Danger signs of global crisis
By HARDEV KAUR
Author and member of former President Ronald Reagan’s administration Clyde Prestowitz says the United States is "being completely irresponsible" with its growing budget deficit, which spells a crisis bigger than the Great Depression, unless it takes charge. HARDEV KAUR writes. "I AM less worried about Malaysia than the US," Clyde Prestowitz, author of Three Billion New Capitalists: The Great Shift of Wealth and Power to the East said.
The US, the world’s greatest consumer, the world’s largest economy and the only driver of world economic growth, "was being completely irresponsible" and endangering the world economy.
Clyde, who was in Kuala Lumpur recently, suggested that perhaps America may consider "outsourcing management of the US economy to Asia".
It is not as simple as blaming China, India and other Southeast Asian economies for the woes of the American economy. Prestowitz, who took a year to complete the book, points out that it involves the US government’s failure to develop and promote a clear industrial policy.
It is time American administrators and policy makers woke up to the fact that the world has changed. What worked for the US previously will not work in the future. Washington must be prepared for a new world that is very competitive, aggressive and well educated.
In the book, which covers China, India and Russia with a combined population of three billion pursuing market economies, he argues that these "new capitalists" will give Americans a new perspective and a run for their money.
But America is over consuming and is "being completely irresponsible" with its growing budget deficit. It does not worry and as Vice-President Dick Cheney said we "can just print these things (money)". This however means that other nations do not have to be fiscally responsible either as they have US dollar reserves. And this spells danger.
While Asia saves, the US continues to consume. America thus continues to absorb global savings, which Prestowitz estimates is 80 per cent. And with the growing American appetite for consumption, the figure could reach 100 per cent "and when this happens the music stops".
The resultant problems confronting the global economy would be on a scale that would dwarf the Great Depression of the 1930s, Prestowitz warns.
A member of former President Ronald Reagan’s administration, Prestowitz says there is no one in charge of fixing the economic problems. There are danger signs on the horizon and warnings of impending problems including that from Paul Volker, the former head of the US Federal Reserve. Volker forecasts a 75 per cent chance of a global financial crisis in the next five years. And yet, there appears to be no one "in charge".
"To pre-empt the gathering financial crisis and ensure a sounder basis for the third wave of globalisation, the United States should take the lead in a global effort to reduce the role of the dollar," he writes in the book.
"It must do so gradually and cautiously. Because the whole system now depends on US consumption and dirty floating of the dollar, any sudden or unilateral change could precipitate disaster."
Indeed there are already moves by Opec and Russia to reduce their exposure to the US dollar. If other nations also reduce their dollar holdings, Prestowitz believes that the US standard of living will quickly decline as America does not have the physical capacity to eliminate its trade deficit, and instead will have to cut consumption.
In the absence of a strategy in the US, the decisions are made elsewhere — in Beijing for example — and Prestowitz points out that Beijing may not always make decisions that are "best for the US".
"My point is not to say that China is bad or evil or that we ought to be afraid of China. It is much more to say that we need to understand the game China is playing and then play our game so that we maintain our position," he said.
He makes a plea that America must educate its people and get them ready to be competitive intellectually and in their work ethic with countries like India and China, or "we will become a second rate power".
Even now jobs are moving out to more competitive regions. Twenty-four hour work shifts have taken on a totally new meaning — outsourcing. The job can be done thousands of kilometres away and at a fraction of the cost in the US. And the Chinese can do the job for 20 per cent less, Prestowitz says.
"Now a strong (and more confident) China has decided to open its doors itself and join the global trade game in order to level the playing field. As the world’s low cost manufacturer, China was about to turn globalisation into a whole new ball game."
This poses challenges to Washington which finds that "… Its relative economic superiority and power are rapidly slipping away. Far from leading the world on a global march to freedom, the United States could find itself hard-pressed to maintain a reasonable standard of living and defend its vital interests," Prestowitz says. And this will have consequences for the rest of the world.