For Your Eyes Only: Three Jobs Not to Defer in 2013

David LiptonBy David Lipton

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With the New Year, we all hope to put the global financial crisis behind us. We also need to do more to secure our future.

Beyond our current economic and financial problems, there are long-term issues that we all know about, but that get too little attention in an era when policymakers are so fully engaged in slogging away at more immediate problems. Unfortunately, long-term issues unaddressed today will become crises tomorrow.

So we had better lengthen our focus, see what looms on the horizon, and do more to steer the global economy in a better direction.

Die Another Day

Policymakers around the world have been hard at work mending their economies. In the coming year, they will need to carry on supporting growth while correcting imbalances by:

  • providing accommodative monetary policy;
  • striking a balance on fiscal adjustment—tightening where possible but taking care to support short-term growth;
  • completing banking sector cleanup and making financial systems safer;
  • implementing reforms to boost productivity and growth potential.

A rebalancing of global demand toward dynamic markets, including emerging economies, should also help complement all of these efforts.

These are the core issues of the day and we will all focus on them. But we must also put several long-term issues onto our action agenda.

The World Is Not Enough

Some pundits today look at the world in the wake of the financial crisis and predict a future of de-globalization. More likely, just as early auto travel adapted to accidents, we will see globalization continue but with the economic equivalent of speed limits, bumpers, and seat belts. In that world, rising standards of living will depend on all economies making the most of their potential, while integrating into the global economy in an orderly way.

Over the next generation or two, the greatest untapped potential to drive global growth comes from the emerging and developing countries. While we are accustomed to thinking of the development challenge, we need to shift our thinking to the convergence challenge. A top priority will be helping emerging and developing countries achieve growth trajectories that produce a sustained convergence of living standards toward rich country levels. That means modernizing economic structures and institutions, along with supportive political institutions, that are crucial to fostering growth and employment.

Globalization with convergence will not be easy, as it will mean a continuation of the shifting patterns of production and demand that we have seen over the last generation bring rising living standards in emerging economies, but disruption in advanced economies. It also means adapting to new technologies and their global dispersion. In addition, all forms of policy coordination, from financial market regulation to taming externalities, such as carbon emissions and pollution, will likely grow more complex.

Tomorrow Never Dies

But that is the future we need to anticipate and to begin to prepare for.  In that respect, there are three key issues that I believe warrant more attention and action than they currently get.  They include:

  • Encourage and help countries modernize economic structures and institutions that are crucial to fostering growth and employment.
  • Harness the technology and growth nexus so that countries can stay competitive and create, not destroy jobs.
  • Face up to the challenges of climate change. With global warming continuing, a failure to mitigate emissions will bring costs and hardships that will likely prove irreversible.

Policymakers need to modernize and revitalize their economies by undertaking key structural reforms. Of course, every country is different. But some challenges affect us all, whether we live in advanced or developing economies.

We know that the policy space and readiness on the part of government and society to address these issues varies widely. The challenges are particularly acute in the Middle East and North Africa, where countries have to embark on difficult reforms aimed at boosting growth over the medium term, while also stabilizing their economies in the short term.

Necessary reforms include making labor markets more responsive to the needs of enterprises and at the same time more inclusive for employees. Policies to increase competition in product and service markets, notably in Europe but also elsewhere, are also needed. In the euro area, implementation of all the steps needed for both a fiscal and banking union should also have priority.

Policymakers face the immediate challenge of finding the right balance between satisfying peoples’ high expectations and carrying out tough decisions to bring public finances under control and restore the strength of weakened financial systems.

Technological change is profoundly affecting the relationship between people and their contribution to a country’s economic growth. One can only marvel at the spread of mobile computing and at all that you can now accomplish away from your desk. But technology is also driving business models, both expanding possibilities and directing decisions on costs savings and investment strategies. As we look at what pervasive computing means for our economies and for our lives, countries need to find the right balance, investing in technology to stay competitive but dealing with the implications for wages and jobs.

Expert analysis has concluded that climate change and global warming pose real risks to economic performance, especially for some of the countries least able to deal with it, including by increasing the number and frequency of major weather events.

Such events often come at great human and economic cost. Hurricane Sandy is a reminder of how damaging such events can be, with its costs climbing close to $70 billion for the damage done to New York and New Jersey alone. If hurricanes of such devastation become common, even a country like the United States would see serious economic and fiscal implications from Mother Nature, likely making an already grim budget picture worse.

Important steps to deal with the climate challenge include ending fossil fuel subsidies in all countries and implementing strong, credible carbon pricing to encourage conservation and the use of cleaner fuel around the globe (and provide a much-needed contribution to sounder public finances). Newer technologies may also be helpful. Progress in this area has been much too slow.

A Quantum of Solace

We can manage a bright future if everyone—governments, civil society, and the private sector —gets to work now. While it is possible that these long term issues mean a more unstable outlook going forward, complicating the already difficult tasks at hand, it is not inevitable.

Together, we can make more of our economic potential, including through new technologies, and we can coordinate to achieve sustained and balanced growth.

At the start of a new year, it’s time for us to look up and look ahead.

7 Responses

  1. only through global regulation of local and international financial markets is it possible to avoid new dangerous financial and economic worldwide crises. join opinion movements help to make a better world.

    Join http://www.causes.com/causes/120616-stop-anarchy-in-finance-new-rules-not-overregulation-in-international-and-local-financial-market

  2. –Government, civil society and the private sector —

    These three sectors have been well advised by David Lipton to put their shoulders together for meeting the challenges lying ahead re monetary policy – fiscal adjustment (a recent case in the USA); strengthening of the banking sector; and structural reforms to boost growth and reduction of income inequality. Instead of cutthroat competition, convergence is needed on global level to ensure reasonably good standard of living for all.

    In addition to emphasizing the importance of technological advancement, challenges of climate change and global warming have been rightly pointed out. The bottom line is that all the countries can now grow only if every individual country is supported on an equitable basis. Globalization should not be taken as a cartelization of a few economies at the cost of others.

  3. When to tighten the belt and when to spend? Then it’s on what? Will the policymakers choose their friend’s proposal over other proposals? These are the questions that need to be asked.

    I think that everything needs to either change or be overhauled because the laws, the policies, and regulations/deregulations caused all this and it seems nothing has been done about it, just blame the other side instead.

  4. First things first: Energy, fiscal policies and job creation issues are on top of everything. Second, the global wastage of costly resources, leakages and maladministration are the problems always overlooked by the world organization wizards. And lastly the failure to invest in developing human resource, all around the world to eradicate poverty, are the weakest links of the chain to which none of the experts pay attention.

    Paying lip-service and writing lousy reports don’t take us anywhere.Take it from me.

  5. You write “We also need to do more to secure our future”

    Yes, but making our future “more secure” does not imply avoiding taking risks, as currently wimpy and shortsighted bank regulators want our banks to do, and therefore manipulate the payoffs of the different bets at the banking roulette table in favor of the “safe-bets”, “The Infallible”, and against “The Risky” http://bit.ly/Uf0XC0

  6. Well, the views expressed by Mr.Lipton continue to lay undue stress on globalization which has opened up the vista of consumerist culture across the continents. Quality of life does not consist of acquisitive mindset with the consequent lust for swanky things.

    Unfortunately, most of the so-called emerging economies seldom had such an appalling inequality among their citizens as they are faced with today, thanks to the retreat of the State and the ascendancy of the market. The latter has been captured by the corporate business and is dictating the fortunes or otherwise of millions of people. In a way the type of economic liberal policies advocated in the last two decades had helped only to warm up the earth with incalculable pollution, with no nation trying to put a stop to this emerging worst case milieu.

    It is time that the global institutions such as the IMF shifted their focus to real development paradigm that would deliver results to hapless people pining for a modicum of decent living standards.

  7. [...] Three Jobs Not to Defer in 2013 – IMF Blog [...]

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