"A New Multilateralism for the 21st Century: the Richard Dimbleby Lecture" — Christine Lagarde
IMF News, February 3, 2014
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Bibliographic details
- Authors: Christine Lagarde
- Published: February 3, 2014
Overview
- Occasion: Richard Dimbleby Lecture, London, February 3, 2014. As prepared for delivery by Christine Lagarde, Managing Director, International Monetary Fund.
- Central thesis: The world faces two dominant, interacting currents—(1) tensions in global interconnections (coming together vs. drifting apart) and (2) tensions in economic sustainability (staying strong vs. slowing down). The proposed response is a strengthened, updated multilateralism for the 21st century.
Tensions in global interconnections — key facts and risks
- Trade and production
- More than half of total manufactured imports are intermediate goods.
- More than 70 percent of total service imports are intermediate services.
- A typical manufacturing company uses inputs from more than 35 different contractors across the world.
- Finance
- In the two decades before 2008, international bank lending—as a share of world GDP—rose by 250 percent.
- Communications and connectivity
- 3 billion people are connected to each other on the internet.
- Three million emails are sent each second.
- There are almost as many mobile devices as people on the planet; the “mobile mindset” is deeply embedded in all regions of the world.
- The highest rates of mobile penetration are in Africa and Asia.
- Example of social amplification: more than 25,000 tweets a minute when Prince George arrived.
- Diffusion of power and fragmentation
- Fifty years ago, emerging markets and developing economies accounted for about a quarter of world GDP. Today, it is half, and rising rapidly—very likely to two-thirds within the next decade.
- The number of groups associated with the United Nations rose from 700 to nearly 4000 in 20 years.
- Multinational corporations now control two-thirds of world trade.
- According to some research, 12 multinational corporations now sit among the world’s top 100 economic bodies.
- 31 cities are also on that list of the top 100.
- By 2030, about 60 percent of the world’s population will live in cities.
- By 2030, the global middle class could top 5 billion, up from 2 billion today.
- Risks
- Deep linkages amplify contagion; crises can spread rapidly (example: mortgage markets in suburban America precipitating the global financial crisis).
- Communications revolution can become a vector for discord or intolerance.
- A more integrated but more fragmented world increases the difficulty of reaching consensus and raises risks of indecision and insecurity.
Tensions in economic sustainability — long-term impediments and statistics
- Overview: Longer-term impediments highlighted are demographics, environmental degradation, and income inequality.
- Demographics
- In 30 years time, there will be about two billion more people on the planet, including three quarters of a billion people over the age of 65.
- By 2020, for the first time ever, there will be more old people over 65 than children under 5.
- Almost three billion people—half the global population—are under 25 today.
- Projections and shifts:
- India expected to surpass China in population in coming decades.
- Nigeria expected to surpass the United States in population in coming decades.
- Policy implications: Need for improved education, job creation, strategic planning for technological change (internet revolution, smart machines, high-tech product components), and managed migration policies to balance pressures and social cohesion.
- Environmental degradation and climate change
- By 2030, almost half of the world’s population will live in regions of high water stress or shortage.
- Example impact: some estimates suggest that forty percent of the land now used to grow maize in sub-Saharan Africa will no longer be able to support that crop by the 2030s.
- Energy subsidies and taxation:
- Both direct subsidies and the loss of tax revenue from fossil fuels ate up almost $2 trillion in 2011.
- These subsidies largely benefit the relatively affluent more than the poor.
- Policy implication: Get prices right (phase out energy subsidies, properly tax energy use) to reduce harm today and spur investment in low-carbon technologies.
- Income inequality
- Seven out of ten people in the world today live in countries where inequality has increased over the past three decades.
- According to Oxfam, the richest 85 people in the world own the same amount of wealth as the bottom half of the world’s population.
- In the US, inequality is back to where it was before the Great Depression, and the richest 1 percent captured 95 percent of all income gains since 2009, while the bottom 90 percent got poorer.
- In India, the net worth of the billionaire community increased twelvefold in 15 years—enough to eliminate absolute poverty in this country twice over.
- IMF policy stance: Fiscal systems can reduce inequality through progressive taxation, improved access to health and education, and targeted social programs; these policies create political resistance and require courage.
- Gender dimension:
- International Labor Organization estimate: 865 million women around the world are being held back.
- If women participated in the labor force to the same extent as men, the boost to per capita incomes could be:
- 27 percent in the Middle East and North Africa,
- 23 percent in South Asia,
- 17 percent in Latin America,
- 15 percent in East Asia,
- 14 percent in Europe and Central Asia.
- Policy implication: “Daring the difference” — enabling women to participate on an equal footing is a major global economic opportunity.
A new multilateralism for the 21st century — proposals and policy recommendations
- Core proposition: Renewed commitment to international cooperation and multilateralism—putting global interest above narrow self-interest—is the necessary response to both currents.
- Preserve and modernize existing “hard” institutions (United Nations, World Bank, World Trade Organization, IMF) and make them fully representative of the changing global economy.
- Strengthen and utilize “soft” instruments (e.g., G20, networks of non-government organizations) so they complement hard institutions; value quick dialogue and inclusiveness.
- Specific domain-level recommendations:
- Openness: Renewed commitment to openness and mutual benefits of trade and foreign investment.
- Monetary cooperation: Collective responsibility for managing an international monetary system that has evolved far from the old Bretton Woods arrangements; monetary institutions should cooperate and be mindful of cross-border impacts.
- Financial system reform:
- Build a financial system that serves the productive economy rather than its own purposes.
- Jurisdictions should seek advantage only when the greater global good prevails and within a regulatory structure with global reach.
- Financial oversight must clamp down on excess while ensuring credit flows to where it is needed.
- Industry should take co-responsibility for system integrity; culture should be valued as seriously as capital.
- Shared responsibility in addressing climate change and inequality:
- Engage all stakeholders—governments, cities, corporations, civil society, private citizens—to combat climate change.
- Coordinate on tax and regulatory policies to avoid harmful competition (e.g., race-to-the-bottom on corporate taxes that could exacerbate inequality).
- Institutional roles and IMF contributions:
- IMF examples during the recent crisis:
- 154 new lending commitments,
- disbursed $182 billion to countries in need,
- provided technical assistance to 90 percent of member nations,
- membership: 188 countries.
- The new multilateralism must be inclusive, agile, decisive in the short term, and oriented to long-term global perspectives.
- Cultural and ethical emphasis: Instill a broader sense of social responsibility among all players and promote a global civil market economy.
Conclusion
- Historical framing: Contrast the 1914 breakdown with the 1944 Bretton Woods “multilateral moment”; invoke Keynes: “if we can so continue, this nightmare…will be over. The brotherhood of man will have become more than a phrase.”
- Imperative: A new multilateralism is non-negotiable to manage hyperconnectivity and long-term sustainability challenges and to pave the way for future generations.
Source: "A New Multilateralism for the 21st Century: the Richard Dimbleby Lecture" By Christine Lagarde, Managing Director, International Monetary Fund (February 3, 2014).