April 11, 2013
Thirty years ago, China seemed hopelessly mired in poverty, Mexico had triggered the Third World Debt Crisis, and Brazil suffered under hyperinflation. But in recent decades, these and other developing countries have turned themselves around, while First World nations, battered by economic and fiscal crises, struggle to stay afloat. According to Peter Henry, dean of NYU’s Stern School of Business and an economist, global prosperity now depends on advanced nations learning from these prior foreign struggles—and successes—with economic reform.
In his book, Turnaround: Third World Lessons for First World Growth, Henry demonstrates that prosperity is not a zero-sum game. What is good for emerging markets is also good for advanced economies. Following the path of discipline, clarity, and trust, he says, will help create a more prosperous future for the United States, Europe, and all nations.
Henry—who led Barack Obama’s 2008 presidential transition team in its review of international lending agencies such as the IMF and World Bank—defines discipline as “a sustained commitment to a pragmatic growth strategy, executed with a combination of temperance, vigilance, and flexibility that values the long-term prosperity of the entire population over the short-term enrichment of any particular group of individuals.” Discipline does not always mean harsh or extreme positions, like insisting on fiscal austerity.
Getting past ideology is also critical for economic success. In Turnaround, Henry revisits the history of reform in developing countries through the lens of their stock exchanges to sidestep ideology and focus on facts. Analyzing objective data provides clarity and leaves little doubt that countries that seek to increase growth and improve economic efficiency should favor market-friendly policies such as those urged by James A. Baker III in the 1980s.
Just as important, Henry says, is eradicating the deficit of trust between advanced and emerging nations. In an interconnected world, everyone will win or everyone will lose. But prosperity for all hinges critically on whether advanced nations acknowledge the achievements of emerging economies and give them a leadership role commensurate with their contributions to the global economy.