Economic Possibilities for My Grandchildren
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- Authors: KRISTALINA GEORGIEVA
- Published: June 3, 2024
Framing and historical context
- Central question: How can we build an economy that benefits not just this generation but also those that follow?
- Inspiration: John Maynard Keynes’s 1930 essay “Economic Possibilities for Our Grandchildren” and its optimism about technological innovation and capital accumulation.
- Historical outcomes highlighted:
- Global population has quadrupled over the past century, while per capita global income has risen eightfold.
- Over the past three decades, 1.5 billion people lifted themselves out of poverty, and hundreds of millions entered the middle class.
- Dramatic improvements in life expectancy, infant mortality rates, literacy rates, and education levels—especially for girls.
- Over the past 40 years, global trade expanded sixfold.
- Global capital flows rose more than tenfold.
- Bulgaria: per capita income has quadrupled since the fall of the Iron Curtain, largely due to EU integration and global trade.
- Current inequalities and failures:
- Some three-quarters of the world’s wealth today is owned by just one-tenth of the population.
- More than 780 million people face hunger.
- Many developing economies are no longer catching up to advanced economy income levels.
Two 100-year scenarios (IMF staff projections)
- Low-ambition scenario:
- Global GDP would be about three times larger than today.
- Global living standards would be twice as high as today.
- Scenario based on the lower-growth experience of living standards in the 100 years before 1920.
- High-ambition scenario:
- Global GDP would be 13 times larger than today.
- Global living standards would be 9 times higher than today.
- Scenario based on the higher average growth rates from 1920 until now.
Key priority investment areas
- Overall prescription: allocate capital to where it has the greatest positive impact—toward more sustainable and equitable growth—and strengthen international cooperation.
- Climate economy:
- Urgent need to mobilize trillions of dollars for mitigation, adaptation, and transition.
- Market failure: polluters damaging the planet free of charge; pricing carbon is the most efficient accelerator of decarbonization.
- Numeric climate indicators:
- Average price per ton of carbon dioxide emissions today is $5.
- Target price needed by 2030 is $80.
- Carbon pricing programs now cover a quarter of global emissions (a doubling since 2015).
- Investors’ spending ratio: for every $1 spent on fossil fuels, $1.70 is now spent on clean energy (compared with a ratio of 1:1 five years ago).
- Expected benefits: millions of green jobs, increased innovation, accelerated green technology transfer to developing economies, potential to break the historical link between growth and emissions.
- Next industrial revolution (technology and innovation):
- Technologies listed: quantum computing, nanotechnology, nuclear fusion, virtual reality, new vaccines, gene therapy, and artificial intelligence (AI).
- AI potential and risks:
- IMF research: in advanced economies, about 60 percent of jobs could be affected by AI.
- Of those, half may see benefits from AI tools, while the other half may be rendered obsolete.
- Risks include higher unemployment and downward pressure on wages; need to mitigate “technological unemployment.”
- Policy actions: scale up investment in digital infrastructure; expand access to retraining and reskilling; develop global principles and guardrails for responsible use of AI.
- Investment in people:
- Focus on health, education, stronger social safety nets, and economic empowerment of women.
- Demographic dynamics:
- Africa is home to the youngest and fastest-growing populations and by the end of this century its share of the global population is set to reach close to 40 percent.
- Regions such as Europe and East Asia are rapidly aging and some are shrinking.
- Mobilizing capital for Africa:
- Attract long-term investors and ensure stable trade flows.
- Improve business environment, raise more revenue, and eliminate inefficient spending.
- IMF research example: by building tax capacity, low-income countries could boost their annual budget revenues by up to 9 percent of GDP.
Multilateralism and international cooperation
- Argument: stronger international cooperation is essential to achieve sustainable, equitable progress and to address borderless challenges like climate change.
- Call for “21st century multilateralism”:
- More open to fresh thinking and more representative—better balance between advanced economies and emerging market and developing economies.
- Update multilateral institutions, including the IMF.
- IMF’s recent contributions (institutional role and capacity):
- Since the pandemic, IMF has injected about $1 trillion in liquidity and financing into its 190 member countries.
- Introduced programs for emergency financing and direct debt relief for the poorest members.
- Macro work now includes focus on climate, gender, and digital money.
- The IMF is positioned to provide impartial analysis and advice, conduct “health checks” on economies, and serve as a platform for global economic cooperation and knowledge transmission.
Policy recommendations and actions for this decade
- Reinforce sound macro fundamentals: price stability, sustainable public debt levels, and financial stability.
- Open trade and entrepreneurship to boost growth and jobs.
- Reduce income inequality to support higher and more durable growth (IMF research linkage).
- Climate policy:
- Mobilize trillions for climate investment.
- Implement carbon pricing to correct market failure and accelerate decarbonization.
- Technology policy:
- Invest in digital infrastructure.
- Expand retraining and reskilling programs.
- Establish global principles and guardrails for responsible AI.
- Development policy:
- Attract long-term investment to developing regions, especially Africa.
- Build tax capacity to expand domestic revenues (potentially up to 9 percent of GDP for low-income countries).
- Promote better public spending allocation to free fiscal space for social investment.
- Institutional policy:
- Renew and update multilateralism to be more representative and fit for the 21st century.
- Use IMF’s convening and analytical roles to foster cooperation and disseminate sound economic policies.
Source: Economic Possibilities for My Grandchildren, KRISTALINA GEORGIEVA, June 2024.
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