The dean of NYU’s Stern School of Business, Henry unpacks his book, Turnaround: Third World Lessons for First World Growth.
Economist Peter Blair Henry
Tavis: So figuring out how to increase economic prosperity here at home while transforming opportunities for emerging nations may just be the holy grail of economics for the 21st century. Peter Blair Henry, Dean of the Stern School of Business at NYU, make that New York University, has written a road map for that journey.
His new text is titled “Turnaround: Third World Lessons for First World Growth.” Peter Blair Henry, good to have you on this program.
Peter Blair Henry: Thank you. Good to be here with you.
Tavis: Let me start with this notion of what it is that we can learn from third world nations. And I ask that for two reasons. One, because if they were more like us, they wouldn’t be third world and, number two, this whole notion of American exceptionalism doesn’t lend itself so nicely to us taking cues from third world nations.
Henry: Right. So I think the key thing is to understand that, once upon a time, we really had the road map ourselves and we taught that road map to many countries around the world in the 1970s and 1980s. But we’ve forgotten the lessons that we’ve taught these other countries over the last three decades, so now we need to learn – really it comes down to a key word.
It comes down to a word called discipline, and discipline doesn’t mean fiscal austerity. Discipline means a focus on the future and a willingness to take the steps you need in order to help the country grow.
One example I’d like to point to is a country like Chile. So we once taught emerging economies that they needed to save when things were good so they’d have money during hard times. The United States in 2001, we had a $236 billion dollar fiscal surplus which we decided to give back to the people, so to speak.
Chile, when they were doing very well, saved their money. In fact, their finance ministers burned an effigy because he refused to give the money back to the people when times were good. So when Chile was in recession, they were able to institute a tax cut to get their economy growing again. So that’s an example of discipline.
Tavis: And yet, even though you put the disclaimer out there, when I hear the word discipline these days, particularly in our politics – forget Chile – I hear that word discipline in our politics, in our nation’s capital in Washington, I don’t know how we disconnect that from austerity. So how do you disconnect the conversation about fiscal discipline from fiscal austerity in Washington?
Henry: That’s a great point. So in the context of our own politics, what I mean is taking a more balanced approach, right?
Henry: A balanced approach just means that we don’t need to reduce the deficit overnight. We need to reduce the deficit eventually. So that means temperance, going more slowly to get to the right place. Because going too quickly can be very harmful and we’re seeing that, for instance, in Europe.
So even the IMF, for instance, has adjusted their policy on fiscal approaches. They basically said to Europe what’s really key is eventually getting to a balanced budget and not trying to get there overnight.
Tavis: So speaking of pacing yourself, you were on the Obama transition team where these economic issues are concerned and there are some of us who are becoming concerned that he is becoming too open, too soft, to the notion of deficit reduction and what we need is jobs, jobs, jobs with a living wage.
Give me your assessment of this argument in Washington and where you think the president is or ought to be on the question of deficit reduction now.
Henry: Well, I think the key issue is understanding that at some point in time we have to deal with the deficit and we have to make hard choices, right? That’s really the key. I think the president has put forward in his budget a very honest approach which says that we have to deal with entitlement spending.
And I think that whether you’re on the right or on the left as an economist or as a policy maker, every serious analyst I know agrees that at some point you have to deal with entitlements.
Tavis: One of the three issues that you talk about in this book – the book is really written around three things. One is discipline you spoke of earlier and clarity which we’ll come to in a moment. But the third is trust.
And since you talk now about entitlement reforms legitimately, to your point, being on the table, talk to me about the notion of trust and how it is that everyday people, certainly those who are increasingly a part of the poor now, can trust a government that wants to continue to balance its books on the backs of poor people and nobody talks about Wall Street. Nobody talks about corporate welfare, but when it comes time to balance the budget, we want discipline and we want entitlement reform on the table.
I’m not even saying you’re wrong. I’m just saying make the case for me for how everyday people end up trusting a government that always wants to balance the budget on its back.
Henry: Well, I think there’s no easy road to getting to the point of having a populist trust you. So we have to get there by making decisions, for instance, investing in education, right? Because think about the transformation of the world economy.
The United States has become a service-driven economy. So in order for us to deliver prosperity, we need to make sure that our citizens are in a position to benefit from the knowledge economy. But that means making the fundamental investments, for instance, in education.
So it’s by doing the little things every day and it kind of comes back to this point about discipline. A disciplined government doesn’t engage in binge eating or crash dieting. Binge eating is excess. Crash dieting is like austerity. So there’s no easy way to get to regain trust. You’ve got to make those tough decisions every day.
Tavis: I wonder whether or not you think that the damage done where trust in government is concerned in this country is irreparable. I mean, you look at these polls, every poll, every survey, every study. Look at how low the approval rating of Congress is. I’m trying to get a sense of how certainly where our fiscal policies are concerned, how Congress, how Washington, how the White House, gets that trust back.
Henry: Well, one tangible example which is not obvious actually. So we’re in an interconnected global world. In 2010, the G-20 came to an agreement that the international monetary fund which is the body that lends money to countries around the world needed to make some significant changes in order to win back the trust of the big emerging markets that are driving global growth. Those are key to us because it’s their growth that allows us to export more and help our economy create jobs and to recover.
So where are we on those agreements? Well, the U.S. Congress at the moment is holding up the 2010 IMF reforms which propose to give two of the 24 executive board positions at the international monetary fund, to switch them from Europe to the large emerging markets that are driving global growth.
So a single move that the U.S. Congress could take, I think, to restore trust is in communicating why it’s so important that we support emerging economies and then make the move to actually put these reforms through.
Tavis: The question I want to ask is whether or not having someone who is a person of color run the World Bank, given that so many of the people who live in these third world countries happen to be people of color, whether or not that will make a difference, should make a difference, will make a difference, in the coming months and years?
Henry: I think we live in an and world and an or world, so substance matters and symbolism matters as well. And I think that having a person at the World Bank who’s from a non-Western background actually is a very positive step.
So I think we’re seeing these institutions move slowly in the direction of change, but I think we can’t get complacent because the emerging markets are an increasingly important part of the world economy and I think this is a really important point. This is not just a matter of being nice. It’s a matter of good business, right?
Because in order for the big emerging markets which are driving global growth to continue to be that edge that helps our struggling economy along, and particularly the economies in Europe that are in recession, their leadership needs to be able to go to their own people in their countries and be able to show that they are making progress in getting their countries a bigger voice at the table.
So it’s in our interest, in the United States’ interest and the interest of Western Europe and Japan, to make the kinds of changes consistently in a disciplined way, as you say, in the future.
Tavis: Speaking of people of color running the World Bank, you are a person of color, obviously [laugh] and from Jamaica. Give me some sense of how being of Jamaican background, ancestry, impacts the way you see the world.
Henry: I think being from a third world country and understanding what poverty means on a day-to-day basis and seeing the impact on peoples’ lives gives you a sense of urgency. So I feel an obligation to use the tools that I’ve been given, the opportunities that I’ve been given, to try to say something useful. And what I’ve been able to realize, having lived in both places, is to see the connections.
So it’s very important for – I think it’s very hard for people who are in the United States and in very prosperous countries to actually frankly have the humility to embrace the changes that have happened in the former third world and say, oh, there’s something we can learn.
Those countries have actually taken our own advice from when they were students and now we actually need to sit and listen to them. For me, that’s a little easier to do, I think, because I’m from the third world.
Tavis: I’m out of time, but I want to just have you say a brief word about the other part of this triangle that we didn’t get to tonight. One, of course, is discipline. The second we talked about which was trust. The third, clarity. Just give me a word about what you mean by clarity.
Henry: Quick example. Barbados, small country, again, former third world country. 1992, Barbados is on the verge of financial crisis. The key there, the government realized that they needed to get labor, the private sector and the leadership together in order to forge a solution. The international monetary fund wanted them to devalue their currency. The leadership said no, we’re gonna come to a negotiated wage cut agreement which will restore productivity. It sounds almost impossible. How would people allow their wages to be cut?
Well, the key thing was that the government went to the people, convened these talks, got them to agree to a 9% wage cut. In response to the workers being willing to accept lower wages, the private sector said we’re gonna base future wage increases on productivity gains. And as a result of the, the economy recovered. Now people don’t like having their wages cut, so you can guess what happened.
Prime Minister Erskine Sandiford was kicked out of office and his (inaudible) kicked out of office 14 years. When asked in retrospect would he do it again, the Prime Minister Erskine Sandiford, or former Prime Minister, said, “It was a small price to pay in order to save Barbados.”
That’s clarity, clarity of purpose. In order for the world economy to get back on track, we need more leaders to have that kind of clarity.
Tavis: Yeah. But if clarity in this country comes with being kicked out of office, don’t hold your breath. But I digress.
The book is called “Turnaround: Third World Lessons for First World Growth” written by Peter Blair Henry, the youngest person to be the Dean of the Stern School of Business at NYU. Dean, good to have you on the program.
Henry: Thank you for having me, Tavis.
Tavis: Thanks for coming on. That’s our show for tonight. Thanks for joining us. Until next time, keep the faith.
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