The Role of Business in Supporting a More Inclusive Global Economy

IMF News, October 10, 2016

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Context: Address to the Conference on Inclusive Capitalism, New York, October 10, 2016.
Overall message: Global growth remains subdued; inclusion is essential for durable growth and social trust.
Key policy levers identified: monetary, fiscal, structural policies to support demand, boost productivity, and reinvigorate trade; investing in social safety nets, education, and retraining.
Role emphasized: Policymakers cannot act alone—business must "step up" as creators of jobs and growth.

Findings and observations:

Global growth issue: "We are stuck in a protracted period of low growth: 2016 marks the fifth consecutive year with global GDP growth below its long-term average."
Public trust metrics:
- Trust in large U.S. companies: "stuck at a lowly 18 percent for a decade." [1]
- Trust in banks: "fallen from 49 percent ten years ago to 27 percent today." [2]
Millennial attitudes: "over half of millennials will not work for an organization if they are concerned about its standard of conduct." [3]
Corporate behavior matters: ethical executive behavior correlates with stronger ethical culture at firms. [4]
Executive compensation structure affects risk: IMF study shows structure (linking pay to long-term performance) can reduce risk-taking. [5]
Tax avoidance and secrecy (Panama and Bahamas Papers): significant revenue losses—no reliable estimates provided in the speech—but described as eroding trust and short-changing society.
Corruption: private sector has role in reducing public-sector corruption by refusing to pay bribes.

Policy recommendations and actions for leaders:

Make values as important as valuation; culture as important as capital.
Link compensation to long-term performance to reduce risk-taking.
Stamp out tax evasion and aggressive avoidance to restore trust and protect public revenue for pro-growth investments (education, health, environment).
Businesses should refuse to participate in bribery to curb corruption.
Encourage philanthropy and responsible corporate support for employee giving (example: Gates Foundation’s Giving Pledge—"since 2010 more than $365 billion has been pledged by 139 high net-worth individuals").

Key statistics:

Global unemployment: "the ILO estimates total global unemployment at 199.4 million this year—rising to above 200 million next year." [6]
Gender legal obstacles: "Removing legal obstacles to women’s economic participation—which exist in an astonishing 90 percent of countries—is also key."
Corporate board impact: "adding one more woman on a corporate board is associated with between 8 and 13 basis points higher return on assets." [7]
Youth unemployment: "the number of unemployed young people is projected to rise by 500,000 worldwide this year—to a total of 71 million." [8]
Human capital utilization: "on average, just two-thirds of young people’s human capital potential is utilized." [9]

Findings:

Women are underemployed and underpaid relative to men; empowering women has macroeconomic benefits including growth, diversification, and lower income inequality.
Skills mismatch: employers and youth often find new graduates are not ready for entry-level jobs (McKinsey finding cited). [10]

Policy recommendations and employer actions:

Support public policies that empower women:
- In emerging/developing countries: invest in girls’ education, promote broader access to finance, strengthen infrastructure.
- In advanced economies: remove secondary earner tax disincentives, provide affordable high-quality childcare, fund paid parental leave.
- Remove legal obstacles to women’s economic participation.
Employer-level actions to empower women:
- Support flexible working and parental leave.
- Facilitate childcare arrangements.
- Provide mentoring and coaching by female role models.
Address youth unemployment via skills development:
- Collaborate with education providers; expand vocational education and industry–higher education partnerships.
- IMF advocacy examples: calling for more vocational education in the U.S.; calling for an increase in the federal minimum wage. [11]

Findings:

Debate on technology and inequality: technological innovation can both exacerbate inequality (job displacement, wage pressure) and create new opportunities (app economy, gig economy).
Need to address concerns with policy: invest in skills and social safety nets to manage dislocation.
Financial inclusion as a high-potential area for private-sector-led innovation; IMF empirical work and the Financial Access Survey underpin this view. [12]

Examples of innovation promoting inclusion:

Mobile money in sub-Saharan Africa:
- In 15 countries of the region, "the number of mobile money accounts exceeds the number of depositors in commercial banks."
- Kenya’s M-PESA: operated through a private telecommunications provider, offers nationwide coverage independent of traditional banks and helps expand women’s access to finance.
Mexico: a large consumer retailer opened a bank in 2012 aimed at serving the unbanked by requiring less documentation and leveraging parent-company data—resulted in thousands opening bank accounts and research indicating employment and income increased.
Chile: supermarket chains build credit histories by issuing small store credit and expanding based on repayment, widening access to credit.

Policy and private-sector roles:

Governments: create enabling environment (consumer protection laws, financial education).
Private sector: harness technology to expand tailored financial services and products to underserved populations.

Inclusive growth and higher growth are complementary priorities; business plays three key roles: leading, employing, and innovating.
Call to action: move beyond promises to decisive measures—"The ball is in your court."
Closing quote (Woodrow Wilson): "You are not here merely to make a living. You are here in order to enable the world to live more amply, with greater vision, with a finer spirit of hope and achievement. You are here to enrich the world, and you impoverish yourself if you forget the errand."

Source: Speech by Christine Lagarde, Conference on Inclusive Capitalism, New York, October 10, 2016 — IMF Communications Department