Christine Lagarde: A New Multilateralism for the 21st Century The Richard Dimbleby Lecture

Tonight, in the splendour of Guildhall, one of the most powerful

people in the world, Christine Lagarde, Managing Director of the

International Monetary Fund, delivers the Richard double by

lecture. (-- Richard Dimbleby Lecture.

APPLAUSE Good evening. Welcome to London's

Guildhall and to this programme, the annual BBC lecture, which was named

in memory of my father, the broadcaster Richard Dimbleby to

honour his work as a pioneer on radio and television. The idea of

this lecture is to give someone, prominent in public life, a chance

to explain their ideas in full, in their own time, without being

interrupted by interviews, dare I say it, it doesn't happen that

often, but it does tonight. We've had speakers, ranging from President

Bill Clinton, to Terry Prachett, Bill Gates, to James die son. --

Dyson. We've had politicians, inventorsers -- inventors, lawyers

and tycoons. Tonight's speaker is someone whose life is spent

grappling with the global economy, how to help its prosper and prevent

its imploding to the ruin of us all. She is the managing direct O of the

IMF, the International Monetary Fund, Christine Lagarde. Now the IMF

was set up at the end of the Second World War to try to ensure global

economic recovery and long-term stability by using the strength of

successful economies to help those that got into trouble. We ourselves

went cap in hand looking for their help in the economic crisis back in

1976. Christine Lagarde was born in Paris. She was brought up in, as a

teenager she won a place in the national synchronised swimming team,

which stands her in good stead for her role today. She sometimes says

in times of crisis it's useful to know how to stay under water and

hold your breath. She began her professional life as a lawyer. She

was the first woman chairman of one of America's largest international

law firms. Then ten years ago, she was tempted into French politics. In

due course, scoring another first as the first woman Finance Minister of

France. Then just under three years ago, she was elected to her present

job as Managing Director of the International Monetary Fund. She

took over in the middle of the global financial crisis from which

we still haven't recovered and with some European economies on the verge

of meltdown. She brought to this job of reconstruction the skills of an

experienced practitioner of politics and of policy, someone renowned for

her cool head and her persuasive manner. She is the first woman to

head the IMF and perhaps it's worth just mentioning her own view of the

role of women as leaders. She told the Harvard business review, certain

characteristics are predominant in female leaders like the ability to

listen, the desire to form a consensus, and an attention to risk,

which is why, I think, women are good leaders in times of crisis.

Would you please welcome Christine Lagarde.

APPLAUSE Good evening to all of you. It is a

great honour to be invited to deliver this year's Dimbleby

Lecture. I would like to thank the BBC and the Dimbleby family for so

kindly inviting me, especially you, David, for your very kind words of

introduction. You didn't forget anything.

LAUGHTER Including the sin conised swim --

synchronised swimming. I would like to talk about the future. But before

looking ahead, however, I would like to look back. For the clues of the

future can often be read from the tea leaves of the past. So I invite

you to cast your minds back to the early months of 1914, exactly a

century ago. Much of the world had enjoyed long years of peace and

giant leaps in scientific and technological innovation had led to

path breaking advances in leading standards and communications. There

were few barriers to trade, travel or the movement of capital. The

future was full of potential. 1914. It was the gateway to 30 years of

disaster, marked by two world wars and the Great Depression. It was the

year when everything started to go wrong. So what happened? What

happened was that the birth of the modern industrial society brought

about massive dislocation. The world was rife with tension, rivalry

between nations, upsetting the traditional balance of power and

inequality have the haves and have notes. In the form of colonialism or

the sunken prospects of the uneducated working classes. By 1914,

these imbalances had toppled over into outright conflict. In the years

to follow, Nationalist and ideological thinking led to

unprecedented den gags of human dig -- dengration of human dignity.

Technology was deployed for destruction and terror. Early

attention at international cooperation, such as the society of

nations, fell flat. By the end of the Second World War large parts of

the world lay in ruins. I now invite you to consider a second turning

point, 1944. In the summer of this year, the Economist, John Maynard

Keynes and a delegation of British officials embarked on a fateful

journey across the Atlantic. The crossing was risky. The sea was

rough. The world was still at war and enemy ships still prowled the

waters. Keynes himself was not in good health. But he had an

appointment with destiny. He did not want to miss that. His destination

was the small down of -- town of Bretton Woods in the his of New

Hampshire in the United States. His purpose was to meet with his

counterparts from other countries. Their plan was nothing less than the

reconstruction of the global economic order. There were 44

nations gathering at Bretton woods and determined to set a new course,

based on mutual trust and cooperation, on the principle that

peace and prosperity flowed from the cooperation on the belief that broad

global interest trumps narrow self-interest. This was the original

multilateral moment, 70 years ago. It gave birth to the United Nations,

to the World Bank, to the International Monetary Fund, the MF,

the -- IMF, the institution I'm proud to lead. The world we

inherited was forged by these visionary gentlemen, Lord Keynes and

his colleagues, men from his generation. They raised the Phoenix

of peace and prosperity from the ashes of anguish and antagonism. We

owe them a huge debt of gratitude. Because of their work, we have seen

unprecedented economic and financial stability over the past seven

decades. We have seen diseases eradicated, conflict diminished,

child mortality reduced, life expectancy increased and hundreds of

millions lifted out of poverty. 1914, 1944. Today, we're coming out

of the great recession, the worst economic crisis and the great test

of our generation. Thanks to their legacy of multilateralism,

international cooperation, we did not slip into another Great

Depression, that would have brought misery across the world yet again.

We all passed the test. Rejecting protectionism, reaffirming

cooperation. Test is not over. There'll be many more ahead. We're

living through a time every bit as momentous as that faced by our

forefathers a century ago. The global economy is changing beyond

recognition as we move from the industrial age to the

hyperconnected, digital age. Once again, we will be defined by how we

respond to these changes. As we look ahead towards mid-century, toward

the world that hour children and grandchildren will inherit from us,

we need to ask the question: What kind of a world do we want that to

be? And how can we achieve it? As Shakespeare says in Julius Caesar,

on such a false sea we now float. We must take the current when we serve

or lose our ventures. This evening I would like to talk

about two broad currents that will dominate the coming decades,

increasing tensions in global interconnections and in economic

sustainability and then, I would like to make a proposal that is

built on the past and fit for the future, a strengthened framework for

international cooperation. In short, a new multilateralism for the 21st

century. I will start with the first major current, tensions in global

interconnections between a world that is simultaneously coming closer

together and drifting further apart. What do I mean by coming together? I

mean, the break-neck pattern of integration and interconnectedness

that defines our time. It is really the modern counterpart of what our

ancestors went through in the fateful years leading up to 1914.

Just look at the great linking of the global economy over the past few

decades. For one thing, trade has grown exponentially. We are now in a

world of integrated supply chains, where more than half of total

manufactured imports, more than 70% of total services imports are

interimmediate goods or services. Any manufacturing company today uses

input from 35 different contractors from across the world. That's for

trade. Financial links between countries have also grown sharply.

In the two decades before the 2008 crisis, international bank lending

as a share of world GDP rose by 250%. And we should expect more of

that as many more countries dive into the Nexus of global economy.

Trade, financial links, we are also living through a communications

revolution. It has produced a star burst of interconnections within

formation travelling at lightning speed from limitless points of

origins. The world has become a hum of interconnected voices and a hive

of interlinked lives. Today, three billion people are connected to each

other on the net. Three million e-mails are sent each second. There

are almost as many mobile devices and people on the planet. The mobile

mind set is deeply embedded in all regions of the world. Actually, the

fastest and deepest penetration is to be found in Africa and Asia. Back

in 1953, when people tuned into the coronation of Queen Elizabeth II,

the experience was mediated essentially by one voice, the

masterful Richard Dimbleby, whom we honour today. But in contrast, when

Prince George was born last summer, his birth was heralded by more than

25,000 tweets a minute. Ha. With such diying pace of change --

dizzying pace of change we can sympathise with Victoria Crawley,

the countess, who wondered whether the telephone was an instrument of

communication or torture. This brave new world, this hyperconnected world

offers immense hope and promise. Stronger trade and financial

connections can bring tangible benefits to millions of people

through higher growth, greater convergence of living standards. The

dream of eliminating poverty is within our reach. The communication

revolution can also be a potent force for good. It can empower

people, unleash creativity and spur change. Think about tweeted messages

helped galvanise the participants in the Arab Spring. Or how social media

carrying the message of Malala in Pakistan pricked the conscience of

the entire world. But this is not all bright skies, however. When

linkages are dense and deep, they become hard to disentangle. In such

an interwoven labyrinth, even the tiniest tensions can be amplified,

reverberating across the global in an instant, with unpredictable

twists and turns. The channels that bring convergence can also bring

contagion. Because of this, the global economy can become even more

prone to instability. If not moneyaged well, financial -- managed

well, financial integration can make crisis more frequent and more

damaging. Consider, for instance, where and how the global financial

crisis actually was triggered. In the mortgage markets of suburban

America. To then spread around the world. The communications revolution

also has a dark side. It can sow dischord and spread confusion,

instead of an online forum for ideas and expression, we could have a

virtual mob or a global platform to promote intolerance or hatred,

instead of a beautiful similar fob yip, we could -- symphony, we could

have an ugly cacophony. The challenge is to magnify the good and

reduce the bad. If the coming together were not difficult enough,

it will be further complicated bit other current, the tendency of the

world to grow further apart, even if it draws closer together. It's a

para-Dom, but what do I -- it's a para-Dom but what do -- paradox, but

what do I mean? Unlike with integration, our forefathers

experienced nothing like this. It's a defining feature of our

hyperconnected age. One of the major megatrends of our time is the shift

in global power from West to East, from north to south, from a few, to

a handful, to a myriad. 50 years ago, the emerging markets and

developing economies accounted for hardly a quarter of the world GDP.

Now it's 50%. In 2020, it's very likely to be two thirds. The

diffusion of power also goes beyond country relationships, extending to

a whole host of networks and institutions that inhibit the fabric

of global society. Think about the rising Nexus of nongovernmental

organisations which can use the communications revolution to extend

their reach and amplify the voice of civil society. In just 20 years, the

number of these groups associated and recognised bit United Nations --

by the United Nations, rose from 700 to nearly 4,000. It applies to those

organisations, it applies to nations as well. In Bretton Woods in 1944,

there were 44 countries. Nowadays, 188. That's not it. Think about the

power of multinational corporations, who now control two thirds of world

trade. According to some good research, 12 multinational

corporations now sit among the world's top 100 economic bodies in

terms of sheer size. Further, think about cities. 31 of them are also on

that list of the top 100. They will continue to grow. By 2030, about 60%

of the world's population will live in big cities. Think about the

rising aspirations of citizens who feel increasingly part of our

connected global village and yet, not quite well adjusted to it. By

2030, the global middle class could top five billion from two billion,

where we are today. These people will inevitably demand higher living

standards, as well as greater freedom, dignity and justice. Why

should they settle for less? So this will be a world that will be more

diverse, with increasing demands and more dispersed powers. In such a

world, it could be such a -- it could be quite difficult to get

things done, to reach consensus on issues of global importance. The

risk is of a world more integrated, economically, financially,

technologically, but more fragmented in terms of power, influence and

decision making. That can lead to more indecision, more impasse, more

insecurity, not to mention, the temptation of extremism. It requires

new solutions. We also need solutions for the second broad

current that will dominate the next few decades. Tensions in economic

sustainability between staying strong and slowing down. Of course,

the immediate priority for growth is to get beyond the current financial

crisis, which began six years ago and is still with us, as the markets

remind us, these days. It will require sustained and

coordinated effort to deal with problems that still linger, a legacy

of private and public set, weak banking systems, in some corners,

and structural impedestrianiments to competitiveness and growth, which

have left us with unacceptably high unemployment in many countries. This

is usual IMF recommendations and talk. But tonight, given the luxury

I'm given, I want to set these issues in the context of longer term

impedestrianiments -- impediments. Demographic shifts, environmental

degradation and income inequality. As with global interconnections some

of these problems would look very familiar to our ancestors, that

would be the case for inequality, for instance. But others are new.

Such as pressures on the environment. Let me start with

demographics. Over the next three decades, the world's population will

get much larger and much older in. 30 years, there will be about two

billion more people on the planet. By 2020, for the first time ever,

there will be more old people, over 65, not sure that actually my

definition of old people... LAUGHTER

But I'll think about it. But more over 65 than children under five.

The geographical distribution will change. Young populations regions,

like Africa and south Asia, will increase sharply, while Europe,

China and Japan will age and shrink. In the coming decades, we expect

India to surpass China and Nigeria to surpass the United States of

America. , in terms of population. Both China and India will start

ageing in the near future. This will probably cause problems on both ends

of the demographic spectrum. For the youthful countries and for the

greying countries. Right now, the young countries are seeing a youth

bulge with almost three billion people, half the global population,

under the age of 25. This could prove a boob or a bane. -- boon or a

bane. A youthful population is certainly fertile. Fertile ground

for innovation. Dynamism, creativity, yet everything will

depend on generating enough jobs to satisfy the aspiration of the rising

generations. This calls for a single-minded focus on improving

education and in particular, on the potentially massive effects of

technological change on employment. Looking ahead, factors as the

internet revolution, the rise of smart machines, robots, if you want

to call them that way, and the increasing hi-tech component of

products will have dramatic implications for jobs and the way we

work. Yet, today, governments around the world are not thinking enough

about this and they're not thinking about it in a sufficiently strategic

and pro-active way. Ageing countries, on the other hand, will

have different problems. Of course, they will face slowly growth,

precisely at a time when they need to take care of a retiring

generation. People, like us, many of us, who have contributed to society

and expect a part of a social contract to be provided with decent

Social Services as they move into their twilight years. This can

create tensions too. Well, you will say migrations. Migration from young

to old countries might help release pressure at both ends. Yet, it could

also inflame tensions. The brain drain could sap productive potential

from source countries and a sudden influx of people could erode social

cohesion in host countries and potentially fuel nationalism. Yes,

migration can help. But it has to be managed creamily well. -- extremely

well. Demographics is one potential, long-term obstacle. The other is

environmental degradation, the newest and greatest challenge of our

era. We all know what is at stake, more people with more prosperity

will stretch our natural environment to the limit and beyond. We can

expect growing pressure points around water, food, and energy

scarcity as the century progresses. By 2030, almost half of the world's

population will live in regions of high water stress or shortage.

Hovering over this is the merciless march of climate change. Because of

humanity's hubris, the natural environment, which we need to

sustain us, is instead likely to turn against us. Let's make no

mistake, the most vulnerable people who will suffer from the convulsion

of climate will be the poorest. Let me give you an example. Some

estimates suggest 40% of the land currently used to grow maize in

Sub-Saharan Africa will no longer support that crop by 2030s. And this

will have huge implications for the life of African populations. A few

years back, Prince Charles gave this very Dimbleby Lecture. He used the

occasion to make an impassioned plea to respect the law of

sustainability. He said, "In failing the earth, we are failing humanity."

We are a few years later. The bad news is that we are getting

perilously close to the tipping point. The good news is that it is

not too late to turn the tide, even with rising seas. Obviously

overcoming climate change is going to be a gigantic project with

multitude of moving parts. I would like to mention one component of it,

that we at the IMF care about. Making sure that people pay for the

damage that they cause. Why is this aspect getting the prices right, so

important? Because it will help to reduce the harm today and spur

investment in the low-carbon technologies of tomorrow. It's a

double win. Phasing out energy subsidies and getting energy prices

right is part of the solution. Think about it, we are currently

subsidising the very behaviour that is destroying our planet and on an

enormous scale. If you take together direct subsidies and the loss of tax

revenue from fossil fuels, you end up with a total of about 2 trillion

in 2011. That is about the same as total GDP of a country like Italy or

Russia. Now the worst part of these subsidies is that they mostly

benefit the relatively after fluent, not the poor. So reducing subsidies

and properly taxing energy use can be a win-prospect -- win-win

prospect for people and the planet. Let me turn to the third one, it's

an old issue which has come to the fore yet again, inequality. We are

keenly aware that income inequality has been rising in most countries.

Seven out of ten people in the world today live in countries where

inequality has increased over the past three decades. Some of the

numbers are stunning. According to Oxfam, the richest 85 people on the

planet own the same amount of wealth as the bottom half of the world

population. In the US, inequality is back to where it was before the

Great Depression and the richest 1% captured 95% of full income gains

since 2009. While the bottom 90% got poorer. That's for the US, you'll

say. No. In India the net worth of the billionaire community increased

12-fold in 15 years. Enough to eliminate absolute poverty in this

country twice over. So it's facts like this, it is not surprising that

inequality is increasingly on the global community radar screen. It is

not surprising that everyone from the CBI to Pope Francis is speaking

out about it. Because it can tear the precious fabric that holds

society together. What has the IMF got to do with it? Let me be Frank.

In the past, eeconomists have underestimated the importance of

inequality. They have focussed on economic growth. They have focussed

on the size of the pie rather than its distribution. Today we are more

keenly aware of the damage done by inequality. Put simply, a severely

skewed income distribution harms the pace and sustainability of growth

over the longer term. It leads to an economy of exclusion and a waste

land of discarded potential. Easy to diagnose the problem. Very difficult

to find the solution. From our work at the IMF, we know the fiscal

system can help to reduce inequality through carefully-designed tax,

careful spending policies, think about, for instance, making taxation

a bit more progressive, improving access to health and education, and

putting in place effective and targeted social reforms. Yet, these

policies are hard to design and because they create both winners and

losers, they create resistance and they require political courage. Yet

we need to get to grips with inclusion and we need to make sure

that inclusion is given as much weight as growth, in the design of

policies, because it's also the way to deal with cronyism and

corruption. Now, there is one more dimension of inequality that I wish

to discuss here, one that is close to my heart. If we talk about

inclusion in economic life, we surely must talk also about gender.

As we know too well, girls and women are still not allowed to fulfil

their potential, not just in the developing world, but in rich

countries as well. The international labour organisation, the ILO,

estimates that 865 million women around the world are being held

back. They face discrimination at birth, on the school bench, in the

boardroom. They face reticence of the marketplace and of the mind. And

yet, even if I were not a woman, I would say that, the economic facts

of life are crystal clear, by not letting women contribute, we end up

with lower living standards for everyone. If women participated in

the labour force, to the same extent as men, the boost to per capitala

incomes would be huge. Varying depending on places around the

world. But 27% in the Middle East and north Africa. 23% in south Asia,

17% in Latin America, 14% in Europe. We simply cannot afford to throw

away these gains. Daring the difference, enabling women to

participate on an equal footing with men can be a global economic game

changer. We must let women succeed, for ourselves, but also for the

little girls and the little boys of the future. It will be their world.

Let us give it to them. So, I've talked tonight about the main

pressure points that will dominate the global economy in years to come,

the tensions between coming together and drifting apart and the tension

between staying strong and slowing down. I've talked about pressures

that would have seemed familiar a century ago, and some that are

entirely new. But how do we manage these pressure points? Overcoming

the first tension really boils down to a simple question: Do we

cooperate as a global family or do we confront each other across the

trenches of ins larity? Are we friends or are we foes? Overcoming

the second tension requires us to face common threats that are not

bound by borders. So do we face adversity together? Or do we build

yet more borders and Maginot Lines that will be mere illusionary

protections? The response to both tensions is therefore the same - a

renewed commitment to international cooperation to putting global

interests above self-interest, to multilateralism. As Martin Luther

King once said, "We are caught in an inescapable network of muchuality,

tied in a -- mutuality, tied in a garment of destiny, whatever affects

one affects all indirectly." That's an old lesson for a new era. At such

a momentous time as this, we need to choose between the ethos of 1914, or

1944. And it's a no brainer. It is 1944. We need to re-Kindle the

Bretton Woods spirit that has served us so well. It doesn't mean we have

to go back to the drawing board and start over again. Thanks to the

inheritance of history, we have specific, working forms of

cooperation at hand. Again, think about the United Nations, the World

Bank, World Trade Organisation, and of course, the e-IMF. We might call

them concrete or hard forms of global governage. We have a number

of -- governance. We have a number of soft instruments, the G20 at one

end and not works of nongovernmental organisations at the other. These

entities have no formal mandates generally, no legal powers of

enforcement, about you they do deliver value. They can move

quickly. They can wedge open the doors of dialogue. As Winston

Churchill famously said, "To jaw-jaw is better than to war-war." We have

seen multilateralism in soft and hard. Soft cooperation, we need look

no further than here in London, when the G20 countries rallied to turn

back the tide of crisis and make sure the world did not slip into a

second Great Depression. And for a more concrete forms, I invite you to

consider the historic role played by the IMF through the years, helping

Europe after the war. The new nations of Africa and Asia after

independence, the former Eastern Bloc after the iron curtain fell in

Latin America and Asia after crippling crisis. During the current

crisis, we made 154 new lending commitments, zbersed 18 -- disbersed

$182 billion to those in need need . Beauty of this new multilateralism

is that it can build on the old but go further. The existing instruments

of cooperation have proven extremely successful over the past decades,

they must be preserved and protected. That means that instugss

like the -- institutions like the IMF must be brought up to date and

made fully representative of the changing dynamics of the global

economy. We're working on that. We have to continue to work on this.

More broadly, the new multilateralism must be made more

inclusive encompassing across the world but working with the

coalitions embedded in the community. They must be able to

listen and spobd to the new voices. It must be agile making sure soft

and hard forms of collaboration complement rather than compete with

each other. It needs to promote a long-term prospective of the global

mentality and be decisive in the short-term to overcome temptation

towards ins larity and muddling through. It needs to instil a

broader sense of social responsibility on the part of all

players on the modern global economy. It needs to instill the Val

use a global, civil market economy, a global Guildhall, as it were. All

right. Well said, about you what does that mean in practice? Well, it

means many, many things. Starting with all global stake holders taking

collective responsibility for managing the complex channels of the

hyperconnected world. For a start, it means a renewed commitment to

openness, and to the mutual benefits of trade and foreign investment. It

also requires collective responsibility for managing an

international monetary system that has travelled light years since the

Bretton Woods system. The collective responsibility would translate today

into all monetary institutions cooperating closely, mindful of the

potential impact of their policies on others. In turn, that means we

need a financial system for the 21st century. What do I mean by that? I

mean, a financial system that serves the productive economy rather than

its own purposes. Where jurisdictions seek their own

advantage, provided that the greater good prevails and with the

regulatory structure that is global in reach. I mean financial oversight

that effective on clamping down on excess while making sure credit gets

to where it is most needed. A mean a financial structure in which

industry takes responsibility for the integrity of the system as a

whole, where culture is taken as seriously as capital and where the

ethos is to serve rather than rule the real economy. I suppose it has

special resonance here in the City of London. As a financial centre,

with global reach, it must be a financial centre with global

responsibility. With all due respect, and huge admiration for

him, that goes, of course, beyond hiring a Canadian national to head

the Bank of England. I'm so pleased to see you, Mark. We also need the

new 21st century multilateralism to get to grips with big ticket items

like climate change and inequality. On those issues, particularly the

former, no country can stand alone. Combatting climate change will

require the concerted resolve of all stake holders, working together,

governments, cities, cooperations, civil society and private citizens

as well. The same goes for inequality. It needs to be

addressed, just to give an example. If countries compete for business by

lower taxes on corporate incomes, race to the bottom, this will

increase inequality. Overall, the kind of 21st century cooperation I'm

thinking of will not come easy. It might get even harder as time

passes, when the curtains fall on this crisis, when complacency sets

in, even as the seeds of the next crisis perhaps are being planted.

Yet given the currents that will dominate the coming decades, do we

really have a choice? A new multilateralism, in my view, is not

negotiable. On that note, let me end by going back again to the

beginning. To Keynes, and his famous appointment with destiny. Referring

to the great multilateral moment, he noted, "If we can so continue, this

nightmare in which most of us here present have spent much of our

lives, will over. The brotherhood of man will have become more than just

a phrase." History proved Keynes right. Our forefathers vanquished

the demons of the past bequeathing to us a better world and our

generation was the main beneficiary. We are where we are today because of

the foundations laid by the generation before us. So now it's

our turn to pave the way for the next generation. Are we up to the

challenge? Our future, their future, will depend on the answer to that

question. Thank you very much.