A Public Address by Christine Lagarde

A Public Address by Christine Lagarde

(dramatic music) – We, the world, must stand together. We can achieve that greater
prosperity that will benefit all not just a fortunate few. Willing the championship of growth and inclusive globalization
requires teamwork and collaboration around the world. – Please join me now in
welcoming tonight’s guest, Madame Christine Lagarde and
professors Nicholas Burns and Larry Summers. – Doesn’t that video make
you all want to go work for the IMF? And one of the great
privileges you would have if you went to work for
the IMF was being led by my good friend Christine Lagarde. Christine and I met
first about a decade ago when she was the minister
of finance of France. She has had a truly extraordinary career. We at the Kennedy School
like to talk about multisectoral careers and that
is what Christine has lived. Graduating from school in
France and also attending school in Washington DC,
Christine was on the French synchronized swimming
team and also graduated from law school. She went to work at Baker
McKenzie at that time, and I believe still today,
the world’s largest law firm, and the world’s most
geographically diverse law firm. Many people went to work at that law firm, very few became several
decades later its leader. Christine Lagarde was
the leader of the world’s largest law firm and
the first woman to lead the world’s largest law firm. Having led that law firm
with great distinction, she entered politics
in France in the middle of the last decade. Served in a number of ministries, made great progress as a minister, starting with fisheries
and ending with finance. Which at least in my view
constitutes great progress. And being the minister
of trade in between. As the minister of finance, Christine shared key
European financial groups and did much to set the
stage for the 2011 summit which did a great deal
to organize the global financial recovery. It is a remarkable
tribute to Christine that when the IMF rather suddenly
needed new leadership after a scandal it would be
normal to turn to someone from a different country than the country that had produced the scandal. But sometimes merit trumps normality. The world needed a person
of extraordinary probity, it needed a person at a very tense time who would be a deft political leader, it needed someone who
at a moment of growing challenge to internationalism would be an effective and charismatic communicator, and it needed someone who everyone would trust and respect. And there was one such person. And that was Christine
Lagarde and that’s why she became the managing
director of the IMF in 2011 and that’s why after, IMF managing directors
serve for five years, but after about three
and three quarters years, she was chosen to serve a second term and she is now embarked
on that second term and the world is a better place for it. I will only say one other
thing about Madame Lagarde. I had occasion two or three years ago when the Greek controversy
was at its boiling point, when it seemed like the
European finance ministers were meeting every week
to yell at each other, to say to a friend of mine who was present for those meetings, I said what’s it like
when this eco fin meets and deals with Greece, we Americans never get to be in the room, what’s it like? And the response I got
was very interesting and very revealing. They said, well, usually,
it’s kinda like what you’d imagine a college
debating society would be, there are a lot of people
strutting and trying to show how clever they
are and nobody’s really trying to solve the
problem and they’re all just yelling at each other and seeing how late they can stay up and
it’s really very unproductive. And then sometimes the
managing director of the IMF Christine Lagarde attends and then there’s an adult in the room and
they don’t always find a solution but then they’re kind of moving together with some sense of purpose. And that’s what doesn’t happen
when she’s not in the room and does happen when she is in the room. That’s what international
institution leadership needs. We are very fortunate to
have had Christine Lagarde here all day at Harvard and
have had her participate in several classes and we
are very fortunate that she has chosen this podium
to present a set of remarks laying out the IMF’s
view of the world economy as the annual international
financial meetings are scheduled to take place
early, actually late next week. So, let’s all welcome Christine Lagarde. (applause). – I don’t know many people
who could in the course of one day introduce you twice and change the narrative yet being loyal
to the person he introduces. That’s Larry. So, thank you so much for
that generous introduction. Dean, dear Nick, dear
friends because I see quite a few of you in this room. And all of you attending
this event and giving up watching the Red Sox win
the game tonight I hope, it’s really delightful
to be here with you. So, I want to start with
recognizing that we’ve just gone through a tough period of time. From the horrific tragedy in Las Vegas, the ongoing humanitarian
crisis in Puerto Rico and other parts of the Caribbean, to the two successive
earthquakes in Mexico City, it has been a difficult week. But coming here today and
talking to some of the students, listening to them as well
is certainly rejuvenating and giving me confidence
that we should have the ability together with your energy and your sense of public service, to address some of the
most difficult problems. So, thank you very much for inviting me. Thank you for inviting me in early October and not in the middle of January. And I was walking through
the beautiful lawns of your buildings and the refurbishing and construction I know
that but still beautiful, I was thinking of cycles. Seasons like this. The moon cycles. If there are any Chinese in the room, Happy Moon Holiday. And also the economic cycles. My key challenge in
economic cycles is trying to gain perspective on what
comes next while you are in the midst of that cycle. So, if we step back a
bit, what might we see? Well, we would see that the
long-awaited global recovery is taking hold, it’s taking roots. In July, the IMF projected
a 3.5 percent global growth for 2017 and 3.6 percent
global growth for 2018. And next week as indicated
by Professor Summers we will be holding our annual
meetings and it may well be that this forecast will be a little bit better than that. That’s good news number one. Good news number two measured
by GDP, nearly 75 percent of the world is experiencing an upswing. It is the broadest-based
acceleration in a decade. And that means that there are more jobs, we are improving conditions in
many places around the world. Not so good news though
is that the recovery is not complete. And some countries are
growing way too slowly. We have at the moment more
than 47 countries where growth is actually negative
on a per capita basis. And for far too many people
across all types of economies, low income, emerging, advanced economies, they’re not still feeling
the benefits of the recovery. Added to that it has also
exposed long-running weaknesses in our ability to adapt
to technological change and to global integration. And that persistent low
growth in the decade since the global financial
crisis has put a spotlight on the problem of excessive inequality. And as a result of that
combined, our social fabric is fraying, and many
countries are experiencing increased political polarization. Here and there and beyond. So, here is the question. Can the world seize the
opportunity of this upswing of our economy to secure the recovery and create a more inclusive growth that actually works for all? Fortunately, I came to the Kennedy School and have found some
inspiration from your namesake. I’ll only abuse it twice. I promise because you’ve
heard it many times over. Addressing Congress in
1962, about a year after the United States
emerged from a recession, and that’s the reason I’ve
picked that particular quote, President Kennedy said, I
quote, “Pleasant as it may be to “bask in the warmth of
recovery, the time to repair “the roof is when the sun is shining.” So let’s just explore that idea. And you would all agree
that the sun is shining, it’s been shining the whole day today, so it’s beautiful. But is it shining on the economy? Well we have seen in
most advanced economies a cyclical pick up in
not just consumption, we have seen that but
in investment and trade. This is particularly the
case in Europe and Japan. And has led to better
than expected growth. US forecast has been fluid
in light of the economy’s actual performance and changing
prospects for tax reform. However, the likelihood for this year and the next is that growth
will be above trend. Meanwhile Asian emerging
markets led by China and India have remained strong. And even in other emerging
and developing economies, the outlook has become a bit brighter, including among commodity
exporters in Sub-Saharan Africa and in Latin America. Not quite the same story
for the non-exporters of commodities and for those countries that have very limited resources. Financial conditions across
economies have given borrowers new opportunities to fund investment and hopefully repair balance sheets. The most recent news that
we’ve heard from the ECB in particular is in our
view quite fortunate. But there are clouds on the
horizon as we saw today. From high levels of
debt in many countries, to rapid credit expansion in China, to excessive risk-taking
in financial markets. You have an idea of the kinds of clouds that we have on the horizon. And all of this comes against a background of heightened non-economic
risks and challenges, from weather-related disasters
in the Caribbean and beyond to heightened geopolitical tensions, notably on the Korean peninsula
and in many other places as my good friend Ash would attest. So, yes, we are seeing
some sun break through, but it’s not a clear sky. There are small clouds on the horizon and probably darker
clouds beyond that which is me referring to the medium term. So there are two possibilities to address the current situation. Either you sit back, you
relax, you bask in the sun and in the warmth and you
wait for the next crisis to operate the changes
which you know are necessary because you think to
yourself easier when there’s a crisis looming. I was a former finance minister, it is much easier to proceed that way. You’ll become much more popular. Championing change,
professor, as you indicated in your class this morning,
is a difficult task. Particularly when things
are getting better, particularly when people and countries and policymakers suffer
from fatigue of having conducted programs of
recovery after programs. But just because something
is politically difficult, does not mean that we
should shy away from it. And again I’m going to quote him. Remember what he said
during the space race. I’m also referring to my
son who is desperately trying to get us out in space. “We choose to go to the moon
in this decade and to do “the other things, not
because they are easy, “but because they are hard.” But it is part of that
spirit that should drive us to actually recommend, conduct, lead and implement the changes
which we believe are necessary. That second path, that
better path is actually to approach this moment
as an opportunity to make the changes that will enable
prosperity for the long run. And we believe that it
is the right thing and the right time to do so. Added to which IMF
research has demonstrated that reforms are more potent and easier to implement when economies are healthier. My grandmother used to say, everything is better with butter. She had gone through the Second World War and there wasn’t much butter around, but everything is better
with growth, much easier. Look at just each and every issue. And intuitively, irrespective
of what my grandmother used to say, it makes sense. It is less complicated to
change intelligently a tax code when incomes are rising or
to update labor laws when an economy is getting
close to full employment. So my key message is we
should not let a good recovery go to waste. Because we know what can happen
if we let the moment pass. Later on growth will be too
weak, jobs will be too few, safety nets will be unable
to handle aging populations, our financial system will be
unprepared for future shocks. If we are not convinced we
need to just look back at what happened prior to
the financial crisis. Boats were rising, situation was fine, and yet there were things
that should have been done, that we should collectively
done at the time that we didn’t bother doing. But to put it in Kennedy’s terms, when the sun is shining,
we must repair the roof. And how can we do that? What tools do we need to repair that roof? To make sure that growth,
jobs, the financial system, the social safety net,
the pension schemes, that all that works better longer. I think we can start with fundamentals. Inflation is still too
low and remarkably subdued despite near-full employment
in many advanced economies. That’s a bit of a mystery. You know that Phillip’s curve
that you’ve heard about? Not quite what we would have expected. One of our chapters in the publications that will be released in a week’s time actually explore that. So, we take the view that
monetary policy should continue to support the recovery. At the same time, easy
financial conditions can create complacency in markets and a
buildup in vulnerabilities, including in particular
private sector debt which is another topic that we explore in our soon to be published research papers. Central banks in our view
should communicate their plans very clearly and execute
monetary policy normalization smoothly, as appropriate in each country. I’m not suggesting that
the same monetary policies that have been applied
by all key central banks in the last few years
should continue as is, it is going to be country specific, it is going to be economy specific, and it will depend on the performance of those economies and the
mission of their central bankers. But that imperative of
communicating and telegraphing what is coming, being attentive
to the spill over impact of those decisions and
the spill backs into domestic economies,
that is a common factor to all of them. And it will help avoid market turbulence and a sudden tightening
of financial conditions that could derail the recovery. Now, of course, and we
have said that repeatedly and we will say it again, monetary policy is most
effective when complemented with sound fiscal policies
that promote long-term, sustainable growth. Countries with healthier public
finances such as Germany, the Netherlands, Sweden, or
Korea can use this moment to invest more, including in particular in their own economies. And to those who say well,
their economies are doing fine, no investment is needed. I would challenge that. In all of those economies,
actual investment is needed and would improve the
productivity factors. In places where public debt
on the other hand is too high, governments should use
the opportunity of growth to reduce debt relative to GDP and strengthen their resilience. Containing public debt
is also an imperative for many lower income
countries where debt levels have risen markedly in recent years. Including in those countries
where debt had been forgiven under the HIPC programs. Reducing excessive global
imbalances which includes investing more where fiscal
positions are healthy and lowering deficits elsewhere
can actually support growth and avoid financial and
exchange rate instability. Which ultimately will be good
for all of those countries including those in surplus. At the same time, we know
that monetary and fiscal tools can only take us so far. And we keep talking about
the three pronged approach. We need the whole toolkit,
including the structural reforms, to fully repair the roof. Now I know, structural reforms. We always talk about structural reforms. What is it? Well, that’s where the toolkit
is not exactly helpful. Because for each and every economy it is going to take different
forms and it is going to require different approaches. In one country it will be the labor market which has not been sufficiently reformed or deeply reformed. It might be the unemployment
benefits system, it might be the labor active policies to help people get to the job market. In other countries it might
be a service industry. It’s going to vary for
each and every country. And I would suggest that
the first approach is to lift incomes and create jobs. That should be the
imperative and the objective for those structural reforms. The second recommendation
would be to invest in people’s futures and
fostering inclusive growth. So, in the largest economies,
overall productivity growth, has been lagging and it
has dropped to about .3% down from a pre-crisis
average of about one percent. That means that, despite
technological advances, wages in many places are only inching up. Boosting productivity, a
factor of lifting wages, requires, among other
things, cutting red tape, increasing spending on
research and development, and investing in infrastructure. In some countries, wages are
being limited by weak demand, reflected in still too-high unemployment or involuntary part-time unemployment. So increasing demand can
help lead to higher wages. Again that’s a full chapter that will come to publication next week
which is fascinating. We also need to look at
ways to create new jobs and this is where labor
market reform comes in. Have policies worked around the world? Well, that’s what we examined. There are different policies
for different places. In Spain for instance,
the labor market reforms has actually led both
employers and employees to give up some workplace flexibility. In Mexico, revised rules
allow young people to more easily enter the formal
job market and gain access to health care and other benefits. In Japan, childcare leave
benefits were expanded from 50 to 67% of salary as part
of a larger effort to get an additional one million
women to the job market. By the way, and those
of you who know me well, making sure that women can
contribute to the economy and empowering them, giving
them access to finance is just a no-brainer from
an economic point of view. (applause) And although it’s fairly
artificial because it’s only based on
speculations and modelization in many ways, but if
there was similar access to the market for both men and women, GDP in the US would be up by five percent. Not much, but not bad either. And in Egypt, up by 37, sorry 34%. As I said, each and every
country will have its own approach and its own
prescriptions and will have to have ownership of those measures. All this brings me to
my second area of focus, investing in people’s future. Over the past three decades
economic inequality between countries, between countries,
has declined sharply, led by the rise of emerging markets such as China in particular and
India to a lesser extent. But if we look at
inequality within countries, especially some advanced
economies, we see widening gaps and an increased concentration of wealth among the top earners. IMF research has shown that
excessive inequality hinders growth and hollows out a
country’s economic foundation. It erodes trust within society
and fuels political tensions. We know that inequality
is often cemented through disparities in school and
access to health care. The good news is that
many countries are working to change that narrative. In India, health care access
has been expanded with clear benefits for the poorest citizens. In South Korea, bonuses are
being offered to encourage teachers to work in
underperforming schools. In the US, more is being
done to increase the number of women studying science,
technology, engineering, and mathematics. More needs be done. 13 years ago, on this
campus, a young man invented a social media platform that
would connect the world. But do you know what, the next Mark Zuckerberg
need not come from Harvard. He might, granted, he might. But with the right
investment in education, she could come from the
south side of Chicago, or from Sri Lanka, or from Senegal. This is not it. We see the world change
and this long life cycle, education and training
talked about is something that we will see and we will participate and should participate in. Germany’s apprenticeship
program much talked about has served as a model for
decades and a recent Canadian initiative showed that
on-the-job skills training can be more effective
than classroom learning. If you decide to do
life long cycle learning in Singapore you automatically have access to a life long grant. Just an idea. This moment also calls on us
to prepare the future of work. The rise of automation
could exacerbate inequality as owners of technology gain efficiency but lower-skilled workers lose jobs. At the IMF, we are looking
at the pros and cons of ideas that might help from unorthodox concepts like universal basic income
to mainstream policies such as more progressive taxation. In 1981, the average top marginal tax rate in advanced economies was 62%. In 2015, it was 35%. Am I advocating that we
go back to the 62%, no. But new IMF research, which
will be released next week, suggests that some advanced
economies could raise their top tax rates without slowing growth. Worth considering. These ideas can support our
efforts to repair the roof. And yet, there is one more
tool that I have not touched yet and that will close my remarks. Many of the challenges
that I have referred to require not just domestic solutions, they must be country tailored. Some of them must be region tailored. But most of them require global approaches and cooperation. Think about corruption, where
the IMF recently committed to do more to help its members. Bribery alone costs more
than 1.5 trillion dollars, that is two percent of GDP. Then there is embezzlement,
there is corporate income tax evasion, not just tax
optimization, evasion, money laundering, terrorist financing, all problems that have
cross-border dimensions and that can leverage technology. Or consider financial regulation. The Financial Safety Board and
other institutions have made significant progress since
the crisis to strengthen the safety of the global financial system, especially through higher levels of bank capital and liquidity and mechanisms to actually resolve banks. While yes, some of those
regulations require some review and yes there
might be fine tuning and there might be adjustment
required for smaller banks. Yet we must make every
effort to keep the safety and the sanity that have been put in place as a result of these global
mechanisms and rules. Cooperation on all these
challenges can help rebuild trust with skeptical citizens,
especially if we prove that cooperation translates into
more jobs and a brighter future. Look at trade, for example. Over the last 30 years, trade
has raised global growth and lifted hundreds of millions
of people out of poverty. And yet many people have the perception that trade is associated
with destructions of jobs, with disruption of territories, and that effectively trade has not really impacted positively our societies. While protectionist policies
are counter-productive, steps can certainly be
taken to improve the system, to increase transparency, and
to make trade work for all. One final example where
cooperation is needed. So, corruption, financial
regulation, trade are three key ones. Let me add a fourth one which
is in our view critical. And that is climate change. A threat to every economy
and every citizen. Differently impacted
depending on where you live, what geography you benefit
from or suffer from. Our estimates suggest that a
one degree Celsius increase in a country with an
average annual temperature of 25 degrees, that would
be Bangladesh by the way, could reduce per capita
GDP by nearly 1.5 percent. But Bangladesh and similarly-situated
countries cannot meet those challenges by themselves. Only international cooperation can stem the man-made causes of global warming. And that again is a
fascinating study that we will be releasing next week
where we see that the impact on climate change will
result from cooperation because those suffering
from it most have not much to do with it. And those suffering less
have caused most of it. So, what is the bottom line? Policymakers should use
all tools at their disposal to act now, and take advantage of this period of global growth. As I said, let us not let a
good recovery go to waste. And in our view cooperation
remains the best way to create a more prosperous
future for every nation. It’s not going to suffice,
we will still require domestic action and
policies at national levels. But I believe that the IMF
can serve as a platform for dialogue and a resource
for countries seeking to build more resilient economies. So we are part of the toolkit. We are one of the few
forums where people should have not only their
vested interests at heart, but also the collective good. That is the message
that I try to underscore with the membership, 189 of them, from the biggest to the smallest. So, I started my remarks by mentioning my walk through the campus and
how it sparked my thinking. I am certainly not the
first French citizen to find a little wisdom in New England. In fact, one of my favorite writers, the one that I read back in 1972 before I came for the first time to this country, was Alexis de Tocqueville. De la démocratie en
Amérique and a few others. I think he would quite
enjoy the town hall forum that you have created here at Harvard. He once wrote, “What is not
yet done is only what we “have not yet attempted to do.” Now, Napoleon perfected
that a few years later by saying that “Impossible
of course is not French.” well let us draw inspiration
from the words of (inaudible) as well as from the enduring
message of President Kennedy and use this season of transformation to actually repair the roof
while the sun is shining. Thank you very much. (applause) – Christine, thank you,
Madame Lagarde, thank you very much for that very
thoughtful and important speech for next week’s annual meetings. I’m Nick Burns a professor
here at the Kennedy School. I’m very pleased to be
co-moderating this session with my friend Professor Larry Summers. Larry and I share, in
some circles, a radical belief and that is that
the type of economic diplomacy that you just
witnessed and the type of diplomacy that Christine
has practiced for many years is as important to our country as well as all other countries as arms control, border disputes, or the endless political debates that we witness
at the United Nations. I say that as a non-economist, I say that as a former diplomat, that economics is the enabling power. That those of like our
great friend Ash Carter who’s come back to Harvard
after being a very successful Secretary of Defense. Ash couldn’t have had and
sustained the great military without a sound American economy. And we in the State
Department couldn’t practice traditional diplomacy successfully. So, for that reason
we’re combining our two programs into a program
of economic diplomacy from the Mossavar-Rahmani Center that Larry and John Hague direct to the Future of Diplomacy Project that we’re involved with
at the Belfer Center. Christine’s our very first visitor. We have Penny Pritzker coming
in two and a half weeks and Mike Frohman. Of course, Mike Frohman of the late great Trans Pacific Partnership and
the USEU Free Trade Agreement. And our hope is that
our students are going to be inspired by the wisdom
and the careers of people like Christine so let us thank her again for being here. (applause) So, we thought we would
take the prerogative of the co-chairs and each
ask maybe a question or two very briefly of Christine,
then we’ll go to you, the audience, I’ll give
you some instructions to where the microphones are. And Christine I listened
very carefully to the end of your speech, your whole speech, but I was struck by the end of the speech where you talk about the importance of corruption, fighting corruption, of climate change, of a
future of (inaudible), of the empowerment of women. I don’t think I can
imagine the IMF managing director of 20 or 30 or 40 years ago who would have said to this audience that in addition to the core mission of the first part of the speech, this for you is part of
the 21st century agenda. I just wanted to know
if you agree with that and maybe embellish that a little bit. – Well, Nick, number one, I
don’t want to be dismissive to any of my predecessors and colleagues. And yet I think that you are probably true or you are probably correct
because some of those issues were not as obvious or as critical as they are today. And I’m hesitating between
obvious and critical because I believe that of all those that you’ve mentioned, climate
change, corruption, the empowerment of
women, and inequalities, I think most of them were there, probably not as visible, and it may well be that the last 10 years of low growth and difficult
economic circumstances have brought that to the
fore and made them more difficult and all of us
more attentive to them. I also think that the
IMF to coin an expression by Larry, it’s mostly fiscal, has evolved a little bit over the course of time and I hope to have helped a bit with that. To suggest that it has
been easy all the time and that it is anchored
and definitely where it is and where it should be going forward, I’m not sure because
in a way it’s far more comfortable to look at issues
and to look at monetary policy, fiscal policy,
a bit of macroprudential at the margin, and structural reforms to the extent that it impacts on financial stability and growth in general. And not to pay too much
attention to other topics and not to really ask the question of whether it is macro critical, whether it is going to
have a significant impact on those economies in and
of themselves and globally. So, I think we have done that collectively at the IMF and I think it
was the right thing to do and we will continue
doing so in spite of some conservatism when I began
about those emerging issues. I personally don’t think
that they are emerging. I think they are more visible now but they have been there a long time. Another economist as wise as Larry could have a view on that as well. I don’t know if you agree with me. – I agree with you on
that but I’m gonna bring you back to more conventional
economics if I could for just a second. The recurring theme in your speech was we’ve got a really
good recovery and we need to not waste it and we
need to take advantage of it to do things. And maybe we do have
a really good recovery but at least a question
that many people might have would be this, every major central bank in the industrialized world
has an inflation target of two percent. It’s kind of easy to
measure what markets think inflation’s gonna be and
they think it’s gonna be pretty far short of two percent,
more or less everywhere. It’s pretty easy, you
know, expected inflation, you can look at index bonds,
look at nominal bonds, sort of one and a half
percent for 30 years in the United States and
it’s much lower than that in Europe and in Japan. If you look at the
(inaudible) people think it’s got something to do with
the demand for investment and the supply of savings. It kinda looks like there’s
gonna be a lot of savings and not much investment cause
it’s pretty close to zero on a global average basis. So, at least the bond
markets seem to be saying how long is this recovery
really gonna run? Maybe we need to put
the pedal to the metal and get on the accelerator harder. And I’m a little confused
about where the IMF is. Is the IMF on well, you
know, this is the moment for central banks to
reduce their balance sheets because they’ve gotten really big and now we have a recovery
and this is the moment for governments other than Germany and the Netherlands to
have fiscal consolidation because we don’t want to overheat? Or is this the moment
when the IMF wants us not to be complacent and
assume that the recovery is to be taken for granted and
keep the pedal to the metal with macro economic policies so that this recovery for sure stays strong. And I’m a little unclear
kind of where the IMF is on that sort of large scale issue. – More the latter than the former, Larry, which maybe I wasn’t clear enough. So, you give me a chance to clarify. On the monetary policy
front, what we’re saying is that if we take the big ones, the Fed, the ECB, Bank of Japan, Bank of England, apart from the Fed which very gradually, slowly, wisely, well telegraphically has begun withdrawing
from the accommodative monetary policy and has begun to slightly raise the rate and we
believe this is appropriate in view of what’s
happening on the employment market and to a certain
degree on the inflation front which at least for the
short term is closer to two than the longer term
based on the expectations that we can foresee. But apart from that one, we support continued accommodating monetary policy out of the other ones. I think the case of the Bank of England, I don’t want to be too specific about the circumstances there
because it’s in flux because of the Brexit situation. But certainly as far
as the ECB is concerned and the Bank of Japan is concerned, we support continued
accommodative monetary policy. That’s number one, number two our fiscal message is subtle. We are saying that those countries that are in clear surplus
or close to surplus should definitely take advantage of that to invest and to use their fiscal space. Even though for some
of them the outward gap is virtually closed or already closed. And those economies might take the risk off a little overheating if need be and certainly have years
where they can invest and improve their factors of productivity. In other countries,
that’s where it’s a little bit more tricky because
for those economies where the debt direction is clearly up and in very high territories we believe that it’s not time to
have any fiscal expansion and it’s time to at least stabilize and try to reduce their
deficit in order to address the excessive debt issue that they have. Having said that they can
also make sure that their policy in terms of fiscal
space is growth friendly. So, for all of them they
should have a growth friendly fiscal policy. – So, I can’t resist, so
recognizing that a tax reform that reformed the tax system in directions to promote growth is
good in the United States and recognizing that more
public investment is good, what would the IMF view be
of the prudence of a combined set of tax measures that
would raise projected budget deficits over 10 years by, just to pick some numbers
that I heard somewhere, by one and a half to $2.2 trillion? Would the IMF think that
such deficit increasing tax cuts were well or poorly
advised for the United States? – Well, in that sort of
dystopia country of yours, a tax reform that would
significantly increase the deficit now and in
the foreseeable future, given the coming up
liabilities in that country in three, four, five
years, we would not think that it is particularly advisable. Which doesn’t mean to
say that no tax reform is needed in that
dystopia country of yours, quite to the contrary. We believe that a good tax
reform is absolutely needed and has been needed for a long time. – But a deficit enhancing
tax reform would be problematic in your view, – Correct. – Particularly, and just
to make sure I understood one other thing you said, you cited IMF research
which I’m familiar with and inclined to find persuasive, suggesting that there
would be no ill effect from raising top tax rates substantially back from their current level. – But not to the 62%. – Not to the 62%, but substantially up. Would I be right to
think that if you think there’s no adverse affect on growth, then it would probably
be logical to assume that you regarded the
view that cutting taxes at the top would stimulate so much growth that it would pay for itself in terms of reduced deficits that you’d probably regard that as nonsense? I mean if tax breaks
don’t affect growth at all then it’s kind of hard
to see cutting tax rates could pay for itself. – Well, because I don’t
have enough details yet about that tax reform
in your dystopia country of yours I’m not going
to pass judgment on that. – Extraordinarily diplomatic
in the way that I described. – And Larry cause we’re not
trying to get her in trouble tonight, we’re gonna go to
student questions in a minute. But I wanted to bring you
back, Christine, to what was explicit in your
speech and that’s a focus on equality, implicit in this speech, and that is that
globalization is under attack. I know you spoke in
Larry’s class this morning on globalization, but if
you look at the Brexit vote, the Trump phenomenon in 2016, even the recent German
elections, concern over refugees, immigration, inequality, how do political leaders
and managing directors of the IMF, how do we
all, speak to the public about the need for some
global and multilateral institutions to knit the world together to confront climate change and trafficking of human beings and drug and crime cartels and fight corruption? It doesn’t happen just
because national governments want it to happen. we need organizations like yours. How do you speak about that when you’re out talking to people? – First of all I think
that we need to speak the truth and we need to
explain what our findings are and we need to distinguish
between what is a result of international trade,
what is a result of transformation of technology,
what is attributable to corruption, how we can
address all these issues. And to actually have
this sort of baggage word called globalization is deceptive. And has certainly led a
lot of people to attribute to globalization all the
hardship that they go through. I think that’s number one. Speak the truth, analyze exactly
what the connections are, and what leads to what. That’s number one. Number two, equally if not more important, we collectively, and when I say we, it’s not an international
institution like the IMF, or it’s not just policymakers, it’s also educational institutions,
it’s also nongovernmental organizations, it’s
all of us collectively, we need to anticipate and
we need to see who is taking a hit, who is suffering and
what can be done about it. Because yes, there are regions,
there are parts of the world where it’s hurting, where
people don’t have a job, where people don’t have
hope, where people feel that they have lost their dignity. And where policies need to be implemented, where the whole system needs to focus and to try to help. Now that’s looking at
consequences of the past that we have not focused on. I’m more concerned about another one which is coming down the
road which is the impact of technologies and the compounded effect of technologies coming together where more and more people, not just
in some scattered region, not some in certain set of skills, not in some countries,
but where people across will feel disenfranchised,
will feel excluded, will feel left out and
there was a fascinating piece in one of the
orange newspapers today about the Uber drivers around the world and how they feel that
they are transformed into androids because
they, driving directions, approaches, pick up,
turn right, turn left, these are entirely determined
outside their own will and determination. That’s only a little
thing and down the road there will be much more of that. So, we need to prepare
for that so that those who feel excluded by
international trade today, and who feel that trade
doesn’t work for them, do not feel in two, three,
four, five, 10 years time that technologies no
longer work for them either and they’ve lost their
autonomy, their dignity, their sense of having a
direction and a destiny. So, I think we need to anticipate that and educational institutions
have a huge responsibility in that respect. – Thank you. Thank you for your remarks, thanks for answering our questions. Now we have a tradition here that students and our guests have a
right to ask questions. We have two mics on the floor, we have two mics in the first balcony. Just a few rules, let us know your name, what you’re studying
here if you’re a student, please be brief, please
make sure at the end of your question there’s a question mark actually attached to it and we’ll try to get as many questions in as we can before we have to retire. Yes, please. – [Student] Hi, I’m Henry,
I’m a junior at the college studying math and my
question is, how do you see the economy changing with
the rise of cryptocurrencies like Bitcoin and what role
should the IMF play if any? – You know it’s a
difficult question because these cryptocurrencies whether
they’re called Bitcoins or others are clearly in
the process of development at the moment and they are
supported by technology which in not only my
view, the view of the IMF, but the view of many of
the financial institutions at the moment, the distributive technology will be used to actually
conduct drive support transactions in the much
safer, more efficient, and more anonymous way
which can have huge benefits which can shorten speed
and better guarantee the protection of those
conducting those transactions. And that is the good side of it. There’s another darker side of it which clearly has been picked up
by the Chinese authorities lately which have to do
with this Ponzi like scheme which was put in place on the occasion of this initial coins
offering which clearly have to be under control,
regulated, scrutinized, and fraud be avoided by the supervisors and the regulators. But I would suggest that
this is a moving moment, not a moving moment, there
are moving components through that whole debate between the distributive technologies. The definition of monetary policies, the fate of an international
currency like (inaudible) which I have floated
and flagged about a week ago in London which we are
going to further explore, but I think we should be
prepared for significant changes going forward. There were days when nobody
believed in the bank notes, the paper money, and when countries moved to the assignat in my
country it was just totally disregarded and considered
as monkey money, but that has massively changed
in a matter of decades. I think there is an acceleration process that is in play at the moment. But I equally think that
we should be super careful and not just jump to the latest fad assuming that this is going to be the currency of the future. – Yes, sir? – [Student] Hello, I’m
(inaudible), I’m in the MPA ID program here at the Kennedy
school, I’m in my second year. And I wanted to ask you a
little about female leadership. There was an article in
the Harvard Business Review last year that was talking to
law firms about how they pick their next generation and the law firms would pick men from tier one schools, were picking women from tier two schools with the idea that women
from tier two schools might be better performers than women from tier one schools. And in kind of a broader sense it could be that women who come from less traditional backgrounds might be
better be suited as leaders and I was just gonna ask you
what did you think about that? – One, I haven’t read
the article and I’m a bit disconnected from the
law firm world nowadays, but I think what you’re
touching on is the issue of recruiting origin of
the staff, the talent, the associates that
institutions or firms recruit and whether coming from a
top tier school, university is sufficient passport
to get to the top jobs. And my response to you is
no it is not any longer. That’s my very strong belief. Because I believe in diverse employment and diverse work force
and because I believe that being trained in the same format, in the same mold and with
the same sort of clonic as well as clanic environment
is not necessarily conducive to leadership
so I would certainly not turn my nose up to second
or third tier educational background for the sake of selecting only the first tier background. I think that talents have
to be measured against merits and against a
track record and against opening of mind, willingness
to work, willingness to lead, willingness to take risk,
willingness to have courage. That’s my take on leadership. – Thank you. Yes, sir? – [Student] Hi, my name’s (inaudible) and I’m a student at Harvard College. My question’s about the
impact of technology on global growth, specifically
on service based jobs. Machine learning and AI
threaten to take away a lot of service based
jobs like driving for Uber or for trucking which takes up a million or a million and a half
jobs in the United States. Do you think that there
will ever come a time when the IMF will have to
advocate for a universal basic income because of that and how will that lead to more antagonisms against, for protectionist policies
against global integration, specifically with trade
and the view that trade’s a zero sum game? – You’re putting so many things together. One, on the universal basic income, we are publishing next
week, the fiscal affairs department of the IMF is publishing a really interesting study and the IMF is not taking a view that UBI is the thing to do or is not the thing to do. And we’re trying to
identify in view of what is happening on the job market and the transformation of work and
the space that is being taken over by the
combination of data mining, artificial intelligence,
and those technologies that we refer to, with
that as the background where jobs will be transformed massively, we are looking at this
universal basic income and the circumstances,
conditions under which it would eventually make sense. So, just to put it squarely on the table, we’re not saying it’s
good or it’s not good. We’re saying there are circumstances where it should be considered
and could be considered. It’s a debate that’s been
going on for a long time which is, you can find
people on both sides of the argument from
completely different background and sometimes different
ideologies as well. But the value of the study is to look at the conditions under which it
could very well be appropriate and a more efficient way of transferring support and benefits to
people than sometimes targeted programs. Okay, so that’s for UBI. The other questions that
you raised are just huge. Forgive me if I speak as
not necessarily the managing director of the IMF but a
former and a reformed lawyer who specialized in anti-trust issues. I believe that anti-trust competition law is in serious need of
massive overall review and transformation
because of what you said. Because you said, because
of the services penetration of all our economies,
because of the intangibility of so many of the economic
values and creations that abound at the moment. Look just at the value developed by one of the GAFAs, I don’t know
if it’s called GAFAs here, but G stands for Google, A for
Amazon, and F for Facebook, and I think the last A is probably Apple. Think about the value that they produce, their market caps, and think about where they start from, what is the raw material that they use and how they get it. Think about the market share
that they drive and expand. Anti-trust and competition
laws have to evolve as a result of that and
the thinking, the rational, the mechanisms that we
used to use no longer apply to those and that’s a fantastic field for maybe for here at
Harvard because I suppose that if you combine the excellence of some of your best lawyers and the excellence of some of your best economists, you can arrive at
redefinition of those fields. – Thank you. – Yes. – [Student] Hi, thank
you for joining us today. It’s a really a pleasure
that you are able to spend the evening with us, thank you. My name is (inaudible), I’m
a first year MPA student. My question has to do with
the birth of the women’s empowerment movement which
was rooted in the principle of transforming gender
subordination, breaking down oppressive structures, and
creating this potential for political movement. As we’ve moved towards
the Western definition of the woman and of the girl which perhaps risks us to victimize and
diminish their role in society, where we seek technical solutions towards healthcare and education and financial, access to financial
tools, how do we transcend this myopic and rigid definition
of women’s empowerment which is I think largely conceived as women’s economic empowerment today? – So, how would you define it
if it was properly defined? – I think there is a large
space that is unquantifiable at least in our current world
around cultural contribution, societal contribution, beyond
space in the workforce, religious contribution, that is very hard to tangibly quantify. And I don’t mean to
undermine the value that women’s economic
empowerment has to the role of women’s empowerment,
but how do we move back to political mobilization as a key tenent of women’s empowerment? – Well, political mobilization
is going to be your responsibility and I’m sure
that you will take it up. I’ll tell you something,
because of the amount of progress that is
needed, because of the size of the gap that we see, I
am very interested in making sure that we can quantify the gains out of women economic empowerment
which is a combination of access to the workplace,
dealing with health issues, appropriate parental
leave, access to finance, elimination of legal
discriminations that abound in about 90% of the countries
in the membership of the IMF. Because if we can quantify
it then it makes the case much more convincing for
those, and there are still a few of those, who
have just zero interest in that particular matter
who are actually terribly bored when they hear those noises. But not so bored when
you say actually it can increase GDP, it can
improve the bottom line, and it’s going to be a
much, much more efficient result and outcome for you even from your narrow minded perspective. So, I would continue to
fight for that for myself. And I trust you will continue
for the rest as well. – [Student] Thank you. – Yes, sir. – Thanks so much for being
here and for your time. I am (inaudible) a first year MBA student and yesterday I attended a
speech by Mr. Romano Prodi that was here, it was a
previous European Commission president and he say
that we live in a time, you were talking about the shining time, we have the sun and so on, but he say that actually we live in a time in which we have a lot of authoritarian movement, we see in US, we have seen in
Spain, we’ve seen in Germany with the last election, and
we’ve seen in other countries, and in Italy at the next election. So, he said all the government
now, the local government, do not have the time to think long term. They can only think of
action on the really short term basis (inaudible) to reduce surplus for Germany
will be seen really bad by their country. So, my question is how the supernational institution like IMF, ECB should enforce or if they have to enforce new policies to support the local countries
in doing these reforms because they don’t have the
possibility to do these alone. – You know, I’m not
surprised that he is making this argument and he’s right. I was a politician for a short
span of my life, six years, and it is true that your
temporal horizon is very short and very limited. If you’re a civil servant, if you serve the administration,
it’s a different story, but if you’re elected
or if you’re appointed for as long as your president
or your prime minister is in position, it’s
a short period of time and not one when you can
actually effect changes. My humble view being that
you can actually determine, rally support around that determination, then implement and make
sure that it sticks. It takes about five years. That’s the minimum period of time. There are not many governments that have a life of five years. So that’s a really big issue
where you have conflict between the length of
time it takes to reform and implement the reform
and the length of time you have on your shelf as a politician. So, the only thing we can
do, because we cannot enforce things, we only have traction in case we design a program with a
country and we actually have the (inaudible) of
the disbursement of funds. But in all other circumstances,
we cannot enforce. We can recommend, we can model,
we can give best practices, we can try to simulate
what the consequences of such policy rather than
such other policy will be, we can refer to 70 years of
past experience for ourselves, and we can plead, we can
cajole, we can encourage, but that’s all we can do. And then it’s up to the
courage of the leaders to actually ignore that
threat that is hanging over their horizon of
the next term election to the benefit of what is the right policy for my country and the welfare
of my people and beyond. That’s another more difficult thing, too, which is the subject of the surplus. A country who has just
closed the outward gap which is running this big surplus. You can sing or belly dance as long as you want, that is going to be helpful for the community, if you’re
a politician back at home, that’s not very convincing. Because the community
out there is not going to vote for you. So, you need to find
that common denominator that is going to help
the overall community and what it will contribute
to the domestic forum in which those policymakers
will be elected. – So, we’re supposed
to have finished by now but there’s so many students
that want to ask questions, we’ll try to get in a couple more. We’re gonna go into extra
innings, is that okay with you? – Yeah, that’s a baseball term, right? – That’s exactly right. And if anybody has a Red
Sox score just signal us. They should be through now. But we’ll go to this question right here. – Thank you so much and thank you for your time Madame Lagarde. My name is Ted (inaudible), I’m a senior at the college and in your speech and actually in this last question you talked about policies
that a country should consider or that you’ll
plead with them to consider, but in a lot of countries
the IMF uses conditional lending to impose structural adjustment and austerity programs
regardless and especially countries in the global south regardless of whether those people want
them and what that means is that in for example Zambia,
you can have a democratic election, the government is thrown out and actually the economic
and fiscal policy isn’t gonna change at all because it’s not being made in Lusaka,
it’s being made in your office at an institution that’s unaccountable to people in Zambia or anywhere else. And what some might call a
metropole in Washington DC. So, is this kind of undemocratic
imposition of policy, isn’t it unfair, isn’t it neocolonial, and wouldn’t you say it
actually undermines confidence in democracy and in the
international cooperation that you say is so
vital to economic growth in the coming decades? – Thank you. Thank you because what
you have just described will never work. In other words, those reforms,
those conditionalities that your refer to, if they
are cooked in my office, as you say, ignoring
the Zambian government and without any regard to
the Zambian population, and without any care for the
ownership of that program back at home, it will fail. And the way in which
we are trying to work, it’s not perfect, but that’s the way we’re trying to work now. Is to make sure that we
have in place conditions, always difficult because if it was easy, the IMF wouldn’t be there. We are only called upon to operate because the situation is extremely difficult, because the local government
or the policymakers have not had the courage
to make the right decisions in due course because they
did not manage public funding as they should have, because
they let things happen that completely damaged
the economic situation of the country. So, if it wasn’t difficult
we wouldn’t be there and it is because those
measures are difficult that they need to be adopted and owned by the authorities
communicated to the people. I’ll give you an example. I’ll give you the example of Egypt. I don’t know if there are any
Egyptians in the room here, you are. It took us quite a lot of time to be able to agree a program with
the Egyptian authorities. Because it was necessary
that the Egyptian authorities from the highest level to the
central bank governors level to the civil society levels as well, could actually understand
the value, the direction, and the worthiness of this program. When you decide to de-peg the currency and float the currency, in order to avoid the central bank waste the
reserves of the country, it has to be decided by
the authorities themselves. As I said I can sing and belly
dance as long as you want, if I’m the only one to believe
that it’s not going to work. So, in the case of Egypt,
we finally reached agreement and the authorities own that process. They own the determination to
remove the subsidies on fuel that were not targeted,
they own the decision of having de-pegged and
having floated the currency and as a result having
generated some inflation that will ultimately go down. It is difficult. All these decisions are really difficult and they are risky in many ways. But they are the solutions to actually restore situation that was
totally out of control. Now, an interesting
example that I mentioned one of the classes that
I taught this morning with your professor is
in the case of Egypt, we paid attention to the
safety net, to the social safety net that people needed. And there were subsidies
that we said shouldn’t be touched and we agreed
with the authorities. And we also said what
about women (inaudible) in the economy? Based on our study you
could improve the GDP of Egypt by 34% if women
had equal access as men to the economy. And we actually designed in
agreement with the authorities elements of the budget that would help and protect women to go to work and that would help them with childcare centers. So, we’re trying to be mindful as well but it’s never going to work if it’s not owned and designed by the authorities. Not pleasant, not easy,
courageous decisions. But that’s the only way it can work. – Thank you. Apologies to all the students waiting. We have time for just a quick question, and answer then we have leave. – My name is Judy (inaudible), I’m also a first year MBA student
at HBS across the river. I’ll make this question very quick. You yourself and a couple
other people who have asked questions have
referenced the fact that quite often governments have
quite a short horizon and therefore that can
influence their ability to actually implement policies that are good over the long term. From a business background, I’m curious as to what your views are on the role of business in solving these issues, your interactions with businesses, thinking about social enterprise, impact investing, and
the scope that they have for actually pushing forward a lot of the things that you referenced rather than focusing on the
disruption they’re causing, maybe the scope there is
for actually (inaudible). – You’re talking so fast
I’m not sure I actually understood because he said
short question but you had this big question so you
put all the words into one. Your concern is what is
the role of the business community, what is the
role of the private sector? – Just that I feel like a
lot of the conversations around business so far in the questions have focused on the
disruption that is caused to communities and countries, but I feel like we’re not focusing enough on the good that they can
do, thinking about impact investing, social
enterprise and I just wanted to get your view on the role they play, the role the IMF plays in attracting business more than governments perhaps. – You know, one of the key
conditions for business to be interested in investing
whether it’s development of existing investment locally or whether it’s foreign direct
investment into a country, whether it’s participating
in the privatization that is sometimes decided on the occasion of those programs, what’s
critically important is macro economic stability. So, when we try to
procure that to a country and to give investors some stability and some horizon in terms of taxation, in terms of revenue collections, in terms of general business environment and friendliness of it all, we are trying to
participate in their success which is conducive to jobs and development of activity and innovation and hopefully productivity and trade. I mean they are integral,
quintessential players in these economic developments. I hope I did not convey
anything that would go to the contrary. I was in the private sector for 25 years of my productive life. – Thank you for your questions and please join us in thanking Christine Lagarde. (applause)


  1. "We need at least 2% inflation." Why?  What is wrong with lower prices?  We are facing extinction due to climate change caused by excessive consumption, but we still "must have economic growth".  Why?  We want to "empower women" – so they too can work for money, while we outsource child-rearing to for-profit childcare providers.   Why is that better than cutting working hours for everyone to 20 hours/week so that both parents can have a career AND one of them can always be at home with kids?  Oh, I know why.  Because kids with a parent at home would be less likely to abuse alcohol and drugs, end up in (for-profit) prison, or use shopping as psychotherapy when they become adults … and that would be BAD for the GDP.  Do "mainstream" economists keep pushing this insane "infinite-growth-forever" economic system because they are sociopaths themselves or because their paychecks are signed by sociopaths?


Leave a Reply

Your email address will not be published. Required fields are marked *