Lagarde speaks on global economic outlook at Kellogg School of Management at Northwestern University
9/29/2016 - International Monetary Fund (IMF) Managing Director Christine Lagarde, in her "curtain raiser" speech at the Kellogg School of Management at Northwestern University in advance of the IMF and World Bank annual meetings next week, called for a more "inclusive" global economy to counter anemic growth that has been "too low for too long, benefiting too few."
Describing the current environment of low economic growth, low inflation, and low interest rates as "the new mediocre," the managing director called on governments to cooperate and, ideally, coordinate their fiscal policies and economic programs.
Today, many countries have "gone back to their old ways" of acting on their own domestic priorities, Madame Lagarde said. While stressing that today is "nothing like [the financial crisis] of 2008," which required a prompt and coordinated fiscal response, the current environment of low growth "could prove just as toxic."
"This requires a more sophisticated and coordinated approach. The principle is simple: if all countries act decisively to stimulate their own growth, the positive spillovers can reinforce what each and every one of them is doing," Madame Lagarde said.
"Do No Harm"
Speaking before an audience of students, faculty, and academic and business leaders, the IMF managing director echoed the mandate given to students entering medical school: "First, do no harm." Continuing in that vein, Madame Lagarde called trade restrictions "a clear case of economic malpractice." Trade barriers and restrictions do not help the sectors they are meant to protect; rather, such restrictions "would deny families and workers important economic opportunities, wreak havoc on supply chains, and raise the cost of many basic goods."
"We must reverse the trend toward protectionism," the managing director said. "We must protect trade rather than protect against trade."
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Hosting the IMF in a major policy speech was a first for Northwestern and Kellogg, but continues the legacy of bringing to its stage distinguished global leaders, including President Barack Obama
and former Federal Reserve Chairman Ben Bernanke
. In welcoming Madame Lagarde, Sally Blount, dean of Kellogg, highlighted the critical role of the IMF today, and also honored Madame Lagarde as a "role model to many of us on many, many dimensions"—a woman who has "broken many glass ceilings."
Taking the stage, the IMF managing director acknowledged Dean Blount’s influential role as a female leader of an elite business school and recalled her previous comment: "In today’s world, sticking with the status quo can be even riskier than striving for change."
As Madame Lagarde observed, such change can be seen among emerging and developing countries, home to 85 percent of the world’s population, where there has been "more progress for more people than at any time in history." She also noted there have been decreases in child mortality and absolute poverty, and increases in life expectancy and school enrollment. While many of these gains can be linked to success in China, there has been "a broader trend of economic convergence between the poor and rich nations"—although "not as fast as it should be."
Educating Girls—A Global Priority
One of the most potent ways to address inequality, especially in the developing world, is educating women and girls. "If I had a spare investment to make, I would invest in the education of girls," Madame Lagarde said. While at the UN General Assembly last week, she added, several global leaders referred to themselves as feminists and acknowledged that empowering women is not only morally right, but also an economic "game changer."
While her remarks had a positive overtone with hopes for what can be accomplished, Madame Lagarde cautioned that global economic recovery remains "weak and fragile," and the outlook for overall growth is subdued:
- The U.S. economy has recovered for some time but had a setback in the first half of 2016, which will lead to a downgrade in the IMF’s U.S. forecast.
- In the Euro area, growth remains sub-par, although economic activity is now holding up under strain from high debt and weaknesses among a number of banks.
- Japan also has seen a small rebound, but will need to implement difficult reforms to maintain momentum.
- Emerging and developing economies, which have been driving the global recovery since the 2008 financial crisis, will continue to contribute more than three-quarters of total global growth this year and next.
While portraying expanded trade across the global economy as positive overall, the managing director acknowledged that, along with the benefits of growth and economic expansion, there is an impact on some whose jobs are eliminated or disrupted by changes in the global economy. Madame Lagarde described as a "good investment" programs to help workers displaced by offshoring, outsourcing, or new digital technologies. In the U.S., the IMF has advocated for raising the minimum wage. and extending the earned income tax credit as measures to help low-income workers adapt to dislocation.
"These are not silver bullets – none actually exist – but if we want to keep globalization alive for the next generation, there is no alternative to ensuring that it works to the benefit of all," she added.