In the short run, policymakers must fix the world’s equality problems

Updating John Meynard Keynes’ seminal predictions, IMF managing director Kristalina Georgieva has set out a hopeful scenario for the next century
But the outlook hinges on more sustainable and equitable growth – and international cooperation

Anthony Rowley

Published: 4:30pm, 23 Mar 2024

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It seems lately that futurology has become an exercise in pessimism. A climate catastrophe threatens, countries are at war, competition thwarts international cooperation, and human intelligence lives in fear of artificial intelligence. What is there to look forward to?

It does not help matters when idle optimism masquerades as realism in an attempt to counter such pessimism. Yet there are times when considered optimism can shine through the gloom.

I would count an address to King’s College, Cambridge, recently by IMF managing director Kristalina Georgieva, on the intellectual legacy of legendary economist John Meynard Keynes as one such occasion.

Georgieva acknowledged that the inspiration for her lecture came from Keynes’ 1930 essay “Economic Possibilities for Our Grandchildren”. (He studied and worked at King’s and became the father of modern macroeconomics, as well as one of the founders of the International Monetary Fund.)

The confidence she evinced in the future of mankind drew not just from Keynes, manifold though his strengths were, but also from the analytical skills which the IMF can bring to the table.

In founding the IMF, she said, Keynes brought “his vision, courage, and optimism – an unwavering belief in the power of humanity to make lives better over time, despite the setbacks brought by calamities – such as crises and wars”.

We need some of those qualities now, at a time when international politics has become pervaded by sheer nastiness, not least in the attitudes of so-called advanced economies towards emerging nations.

If a fraction of the effort put in by the US and its allies to doing down China was devoted to pursuing constructive cooperation – or to better understanding and assuaging Russia’s fears – we would be worlds better off.

In his 1930 exercise in futurology, Keynes predicted that, in 100 years’ time, living standards would be as much as eight times higher, driven by gains from technology and capital accumulation. And recent IMF research has shown that he was right.

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On top of the two drivers cited by Keynes, the past 40 years have also seen a sixfold expansion in global trade. Yet, these days, protectionism in various forms is taking hold and IMF research shows trade fragmentation could cause a global output loss of up to US$7.4 trillion over the longer term, equal to the combined gross domestic product of France and Germany.

Global capital flows have also increased more than tenfold in recent decades, boosting productivity and investment, especially in emerging economies. Yet future progress will hinge on whether capital is allocated to where it is needed, such as for action on climate change.

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The portents are not altogether promising in this important regard. Global stock markets, for example, are focused intently on the tech sector, luring capital away from critical socioeconomic areas while fostering bubble conditions elsewhere.

Unlike other areas of economic advance where progress has followed a more or less linear trajectory, developments in banking and capital markets have been strewn with crises, not least the 1929 stock market crash and subsequent Great Depression in Keynes’ time.

A series of banking crises, along with stock market booms and busts, have hindered rather than helped the progress of humanity and the global economy over the past 100 years.

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And yet, in the spirit of Keynes’ exercise, Georgieva set out two possible scenarios for the next century, including a “high ambition” scenario where – given more sustainable development and a fairer redistribution of benefits – global GDP could be 13 times larger and living standards about nine times higher.

Critically, past achievements were built on the basis of international cooperation, which gave the world what has been termed the post-1945 “long peace” or absence of direct conflict between great powers, whereas what we have now seems to be the antithesis of that happy state of affairs.

National leaders vie to vilify one another, so-called security considerations are used to limit trade and investment, economic cooperation is cut rather than strengthened and even cultural exchanges suffer.

What a dismal state of affairs this is, and yet there is still hope of making far more economic progress. The key lies in getting better leaders, although democracy has not distinguished itself in this regard of late – consider, for example, the US.

Maybe this reflects the development of an entitlement culture which often seems to set individual rights above communal obligations. Too many people are out for what they can get – financially and in other respects – rather than what they can contribute.

Some 75 per cent of the world’s wealth today is owned by just 10 per cent of the population. Many developing countries are no longer catching up with advanced-economy income levels. More than 780 million people face hunger.

Georgieva noted at Cambridge that “high levels of economic inequality have a corrosive effect on social capital and trust – in public institutions, in companies, in each other. And we see trust diminishing among nations too, with geopolitical tensions on the rise.”

Keynes is perhaps best remembered for something which he wrote in 1923: “In the long run, we are all dead.” Georgieva suggested that he had meant his maxim as a call to action, that “instead of waiting for market forces to fix things over the long run, policymakers should try to resolve problems in the short run”. I humbly concur.

Anthony Rowley is a veteran journalist specialising in Asian economic and financial affairs