Henry, dean of the NYU Stern School of Business, argues that the United States and other first-world countries should heed lessons from the developing sector.
Three decades ago, Mexico defaulted on its debt and Latin America was entering its own debt crisis. The author documents how, in successive stages, they adopted policies that were the basis for major reforms. In the wake of that crisis and others, these policies became known as “the Washington Consensus” and were broadly applied during the 1997 Asian financial crisis. Henry attributes these policies to Ronald Reagan’s Treasury secretary James Baker and the debt reorganization plan put forward by his successor, Nicholas Brady. In the author’s view, the combination laid the foundation for successful third-world economic reforms that raised living standards and encouraged equity investment. They accepted fiscal discipline and austerity and opened their economies to the world through trade and investment. Their rejection of illusory self-sufficiency through protectionism and import substitution has proven transformative. Now, writes Henry, it is time for Washington, London and Brussels to “recognize the accomplishments of developing countries, and invite them into a new dialogue about the future of the world economy.” Pointing out that the developed economies are now seeking funds from the very countries, like Brazil, on which they previously imposed restrictions, Henry suggests that developed economies “that once stood at the front of the Third World classroom [must]…take a seat and listen.” If those economies are to engineer a turnaround, it will be through shared sacrifice and disciplined policies putting a shared future ahead of political expediency.
A concise and controversial statement of what needs to be overcome if the world economy is to return to the path of growth and stability.