I had a very thoughtful discussion with Kellogg students on current economic trends, women in leadership, and more pic.twitter.com/eXR57jrkuU— Christine Lagarde (@Lagarde) September 28, 2016
International Monetary Fund managing director Christine Lagarde called for governments to prioritize free trade in order to boost economic growth in a sold-out lecture to Kellogg students on Wednesday morning.
Referencing the “anemic” levels of growth in the global economy in the past six years, Lagarde’s speech highlighted some of the key issues that the IMF will focus on in its 2016 World Economic Outlook in October. Lagarde’s “curtain raiser speech” to the 1,000 people in Cahn Auditorium set the tone for the annual meetings of the IMF and World Bank that start on October 7 in Washington.
The key problems facing the global economy are anchored by the low levels of growth that have lingered since the 2008 recession. Dropping commodity prices have hit the Middle East, Sub-Saharan Africa and other commodity-exporting regions hard. India and China, two of the major developing economic powers, are undergoing structural reforms that will make their economies more stable long term at the expense of growth rates in the short term, Lagarde said. Terrorism and the ongoing refugee crisis create another layer of economic uncertainty that is hard to “quantify, let alone mitigate,” Lagarde said.
“These economic problems are more subtle and varied than the recession and therefore require a more sophisticated and coordinated approach,” Lagarde said.
The favored approach of the IMF centers on free trade and tackling inequality. Lagarde points to rising economic inequality in advanced countries as a sign that governments must make more of an effort to make growth inclusive. Citing a “three-pronged” approach of coordinated fiscal, monetary and structural policy that would reallocate spending toward infrastructure and growth without expanding the budget, Lagarde emphasized that debt-financed spending on infrastructure has been shown to double its impact on GDP. The IMF strongly warns against trade protectionism, with Lagarde repeatedly denouncing it as “economic malpractice.”
“The task at hand is to take the right macro policy decisions and maintain economic openness,” Lagarde said. “Getting everyone a bigger piece of the pie means the pie has to get bigger.”
Lagarde’s prognosis for developing countries is decidedly more optimistic. Citing economic convergence between poor countries and rich countries, particularly China, as a driving force behind rapid development, Lagarde acknowledged the significant progress that has occurred.
“In the last 20 years, we have seen more progress for more people than at any time in history,” Lagarde said. “Child mortality is down, life expectancy is up, absolute poverty declined significantly and school enrollment is on the rise.”
The IMF, which was originally intended to ensure global financial stability and to keep profligate governments in check, has pushed toward more responsible development practices in the five years since Lagarde took over. The first female head of the institution, Lagarde called greater female empowerment “an economic no-brainer.” In its analysis of the United States economy in 2016, the IMF recommended a higher minimum wage and more effort in getting workers made obsolete by outsourcing retrained. In her speech, Lagarde called for greater public investment in education.
“I don’t think they’ve expanded from their core mission,” Kellogg Associate Dean Matthew Merrick said of the IMF. “Educating young women is a proven method to deliver economic growth, and I’ve seen that myself.”
Lagarde lived on Randolph Street in downtown Chicago for six years as the chairman of legal firm Baker & McKenzie. To end her speech, Lagarde quoted one of the athletic heroes of the city she “once called home,” Michael Jordan.
“‘Talent wins games, but teamwork and intelligence win championships.’ Winning the championship of growth and inclusive globalization requires that talent and teamwork around the world.”