Lessons from All Corners
Henry, Peter Blair, Newsweek
Byline: Peter Blair Henry
Can the developed world learn from Barbados?
In decades past, First World countries have lectured the rest of the world about how to stabilize and grow their economies. Today, in a startling turnaround, the developed world buckles under high debt and slow growth, while countries such as South Korea, India, Chile, Mexico, and even tiny Barbados provide vital lessons for recovery.
In Asia, South Korea's rise from poverty demonstrates that prosperity lies not in the balance of trade but in a level of productivity achieved through exporting and importing. This contradicts the too-frequent assumption that exports are good, imports are bad, and a trade surplus is needed for growth. From 1965 to 1990, South Korea ran trade deficits, yet grew by 7.1 percent per year--three times faster than the United States after World War II. Instead of erecting costly protectionist measures in an attempt to keep out imports, developed countries should remember that prosperity is not a zero-sum game.
Fear of foreign domination in India led the Janata Party, in the 1970s, to push for partial Indian ownership of all multinational firms within the country. The result was a spectacular pullback, by companies such as IBM and Coca-Cola, and a stagnant economy. Realizing that fear and resentment were inhibiting progress, in 1991 the Congress Party began easing restrictions on foreign ownership. Since then, investment, growth, and wages have risen dramatically. Although the current government has struggled to implement further opening of the economy, its continued efforts stand in contrast to European Union governments that systematically oppose acquisitions by nonresident companies. Such mistrust of outsiders undercuts the ability of EU countries to create jobs and growth.
Meanwhile, in South America, Chile has taught the world about saving for a rainy day. In 2006, Chile's treasury held $6 billion in savings. As that number reached almost $50 billion in 2008, protesters in Santiago burned an effigy of Finance Minister Andres Velasco, vilifying him for refusing to share the riches through increased public spending and higher public-sector wages. …