Three Billion New Capitalists | Clyde V. Prestowitz Jr.

Summary of: Three Billion New Capitalists: The Great Shift of Wealth and Power to the East
By: Clyde V. Prestowitz Jr.

Introduction

Embark on an enlightening journey through the book summary of ‘Three Billion New Capitalists: The Great Shift of Wealth and Power to the East’ by Clyde V. Prestowitz Jr. This eye-opening examination highlights how global power dynamics are shifting, with financial and technological leadership migrating from the United States to Asia. As China and India emerge as global manufacturing and services hubs, billions of people are leaving socialist systems behind in favor of capitalism, transforming the global economic landscape. This summary will provide valuable insights into globalization, trade policies, economic history, and the consequences of these shifts for the United States.

America’s Borrowed Wealth

The US has lived on borrowed wealth since the 1970s as Americans continue to consume globally manufactured goods paid for with IOUs. The rise of China and India’s capitalist economies have added billions of skilled workers to the international competition, and Americans have been happy to let their jobs and industries go. The US trade deficit is now so extreme that central bankers accept them with serious reservations, and some have been looking for alternatives to the dollar. However, the US is running out of dominant industries to export, and the collapse of the dollar could result in the worst economic crisis in decades.

The rise of China and India’s capitalist economies has had a significant impact on the US economy. As billions of skilled workers have entered the global competition, the US has seen a decline in its once-dominant industries. Americans continue to consume globally manufactured goods paid for with IOUs, living on borrowed wealth since the 1970s. The US’s international post-WWII economic arrangements established it as the engine of global economic recovery by consuming more than it produced. Nixon’s closing of the gold window in 1971 removed the last remaining discipline on US consumption, and since then, the US has offered only paper in exchange for what the rest of the world makes.

U.S. trade deficits are now so extreme that central bankers accept them with serious reservations. Some countries have been looking for alternatives to the dollar, as its value declines. This could lead to a significant sell-off of dollars, resulting in the US suffering the worst economic crisis in decades. In fact, the worst-case scenario would be a sudden, massive sell-off of dollars, causing a world financial panic, which could be triggered by something minor, such as the assassination of a second-rate archduke.

To make exports cheaper and help mitigate the severity of the economic problems, the US could rely on classical macroeconomics theory, suggesting a falling currency could be an advantage for exports. However, this theory presumes that the US has something to export. The US manufacturing industry has dwindled to only 12.7% of GDP, making it hard to compete with China. Services were once an option, but India has followed a national policy of targeting software and services. Thus the US cannot compete with India in this market. Even a dramatic collapse in the dollar might not help US exports. Without exports, the US would be vulnerable to unemployment and inflation.

In conclusion, a massive sell-off of dollars is inevitable. To understand why, one needs to examine how the US got into this position. The US has lived on borrowed wealth since the 1970s as Americans continue to consume globally manufactured goods paid for with IOUs. As China and India’s economies continue to grow and the US loses its dominant industries, the US is running out of industries to export. This could lead to significant unemployment and inflation or even the worst economic crisis in decades.

The Cycles of Globalization

This summary traces the cycles of globalization back to Prince Henry of Portugal’s exploration of Africa and Asia in the 1400s, which led to a shift in wealth and power from the East to the West. It highlights how the two world wars, the Great Depression, and Communism’s rise and fall all contributed to the dissolution of global empires and trade links, causing a temporary halt to globalization until the post-World War II era. The summary goes on to explain how the US’s consumption-driven economy fueled the second wave of globalization that lasted until the early 1970s when the Bretton Woods conference established the dollar as the world’s reserve currency. The summary then examines the third wave of globalization, which is currently underway, and how the trend lines in American education, productivity, and investment are sloping downward, with China and India poised to become the world’s largest economies.

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