitz was a top trade negotiator in Office of the United States Trade Representative.
Prestowitz was one of the earliest and most influential experts to hit the panic button about America’s deteriorating trade position. His 1988 book Trading Places caused a sensation with its superbly written insider’s account of Japanese intransigence toward countless American market-opening efforts. He went on to rank with James Fallows, Pat Choate, and Chalmers Johnson as one of the key American “revisionists” who inspired a brief, much publicized spell of hawkishness towards Japanese trade practices two decades ago.
Thereafter he seemed to lose heart. His standing among fellow trade hawks was notably dented in the mid 1990s when he reversed himself on NAFTA—although he had originally pronounced it a job killer, he sided in the end with the globalist lobby in helping ram it through Congress. (His earlier view has, of course, been resoundingly vindicated.) Perhaps even more disappointingly, he remained invisible in the late 1990s as Congress debated China’s entry into the World Trade Organization. He now brands that “one of America’s dumbest deals.”
Roberts came to the trade debate much later than Prestowitz. As his impassioned essays show, however, he has been making up for lost time. His epiphany came as part of a general disgust with George W. Bush’s agenda, not least the Iraq invasion.
While Roberts’s essays focus mainly on recent developments, Prestowitz takes a more expansive approach, devoting much space to an extended historical sketch of American trade policy over the last two centuries. The truth, as Prestowitz points out, is that in the country’s years of fastest growth, American markets were protected by high tariffs.
As the United States unilaterally dismantled its trade barriers after World War II, other nations predictably increased their share of American markets. Yet this provoked little more than a yawn from the American establishment. He recounts a conversation in the mid 1980s with Herbert Stein, a former chairman of the Council of Economic Advisers. Prestowitz voiced concern about Japan’s increasing penetration of the American car market. A serene Stein replied, “They will sell us Toyotas and we’ll sell them poetry.”
This was an elliptical allusion to the then emerging consensus among economic policy analysts in the United States that manufacturing was yesterday’s game. Thus nations like Japan and Germany were more or less doing Americans a favor by vaporizing America’s “smokestack industries.” As the world’s leading economy, America supposedly no longer needed manufacturing, and the sooner its workers were redeployed in the all-digital postindustrial economy the better. Uniquely creative Americans would leave the Belt” behind to provide the world with advanced services such as computer software, financial engineering, various forms of consulting, product design, and scientific research.
As some of us showed at the time, this argument was based on trick logic and ignorance. Yet because it helped justify the elite’s free-trade agenda, it continued to be widely promoted until the current crisis hit in 2008.
One of the most obvious flaws in the postindustrialism story is that, in contrast with advanced manufacturing, most service industries are poor exporters. Worse, to the extent that certain advanced service products such as computer software can be exported, it has been clear all along that in an age of cheap, instantaneous communications, the jobs would rapidly gravitate to low-wage nations like India and Russia. Computer software has in fact proved even more vulnerable to outsourcing than advanced manufacturing. (Software writing is generally extremely labor intensive, whereas advanced manufacturing is very capital intensive.)
Even many of postindustrialism’s erstwhile proponents have come to admit that manufacturing still matters. Better late than never—but it is easier to destroy a nation’s industrial base than to rebuild it.
China, of course, has notably employed the one-way free-trade policies by which Japan, Korea, and Taiwan earlier catapulted themselves to the leading edge in key manufacturing industries. Ominously, however, Prestowitz suggests that in the long run America’s problem with China may turn out to be more political than economic. As he points out, U.S. corporations are taking on the role of Trojan horses in America’s increasingly fraught relations with China. To maximize profits on their China-related activities, such corporations increasingly must pander to Beijing’s authorities. One way of doing so is to manipulate American politics to suit China’s growth agenda.
A disappointment in Prestowitz’s analysis is that he has little to say about Japan. This is a missed opportunity: pace American press reports, Japan did not stagnate after the Tokyo stock market crashed in 1990. As Mark Skousen has pointed out, measured on a per capita basis Japan’s GDP actually kept pace with America’s over the last two decades. Japan lost ground only in the sense that its population growth was much slower than America’s, causing a lag in total Japanese output.
What’s more, there are strong grounds for believing that Japanese growth is calculated on more conservative accounting principles than America’s. Certainly in many key aspects of consumer welfare Japan visibly outperformed the United States. Prestowitz points out, for instance, that Japan has raced ahead in telecommunications: there were recently about 40 million third-generation cell phones in Japan versus just 1 million in the United States. And thanks to greater deployment of fiber-optic networks, the Internet runs about 16 times faster in Japan than in the United States. A slew of other facts could usefully have been added. Prestowitz makes no mention, for example, of the remarkable strides Japan has made in life expectancy since the 1980s. (The Japanese now outlive Americans by fully five years.)
Prestowitz also overlooks Japan’s remarkable trade performance. In the teeth of two back-to-back supposed “lost decades,” Japanese exporters have never performed better. Exports to China have done particularly well, with the result that Japan ranks virtually alone among major nations in enjoying a broadly balanced bilateral trade relationship with the new East Asian juggernaut—on China’s numbers, Japan actually runs a bilateral surplus. Moreover, a so-called stagnant Japan boosted its overall current-account surplus more than threefold between 1989 and 2008. By contrast, a supposedly vigorous United States saw its current-account deficit balloon sixfold in the period.
Roberts’s book is notable for the depth of his intellectual case against globalism. Although he regards himself to this day as a true free trader, he argues convincingly that the world economy has changed in ways that render the classical case for free trade inapplicable. He repeatedly cites a 2001 landmark mathematical analysis in which Ralph Gomory and William Baumol holed the classical theory below the water line.
A major subplot in Roberts’s book is the amazing growth of H-1B visas, by which corporations in industries like software can bring in thousands of workers from India and other poor nations to labor on American soil at wages far below U.S. norms. He points out that although such visas were originally conceived to address narrow cases where there was a real and serious shortage of capable American workers, they have been issued so promiscuously that they have depressed wage rates. Roberts asks a pertinent question: “What economist has ever heard of a labor shortage leading to flat or declining pay?”
Roberts’s diagnosis is dire:
A country whose workforce is employed in domestic non-tradable services is a Third World country with nothing to export. How will the United States pay for its heavy dependence on imports of manufactured goods and energy? … As long as narrow private interests can cloak themselves in free trade’s claim of increased general welfare, the American economy will continue its relative and absolute decline, and American taxpayers will continue to bear the cost of workers displaced by offshoring and work visas.
Of these two authors, Roberts is clearly the more pessimistic. It would be nice to suggest he has overdone the gloom. Unfortunately, the unimpeachable quality of the evidence he brings to the discussion leaves little doubt that America’s fate has already been sealed.
Eamonn Fingleton is the author of In Praise of Hard Industries: Why Manufacturing, Not the Information Economy, Is the Key to Future Prosperity.
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What has happened to the American economy over the last 3 decades has been planned and executed for the sole purpose of destroying the American middle class. The reason being is to create a nation of people dependent on the largess of government and therefore a people better controlled. The ultimate aim of the world elite is to bankrupt America so that it could be better folded into a New world Order run out of the United Nations. The megalomaniacs who have concocted this plan are internationalists and globalists who believe that they know best how to run the world. It is clear that these globalists are acting against the best interests of the American people and their Constitution by forcing America into becoming a 3rd World country. The elitists who have set this plan in motion are criminals and traitors who must be brought to justice. Unfortunately these same criminals have bought and control most of the American Government,the American Media and the American money and banking system. I’m afraid its years too late to save the American Republic.
I would like to point out that for the first five years of the Bush Administration, the economy grew faster than China’s economy. Saying that, I agree with your assessment of the state of the economy. The best way to address this is to implement a 10% flat tax instead of a progressive income tax, plus an 8% national sales tax that goes straight to paying off the debt. We could reduce deficits by having similar measures to the austerity plans some European nations (namely Britain) are implementing and working within a balanced budget, which means no pet projects, no earmarks or pork. Only the spending that’s necessary to keep the country going. In regards to the military, what we need is a “fire-brigade” mentality, i.e. using moderately-sized, highly mobile strike forces to hit hard and RTB. This would reduce the costs of maintaining massive numbers of troops over in Afghanistan.
I agree that there have been decades of bad decision-making which was powered by an uproven ideology. As for the so-called war on the middle calss, I think that nobody actually conspired set that as a goal, but the results are the same as if they did. The American taxpayer has been viewed as a bottomless cash machine, and investors and freemarketeers have been devising ever more subtle and complicated weays to get American taxpayer money to finance their marketplace gambling.
Whereas these books make valid points, the tragedy is that all these points were being made since the 1970s, and they were always swept aside.
This implies something very depressing about our country, our politicals and our economic leaders – that they don’t want to hear logic that is factually correct and will help America. If they can pocket some profits next quarter, all long-term vision gets tossed out. They further exacerbate the situation by publicly giving lip service to long term goals, but this is just political demogoguery. The intent is to get a quick profits, and to shove off any losses on the American taxpayer. Sadly, Obama still plays this game by being in bed with the Goldman Sachs brass.
Although historically all dissent has been blamed on liberals, these books show that there were plenty of sober-minded conservatives who were also marginalized when they objected to the intoxicating brew being served up by the free marketeers.
I guess it just proves that greed is non-partisan, and knows no national loyalties.
I support less taxes and less regulation to make America more competitive.
But that isn’t enough.
American labor should not have to compete with near-slave labor.
“Imagine our surprise then when he [Lavin] responded to our request for help by asking: ‘Have you considered moving your operations to Korea or maybe Singapore?’”
This quote shows how bad things have been and, undoubtedly, still are.
Free traders need to be confronted by the facts & evidence.
And called out — yes, take names and ridicule these Benedict Arnolds.
Friends and close associates need to be politely taken aside and persuaded by calm exposition, but there will be times when confrontation is a necessity.
Speaking truth to power regarding trade/globalism issues is crucial for America’s future economic vitality and sovereignty.
[...] Evening in America, from the American Conservative magazine. [...]
I think we still have some leverage as long as our debts are denominated in dollars, but if that ever ends, it’s third world time for us. We need (1) immigration control and enforcement (just enforcing the existing laws would be nice, but these days we need less immigration than ever), and a change in trade policy. People think it can’t work, but I support domesticating the use of the U.S. dollar and requiring that goods coming into the U.S. be paid for with goods only, there and then at the dock or border (that is, no foreign financing of imports), or they do not get paid for at all. I call it either barter at the border or goods for goods trade. It’s free trade without the distortions caused by our fiat dollar’s current but temporary status as the world’s reserve currency and without the gateway drug of foreign financing. It would require at least trade balance. Then we should make sure that our tax system taxes foreigners at least as harshly as it taxes Americans. Do you know that with proper structuring of ownership, a foreigner can own U.S. real estate and never have to be subject to U.S. estate, gift, or generation-skipping transfer taxation, unlike a U.S. citizen who own s similar real estate? That is a scandal! Unfortunately, foreigners have better lobbyists than the American people.
Excellent article and responses. My only question to the responders is this: Do you drive American automobiles. Or do you drive foreign cars?
The American worker, both blue- and white-collar, was living in a fool’s paradise, like the coyote who’s raced off the edge of the cliff but hasn’t yet looked down. The economic melt-down brought on by crooks and liars on Wall Street was a seismic event that shook jobs out of the economy, but those jobs were gone already — we just didn’t know it. They had already been exported, taken over by machines or simply passed their sell-by date. Businesses shrunk like a man on a diet and those jobs are not coming back. Only if American ingenuity can come up with a new way to excel, and only if Americans realize and accept that they can’t live in the 21st Century the way they lived in the 20th Century, will we stop the slide into a state that will look much like India does today: a small ruling, wealthy elite and masses of hungry, downtrodden nobodies.
The book review by Eamonn Fingleton raises some interesting points, but it leads with an anecdote that simply never happened.
In fact, as Commerce Undersecretary, I did meet with Clyde Prestowitz who raised the issue of FormFactor. He told me their number one concern in locating facilities was intellectual property (IP) protection, and lack of such IP protection in Korea had caused significant problems. I said, on that basis, it might make sense to place their Asian (underlined) activities in Singapore. I explicitly stated that this should not take place at the expense of any activities in the U.S.
Indeed, Mr. Prestowitz noted that it was highly unlikely that a US Government official would recommend a US company leave the US and ship jobs overseas. He is right and that is the position I have taken for my entire career.
I thank The Conservative for allowing me to correct the article.
It’s scary how some of the “simple okie” readers assert that our economy grew faster than China’s under Bush. Unless of course Okie implies the astronomical “growth” of the military spending (over a bogus war on terror), and the 14-straight-quaters of profits for the Oil companies. Oh, and the Wall Street-Banking tycoons (Enron, World Com, Lehman, et al) who raped the Pension Funds and Homeowners. All this while the average Joe’s life soured.
Ditto for that clown above who claims that there is a conspiracy to bankrupt the middle-class to make him beholden to the corporate-puppeteers of our govt. Indeed, the corporate agenda only prevails if there is a growing middle-class — consumers for this materialistic agenda. (notice India, Brazil, etc.)
The true conspiracy lies in the trifecta of War/Oil , Pharmaceutical, and the Teaching establishment (which ensures a dumbed-down populace will blindly subscribe to this agenda). And obviously our media keeps America in the dark about this scheme…
As much as many prognosticators and so-called experts are saying President Obama is going to have a tough time getting re-elected, the reality of the situation is that President Obama will get re-elected against almost any potential GOP challenger.
However, one candidate cannot be over-looked. If we learned anything from 2008, we should’ve learned that organization and social media skills are paramount to a campaign. No one is actually going to “come out of nowhere”. To become the most powerful person in the world, you have to build quite an organization. That’s why only one person has a chance to beat President Obama in 2012.
This will make it all clear:
http://mittromneycentral.com/2010/05/07/no-apology-song-the-case-for-american-greatness/
Social Media skills? First Black man? Mitt? Get real! The only person who gets to occupy 1600 Pennslyvania Ave. is the chump of the NeoCon cartel. Black, or White, Woman or Man, even a Gay person can get there so long as he/she is the chosen one — to advance the Corporate agenda.
Anyone who believes otherwise, needs to smell the Folgers. Just ask Pat Buchanan — a real agent for change, but one who would upset the NeoCon apple cart…
JSmith,
Problem is that there really isn’t a car made in America anymore. I work for a firm that handles Ford warranty car parts for MI, OH, and PA. Every part we ship out or take in if they are damaged or the warranty expires on them is made anywhere from Canada, Mexico, Germany, Taiwan, S. America, and even Turkey. They might be assembled in America, but the cars are not American made.
Paul Roberts is dead right about the H1 B work visa program.
Millions of foreign computer programmers and other tech workers have come in on that visa. It’s the perfect machine for the global corporations, driving down American wages and over time transfering skills and knowledge outside the US, where the global corporations can then permanently outsource the jobs.
If you look at the current leadership in either party of either house, there’s no hope. This is one Federal program that the Tea Party could conceivably end in January. But GOP leaders like Cantor are too busy thinking of ways to give more taxpayer money to Israel to worry about the death of the American tech worker.
The highly-skilled, never-criminally-inclined, traditional-family oriented H1B visa guys, at 63,000 each year, pale in comparison to the at least 1,000,000 illegal criminal-oriented, multi-spoused, never-learning English (or graduating) hombres jumping the-Border — every year. Factor in the drug trade that accompanies these coyotees, and one wonders why we want to bushwack the skilled, model, potential citizens, while widening the opps for the vermin who now numer 30 million on our soil. And represent 53% of our prison population.
Of course, that these vermin vote Democrats for the first one or two generations then switch to the GOP — to feel totally –assimilated, answers the question. Even the malaised Churches, to compensate for their failings, welcome these criminals to compensate for dwindling local membership — all the while overlooking the billions of true refugees elswhere who suffer real political, economic and natural disasters.
Again, as I have stated repeatedly, the corporate gringos here benefit from the illegal cheap labor, make more bucks from bogus education experimental programs, and seal the scheme with the increasingly-privatized prison industrial complex.
“American labor should not have to compete with near-slave labor.”
agreed. therefore, unions which call themselves ‘internationals’ had better start acting like they are.
In May 2009 Compterworld headlined that total H1-B visa holders in the US IT sector exceeded total unemployed US technology workers. “Substantially”.
There were 240,000 unemployed US IT workers at that time. It’s far worse now, of course, but the existing H1-B workers weren’t even sent home: believe it or not, they’re still letting them in!
NY Teach: The issue of 12 or 13 million illegals is worse in absolute terms, but the H1-B scam has dispossessed hundreds of thousands of very intelligent, capable Americans, with the skills, imagination and work ethic that built the US technology sector in the first place. Their loss is a qualitative loss to the nation. And what are they being replaced with?
Insanity: I cant disagree with your asserion that the H1-B scheme is not really helping the Unemployment problem. But when we have to choose a priority battle that will alleviate a greater segment of society, then the Illegal-immigrant situation is pre-eminent. Besides Unemployment, and school revenues waste over this segment, consider this: more Americans have been killed by illegal-immigrants over the last 20 years than all terrorist acts on our soil. But then again, the Bush-Obama NeoCon scam has killed more Americans than the 9-11 fiasco…So where do we start?
It is a common charge that H1-B technical workers are paid lower salaries by American businesses, but where is the evidence? In my experience in the ’90′s and until I retired in the late 2000′s, H1-B engineers were paid salaries equivalent to Americans. These technical workers are extremely well-informed about company salaries, as well as immigration procedures, because they maintain very effective human and computer networks. They know if they are being paid fairly (and will jump to another company, if they aren’t).
I worked for a high tech firm that purposely did NOT hire non-citizens, unless they had a green card. We later changed our policy to hire H1-B engineers because we could not fill our requirements with American citizens. (One disadvantage many Americans may have is that they are not as mobile to fast-growing job areas, such as Texas, as are foreigners.) And we paid better than the average pay scales; once we hired H1-B employees, we paid them according to education, experience and performance, not immigration status.
Our nation’s problem has become cultural. I remember a job fair put on by a consortium of twenty colleges when things were going well in 1999 or 2000. A line of students came by my company’s table; about all were of Asian heritage: south Asians, east Asians and Americans with Vietnamese names. Toward the end of the line were two tall guys, one black, one white. I thought, well, these guys are also Americans. When I looked at their resumes, one was Ghanaian, the other, Bosnian. At the high technology manpower level, to focus on immigration and aliens misses the point.
Stopping illegal immigration and tariffs on goods coming from third world countries would help the middle class, but
what we do about the crooked bankers I have no idea.Future doesn’t look bright for working folks
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