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Shifting Economies

Since the fall of the Berlin Wall, three billion new capitalists, most of them in Asia, have joined the world economy. A surge in competitiveness on the part of China and India has brought wealth and influence to the East.

If you want to see where world economic power is heading, go east says Clyde Prestowitz, the author of a new book: Three Billion New Capitalists: The Great Shift of Wealth and Power to the East.

Mr. Prestowitz, a veteran Asia watcher and President of the Washington-based Economic Strategy Institute, contends all of the manufacturing work that has gone to China and the outsourcing of jobs to India are just the beginning of an economic tidal wave that the West must learn to compete with.

Mr. Prestowitz, who served as a trade negotiator in the Reagan Administration, says a wave of globalization was set off by the West's victory in the Cold War. He adds, "We have been talking about globalization for a long time. Actually, the word has been incorrect because only half of the world has been part of the globalization process. But in the last ten years, the other half -- China, India, the countries of the former Soviet block -- has joined the capitalist system. And I like to say globalization is going global."

Mr. Prestowitz says included in these new three billion capitalists is a skilled population as big as the United States that can do anything the U.S. or any other developed country can do and for just a fraction of the cost. While a U.S. production line worker is often paid $15 to $30 dollars an hour, skilled factory workers in China earn just 25 cents to $1.00 per hour.

Since the 1980s, China has doubled the size of its economy, generated more than 30% of the world's gross domestic product and passed Germany to become the world's second largest exporter. It is the world's biggest consumer of commodities and is second only to the United States in attracting foreign investment.

According to economist Clyde Prestowitz, China's phenomenal development helps others flourish as well. "The growth of China, and more recently India, will make it possible for other countries to grow as well," says Mr. Prestowitz. "Latin America, for example, has become a major supplier for China. So China's growth is stimulating growth in Latin America, which is fantastic for them."

Chile, Peru, Bolivia, Brazil and Venezuela have all become important trading partners of China in food, copper, oil and other commodities. Brazil's exports alone to China jumped from about $ 2.5 billion in 2000 to more $10 billion in 2003.

Clyde Prestowitz contends that China's and India's gross domestic product could surpass that of the United States by 2050. He adds that geopolitical clout follows economic strength.

According to Mr. Prestowitz, "They won't be richer per capita, but in terms of G.D.P. they will be bigger than the U.S. That means that in the World Trade Organization, the International Monetary Fund, the World Bank, and in all of the international institutions, their influence and power is going to increase."

But some analysts question whether Asia's foremost economic powerhouse can sustain its current pace of development. Many observers say a lot could go wrong in China, not the least of which being a rigid communist political system that could crumble under the forces set free by capitalist reforms.

James Lilley, a former U.S. ambassador to China during the late 1980s and early 1990s, and now a Senior Fellow at the American Enterprise Institute, says the Chinese top leadership is concerned about long-run stability.

"They are very conscious of the huge corruption problem they have in China and of the great disparities of wealth between the urban areas and the rural areas," says Ambassador Lilley. "They are conscious of a whole series of violent demonstrations that took place across China last year, 58,000 by their own statistics. They are also concerned about developing a financial system that could allocate resources on the basis of commercial rather than crony capitalism. They have a growing problem with an aging population that one-child families contributed to. And they have an HIV/AIDS problem, which could really affect the demography."

Many analysts say that among China's principal weaknesses is its shortage of energy and water as well as rampant industrial pollution.

David Lampton, Director of China Studies at the Johns Hopkins School of Advanced International Studies and Director of China Studies at The Nixon Center, based in Washington says, "Several of the large riots on the outskirts of Shanghai, for example, were in reaction to environmental damage caused by industrial enterprises that were leaving town, but were leaving a mess behind. Another set of constraints is resource constraints. China has less per capita of most resources in the world on average, whether we are looking at water or mineral resources, petroleum and so on. Is China going to become more efficient in the use of resources and will the world system be able to provide all the resources China needs?"

Professor Lampton notes that the international framework in which China is emerging as a formidable economic power is also a matter of concern to leaders in Beijing.

"Will the international system remain receptive and hospitable to Chinese growth?," asks Professor Lampton. "Will the international system remain sufficiently non-threatening to China, so that China does not feel that it has to move in a more defense oriented direction, which would slow its growth?"

Mr. Lampton adds that on balance it is unwise to bet against China that has so far successfully traversed uncharted social, political and economic waters.

Most observers agree that the best response to China's global emergence is to welcome it on the basis of shared commercial rules and procedures. They note that China's rise might lead to painful global adjustments. But if made prudently, it could reap new benefits for all.

This story was first broadcast on the English news program, “VOA News Now.” For other “Focus” reports, Click Here.