During a speech at the George Washington University Monday, Dominique Strauss-Kahn, managing director of the International Monetary Fund, called for a new approach to economic policymaking in the wake of the recent global financial crisis.
Dr. Strauss-Kahn proposed new approaches to macroeconomic and financial sector policies, social cohesion and cooperation and multilateralism.
“The global financial crisis devastated the global economy and caused incalculable hardship and suffering all over the world. But it did more than this – it also devastated the intellectual foundations of the global economic order of the last quarter century,” said Dr. Strauss-Kahn, who spoke at GW’s Jack Morton Auditorium during an event sponsored by the School of Business. “The task before us is to rebuild the foundations of stability, to make them stand the test of time and to make the next phase of globalization work for all.”
While the global economy is continuing to recover, Dr. Strauss-Kahn said the recovery is unbalanced both between and within countries. Growth in countries with advanced economies is too low, and unemployment is still too high. Countries with emerging market economies are growing too fast, and low-income countries are struggling with higher food and fuel prices.
“Overall, the economic situation is still fragile and uneven, beset by great uncertainty,” he said.
During welcoming remarks, President Steven Knapp said GW is honored to have the IMF as a neighbor and a partner.
“Our ability to partner with our neighbors is one of the real strategic advantages of a university located in the heart of our nation’s capital,” said Dr. Knapp. “Our proximity to the IMF has allowed us to enjoy a close working relationship in a number of areas. IMF staff members regularly teach courses and serve as guest lectures in programs across the university. Many of George Washington’s institutions and schools co-sponsor events with the IMF. And our faculty and students frequently collaborate with IMF staff.”
Before the financial meltdown, monetary policy focused solely on inflation and growth, and financial regulation mostly looked at individual institutions and markets rather than a broader view of global financial stability, said Dr. Strauss-Kahn. But now, he argued, policy must go beyond price stability and look to financial stability. Governments must also continue to use fiscal policy such as stimulus packages – a tool Dr. Strauss-Kahn said “saved the world from an economic freefall” – and create more financial sector reform.
“In designing a new macroeconomic framework for a new world, the pendulum will swing at least a little from the market to the state and from the relatively simple to the relatively more complex,” he said.
While trade globalization has lifted millions out of poverty, financial globalization has increased inequality, said Dr. Strauss-Kahn. In fact, he said he believes inequality might have been one of the causes of the global financial crisis because high inequality can strain social cohesion and political stability and affect macroeconomic stability.
“We need a new form of globalization, a fairer form of globalization, a globalization with a more human face,” he said. “The benefits of growth must be broadly shared, not just captured by a privileged few.”
Finally, Dr. Strauss-Kahn argued that global financial stability depends on multilateralism. He cautioned countries against easing financial sector regulations to entice businesses for short-term gain.
“The global economy is simply too interconnected to allow narrow national interests to prevail. For the greatest challenges of today all require a collective solution,” he said.
Dr. Strauss-Kahn also outlined several changes the IMF has made in response to the global financial crisis, including “spillover reports” that explain how certain systemic economics affect the rest of the world and an improved global monitoring system of capital flows.
“We want to strengthen our ability to prevent crises, not only manage them,” he said.