September 16, 2021 House of Trust

Global Economy in Transition

Prosperity. Sustainability. Security.

All rely on global economic cooperation, so how can we can we shape a more equitable and collaborative global architecture?

IMF head Christina Lagarde is chairing this panel. She kicks off by saying:

“It’s very easy to be lost in the headlines … but what we really want to do … is not focus on the headlines. So I’m not going to give you the economic outlook,” she says.

“We’re going to really focus on risks, opportunities, that are out there … I’m going to start with one which is clearly on everybody’s mind – climate change.”

The planet’s average surface temperature has risen by 1 degree Celsius since the late 19th century, she says, and most of this warming has occurred in the last 35 years.

Can the panelists explain how the world’s institutions are dealing with this issue?

Kristalina Georgieva, CEO of the World Bank, says: “Climate change is not only happening, it is happening faster than we thought it would.”

This is having a huge impact on the economy, she adds. An increase of 2.5C “shaves 15% of the global GDP”.

“It goes up to 3 degrees we lose 25% of the GDP and the cost in terms of suffering is unmeasurable,” she adds.

“So what we can do, what are we doing and what we can do more of?” she asks. “First the very obvious – eliminate harmful subsidies.

“Secondly, it is absolutely paramount that we recognize that the shift to the new climate economy is great for the economies themselves …

“We see $26 billion created in renewable energy, new mobility, low carbon mobility, low carbon buildings and 65 million more jobs as a result.

“So those who tell you, ‘oh, going to low carbon is really scary and bad for the economy.’ Don’t buy it.”

Thirdly, she says: “Help countries and communities that have done very little to continue to climate change but are already living with its consequences …

“It can be done.”

Is the private sector stepping up?

Business leaders are stepping up to the challenge, Georgieva adds. “Many companies have recognized that climate action is fabulous for their profitability and how we can help them from the policy side is by relentlessly pursuing a price for carbon,” she says.

Demographic challenges

Haruhiko Kuroda, Governor of the Bank of Japan, says his country is reacting to its rapidly ageing population, which has “economic, fiscal and financial implications.”

Japan’s government has taken measures to encourage more women to enter the workforce, and “in the last five, six years the female participation ratio has increased tremendously.”

“So while aging or demographic changes could post a challenge to the country, to the economy, to society, I do believe that there are ways to overcome and even transform these challenges into opportunities for society,” he adds.

Lagarde adds: “So ageing is a blessing from your productivity point of view, if you can invest in innovation and replace the absence with robots.”

Jobs for young people

From a country with an ageing population, Lagarde flips the discussion around to focus on Africa, a continent with a huge youth population.

Lesetja Kganyago, Governor of the South African Reserve Bank says teaching skills is essential to managing this transition.

“We will have to increase our investment in the capabilities of young people,” he says. “We’re going to have to broaden the skills base … And if you are going to broaden the skills base we are going to have to think differently about education.”

How do we deal with income inequality?

UCLs Mariana Mazzucato says: “I think the one thing economists agree on … is innovation is the key driver.

“Often we think about technology when we talk about innovation. And we forget that some of the most important technologies that we all use today across the world that are inside our smart products actually came out of trying to solve a problem.

“The technology was a spillover from actually having framed these problems in quite inspirational ways. So the internet was a result of trying to solve the problem of getting the satellite system to communicate.

And what was it that got us to the moon? “Diversity.”

“This was not just about aeronautics. You needed innovation and nutrition, textiles, there were about 300 projects which got us to the moon, most of which failed.”

So we need this “willingness to experiment, explore, to welcome uncertainty” to solve problems like making our cities sustainable, decarbonizing energy and getting plastic out of the ocean, she adds.

Georgieva moves on to the problem of extreme income inequality. “When we talk about inequality, the most I think shameful for us as a human race, a civilization is the existence of extreme poverty and hunger,” she says.

“We have seen a dramatic decline. The share of people in extreme poverty has dropped from over 40% to under 10%. But for those nearly 800 million people still living in extreme poverty, the fact that we have been successful somewhere else means nothing.

“in a growing number of countries, mainly sub-Saharan Africa … the number of people in extreme poverty has gone up … to 415 million.”

But there is a positive aspect to this story, she adds. “We have been talking with African leaders and we actually strongly believe that the weapon of choice in this war ought to be digital, and we came up with Mariana, a digital moon shot for Africa.”

This involves ensuring that “every African, every business in Africa, the small farmers, the governments are connected to the internet and use this connectivity to do what China has been able to do so successfully.

“We see digital ID as a game changer, we see e-payments as a game changer, but it ain’t going to help them unless we act decisively and collectively.”

A combination of four factors is exacerbating the region’s problems, she adds: conflict, climate change, population growth and bad governance.

“Now we clearly have to have strategy how to deal with all those four,” she adds. “But we also have to have determination and believe in the people in Africa and especially in the African women. Empower them.”

How can we make the world more cooperative?

“I would first start by restoring our trust in multilateralism because you see we have got global problems,” says Kganyago.

“Let’s take climate change. We know that it impacts the whole planet, and if we stay still about reducing emissions or that kind of thing, then we have a problem … It pulls all of us together.”

“We have a global economy but not a global government,” he adds. “Decisions have to be taken at a domestic level, but what we have seen, what you actually need is leadership at country level to embrace multilateralism and take concrete action to give effect to international agreements.”

Georgieva makes a passionate plea to hand more decision-making powers over to women. “Think of those that may be left out or behind,” she says. “And how a just transition can be successful … For that success we ought to have more women like you [Lagarde], in the high corridors of power.

“Put these decisions in the hands of women, the moms and the grandmothers and very good things will come out of it.”

*Article and Videos taken from World Economic Forum

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