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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Serving in Government

Let's go back to your career. After you were in business, you served in the Reagan administration in the Commerce Department under the secretary of commerce. Talk a little about that experience and what you learned about the limits of government to deal with this new era.

It was a great experience and I learned a tremendous amount. I went to Washington with the attitudes that I think many American businessmen typically have of the government as being more of a hindrance than a help and of bureaucrats as being kind of second-rate. You know: "If they were really any good, they'd be out in the private sector" is a common attitude in much of America. What I found is that there are a lot of hard-working people in Washington and that a lot of those bureaucrats in Washington are very, very skilled people and very dedicated people. I learned a tremendous amount from them.

I learned so many things, but a couple of really important things are: one, that there has developed in the U.S. a widespread (and maybe it goes all the way back to the beginning of our history) suspicion and dislike of government, and in fact, if you go on the speaking circuit a sure laugh line is to say, "I'm from the government, I'm here to help." Say that at any gathering and Americans laugh because they just don't think of the government as something to help.

Often in international negotiations with governments that have industrial policies (Japan being the prime example, where the government and the industries work very closely together and where they think in terms of setting national economic goals or industrial targets or reaching certain technological targets and work together to do that), this is very strange to our concept of how economies should be run and how things should be done.

What is also very interesting is that because of our hesitance about government, we eschew industrial policy. We say government should not pick winners and losers. And yet what's interesting is that of course we have a big government. In fact, we have a much bigger government than many of the other governments in the world that we deal with. Our government makes important decisions about resource allocation. Our Defense Department spends an enormous amount of money. Our other departments, Department of Energy, Department of Commerce, all spend a lot of money. So, decisions have to be made about how the money is spent and for what purposes.

Interestingly, in the U.S. those decisions are not made with regard to any overarching economic criteria. There's no coordination between the various interests that work on how that money gets allocated. So in effect, we do have an industrial policy, we have a de facto policy often that's very confused because we tell ourselves that we shouldn't have such a policy, we don't want such a policy.

The other interesting thing is that in international negotiations, particularly in trade negotiations, we go into these negotiations with the premise that the other countries' economies work more or less the same as ours. That is, we're thinking that they are market economies, we're thinking that they are capitalist, they are members of the World Trade Organization or of the Organization of Economic Cooperation and Development or the IMF. And so, we tend to begin with the premise that they're playing the same game and pretty much under the same rules that we are, when in fact the truth is that they're not -- mostly they're not.

I talk about export-led growth. Most of the Asian countries are pursuing policies of export-led growth, they're pursuing policies of strategic trade, which means that as a matter of policy they aim to have trade surpluses, as a matter of policy they aim to accumulate dollar reserves, as a matter of policy they tend to favor certain kinds of industries over other kinds of industries, and as a matter of policy they build incentives into their economy to save and to invest in certain ways. They use the market, but the market is not necessarily an end in itself. The market is a tool, not an end in itself.

For Americans, the market is an end in itself: if it's a market decision, we accept it as a legitimate decision, regardless of what the results are; whereas many of our trading partners are looking for particular kinds of results. If the market helps them get there, terrific, but if not, then the market can always have a helping hand. We don't recognize that. So we tend to go into these negotiations, and if we have difficulties we tend to assume that our trading partners are somehow being unfair or they're cheating, and then we say, "We've got to get tough. We want to file trade cases," or what have you, whereas we'd be much better served by recognizing we've got two different systems here and we need to somehow adjust the interaction of these two different systems.

A good example would be the Chinese attempt, now canceled, to buy this California oil company.

Exactly. It is a good example.

Relate that to what you just said. They have a strategic economic goal because of their long-term energy needs, whereas our [market focus] ...

This was a very interesting case because it does put the Americans in a somewhat two-sided situation. The China National Oil Company is just that, it's a national oil company, majority owned by the government of China. So, it made a bid to buy an American company, Unocal, and the reason that they wanted to buy Unocal is because China, growing very rapidly, is desperate to achieve a secure supply of energy. It doesn't produce enough energy internally, needs to get its energy from outside, wants a secure supply, is trying to buy reserves. Unocal has big energy reserves in Asia, so Chinese National Oil Company is interested in buying those reserves. It made this bid, which generated enormous resistance in the U.S. [partly] on the basis that it's a government-owned company and that somehow therefore it means it doesn't operate according to market rules, which is, in fact, true. Because it is a national government-owned company, its lending terms and borrowing terms are different than those in a normal market-based company. So, there was an objection here in the U.S. that somehow this was illegitimate because the Chinese oil company was a government owned company.

At the same time, there was a sense in the U.S. of a threat to national security, which frankly struck me as very odd because one, British Petroleum is a government-owned company and we never objected to British Petroleum making any investments, the Kuwait National Oil Company is government owned and it's made investments here in the U.S., the Venezuelan Oil Company, the same thing. So, it seems a little bit inconsistent that we were objecting to the Chinese when we hadn't objected to other national oil companies making these investments in the U.S. But secondly, more importantly, there's really nothing strategic about this. These reserves are in Asia. Whether Chevron has them or Unocal has them or the Chinese National Oil Company has them, that oil's going to be sold in Asia, it's not going to affect the price in the U.S., it's not going to affect the supply in the U.S. So, it was a very unusual reaction but emblematic of this asymmetry between the U.S. market approach and the rest of the world's mixed-economy approach.

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