Though cautious about the recovery of the United States economy, Dean Glenn Hubbard expressed optimism at a special symposium on Wednesday, February 13, sponsored by the Jerome A. Chazen Institute of International Business. He pointed to potential improvement in the housing and automobile markets, the possibility of growth in the energy sector, and manufacturing. “The level of policy uncertainty and uncertainty about demand really clouds the picture,” said Hubbard. “But there’s no reason to be a pessimist.”
The panel discussion, titled “The World Economy: What Now?” and moderated by David Beim, professor of professional practice at the School, offered wide-ranging insights on economies around the globe from five distinguished University professors. The talk was broken into five sections, each covering a different continent (a transcript is available for download).
On the US economy, Joseph Stiglitz, a Nobel laureate, professor of finance and economics, and executive director of the Initiative for Policy Dialogue, further expressed the opinion that the government should encourage a structural transformation away from manufacturing, where he sees increased productivity and Asia’s competitive advantage limiting the potential for future job growth. “That structural transformation is going to require a lot of investment,” said Stiglitz, “largely in the public sector — government support toward retraining, human capital, helping people adjust to this new economy.”
As for Europe, Richard Clarida, the C. Lowell Harris Professor of Economics and International Affairs at the School of International and Public Affairs (SIPA), said he sees more reason for optimism than he did a year ago, thanks in part to Mario Draghi, the head of the European Central Bank (ECB). Late last summer, Draghi relaxed investor fears about the euro by announcing that his bank was prepared to buy the bonds of struggling nations — a move Clarida said had eased the crisis and given the continent some time. “In essence, just through the conviction, the force of argument, and the announcement of that plan,” said Clarida, “he has changed the psychology in Europe very dramatically. Borrowing costs in Spain and Italy have plummeted 60 or 70 percent and the ECB has not spent one euro.”
Hubbard, though, warned that he has yet to see European politicians take advantage of the breathing room they’ve been given to reform fiscal policy — something he said the European Central Bank can’t do for them. “The central bank can create liquidity. It can create movements in bond prices. It cannot create a sustainable debt situation.”
On Asia, Shang-Jin Wei, the N.T. Wang Professor of Chinese Business and Economy and the director of the Chazen Institute, spoke about the potential for China to maintain its growth rate in the coming years. According to Wei, the country has a unique factor working in its favor — the current gender gap. In China, there are more young men than young women, meaning some men may have difficulty finding a partner in the years to come. As a result, Wei said, many parents will work to become wealthier to try to increase their sons’ prospects for marriage. “The desire to accumulate wealth leads to more savings, more work effort, more people willing to take risks, including to be entrepreneurs. Those things collectively produce extra growth.”
José Antonio Ocampo, professor of professional practice in International and Public Affairs at SIPA, spoke about the recent lack of growth in Latin America. One fundamental problem, said Ocampo, is a lag in technology. “That’s what market reform didn’t do in Latin America, and that’s what, if Latin America wants to grow at 5 or 6 percent, it has to do.”
On Africa, there has been marked improvement of late, Stiglitz said, though the continent was starting from a very low point. He argued against the idea, which he said some have written, that “countries that are landlocked, mountainous, have no prospects.” He cited Ethiopia as an example, which despite being landlocked, has been one of the fastest growing nations in the world recently. “Geography is not destiny,” said Stiglitz. Still, even the African countries that have closely followed the standard prescriptions for economic improvement, according to Stiglitz, have had a difficult time attracting foreign investment in anything other than their natural resources.
The Jerome A. Chazen Institute of International Business offers programs for students and faculty members to develop international perspectives in business practice and policy. It was founded in 1991 by Jerome A. Chazen ’50 to serve as a link between the School and a global community of scholars and executives.