Posted on 06/28/2010 12:42:09 PM PDT by Willie Green
The Betrayal of American Prosperity by Clyde Prestowitz,- Reviewed.
As a product of Temple Univ. Business School I was indoctrinated by a few economics professors into free market principles. We studied various models, like the theory of Comparative Advantage.
The theory of Comparative Advantage developed by the 19th century English economist David Ricardo, works likes this: You have 2 countries England and Portugal, in the 19th century. Portugal makes good wine, having an ideal climate for growing grapes. England produces good textiles. England produces excellent wool, and has advanced manufacturing, If you have free trade between England and Portugal, getting rid of all tariffs, Portugal will sell England excellent wine at a good price, and England will sell Portugal textiles. Portugal has a comparative advantage in wine, and England in textiles. So it makes little sense for England to produce wine or Portugal textiles.
The model of comparative advantage is simplistic. For the model to work a whole set of variables are assumed:
1) No monopolies, a proliferation of many small producers
2) No government intervention of any kind.
3) A plentiful supply of labor, that is mobile.
The model doesn’t account for currency exchange rates. In addition there are a host of other assumptions required. In the real world comparative advantage and other simplistic free market models don’t work very well. Countries like China and Japan keep U.S products out by using government intervention, bureaucratic road blocks, manipulating their currencies to make their products cheaper, and various other means.
The problem is there are many ideologues who think that the USA should practice unilateral free trade. The theory of Comparative Advantage is their bible. Like religious fanatics they have an endless, naïve faith in the free market. The fact that the free market failed catastrophically during the recent financial meltdown doesn’t deter them. In Clyde Prestowitz’s new book entitled The Betrayal of American Prosperity, Presowitz shows how the U.S is getting the stuffing kicked out of it by countries like Japan and China who are rigging the game in their favor.
Far from being a left wing radical or a Smoot- Hawley protectionist, Prestowitz was a trade negotiator during the Reagan administration. So he is traversing territory he knows well.
The problem according to Prestowitz, is that our Asian trading partners Korea, Taiwan, Singapore, Japan and China, and most European nations never entirely bought into the comparative advantage, free trade doctrine. They practice an industrial policy. Because the aforementioned Asian nations, (the Asian tigers) are newly industrialized, they determined that they needed to protect certain chosen industries like electronics, and other high tech industries, through government subsidies, and other subtle forms of government intervention, to assure their survival. When their governments go to the bargaining table with the U.S government, and U.S. multinational companies, they demand technology transfers, for their protected industries. Already China has gotten deals with Boeing and other U.S. aircraft and defense contractors to transfer technologies to China for development of their up and coming aircraft and defense industries. Clyde Prestowitz provides many specific examples.
Alternatively, the U.S. which practices unilateral free trade throws the doors open to most foreign imports and goes to the trade bargaining table with no coherent industrial policy. Which is why we hardly manufacture anything here, anymore. Like Prestowitz, I’m not against free trade. I’m for free and fair trade reciprocity.
But wait, say the free traders. It’s ok for our Asian trading partners to protect their infant industries. We did the same thing during the 19th and early 20th centuries, when America struggled to become an economic power. We don’t need to manufacture anymore, they say. We will become dominant in services, like finance and design, they say. As the U.S loses its edge in industry after industry, they keep moving the goal posts further away. Now, we are losing even service industry jobs to places like India. Accounting, software, and even medical jobs, like interpreting x-rays by radiologists are being off-shored to India.
Not only do the lost manufacturing jobs pay better than most service sector jobs but every manufacturing job creates an additional 5 jobs needed to support and supply them.
Having invented the internet the US has fallen behind Korea where the average broadband speed of 49.5 mbps compares embarrassingly to the U.S of 3.9 mbps. Then there are the high speed trains in China and Korea that go 200 miles an hour compared to our Amtrak Acela Express that is only available in the northeast corridor and goes 125 miles an hour. The lack of an industrial policy by the govn’t is making the U.S. uncompetitive in key areas.
The type of unilateral free trade the U.S has practiced since the 1980’s was 1st practiced by Great Britain, thus it is called the Anglo Saxon model. Prestowitz journeys through the history of trade in the U.S and Britain. Unfortunately, Britain has little to show for its high minded free trade principles. They were once the most powerful nation on earth but have declined to a 3rd rate power.
Prestowitz supplies numerous examples of how the U.S became an economic super power by following an industrial policy that supported industries with government help. RCA was formed by the govn’t to help provide a U.S lead in the electronics business. The internet, computers, and the U.S aviation industry all received govn’t startup financing. He takes us on a journey that shows how the continental railroads were supported by financing proposed by Abraham Lincoln to the trading policies adopted by President George Washington and his Secretary of the Treasury, Alexander Hamilton.
Finally, Clyde Prestowitz offers some practical solutions. We need to develop public private partnerships that will foster our leadership in key manufacturing industries like clean energy. The Semantech public private partnership for the semi-conductor industry that took place during the Reagan administration is a successful example. Unfortunately, some of the Obama stimulus money geared to clean energy has already gone towards purchasing windmills and solar cells manufactured in China and Europe. We need to determine what industries the U.S needs to maintain leadership in, and develop a coherent trading strategy when negotiating trade deals with our allies.
I don’t like books that are simply political diatribes. The Betrayal of American Prosperity is a well researched, fact based, thoughtful analysis of American trade policy. I highly recommend it.
Unfortunately, once we lose key manufacturing industries they probably won’t return. That’s because globalization usually requires huge economies of scale and investments. Something the 19th century economist, David Ricardo couldn’t have foreseen. The governments of our Asian trading partners have been willing to sacrifice the time and money required to jump start key industries. Only when we throw off the shackles created by the foolish, unilateral free trade ideologues, can we create a renewed tide of prosperity.
America needs less government interference in the economy — not more. The free market did not fail causing the recession; it choked on government regulations and Fed Reserve phony money.
I think when the history books are written about the economy of the late 90’s through 2020, it will be an interesting read with many surprises for those on both sides of the fence.
“The fact that the free market failed catastrophically during the recent financial meltdown doesn’t deter them.”
This has what to do with free trade?
Take a look at this section, Willie, relating to trains and parts. You'll find 31 sections, and only 9 are "duty free". The strong majority are taxed. It's not free trade.
What we have is NOT free trade, we have highly-managed trade. If you don't like what's happening, it's because the Government is involved - yet again - in the private sector.
I don’t know what you call the US economy since 1913, but it certainly isn’t free or capitalism.
In some ways it is just a slow return back to feudalism.
Seems our comparative advantage is in exporting jobs, factories and Treasuries in exchange for goods.
And this guy is just now trying to sell a book?
David Ricardo was a scumbag so vile that his own father disowned him and his own mother refused to speak to him for the remainder of her life.
His whole theory of comparative advantage works only if trade between nations is totally owned and controlled by certain favored elements within some favored inner circles. The crooks get wealthy; the vast majority of people in the so called free-trading countries descend into long-term economic depression.
Look at the economies of the world right now. There has been no restraint of international trade for the past two decades (except those restraints against US citizens).
The evidence is overwhelming. Globalist "free trade" is a scam to consolidate wealth into the hands of a few favored crooks, and devastate the rest of the people in all the participating economies.
Such is the case with all communist economic plans.
Oh-ohh!
Problem is capitalism not free market. People successfully create huge companies also become politically powerful in the country. They use their huge employment capacity and income to lobby Congress for their corporate welfare and interests. Politicians are more then willing to accept donations and quickly cater to these rich guys. Same with banks and many small business that cater to them. Consequences we end up with crony capitalism. Less government is not the answer. The problem is not regulations and authority, the problem is governement forget that businessmen are capable of being greedy and wicked. Some will attempt to corrupt officials and cheat the people. A wise government does not need regulations, but ability to monitor business activity to make sure that bad behavior does not happen, bad practices are stopped and violators are arrested and punished. Otherwise the bad behavior will grow and become widespread and ultimately destroy the country. Willingness to investigate and punish is what Obama failed to do as POTUS. Last banking crisis (Savings and Loans) under Bush 41, he and later Pres Clinton arrested, tried, imprisoned and/or fined over 1000 bankers, CEO, executives, exec staff, accountants and investors. How many of the major bank execs and investors were investigated and arrested in this recent crisis. Nada. Reason, when Wall Street gives over 2 to 1 to Obama 2008 campaign, what does one expect? No one goes to prison and the bankers get a loan, and the feds give them cheap money to earn profits to pay back the loan, leaving future generations a devalued dollar, huge debt and potentially high inflation.
Some good points. I have always thought free trade only works between like economies. Where there are imbalances like there are now in the world, some folks will win for a while being able to by cheap toasters at walmart, but in the end the majority of folks loose.
How could the free market fail when it was never allowed to even breathe? It was massive regulation, and the abuse of that regulation to benefit mainly Democrat & RINO investors and operatives, that created the crash.
No one has seen a free market in a very, very long time.
Common sense, reasoning, and empirical evidence support that statement.
It takes a lot of twisting of the facts to suggest otherwise.
Adam Smith understood the national security ramifications of international trade. Each country has to act in their own nation's best interest.
Ricardo and his ilk did not recognize interests of any nations or peoples; only the interests of their circle of crooks. In recent years, we have seen the same sort of crooks; some masquerading as Republicans, some as Democrats, but all of them Free Traitor globalist communist scumbags.
Comparative advantage actually means completely opposite.. it show how trade can and DOES work between countries where one country can produce everything another country needs absolutely better/cheaper. It is a basic principle that you can see in action on market place all the time that vast majority of even business grads can not grasp. US can trade with place like Somalia Gambia for example and both would benefit.
Problem for US manufacturing is NOT free trade, it is gov regulations, unions etc. China is poisoning their own people and destroying any livable areas they have to produce most of the stuff they do as well. I can subcontract and hire some really great software guys that operate from US, if they payed taxes like in east europe or India..
Tax reform that abolishes income tax and sets single sales tax would fix all of the problems US has with trade. US economy is still one of the most dynamic and with capital and labor available we would have a crazy growth boom.
I really don't care about the economic or political reasons for trade restrictions. Why should the government tell me were I am allowed to purchase rice or sugar from?
Let's have free trade even unilateral free trade. If not then explain to me the alternative system. Who is in charge? What are the rules? More importantly how does my company get protected?
‘We need to develop public private partnerships that will foster our leadership in key manufacturing industries like clean energy.’
Yep. It sound like central planning to me.
So, not having the government decide from whom or from where I obtain my goods and services is Communism?
I thought government control of the economy was the definition of Communism.
Having government subsidize and legislate to favor cronies is redistributionist policy, which is communist, which is crony capitalism.
"Privatize the profit; socialize the risks and costs" has been the common theme between the commie Democrats and the commie RINO/neocon Free Traitors for the past two decades. The current state of our and other economies is a result of Free Traitor idiocy.
Obviously you must not be in favor of NAFTA type Government to Government negotiated 'free' trade agreements.
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