Responding to current and future economic trends requires a renewed commitment to international cooperation, IMF Managing Director Christine Lagarde said in delivering the 2014 Dimbleby Lecture in London.
She pointed to “two broad currents” that would dominate the coming decades—increasing tensions in global interconnections; and increasing tensions in economic sustainability.
To address these emerging global tensions, she proposed:
“A solution that builds on the past and is fit for the future: a strengthened framework for international cooperation. In short, a new multilateralism for the 21st century.”
Elements of the new multilateralism
The major elements of this reinvigorated multilateralism would include:
• A renewed commitment to economic openness and to the “mutual benefits of trade and foreign investment;”
• Managing an increasingly complex international monetary system that has traveled “light years” since the original Bretton Woods system; and
• Building a global financial sector for the post-crisis era that “serves the productive economy rather than its own purposes.”
In addition, Lagarde said that the “new multilateralism” would demand a stronger sense of global responsibility if major issues such as climate change and inequality are to be tackled effectively.
“The kind of 21st century cooperation that I am thinking of will not come easy,” she said. “It might even get harder as time passes, when the curtains fall on this crisis and when complacency sets in—even as the seeds of the next crisis perhaps are being planted.”
Lagarde noted that there are already specific, working, forms of cooperation at hand, citing the UN, the World Bank, the World Trade Organization, and the IMF. These institutions might be termed concrete—or “hard”—forms of global governance, Lagarde said.
There are also a number of “soft” instruments that include such groupings as the G20 as well as networks of nongovernmental organizations. Lagarde said that these “hard” and “soft” forms of cooperation can complement each other:
“The new multilateralism must be made more inclusive—encompassing not only the emerging powers across the globe, but also the expanding networks and coalitions that are now deeply embedded in the global economy. The new multilateralism must have the capacity to listen and respond to these new voices.”
Getting beyond the current crisis
The immediate priority for growth, Lagarde said, is to get beyond the financial crisis, which began six years ago and is not yet over.
“This requires a sustained and coordinated effort to deal with problems that still linger—a legacy of high private and public debt, weak banking systems, and structural impediments to competitiveness and growth—which have left us with unacceptably high levels of unemployment.”
Lagarde also warned that financial integration can make crises more frequent and more damaging, and instant and wide communication can sow discord and confusion. “Because of this, the global economy can become even more prone to instability.”
Lagarde emphasized that strengthened international cooperation is key to managing these risks.
Longer-term impediments to global stability
Lagarde set the current crisis in the context of major long-term challenges facing the world in the coming decades:
• Demographics, both the challenge of aging populations in the advanced economies, and the “youth bulge” in many emerging and developing countries. Almost three billion people—half the global population—are under 25. A great deal depends on generating enough growth and jobs to satisfy the aspirations of this rising generation.
• Environmental degradation, as more people with more prosperity stretch natural resources to the limit. Phasing out energy subsidies that mostly benefit the relatively affluent and not the poor must be part of the solution. Reducing these subsidies and properly taxing energy use can be “a win-win prospect for people--and for the planet.”
• Income inequality, as skewed income distribution harms the pace and sustainability of growth over the longer term. Fiscal systems can help to reduce inequality through careful design of tax and spending policies.
Lagarde also renewed the call for greater equality and empowerment for women. “By not letting women contribute, we end up with lower living standards for everyone,” she said.
“ ‘Daring the difference,’ as I call it—enabling women to participate on an equal footing with men—can be a global economic game-changer. We must let women succeed: for ourselves and for all the little girls—and boys—of the future.”
Lagarde said the risk is of a world that is more integrated—economically, financially, and technologically—but more fragmented in terms of power, influence, and decision-making. “This can lead to more indecision, impasse, and insecurity—and it requires new solutions.”
Strengthened cooperation—a new multilateralism—is key to these solutions, she said.
