Clyde Prestowitz Interview: Conversations with History; Institute of International Studies, UC Berkeley

The Changing Balance of International Economic Power: Conversation with Clyde Prestowitz, President of the Economic Strategy Institute, August 9, 2005, by Harry Kreisler

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The Second Wave of Globalization

Talk a little about working for a multinational corporation during that period in America. Give us a feel for that, because a company like Scott was the player especially in the European market.

Oh, yes. In fact, when I was first in Europe in the late 1960s, early 1970s, the book that everybody was talking about was Le Défi Américain (The American Challenge) written by Jean-Jacques Servan-Schreiber, the French journalist. The thrust of that book was that the American multinational corporations were taking over the world. Servan-Schreiber made the point in his book that the biggest single industrial entity in Europe were the American companies operating in Europe, and they were more European and operated on more of a European scale than any of the European companies, which I found to be true in my own experience when I worked with Scott Paper. I also worked with Scott in Brussels. In fact, it was true. Among the paper companies we were more oriented to the European market than any of our competitors.

Of course, what was happening at that time was that the American companies were leaders of technology, coming off of the momentum of the Second World War, and they were very powerful because they were coming off of the base of the U.S. market where they had these enormous economies of scale. The dollar was strong. Remember that the dollar value in those days was [fixed]. They had fixed exchange rates and the dollar had been fixed to be very strong, partly as a way of enabling the Europeans and the Japanese to recover from the war by exporting to the U.S. market. But it meant that the American companies could easily acquire European or other Asian companies. So, there was a lot of acquisition, and this was what I think of as a second wave of globalization, the first wave having been begun with Henry the Navigator and the development of the European empires beginning in the fifteenth century and lasting until the First World War.

Before we move to a discussion of your new book and the new wave of globalization, let's look at some of the problems with some of American policy, because this second wave of globalization began to emphasize consumption on the part of the American consumer, with less concern for investment.

Yes, that's a very good point. Immediately after the Second World War -- of course, you have to keep in mind kind of the mental environment of the time. All of the leaders of our country and other countries in the mid-1940 had just come through the war, but before that they'd been through the Depression. The war had stimulated enormous economic growth, but they still had in their minds the Depression. There was a great fear that with the end of wartime production the economy would lapse back into recession or even depression. So, all of the thinking at that time was how do we keep this economic growth going? Remember, we had 15 million in uniform and all those men were being demobilized and coming back into the economy. How were they going to be employed, what were we going to do with them?

That was the pressing economic question of the time, and so leaders began to dream up all kinds of ways to stimulate the economy. We got the G.I. Bill and we got various kinds of aid for people to buy houses: this was the beginning of Levittown and mass housing. Mortgages were made easy to get with low down payments, consumer credit was loosened up so that families could buy on time and deduct the interest on those on-time purchases from their taxes. So, we began to build a structure in the U.S. that subsidized consumption in order not to lapse back into a depression and to maintain strong economic growth so that we could provide jobs for all these men coming back out of the armed forces.

We're going to come back to this theme again, namely, what America does and cannot do and chooses not to do. But one other point for this period of U.S. policy during the second wave of globalization that emerges from your writings is the notion that the concerns of the government for national security led it to take a guiding role, a leading role, as a result of defense and other needs in the Cold War, that also contributed to the economy boom and made the necessary technological investment. Talk a little about that.

There were two things going on here. As a result of the Depression and the efforts to get out of the Depression, and then as a result of the war, there had grown up a very collaborative and cooperative relationship between the government and industry and labor. Much of the rapid technological development that took place during the war involved collaboration, close collaboration, between government and industry, and that carried over into the post-war period. Of course, the outbreak of the Cold War led to renewed emphasis on armed forces and on national security, and because the U.S. did not have the large forces that the Russians and the Chinese had at the time, we bet on technology as our national security guarantee. But that bet on technology then meant that the collaboration between industry and government continued quite strongly, and so you had the growth of, for example, the Defense Advanced Research Project Agency, DARPA.

None of us today could live without our e-mail. It's hard to imagine life -- even though I've lived most of my life, you did, too, without e-mail or the Internet -- hard to imagine living without it now. The Internet came from DARPA, and DARPA was created after the Russians launched Sputnik as the first satellite. That was seen as a threat to American technological leadership. DARPA jumped into the gap and led an effort to reassert American leadership, and one of the things that came out of that is today's Internet. So, there was this very collaborative relationship.

Another very important aspect of the post-war economic scene was that internationally the focus of the United States was on helping to rebuild and reconstruct Europe and Japan, and the rest of Asia, from the devastation of the war. It was assumed that the U.S. superiority in technology and industrial productivity would last a long time. In fact, it was kind of assumed that it would last forever, because it was just a natural right of being an American! So, little thought was given to American competitiveness or maintaining American industrial and technological leadership. The U.S. government called together American business leaders and urged them to develop suppliers abroad.

Bob Galvan, the former chairman of Motorola, told me that he had been in meetings with President Eisenhower and there had been discussions between the president and business leaders about the need to develop suppliers from Japan or from Europe, and even if their quality wasn't up to snuff, or even if their productivity wasn't up to snuff, to help them, teach them what to do. When I was assigned to the U.S. Consulate in Rotterdam, and then I worked at the U.S. Embassy in the Hague -- this was 1966, 1967 -- my assignment was to help promote Dutch exports to the United States. Now this was after the "Japanese miracle" of 1964, this was after the Wirtschaftswunder, the economic miracle of Germany in the 1960s, this was after strong recovery in Europe. American Foreign Service officers were being told to promote exports. These days we had a trade deficit, we were already beginning a trade deficit in the late 1960s, but American diplomats were out there promoting foreign exports to the U.S. market. So, that was the mentality.

It seems like the primary concern would have been national security, to support and rebuild [our allies]...

Precisely. Right. Rebuild and help our allies get strong in order to face off against the Soviets and the Chinese. Absolutely.

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