Thursday, May 26, 2005

"Three billion new surfers on the wave of globalization"

Clyde Prestowitz's new book Three Billion New Capitalists: The Great Shift of Wealth and Power to the East is a more thoughtful, less breathless, version of Tom Friedman's The World is Flat.

Prestowitz discusses at length the advantages and disadvantages of globalization and free trade. His is the first popular book I know of to cite the work of Baumol and Gomory on problems with the usual Ricardian arguments of comparative advantage (see also this article by Samuelson). Prestowitz draws on his background as a trade negotiator in the Reagan administration to find real world examples which deviate drastically from the usual efficient market assumptions, including cases involving Japanese companies dumping their products in the US, and later raising prices once American competitors are eliminated.

Prestowitz advocates government support of R&D, as well as occasional intervention in markets. However, he doesn't seem to understand that while government intervention can lead to better outcomes, it may not on average do better than the market left to its own devices. See Samuelson for a nice discussion of this point.

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