The head of the International Monetary Fund has warned that the only way to boost global economic growth over the next century is by tackling soaring inequality to achieve a ninefold increase in living standards.
Kristalina Georgieva said world leaders had a responsibility to future generations to build an economy that dealt with global heating, deployed AI technology responsibly and slashed elevated levels of inequality.
“We have an obligation to correct what has been most seriously wrong over the last 100 years – the persistence of high economic inequality. IMF research shows that lower income inequality can be associated with higher and more durable growth,” she said.
“We simply cannot get to the ‘high ambition scenario’ for growth unless we foster a fairer global economy.”
In a speech at King’s College, Cambridge, she argued the world was a turning point, making a comparison with the Great Depression of the 1930s, when the leading British economist John Maynard Keynes wrote his seminal essay Economic Possibilities for Our Grandchildren.
She said Keynes had been right to predict that technology gains could deliver an eightfold increase in living standards in 100 years’ time, but that the founding father of modern economics had been too optimistic about how the benefits of growth would be shared.
Keynes, who was a fellow and academic administrator at King’s and played an integral role in the creation of the IMF after the second world war, predicted that technology gains driving up productivity would allow for more leisure time with a 15-hour working week.
However, Georgieva said the proceeds of growth had been too heavily concentrated among particular groups and in rich countries. “He [Keynes] was also too optimistic about how the benefits of growth would be shared. Economic inequality remains too high, within and across countries,” she said.
Setting out two possible scenarios for the next 100 years, developed by IMF staff, Georgieva said the world could expect either a “low ambition” path with global gross domestic product about three times larger and living standards twice as high as today.
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Alternatively a “high ambition” scenario based on building a more sustainable and equitable global economy could leave global GDP 13 times larger after a century, with living standards about nine times higher.
The Bulgarian economist, who is seeking a second five-year term as IMF managing director after being nominated by a string of European countries to lead the institution, said this would rely on the world pursuing a “different kind of growth” in future.
Calling on governments around the world to focus attention on three key priority areas, she said it was vital to address the climate emergency, invest in new technologies such as AI, and invest in people through tackling inequality.
“We also recognise the need to put in place better measurement of wealth that goes beyond the traditional GDP, that values not only produced capital, but also nature, people, and the fabric of societies,” Georgieva said.
Highlighting Keynes’s maxim that “in the long run, we are all dead” in her speech, she said the economist had meant the phrase as a call to action. “He meant the following: instead of waiting for market forces to fix things over the long run, policymakers should try to resolve problems in the short run,” she said.
“And it’s a call to which I for one am determined to respond – to do my part for my grandchildren’s better future. Because, as Keynes put it in 1942: ‘In the long run almost anything is possible.’”