Christine Lagarde, Managing Director of the International Monetary Fund, delivered a lecture in London in February on the topic New Multilateralism for the Twenty-first Century. This lecture is important for its messages concerning the need for new multilateral approaches to the challenges of demographic change, the environment, and inequality. Ms. Lagarde began the lecture with a reference to the world in 1914 and the series of disasters that occurred in the following thirty years, including World War I, the Great Depression, and World War II. Much of the world had enjoyed years of peace before 1914; progress with scientific and technological innovation led to advances in living standards and communications; there were few barriers to trade, travel, or the movement of capital. However, modern industrial society brought about massive dislocation; rivalry between nations upset the traditional balance of power; inequality between haves and have-nots was exemplified by colonialism and the status of the uneducated working classes. By 1914 these imbalances, driven by nationalist and ideological thinking, resulted in unprecedented conflict and denigration of human dignity. Technology was deployed for destruction and terror, and by 1945 large parts of the world lay in ruins.
Fortunately, 1944 proved to be a significant turning point, when John Maynard Keynes went to Bretton Woods as leader of a British delegation to meet with representatives of 43 other nations to create a plan for the reconstruction of the global economic order. The basic concept agreed at Bretton Woods set a new direction for the global economy. Based on mutual trust and cooperation, this new economic order aimed to achieve peace and prosperity through placing the broad global interest above narrow nationalistic self-interest. Bretton s provided the inspiration for the United Nations, the World Bank and the International Monetary Fund. As a result, the last seventy years brought economic and financial stability, with conflict diminished, hundreds of millions of people lifted out of poverty, certain diseases eradicated, child mortality reduced, and life expectancy increased.
The last few years have seen the emergence from the worst economic crisis since the Great Depression. Although severe, this crisis was contained due to multilateralism and the spirit of international cooperation, rejecting protectionism and reaffirming cooperation. The future will bring new challenges to economic stability as the global economy changes from the industrial age to the digital age and as global power shifts and tensions emerge. World trade has expanded exponentially over recent decades; in a world of integrated supply chains, more than half of total manufactured imports and more than 70 percent of service imports are intermediate goods and services, reflecting the fact that a manufacturing company today might utilize inputs from about 35 different contractors around the world. Financial links between countries have increased substantially; in the two decades before the 2008 financial crisis international bank lending as a percent of GDP rose by 250 percent. Stronger trade and financial connections can bring tangible benefits to millions of people through higher growth and convergence of living standards. The communications revolution can be a potent force for good as it empowers people, unleashes creativity and spurs change. An important current trend is the shift in global power from west to east, and from north to south. Fifty years ago, emerging markets and developing economies accounted for about a quarter of world GDP; today they account for about half of world GDP. These trends will produce a more diverse world of increasing expectations and demands, together with a greater dispersion of power, resulting in higher living standards, greater freedom, dignity and justice.
Looking ahead, it will be essential to manage the global economy with due regard to the triple challenges of demographic change, environmental degradation, and income inequality. In 30 years time, there will be about two billion more people than today, including about three quarters of a billion people over age 65; young populations in Africa and South Asia will increase sharply while Europe, China and Japan will age and shrink in population size. Environmental degradation will be accompanied by pressures for adequate water, food and energy supplies; climate change could affect the world’s most vulnerable people, particularly in sub-Saharan Africa. Income inequality is rising in many countries; in the United States the richest one percent captured 95 percent of all income gains since 2009, while the bottom 90 percent got poorer. A severely skewed income distribution harms the pace and sustainability of growth over the longer term, leading to separate economic environments for the privileged and the excluded. The response to these challenges requires a stronger commitment to a new multilateralism, not only through organizations such as the United Nations, World Bank, International Monetary Fund, and World Trade Organization, but also through groups such as the G20 and various networks of Non-Governmental Organizations (NGOs).