Although few Americans realize it, the first 13 years of the 21st century have been boom times for much of the world. Indeed, it can be argued that with certain notable exceptions – the U.S., the European Union, and Japan come to mind – the period since 2000 has constituted the greatest period of economic dynamism the world has seen in the modern era.
Virtually everyone has heard about the rise of China and India, but far fewer have followed the trajectories of other booming parts of Asia, not to mention Africa and Latin America, and the more peaceful parts of the Middle East. While inhabitants of the most developed countries were awash in economic difficulties, it seems, many parts of the huge region once known generically as the Third World were growing rapidly, albeit from low bases, and some – the so-called emerging economies – gained a lot of ground on the leaders of the pack.
This “catch-up” phenomenon – the reasons for it and the lessons that we in the developed countries can learn from it – is the subject of economist Peter Blair Henry’s impressive new book “Turnaround: Third World Lessons For First World Growth.”
One can scarcely imagine anyone better positioned to study this subject. Jamaican by birth, Henry spent his youth on the island before moving with his parents (both Ph.D.s) to suburban Chicago in 1977 at age 8. After compiling a dazzling record in school – he was a Morehead Scholar at UNC-Chapel Hill and a Rhodes Scholar at Oxford, before earning a Ph.D. in Economics from Massachusetts Institute of Technology – Henry has enjoyed a meteoric rise in academe, signaled by his ascent to a distinguished chair in economics at Stanford University before becoming dean of NYU’s Stern School of Business in 2010 at age 40.
“Turnaround” is intended to instruct and Henry’s argument, which I would characterize as a pitch for enlightened austerity, is straightforward. Many less-developed countries experienced severe debt crises in the 1980s and 1990s. Such crises were associated with – and, Henry believes, largely caused by – a lack of fiscal and monetary discipline on the part of the countries in question.
These crises evoked terrible human suffering but were ultimately overcome once governments in many affected countries put their macroeconomic houses in order. How? By adopting prudent, disciplined, future-oriented policies that promoted economic stabilization through tax reform and spending cuts, market liberalization and privatization. Such policies were developed in concert with (and, in many cases, forced upon poor countries in crisis) by the most powerful financial actors in the developed world – the World Bank, the International Monetary Fund and the U.S. government – which made loans and loan guarantees conditional upon macroeconomic reform.
Economic and social pain did not end quickly in distressed countries with the implementation of the “neoliberal” reform package, which is often referred to disparagingly, if somewhat unfairly as the “Washington Consensus.” Over time, however, the package – or, more, accurately, individualized packages – placed the countries that “took the medicine” on much firmer paths to long-term development, as can be seen by their booming stock markets and strong economic performances in recent decades.
Today, the worm has turned, as it were, and the most developed countries are the ones that are suffering from debt crises and economic instability due to fiscal and monetary profligacy, short-term thinking, and an unwillingness to make the hard decisions and economic sacrifices needed to right their economic ships. According to Henry, policymakers in these areas would do well to look to the experiences of the less-developed countries in the 1980s and 1990s for answers, answers, that, however difficult to swallow, are hiding in plain sight.
Peter A. Coclanis is Albert R. Newsome Distinguished Professor of History and Director of the Global Research Institute at UNC-Chapel Hill.