Aristotle & the Archbishop of Canterbury: Overheard at the IMF’s Annual Meetings

By iMFdirect editors

What a week it’s been.  Practical and existential questions on how to do good and be good for the sake of the global economy and finance dominated the seminars at the IMF’s Annual Meetings in Washington.

Our editors fanned out to cover what the panelists, moderators, and audiences said in a variety of seminars, and two big themes caught our eye.

Jobs & growth

With the global economy stuck in a low growth, high unemployment rut, how to reverse these trends is a hot topic.

The average unemployment rate in developed economies stands at 8.5 percent, and among young people it’s 13 percent, Christine Lagarde said in a day-long seminar on jobs and growth.

Inequality has reached critical levels.

“The world’s richest 85 individuals control as much wealth as the world’s poorest 3.5 billion people,” she said, citing research from Oxfam.

Even economists know money can’t buy happiness, but it can buy a country bridges and roads.  While spending on infrastructure is a good for growth, who pays and what it means for the public purse is another matter.

And more important, can it over come the world economy’s lethargy, particularly in Europe?

“Yes, yes, yes”, affirmed Larry Summers of the University of Harvard.

Others were a bit wary.

“Will it come at the expense of something else that is valuable for growth, such as education, or research and development?” said Christina Romer of the University of California at Berkeley.

Ngozi Okonjo-Iweala Minister of Finance of Nigeria, speaks during the Challanges of Job-Rich and Inclusive Growth seminar during the 2014 IMF/World Bank Annual Meetings on Wednesday, October 8th. Drawing on the first three sessions, this concluding session brings together policy makers to discuss the important dilemmas and tradeoffs that countries grapple with as they seek to implement reforms to deliver job-rich and inclusive growth. Photo by Ryan Rayburn/IMF

Ngozi Okonjo-Iweala Minister of Finance of Nigeria, speaks during the Challanges of Job-Rich and Inclusive Growth seminar during the 2014 IMF/World Bank Annual Meetings on Wednesday, October 8th. Drawing on the first three sessions, this concluding session brings together policy makers to discuss the important dilemmas and tradeoffs that countries grapple with as they seek to implement reforms to deliver job-rich and inclusive growth. Photo by Ryan Rayburn/IMF

“When you have a limited purse, it is tough,” said Ngozi Okonjo-Iweala, Nigeria’s Finance Minister.

Even the idea the purse could be limited was up for grabs.  Paul Krugman, columnist for the New York Times and professor at Princeton University said the phrase “fiscal space” disturbs him a little.

“The idea that we can adequately say how much a country can really take on is not necessarily right,” said Krugman. “The notion that there are hard limits is simply not borne out by events. Fiscal space should not be a reason to not spend at a time when you should be spending.”

Still, Stanley Fisher, vice chair of the U.S. Fed, said in terms of what can be done ”much depends on the politics of each country.”

Jeroen Dijsselbloem, President, Eurogroup participates in a CNN Debate at the 2014 IMF/World Bank Annual Meetings at George Washington University, Lisner Auditorium October 9, 2014 in Washington. IMF Staff Photograph/Stephen Jaffe

Jeroen Dijsselbloem, President, Eurogroup participates in a CNN Debate at the 2014 IMF/World Bank Annual Meetings at George Washington University, Lisner Auditorium October 9, 2014 in Washington. IMF Staff Photograph/Stephen Jaffe

Jeroen Dijsselbloem, president of the Eurogroup said that while growth in the eurozone is lagging, the European Central Bank has taken a number of measures, while a couple of countries (France and Italy) need to do more and have the “political stamina” to get it done.

“We should expect a little less from the central banks and a little more from the politicians,” he said.

There were also seminars on Asiawomen, Latin America, inequality and fiscal policy, and  the future of capacity development that you can watch online.

Ethics, banks & finance  

The faithful packed the proverbial pews Sunday morning to participate in a day’s discussion of the future of finance.  First up: ethics.

Ever since bankers lit a match under the global economy, they have had a hard time getting back people’s trust.

The ethical failures that led to the crisis included mercenary and greed-driven behavior, and a disembodiment of finance from the economy, according to panelists.  The structure of bankers’ compensation also played a role (more from the IMF on this here).

“Confidence builds over time and dies overnight,” said Christine Lagarde, and getting it back is important because finance fuels and oils the economy.

The Most Reverend Justin Welby, Archbishop of Canterbury speaks in the panel discussion The Future of Finance: Ethics and Finance at the George Washington University Jack Morton Auditorium as part of the 2014 IMF / World Bank Annual Meetings in Washington, D.C. on Sunday, October 12th. Photo by Ryan Rayburn / IMF

The Most Reverend Justin Welby, Archbishop of Canterbury speaks in the panel discussion The Future of Finance: Ethics and Finance at the George Washington University Jack Morton Auditorium as part of the 2014 IMF / World Bank Annual Meetings in Washington, D.C. on Sunday, October 12th. Photo by Ryan Rayburn / IMF

“The heart of reconstruction of confidence is in ethical and worthwhile banking, which has at its heart ambition for heroism, not only for internal rate of return,” said the Most Reverend Justin Welby, Archbishop of Canterbury.

Next up were banks and shadow banks.  How the former will adapt to a new environment including the rise of the latter remains unclear.  Panelists had more questions than answers.

“What would you like the system to look like? No one has told us that yet,” said Douglas Flint, chairman of HSBC.   “If you define the system, then you can use the regulation to shape that outcome.”

“Where are the living wills?” said Simon Johnson of MIT.  “How will we handle the failure of a large, complex, global bank?” (Earlier in the day Mark Carney said we could expect big news on too-big-to-fail at the upcoming G20 Summit in Australia).

While there is still a lot we don’t know about shadow banking, there is a silver lining according to some.

“They serve the real economy, which is the most important part of shadow banking in emerging markets,” said Nor Shamsiah Mohd Yunus, deputy governor of Bank Negara Malaysia.   “They serve those who have trouble getting loans from traditional lending, so they promote financial inclusion.”

The day wrapped up with cyber risks, who should own your data, and how technology can make finance both more risky and democratic.

The rapid rate of technological innovation means we can pay for anything electronically.

“There is something scary about someone taking a cell phone, hitting four buttons, and getting money,” said Dean Karlan of Yale University.

Can regulators hope to keep up with the pace of innovation?

“Regulation is like a moat around a castle: effective when the enemy shows up as knights on horseback, but totally ineffective when they show up with cannon,” said Peter Sands of Standard Chartered Bank.

In the face of so much uncertainty, we turn to the Archbishop and Aristotle for guidance.

“We need heroism as it was in the classical sense: that causes us to leave a mark on the world that contributes to human flourishing.”

Amen to that.

Contributors: Gita Bhatt, Maureen Burke, Jacqueline Deslauriers, Lika Gueye

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