End of The American Century?
The world is on the cusp of events that will radically change the assumptions that underlie our thinking, according to the leader of one think tank.
Clyde Prestowitz, who served as counselor to the Secretary of Commerce during the Reagan Administration and who today is the founder and president of the Economic Strategy Institute, Washington, D.C., told attendees of WesCorp's Future Forum that, "As we currently operate, the global economic system is unsustainable. America cannot consume more than it produces indefinitely, and the rest of the world will not take dollars indefinitely."
He noted the U.S. dollar has been the world's money "all of our lives." Commodities from oil to airplanes to coffee are sold in dollars. This system has created assumptions that "may not be operable," he warned.
For most of recorded history, the area known today as China and India accounted for much of the world's gross domestic product (GDP), Prestowitz said. In 1850, the "hinge of history swung," and the West rose.
'India and China are back.'
Today, he declared, "India and China are back." The evidence includes "medical tourism," where patients fly to India for surgeries ranging from hip or knee replacement to heart valve implants. This is a $1 billion-per-year industry in India, he said. These procedures can be performed for 20% of the cost in the U.S., and are covered by American insurance companies.
Another area of medicine where India is rising rapidly is American hospitals using radiologists from Bangalore and other Indian cities. Prestowitz said losing manufacturing jobs to the East was rationalized away, but, "we didn't foresee importing radiologists."
"The addition of China, India and the former Soviet Republics has brought three-billion people-half the world's population-into the global labor market," he said. "Time and distance have gone away: communication takes seconds, and physical delivery can be done in 22 to 33 hours by FedEx."
Prestowitz predicted China will have the largest economy in the world by 2020. In 2050, he expects India will surpass China, pushing the U.S. to No. 4 behind the European Union.
A big problem, as Prestowitz sees it, is the U.S. trade deficit. He said America is the only net buyer in the world economy. Its role is to "buy and borrow," while the rest of the world, particularly Asia, "saves, produces and lends."
"The U.S. economy is on life support," he said. "We need an inflow of $3-billion every day to sustain things. The world central banks are drowning in dollars, and the heads of the central banks are walking on eggshells. No one wants to be the last one to sell their dollars, so there is a great deal of nervousness out there. At some point, the risk of holding paper becomes too great. No one knows when that point is, but it is coming."
One possibility: major dollar devaluation.
One possibility, according to Prestowitz, is a major dollar devaluation by 50% to 80%. In 15 years, he predicted, oil will not be priced in dollars.
The second reason the system is unsustainable is global warming. Prestowitz said the best estimates have sea levels rising eight to 10 feet over the next 100 years.
"The impact of growth in China and India will push pollution out of sight. The next war might be fought over water-it will be a huge, contentious issue down the road."
"Environment sustainability needs a new model," he continued. "Things that are not energy intensive."
Prestowitz said he hopes the challenge evokes a "proper response" from the major economies of the world. However, he said the world today is like a game of bridge, and "all the players are playing their hands badly. All the key players, the U.S., China and Japan, need to play their cards better."