Review: Three Billion New Capitalists–The Great Shift of Wealth and Power to the East (Hardcover)

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Strategic, Economic Fundamentals, Compelling, Cannot Ignore,

June 25, 2005

Clyde Prestowitz

Before writing this review, I reflected carefully on the thoughts of those who say that the author, who is known to me, was wrong about Japan, that he emphasizes the best points of the new competitors (China and India) while neglecting our best points. There is certainly something to what they say, but as one who studies the entire world for our US Government clients, with a special familiarity with Chinese operations in Africa and South America, and a business familiarity with what is happening in India, I have to say that on balance, the author is more correct his critics will admit, and this is a book that we simply cannot ignore.

His most important point is made in one line: America does not have a strategy. America does not have a strategy for winning the global war on terror, it does not have an energy strategy, it does not have an education strategy, it does not have an economic or competitiveness strategy. The government is being run on assertion and ideology rather than evidence and thought–a media cartoon has captured the situation perfectly: as the VP tells the President that we are “turning the corner” the two walls behind them are labeled Incompetence and Fantasy. As a moderate Republican and a trained intelligence professional with two books on the latter topic, I have to say that this book by this author, a Reaganite businessman and senior appointee in the Department of Commerce is right on target. We *are* out of touch with reality, and we do not appreciate, at any level from White House to School House, the tsunami that is about to hit us.

The author makes two important points early on in the books: first, that information is the currency of this age, replacing money, labor, and physical resources; and second, that the best innovation comes from the right mix of sound education across the board, heavy investment in research & development, and a co-located manufacturing bases that can tinker with R&D and have a back and forth effect. America lacks all three of the latter, and is not yet serious about investing in global coverage of all languages, 24/7.

There is a great deal of commonality between this book and Tom Friedman's The World Is Flat: A Brief History of the Twenty-first Century both written and published in the same time frame. Both authors agree that the Internet has put an end to time and space constraints, and both agree that American labor is very much at risk because our basic education is flawed and we have no strategy for demanding continuing education from employers. The author excels at drawing the connection between poor education, “it's been twenty years since anyone at Bell Labs received a Nobel Prize,” and the massive increase in outsourcing of knowledge work, not just scut work.

I do have to say, having called Friedman's latest book a massive Op-Ed in my review of that book, that this author is more thoughtful, provides more historical context, and delves into more basic important detail that Friedman–put bluntly, his book is more serious and more valuable than Friedman's, as in this is the meat, where Friedman is the sauce. Prestowitz addresses the core issues of the value of the dollar, the central place of energy, the role of demographics, and the fundamental macro-economic and structural imbalances that will weaken America, that are weakening America, over the passage to of a century of time–this is not a “snap-shot,” this is a *deep* look into the soul of America.

Chapter 12, the author's recommendations, is alone worth the price of the book and should be required reading in every comparative economics and national security policy classroom. I won't list these recommendations but will highlight just a couple that struck me as immediately actionable: declaration of energy independence; DoD as a catalyst for socio-economic recovery by taking the lead in energy, education, and intelligence, learning how to wage peace; end to subsidies (the author uncharacteristically fails to note that we can increase government revenues by $500B a year if we not only eliminate subsidies, but stop import-export tax fraud and demand that corporations pay taxes on the profits they declare to their shareholders rather than the falsified and manipulated balance sheets they present to the IRS); join Japan and India to NAFTA–this is an outrageously brilliant idea.

Clyde Prestowitz is one of the most insightful, balanced, *sane* voices on national competitiveness today. He would make an excellent Secretary of Commerce in the transpartisan Administration.