The United States remains desperate for faster growth and stronger job creation. To unleash that growth, the dean of New York University’s business school says, maybe the country needs a big dose of its own economic advice.
For the last quarter of the 20th century, the United States and its Western allies preached a particular brand of capitalism to developing countries struggling to lift themselves out of poverty. That preaching stirred a lot of controversy; it also spurred a lot of growth in emerging markets such as Brazil, China and Chile — the countries now powering much of the global recovery from the Great Recession.
Much of the developed world, meanwhile, is struggling to leave the recession behind. Europe is contracting. U.S. growth remains below historical norms, and its unemployment rate is hovering near 8 percent.
Peter Blair Henry, the dean of NYU’s Leonard N. Stern School of Business, attributes that malaise to a sort of evangelical amnesia. The United States, he says, taught the developing world to boost productivity, invest in infrastructure and education, encourage investment and connect to the growing global marketplace for goods and services.
The United States’ weak recovery from recession, and the weak recovery of the 2000s that preceded it, he says, “are in large part due to the fact that we forgot these lessons that we taught the Third World.”
Among those lessons: Governments should save money in flush times and spend it to boost the economy when growth stalls. Lawmakers should prize predictability in policymaking to trigger private investment. When times are lean, some government investments, particularly in education, should be off-limits to cuts.
The United States today, Henry said in an interview, is paying a price for running deficits during the 2000s even as the economy expanded. He said private investment is falling $1 trillion short per year from where history suggests it should be, a dip he attributes to partisan bickering over the “fiscal cliff,” the federal borrowing limit and other issues, and to the fact that monetary policy and fiscal policy are working at “cross purposes” — one is expanding while the other contracts.
“We’re mired in a pretty tired ideological debate, I think,” Henry said. “We’re conflating kind of fiscal sustainability issues, inequality issues.”
For example, he said, “We know that the way to close the wage gap is to produce more skilled workers. Raising taxes on the highest tax bracket may be part of the solution to our overall sustainability issues on the fiscal side, but it’s not a solution to income inequality. The conditions have never been better for potential prosperity, but we’ve got to do a better job of educating people and giving people access to the global economy.”
Henry immigrated to Chicago from Jamaica with his family as a young boy. His new book, “Turnaround,” straddles the developed and developing world. It reaches conclusions that run counter to a growing sense among many Americans that globalization has hurt the U.S. economy more than it has helped, especially for the middle class.
Much of the book should please Republicans. Henry advocates reducing the federal deficit and reducing the “uncertainty” that many business leaders and GOP lawmakers say is restraining growth. He also, in the interview, condemned “protectionist” trade measures that the Obama administration and other developed countries have leveled at their emerging-market trading partners in recent years.
But at times, Henry can sound more liberal. He warns against “eating our seed corn” by cutting education, and he says, “Europe needs less austerity and more reform” to liberalize its labor markets and encourage innovation.
His fundamental point of view is a resounding belief that if developing countries can reverse a cycle of poverty and economic dysfunction and begin to grow rapidly, the United States can, too.
Twenty years ago, he said, Brazil “was a basket case.” Now, even with recent struggles, it has grown faster than the United States since the recession. “The one big lesson is, it can be done,” Henry said. “You can get to yes. You can turn things around.”