Age of Ingenuity: Reimagining 21st Century International Cooperation
IMF News, December 4, 2018
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- Published: December 4, 2018
Introduction
- Eighth Henry A. Kissinger Lecture, Library of Congress, Washington, DC — Christine Lagarde — Managing Director — International Monetary Fund; Washington, DC; December 4, 2018.
- Lecture theme: creativity and long-term vision rooted in history as a basis for adapting international economic cooperation to current challenges.
I. 75 Years of Creativity & Vision in International Economic Cooperation
- Historical turning points and institutional responses:
- Bretton Woods founding (1944): creation of the International Monetary Fund and the World Bank to promote international monetary cooperation, support expansion of trade and economic growth, and discourage harmful policies.
- IMF role complementing the Marshall Plan in postwar European recovery.
- Early 1970s: Nixon suspended US dollar convertibility into gold, leading to modern floating exchange rate structure and adaptation of the IMF’s role.
- 1973 oil crisis: IMF created new tools for energy emergencies.
- 1980s Latin American debt crisis: IMF interventions to stabilize.
- Post–Berlin Wall: assistance for transition from centrally planned to free market economies.
- 1990s: responses to the Mexican peso crisis and the Asian financial crisis.
- 2008 global financial crisis: G20 and Federal Reserve actions; IMF committed over $500 billion to help secure the global economy.
- Post-2008 decade: IMF supported economic programs in over 90 countries and adapted lending instruments, including zero-interest loans for low-income countries.
- Institutional characteristics emphasized:
- Adaptability: “build on what worked, change what did not, and adapt.”
- US leadership: seen as central to forging compromise and supporting a collaborative international economic order.
- Long-run U.S. economic outcomes since Bretton Woods:
- Real US GDP increased by a factor of eight.
- The average American’s real income has quadrupled.
II. The Next Chapter: How to Reimagine International Cooperation
- Systemic shifts and risks:
- Drivers of change: geopolitics, shift in economic power from west to east, rise of non-state actors, technology acceleration.
- Data surge: “90 percent of the world’s data was created just over the last two years.”
- Interconnected risks: weapons of mass destruction, cyber-security, interconnected financial system — many challenges transcend borders.
- Two contrasting scenarios by 2040:
- Age of Anger (dystopian risks):
- “By 2040, inequality could surpass the levels of the Gilded Age.”
- Strong tech monopolies and weak governments could stifle start-ups and entrepreneurs.
- Health breakthroughs could allow the richest to live past 120, while millions suffer extreme poverty and disease.
- Social media could exacerbate the aspiration gap, fueling resentment and mistrust between nations.
- Age of Ingenuity (aspirational vision):
- “By 2040, we would see flourishing economies predominantly running on renewable energy.”
- Women fully empowered in the workforce as an economic and social game-changer.
- New pension systems and health care portability reflecting the changing nature of work in the digital economy.
- Corporations embracing social responsibility; technological advances saving lives and creating millions of jobs.
- Trade expansion and peaceful co-existence prevailing.
a. Keys to the Age of Ingenuity — Four priority areas for cooperation
- Trade:
- Urgent need to “fix the system” and “de-escalate” trade tensions.
- Policy measures recommended:
- Eliminate distortionary subsidies “whichever form and color they take.”
- Protect intellectual property rights without stifling innovation.
- Remove rents and enable new trade agreements to unleash e-commerce and trade in services.
- Improve macroeconomic policies to reduce external imbalances, including trade surpluses and deficits.
- Rationale: trade lifts productivity and accelerates innovation.
- International taxation:
- Problem: companies have worldwide presence but no worldwide tax solution; tax optimization leaves “too many tax dollars … on the table.”
- Policy measures recommended:
- Multilateral cooperation to collect owed taxes and avoid a tax race to the bottom.
- Close loopholes that lead to base erosion and profit shifting.
- Devise regulations for a digital economy where many companies have no single established base of operations.
- Purpose: funding for public investment—strengthening infrastructure, improving education, and preparing societies for technological transformation.
- Climate:
- Observed impacts: recent major hurricanes in the Caribbean; wildfires in California.
- Evidence: “A new US government study shows that the economic impact from climate change could significantly reduce America’s GDP in the coming decades.”
- Policy stance: Paris Agreement (2015) as the best toolbox to move toward a zero-carbon economy; framing climate action as survival for future generations.
- Good governance and anti-corruption (bedrock issue):
- Corruption undermines trust and economic vitality; diverts resources from education and health.
- Key statistics and findings:
- “The annual cost of bribery alone is over 1.5 trillion dollars — roughly two percent of global GDP.”
- Millennials identify corruption as the most pressing concern in their countries (WEF Global Shapers Annual Survey 2017).
- IMF engagement:
- Scrutinizing the macroeconomic impact of corruption.
- Worked with over 110 countries on improving efforts to tackle money laundering and terrorist financing.
- Policy measures recommended:
- Invest in institutions and persistently verify institutional delivery.
- Cross-border collaboration to counter illicit financial flows amplified by fintech and cryptocurrency.
- Leverage technology—biometrics, blockchain, cybersecurity partnerships with engineers—to build safer systems that protect financial integrity.
- Broader point: fighting corruption can model cooperation across trade, tax, and climate and help restore trust.
Conclusion
- Historical reflection: December 4th significance — on December 4th, 1918, President Woodrow Wilson sailed for France to negotiate a hoped-for lasting peace; a symbolic origin for creativity and visionary thinking in US foreign policy.
- Call to action:
- Build on what worked, change what did not, and continually evolve.
- Make 2019 a turning point for a new “Age of Ingenuity” centered on people, transparency, accountability, and shared gains from globalization.
- Closing exhortation: restore trust and reimagine international cooperation to build prosperity and peace for future generations.
International Monetary Fund — Age of Ingenuity: Reimagining 21st Century International Cooperation — Christine Lagarde — December 4, 2018.