`US-led Crisis Marks End of American Dominance`

“We seem to walk across a desert in darkness. (U.S.) President-elect Barack Obama inherits a ‘reeling empire’ amid uncertainties.”

Clyde Prestowitz, founder and president of the Economic Strategy Institute, also told the Dong-A Ilbo in an interview last month, “The world economy might face worse conditions in 2009.”

In his 2006 book “Three Billion New Capitalists: The Great Shift of Wealth and Power to the East,” Prestowitz predicted the U.S.-led financial crisis.

He said the United States, an empire of consumption, has decreased its consumption and no alternative market has yet to appear, meaning the global system that has dominated the world economy is about to stop working.

The following are excerpts from Dong-A’s interview with Prestowitz.

Q: Why have you forecast gloomy economic prospects under Obama?

Prestowitz: The U.S. economy might somewhat recover over the near term, but the principles of globalization are no longer sustainable. Many believe the current crisis is a temporary event and the economy will get better when the crisis comes to an end, which is not true.

Q: Do you mean the globalization system will end?

Prestowitz: I’ve been to East Asia recently. Economic and political leaders expressed worry over U.S. trade protectionism and struggled to increase their exports by cutting production costs and strengthening competitiveness. But the real problem is not U.S. protectionism but the loss of U.S. purchasing power. In an exaggerated manner, the global economy has been a supply-side economy for American consumers since the Second World War. For nations that have targeted U.S. consumers, the loss of U.S. purchasing power means their export market has disappeared.

Q: Where should Obama pay attention?

Prestowitz: He should lead structural changes faced by the United States in an orderly manner. Another pending issue is to reduce the U.S. trade and fiscal deficits.

Q: How will the dollar’s value change?

Prestowitz: The dollar has strengthened significantly but will sharply weaken within two to three years. A new foreign exchange system will appear. The floating exchange rate system has resulted in U.S. irresponsibility. Washington has made bad use of the greenback’s status as the key currency and recklessly printed dollars. Other nations have also been irresponsible. Export-driven economies have continuously intervened in the market to depreciate their currencies. The global economy will be in pain for the next four or five years since a new international economic system will emerge, including a brand new exchange system.

Q: Does the Group of 20 summit suggest a new hope?

Prestowitz: The summit delivers a new message that all nations should cooperate to overcome the crisis. The European Union and French President Nicolas Sarkozy, whose country chaired the EU in the second half of 2008, recognized that a new leadership system to replace the (Group of Eight) summit should be launched earlier than U.S. President Bush and Treasury Secretary Henry Paulson. The G20 summit is a kind of alarm bell rung by European nations and emerging economies to warn the world of the United States, saying, “Hey, watch out!” The crisis faced by Korea is the crisis that should be dealt with by all of us.

Q: Has America lost its status as the world’s sole superpower?

Prestowitz: Military strength, the dollar, investment in scientific technology, and the competitiveness of U.S. universities have propped up America as the world’s superpower. This is something the United States will not lose. But its power will weaken. The economies of EU member nations are more powerful than that of the United States. And the rise of China and India will also weaken U.S. power. The United States will face difficulty dealing with problems alone in increasingly more sectors. For example, the U.S. military is the world’s most powerful but cannot complete irregular wars alone, including that in Afghanistan.

triplets@donga.com