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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Globalization Goes Global

Let's now talk about your new book. It's called Three Billion New Capitalists: The Great Shift of Wealth and Power to the East. It is a map for us of the new landscape of the very different international economy that we are confronting. book coverYou talk about it as the third wave of globalization. What are the defining characteristics of this new wave?

We've been talking about globalization for a long time, but the interesting thing is that the term is not accurate. Half of the world has been out of the global system: the Chinese, the Soviet bloc, the Indians all chose a communist or socialist system. They constitute three billion people, and for most of the past sixty years they have not been part of the global system. So, part of this new phenomenon is that globalization is going global, and we've had these three billion people suddenly in the last ten to twelve years come into the global economy. This is unique just in terms of the magnitude.

Think about Japan coming into the global economy in the 1950s, 1960s -- think of the impact of that. Huge impact. Small country, 130 million people. In the seventies and eighties, the "tigers" of Asia -- Korea, Taiwan, Hong Kong, Singapore -- tiny countries, big impact. Now we're talking three billion: China, India, the whole former Soviet bloc, all coming in at once. The impact of this is going to be unprecedented, even more so because there's a unique aspect of these three billion people.

In our models of economic development we have a paradigm of development proceeding from countries that are poor with a lot of unskilled labor. They begin by focusing on labor-intensive production, textiles and shoes and toys, where you need low-skilled and cheap labor, and then they gradually acquire skills and they move up the hierarchy of value added. These three billion people that we're talking about, most of them are poor and most of them are unskilled, but a small percentage of three billion is still a big number. There is a population among these three billion of 300 million or 400 million, more than the population of the United States, who are every bit as skilled, who are every bit as well educated, as anybody in the First World. In fact, many of them have been educated here at Berkeley, or at Cal Tech, or Stanford, or MIT, or Harvard, or what have you, and they can do anything that can be done in Japan, or the U.S., or Europe, and they can do it for 20 cents on the dollar.

So, this is a unique moment when a large number of people are coming into the global system, and many of them are offering high skills and low cost. This is something we haven't seen much before in the global economy. This is happening in conjunction with a second revolution, which is the negation of time and distance. Anything that can be done digitally can be done anywhere in the world and delivered anywhere else in the world in two seconds, speed of light. Bangalore to Berkeley, two seconds. Even if you're still working in the old world of molecules and atoms and you actually make things and you have to physically deliver them, anything can be made anywhere in the world and picked up and delivered by Fed Ex anywhere else in the world in maximum of thirty-six hours. So, time and distance have gone away.

So, these three billion people and these 300-400 million people who are highly skilled and low cost are right in that seat, right next door, which changes the competitive dynamics enormously. Today, sitting here in Berkeley, your competitor may be in another state, but may just as easily be 3000 miles away.

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