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Book Review: The Betrayal of American Prosperity by Clyde Prestowitz

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The Betrayal of American Prosperity is the best book in its genre. Clyde Prestowitz masterfully and meticulously explained the reasons behind an ailing American economy.

The book opens with a theme - recurrent thereafter - that the American economy was in fact not as strong as many Americans believed it to be. Prestowitz captured this in page 139: "The American myth: American analysts often disparage Japan's lost Decade, so I bet you'll be surprised to learn that during the 1990s Japan's 1.4 percent GDP per capita growth rate was only slightly less than America's 1.6 percent."

Taking life expectancy as an indicator of economic prosperity, he added: "In France it's 80.98 while in the United states it's 78.11, despite spending of double the French level on health care."

He concluded: "If Americans know one thing for sure, it is that America is a lot more competitive than France, except that in the wake of the crisis of 2008-9, the French economy has been outperforming the US economy on virtually every measure."

Prestowitz blamed the American understanding of economics for giving a false sense of prosperity over the past couple of decades. "Debt funded boom: As demonstrated by the 2008 financial meltdown, [superficially] the US economy... looked great, but behind the façade was debt piled on debt and a false understanding of how the world was actually working," he wrote [P.134].

"Key among the problems was that the low long-term interest rates which Greenspan thought had resulted from the efficiencies stemming from deregulation and innovative derivative instruments were actually caused by the ever-growing trade imbalance between the United States and the export-led economies of Asia and the Middle East oil producers," he added.
Prestowitz drew a parallel between the demise of the British superpower and its dislocation by America, and the still ongoing decline of the American superpower and its possible replacement by China.

In both cases, Britain and the US, economists argued in favor of moving away from manufacturing as the base of the economy towards a services-based economy. The result for America, like for Britain for it, would certainly be the loss of its world supremacy.

He described China's ascendency at the expense of the US: "China now holds power in its relations with the United States that no other country has had since Great Britain in the earliest days of the Republic. By selling dollars, China could force the US military to withdraw from its far-flung deployments such as those in the Persian Gulf, and Afghanistan."

He argued: "China can use its dollar to corner markets of key commodities like copper and molybdenum or soybeans. And of course military might can be ignored. China is using its wealth to build a blue-water navy with quit subs that will be able to counter the US Seventh Fleet, which would have to withdraw from the western Pacific anyhow if the Chinese were to begin dumping dollars". [P.142]

Prestowitz also debunked the rightwing myth that companies compete, while countries don't. He wrote: "For [this school], trade was said always to be cooperative and mutually beneficial... [But] countries most definitely compete for power, and power does not accrue to nations of taxi drivers."

He added: "China had comparative advantages under its old regime, but it was poor and weak. China is powerful today because it changed the composition and structure of its economy, and did so expressly in order to compete." [P.181]

The biggest challenge for America's superpower is that "with industrial decline, America will eventually lose its military superiority." According to Prestowitz: "Do we bit care if China, or Russia, or Iran has leading-edge rocket technology? Such technology involves leading-edge semiconductor, materials, and processing technology. Do we not care if we lose those technologies, which is exactly what happens when US based production and R and D close and move to China or Singapore for better tax breaks or better engineers?" [P.182]

Commenting on the meltdown, the book argued that "measures such as regulation of derivative instruments that could have stopped the 2008-9 economic crisis but would have limited financial sector profits, were prevented... So why did finance become so favored? From 1998 to 2008, the finance industry spent $1.78 billion on political campaign contributions and another $3.4 billion on lobbying." [P.270]

Not to close on a gloomy note, Prestowitz believes that there is still room for America to recover. His recommendations were as such: "We must revitalize the productive base and keep it competitive. But doing so will require that, from the president on down, our leaders declare that they understand that countries do compete and that they are going to ensure that America is competitive in a broad range of key industries."

America's leaders, Prestowitz concluded, should also "declare their intent that America will indeed produce things like advanced batteries, wind turbines, solar cells, computer chips, advanced search engines, cyber systems and much else. They must make it clear that they will match the financial investment incentives, infrastructure investments, and government encouragement of other countries with regard to promising industries and that, in the spirit of Alexander Hamilton, they intend for America to make more than dung." [P.281]