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Peter Blair Henry: How America Can Bounce Back From The Economic Crisis

Dan Schawbel

I spoke to Peter Blair Henry, who is the Dean of the Stern School of Business at NYU, about his new book "Turnaround: Third World Lessons for First World Growth". Before taking this position in January 2010, he was the Konosuke Matsushita Professor of International Economics at Stanford, where he was a faculty scholar, the Associate Director of the Center for Global Business and the Economy at Stanford’s business school, and a Senior Fellow at the Stanford Institute for Economic Policy Research. He served as a member of the Obama transition team and is a member of the President’s Commission on White House Fellowships. He is also a board member at the National Bureau of Economic Research, a member of the Board of Directors of Kraft Foods, a nonresident Senior Fellow at the Brookings Institution, and a member of the Council on Foreign Relations.

In this interview, Peter talks about the factors that contributed to the world economic crisis, the most important problems America needs to solve in order to recover, what America can learn from other countries about job growth, and more.

Why did you decide to write this book and why now?

The world economy faces a critical moment. Former “Third World” nations have engineered a historic economic turnaround, becoming the emerging markets that now drive global growth. It seemed important to me that they did this with three decades of economic reforms that were pushed on them by the First World—nations now battered by crises, but whose governments appear loath to take their own prescriptions and seem trapped in ideological debates that today threaten to undermine their recovery. I was born in Jamaica but was educated by, and now serve, prestigious First World institutions, so I believe that I have a unique, dual perspective. To sidestep any biases I might have, I use the objective lens of the stock market to discover which policies actually delivered prosperity to emerging markets. Applying these lessons in the First World will, I believe, point a hopeful way forward for all nations.

What factors contributed to the world economic crisis?

A number of factors including loose monetary policy, imprudent mortgage lending, and inadequate financial oversight, enabled a debt-financed spending spree in advanced nations, which occurred with little regard for the future by consumers or governments. In a word, it was caused by a lack of discipline. The success of emerging economies from Brazil to South Korea (now emerged) shows that discipline means a commitment to long-term prosperity that is vigilant yet flexible. It is not, for example, an insistence on fiscal austerity in all cases. Disciplined governments do not engage in the economic equivalent of binge eating followed by crash dieting.

From your research, what are the most important problems America needs to solve in order to bounce back?

America needs to resolve the uncertainty about its future economic policy. It needs everything from a serious, long-term plan to gradually shrink the deficit through a combination of reduced spending and increased revenue, to greater investment in education and infrastructure. America also needs to renew its commitment to the cause of free trade—not only for America but for the world as a whole. Turnaround occurred in emerging markets once their governments embraced market-friendly policies and demonstrated a clear commitment to change course. Uncertainty in Washington feeds market volatility and undermines growth opportunities.

What can we learn from other countries about job growth? What do all growing countries have in common?

Economic growth creates jobs, and countries grow when they educate their people and pursue policies that encourage households to save, existing businesses to invest, and entrepreneurs to innovate and create new markets. Just as importantly, economic growth is not a zero-sum game: growth in the emerging world is good for jobs in America. A rising middle class in developing countries creates more demand for what we have to offer. We should be less worried about cheaper goods and labor from foreign nations and instead focus on preparing our workers for jobs of the future, producing goods and services that emerging economies will want to consume. Growth will revive our job market, irrespective of whether the origins of that growth are at home or abroad.

What countries do you think are best (and worst) positioned for future growth?

Indonesia has made significant strides in turning around its economy after being hit very hard by the Asian Crisis in 1997. Measured fiscal policy, commitment to maintaining an open economy, and prudent use of commodity-generated income have the country poised to continue delivering impressive economic performance—the IMF recently forecasted that Indonesia will grow by more than six percent per year for the next five years. The reality that Indonesia’s turnaround occurred during a transition to democracy following decades of authoritarian rule (under Suharto) is a hopeful sign for the world. On the domestic front, for all of our recent underperformance, America is one piece of significant legislation away from a very prosperous decade.

Dan Schawbel is the author of the upcoming book, Promote Yourself: The New Rules of Career Success (St. Martin's Press, Sept 3rd). Listen to his Promote Yourself Podcast on iTunes for more interviews and career advice.

