The Richard Dimbleby Lecture: A New Multilateralism for the 21st Century
Christine Lagarde
Managing Director, International Monetary Fund
London, February 3, 2014
Excerpt
Good evening. It is a great honor to be invited to deliver this year’s Dimbleby Lecture, and I would like to thank the BBC and the Dimbleby family for so kindly inviting me—and especially David Dimbleby for his warm words of introduction.
This evening, I would like to talk about the future. Before looking ahead, however, I would like to look back—for the clues to the future can often be read from the tea leaves of the past.
I invite you to cast your minds back to the early months of 1914, exactly a century ago. Much of the world had enjoyed long years of peace, and giant leaps in scientific and technological innovation had led to path-breaking advances in living standards and communications. There were few barriers to trade, travel, or the movement of capital. The future was full of potential.
Yet, 1914 was the gateway to thirty years of disaster—marked by two world wars and the Great Depression. It was the year when everything started to go wrong. What happened?
What happened was that the birth of the modern industrial society brought about massive dislocation. The world was rife with tension—rivalry between nations, upsetting the traditional balance of power, and inequality between the haves and have-nots, whether in the form of colonialism or the sunken prospects of the uneducated working classes.
By 1914, these imbalances had toppled over into outright conflict. In the years to follow, nationalist and ideological thinking led to an unprecedented denigration of human dignity. Technology, instead of uplifting the human spirit, was deployed for destruction and terror. Early attempts at international cooperation, such as the League of Nations, fell flat. By the end of the Second World War, large parts of the world lay in ruins.
I now invite you to consider a second turning point—1944. In the summer of that year, the eminent economist, John Maynard Keynes, and a delegation of British officials, embarked on a fateful journey across the Atlantic. The crossing was risky—the world was still at war and enemy ships still prowled the waters. Keynes himself was in poor health.
But he had an appointment with destiny—and he was not going to miss it.
The destination was the small town of Bretton Woods in the hills of New Hampshire, in the northeastern United States. His purpose was to meet with his counterparts from other countries. Their plan was nothing less than the reconstruction of the global economic order.
The 44 nations gathering at Bretton Woods were determined to set a new course—based on mutual trust and cooperation, on the principle that peace and prosperity flow from the font of cooperation, on the belief that the broad global interest trumps narrow self-interest.
This was the original multilateral moment—70 years ago. It gave birth to the United Nations, the World Bank, and the IMF—the institution that I am proud to lead.
The world we inherited was forged by these visionary gentlemen—Lord Keynes and his generation. They raised the phoenix of peace and prosperity from the ashes of anguish and antagonism. We owe them a huge debt of gratitude.
Because of their work, we have seen unprecedented economic and financial stability over the past seven decades. We have seen diseases eradicated, conflict diminished, child mortality reduced, life expectancy increased, and hundreds of millions lifted out of poverty.
Today, however, we are coming out of the Great Recession, the worst economic crisis—and the great test—of our generation. Thanks to their legacy of multilateralism—international cooperation—we did not slip into another Great Depression that would have brought misery across the world yet again. We all passed the test—rejecting protectionism, reaffirming cooperation.
Yet there will be many more tests ahead. We are living through a time every bit as momentous as that faced by our forefathers a century ago. Once again, the global economy is changing beyond recognition, as we move from the industrial age to the hyperconnected digital age.
Once again, we will be defined by how we respond to these changes…
…This evening, I would like to talk about two broad currents that will dominate the coming decades—increasing tensions in global interconnections and in economic sustainability. I would then like to make a proposal 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….
…Demographics and degradation of the environment are two major long-term trends—disparity of income is the third. This is really an old issue that has come to the fore once again.
We are all keenly aware that income inequality has been rising in most countries. Seven out of ten people in the world today live in countries where inequality has increased over the past three decades.
Some of the numbers are stunning—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.
With facts like these, it is not surprising that inequality is increasingly on the global community’s radar screen. It is not surprising that everyone from the Confederation of British Industry to Pope Francis is speaking out about it—because it can tear the precious fabric that holds our society together.
Let me be frank: in the past, economists have underestimated the importance of inequality. They have focused on economic growth, on the size of the pie rather than its distribution. Today, we are more keenly aware of the damage done by inequality. Put simply, a severely skewed income distribution harms the pace and sustainability of growth over the longer term. It leads to an economy of exclusion, and a wasteland of discarded potential.
It is easy to diagnose the problem, but far more difficult to solve it.
From our work at the IMF, we know that the fiscal system can help to reduce inequality through careful design of tax and spending policies. Think about making taxation more progressive, improving access to health and education, and putting in place effective and targeted social programs. Yet these policies are hard to design and—because they create winners and losers—they create resistance and require courage.
Nevertheless, we need to get to grips with it, and make sure that “inclusion” is given as much weight as “growth” in the design of policies. Yes, we need inclusive growth.
More inclusion and opportunity in the economic life also means less cronyism and corruption. This must also rise to the top of the policy agenda.
There is one more dimension of inequality that I wish to discuss here—one that is close to my heart. If we talk about inclusion in economic life, we must surely talk about gender.
As we know too well, girls and women are still not allowed to fulfill their potential—not just in the developing world, but in rich countries too. The International Labor Organization estimates that 865 million women around the world are being held back. They face discrimination at birth, on the school bench, in the board room. They face reticence of the marketplace—and of the mind.
And yet, the economic facts of life are crystal clear. By not letting women contribute, we end up with lower living standards for everyone. If women participated in the labor force to the same extent as men, the boost to per capita incomes could be huge—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. We simply cannot afford to throw away these gains.
“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. It will be their world—let us give it to them.
A Multilateralism for a New Era
I have talked tonight about the main pressure points that will dominate the global economy in the years to come—the tension between coming together and drifting apart; and the tension between staying strong and slowing down. I have talked about pressures that would have seemed familiar a century ago, and some that are entirely new.
Now, how do we manage these pressure points? Where are the solutions?
Overcoming the first tension really boils down to a simple question: do we cooperate as a global family or do we confront each other across the trenches of insularity? Are we friends or are we foes? Overcoming the second tension requires us to face common threats that are not bound by borders. Do we face adversity together, or do we build yet more borders and Maginot Lines that will be mere illusionary protections?
The response to both tensions is therefore the same: a renewed commitment to international cooperation; to putting global interest above self-interest; to multilateralism.
As Martin Luther King once said, “We are caught in an inescapable network of mutuality, tied in a single garment of destiny. Whatever affects one directly, affects all indirectly.”…
..The beauty of the new multilateralism is that it can build on the old—but go further. The existing instruments of cooperation have proven extremely successful over the past decades, and they must be preserved and protected. That means that institutions like the IMF must be brought fully up to date, and made fully representative of the changing dynamics of the global economy. We are working on that.
More broadly, 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 fabric of the global economy. The new multilateralism must have the capacity to listen and respond to those new voices.
The new multilateralism also needs to be agile, making sure that soft and hard forms of collaboration complement rather than compete with each other. It needs to promote a long-term perspective and a global mentality, and be decisive in the short term—to overcome the temptation toward insularity and muddling through.
Fundamentally, it needs to instill a broader sense of social responsibility on the part of all players in the modern global economy. It needs to instill the values of a global civil market economy—a global “guild hall”, as it were.
What might this mean in practice? It clearly means many things, starting with all global stakeholders taking collective responsibility for managing the complex channels of the hyperconnected world.
For a start, that means a renewed commitment to openness, and to the mutual benefits of trade and foreign investment.
It also requires collective responsibility for managing an international monetary system that has traveled light years since the old Bretton Woods system. The collective responsibility would translate into all monetary institutions cooperating closely—mindful of the potential impact of their policies on others.
In turn, that means we need a financial system for the 21st century. What do I mean by that?
I mean a financial system that serves the productive economy rather than its own purposes, where jurisdictions only seek their own advantage provided that the greater global good prevails and with a regulatory structure that is global in reach. I mean financial oversight that is effective in clamping down on excess while making sure that credit gets to where it is most needed. I also mean a financial structure in which industry takes co-responsibility for the integrity of the system as a whole, where culture is taken as seriously as capital, and where the ethos is to serve rather than rule the real economy…
…We also need the new 21st century multilateralism to get to grips with big ticket items like climate change and inequality. On these issues, no country can stand alone. Combating climate change will require the concerted resolve of all stakeholders working together—governments, cities, corporations, civil society, and even private citizens. Countries also need to come together to address inequality. As but one example, if countries compete for business by lowering taxes on corporate income, this could make inequality worse.
Overall, the kind of 21st century cooperation I am thinking of will not come easy. It might get even harder as time passes, when the curtains fall on this crisis, when complacency sets in–even as the seeds of the next crisis perhaps are being planted.
Yet given the currents that will dominate the coming decades, do we really have a choice? A new multilateralism is non-negotiable….
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