Sam McNerney

How world leaders can get out of the economy's way

March 25, 2014: 12:01 PM ET

In a new book, a foreign policy guru says the global economy is poised to grow -- if politicians will let it.

Fortune.com selects the most compelling short essays, anecdotes, and author interviews from "250 Words," a site developed by Simon & Schuster to explore the best new business books—wherever they may be published.

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FORTUNE -- For this installment, 250 Words' Sam McNerney sits down with Michael Mandelbaum, the Christian A. Herter Professor and director of the American Foreign Policy Program at the Johns Hopkins University School of Advanced International Studies. Mandelbaum's latest book is The Road to Global Prosperity, which hits bookshelves Tuesday. Sam talks to Mandelbaum about Russia's play for Crimea, the politics of the BRICs, and the biggest threats to the global economy.

McNerney: You're optimistic that the global economy will continue to grow as long as we don't let politics get in the way. What are some of the biggest political obstacles?

Mandelbaum: The biggest political obstacle to global growth is war; and the bigger the war, the bigger the obstacle. Growth stopped, indeed went into reverse, during the two world wars in the first half of the last century. In Chapter 1 of The Road to Global Prosperity, I list some of the global trouble spots in which wars that would set back global growth could erupt. One of them is the relationship between Russia and Ukraine, which has produced the recent Russian invasion and occupation of the Ukrainian province of Crimea. Although it's a place to watch, I do not at this point see that conflict expanding in a way that inflicts major damage on the global economy.

Iran and North Korea are serious economic threats. Do you think the United States can form robust economic partnerships with these countries in the near future -- say, within twenty years?

I doubt that the United States can form robust economic partnerships with Iran or North Korea with their present governments. Neither one places a high priority on bringing prosperity to its citizens. Both regimes are far more interested in expanding their power and influence. Economics does hold the key to removing those regimes, though, which would make life better for everyone, most of all the Koreans and Iranians who have the misfortune to be governed by them. The Iranian regime survives on oil revenues. Cutting its oil income, which could be accomplished through different energy policies in the United States and Europe, would deal it a huge blow. As for North Korea, without the food and fuel that China sends to it across their common border, it would collapse. So far, however, the Chinese government has not been willing to use the enormous leverage at its disposal to promote change in North Korea.

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You write that immigration "has the potential to administer the largest positive shock to the global economy." How vital are immigrants to economic output and how would you change the immigration policy in the United States?

Immigrants increase economic output in two ways. They expand the supply of labor, which is a source of growth. This was particularly important to the United States during the nineteenth century. And immigration brings talented, dynamic people to the country receiving them -- people who make scientific discoveries and practical inventions and who start profitable businesses. In Silicon Valley, for example, many new high-tech businesses have been founded by immigrants, mainly from India and China. The most constructive change that could be made in American immigration policy would be to make it easier to attract, welcome, and keep more of these dynamic, productive people.

It's been proposed that every citizen of another country who receives an advanced degree in an American university in a scientific or technical subject should receive a green card stapled to his or her diploma. That would be a good place to start. In general, immigration has conferred great benefits on the United States. The countries of Western Europe, for reasons I explain in Chapter 2 of The Road to Global Prosperity, have done and are doing less well with their immigrants. 

The BRICs -- Brazil, Russia, India and China -- play a large role in the global economy. However, their growth critically depends on their politics. What are the most important political decisions these countries face?

In each of the BRIC countries, a feature of its politics that once assisted economic growth now stands as an obstacle to it. In Brazil it is the policy known as populism, which gives generous government subsidies to businesses and generous benefits to individual citizens. In Russia it is energy wealth, which brings an impressive stream of revenue from abroad but, for that very reason, relieves the pressure the Russian government would otherwise feel to foster the institutions and practices necessary for a robust free-market economy. In India the crucial political feature is democracy. It unites the country but it also impedes what the country most needs -- infrastructure and low-skilled industry -- to lift people out of poverty on the scale that China has managed. In China it is the country's autocratic government, which has presided over three decades of remarkable growth but now needs to introduce more liberty and government accountability for the country to continue to flourish. To assess the prospects for growth in Brazil, I'd pay attention to the government's ability to restrain spending. For Russia, if the price of oil falls that is good news for the economy (and for Russian politics) over the long term. In India, whether the next government relaxes some of the country's stringent labor laws to permit more employment in low-skilled industries will be crucial. In China, whether the government liberalizes the financial system will give an indication of its commitment to growth-promoting reforms.

MORE: China's lofty currency plans are just getting started

You suggest that globalization is irreversible; we've become too interconnected and interdependent. If something did reverse this trend, what would it be?

A major war would damage globalization -- along with everything else. The other great twentieth-century event that sent globalization into reverse was the Great Depression of the 1930s. It caused many countries to adopt economic systems -- based on central planning and on import-substitution -- that did not lend themselves to globalization. We have just gone through the worst economic downturn since the 1930s, yet no serious challenge to globalization has arisen. The reason, I believe, is that no alternative system of economic organization to globalization-friendly free markets has any significant popularity or credibility. Unless and until such an alternative appears, it is difficult to see globalization going seriously into reverse.

If readers who enjoyed The Road to Global Prosperity want more literature on the subject, what books or articles would you recommend?

Alan Blinder's After the Music Stopped provides a wonderful account and analysis of the great financial crisis of 2008 and its aftermath. Dani Rodrik's The Globalization Paradox offers a serious critique of globalization as it is now practiced. On finance, Sebastian Mallaby's More Money Than God is entertaining as well as instructive. My own book, co-written with Thomas L. Friedman, That Used To Be Us: How American Fell Behind in the World It Invented and How We Can Come Back gives our view of what the United States must do to remain the world's leading economy and the mainstay of globalization. Let me also mention two other books of mine that concern the crucial role of the United States as the military and political guarantor of the global economy, and the challenges to that role: The Case for Goliath: How America Acts as the World's Government in the Twenty-first Century, and The Frugal Superpower: America's Global Leadership in a Cash-Strapped Era.

Finally, for those interested in following international economic and political issues on a daily and weekly basis, two London publications, the newspaper the Financial Times and the magazine (that for some reason calls itself a newspaper) The Economist are indispensable.

 

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