In an article adapted from Turnaround: Third World Lessons for First World Growth, Peter Blair Henry argues that despite headlines featuring the collapse of BRIC nations and recovery in the West, advanced countries have settled for underperformance in place of prosperity; their future now depends on whether they have the humility to learn lessons of economic discipline from the developing world they once lectured.
Thirty years ago, today’s emerging markets were so-called Third World nations suffering from crippling debt, hyperinflation, slow (or no) growth, and an aura of hopelessness when it came to economic efficiency. Using decades of hard-won reforms generally pushed on them by advanced nations, many of these countries achieved a dramatic turnaround in their growth narratives to become drivers of the global economy in the 21st century.
Meanwhile, First World nations have strayed off course. Despite recent headlines proclaiming the fall of BRIC nations and recovery in the West, ever since the financial crisis of 2008–2009, advanced nations have settled for underperformance in place of true prosperity. How else would 1.7 percent growth in the United States, 0.9 percent growth in Britain, and a 0.6 percent contraction in the Euro Area—as presented in the IMF’s July 2013 update to the World Economic Outlook—qualify as resurgence? To make matters worse, political grandstanding too frequently substitutes for good conscience, leading to gridlock and shutdowns in capitals from Washington to Rome.
How will advanced economies get back on track? The stories of Turnaround teach us that we need reforms in both advanced and emerging economies. The IMF estimates that for every 2 percentage-points of economic slowdown in the BRICs, growth in the United States will slow by 0.5 percent. Economic growth is not a zero-sum game: the slowdown in emerging markets is bad news for advanced economies that need export expansion for higher growth. For their part, how will developing nations proceed in their own quest for further progress?
There are many ways to grow, but all successful strategies require discipline, courageous leadership, and a dose of humility. Ironically, whether advanced countries regain their potential and the emerging world continues to make policy choices that contribute to shared prosperity for all nations hangs critically on whether we absorb the growth lessons that come from studying the reform history of the former Third World.