The world’s leading economic policymakers are “on the right track” to ensure a global financial upturn, the chief of the International Monetary Fund told a Stanford audience on Tuesday.
But she warned the recovery will be derailed without the creation of more jobs, better education systems and a way to shrink the gap between rich and poor. And she cautioned against the potential pitfalls of untested exchanges and digital currencies such as Bitcoin.
“We are on the right track, but we need to ask – the right track to where? And the right track to what growth?” said Christine Lagarde, the IMF’s managing director. “Will it be solid, sustainable, and balanced – or will it be fragile, erratic, and unbalanced? To answer this question, we need to look at the patterns of economic activity in the years ahead, and especially the role of technology and innovation in driving us forward.”
Lagarde’s visit to Stanford was co-sponsored by the Freeman Spogli Institute for International Studies and the Stanford Institute for Economic Policy Research. In addition to delivering public remarks at FSI’s Bechtel Conference Center, Lagarde met privately with faculty and students during the day.
Just returning from the G-20 summit in Sydney, Lagarde said she is optimistic that the world’s economic leaders are committed to taking the steps that will guard against another large-scale financial collapse. She said the G-20 members agreed to complete a set of financial reforms by the end of this year, a move that will make the “financial sector safer and less likely to cause crisis.”
She said the member countries and their central banks have also agreed to better cooperate and be more transparent in their policymaking.
But she’s worried that unless more sustainable jobs are created, economic disparities will increase. And that, she said, will “harm the pace and sustainability of growth over the long term.”
As technology has helped create a more interconnected world, it is playing an increasing role in the economic landscape. Machines have made our lives easier. Artificial intelligence has led to cars that can drive themselves, robots that can do things in place of humans and smartphones that are more powerful than the first supercomputers.
But so far, there’s been no measure of how new technology has increased productivity.
“We certainly need to keep an eye on this,” she said. “One of the biggest worries is how this technological innovation affects jobs. Put simply: will machines leave workers behind?”
She said technology creates “huge rewards for the extraordinary visionaries at the top, and huge anxieties for workers at the bottom.”
Lagarde said it is up to educators to better prepare the next generation of workers.
“Educational systems are not keeping pace with changing technology and the ever-evolving world of work,” she said. “We need to change what people learn, how people learn, when people learn, and even why people learn. We must go beyond the traditional model of students sitting in classrooms, following instructions and memorizing material. Computers can do that.”
Instead, humans must “outclass computers” in cognitive, interpersonal and sophisticated coding skills, she said.
“Think of creative jobs, caring jobs, jobs that entail great craftsmanship – imagination,” she said. “And given the rate and pace of change, we will need the ability to constantly adapt and change through lifelong learning.”
She called on institutions such as Stanford to play a key role in the process.
“Stanford’s model of education was innovative from the very first day—co-educational, non-denominational, and always practical, focusing on the formation of cultured and useful citizens,” she said. “Stanford was ahead of its time back then. I know that it will continue to be ahead of its time as we venture into the exciting period ahead.”
But that exciting period carries with it uncertainty and risk.
Asked about the role that emerging digital currencies such as Bitcoin could have on the evolving economy, Lagarde was skeptical, calling it a “shaky and wobbly” system.
The currency’s trading website went offline this week, spooking investors and calling into question Bitcoin’s future.
“It’s a glamorous, sexy attractive new system,” she said. “But a monetary system is a public good. It has to be supervised and sufficiently regulated so it is accountable. At this point in time, I think Bitcoin is outside that perimeter of both supervision and regulation.”
Lagarde is the 11th managing director of the IMF, and the first woman to lead the 188-country organization. Since she took over the organization in 2011, she has played a role in the world’s most pressing financial matters, working on solutions to a sluggish global economy and the debt crises in Europe.
The IMF gives both policy advice and financing to countries in difficult economic situations. It also helps developing countries reduce poverty and become more economically stable.
The organization is now poised to assist Ukraine, which is at risk of running out of money to pay its bills in the midst of a political crisis. The country is struggling to cobble together a temporary government in the wake of President Viktor Yanukovych leaving Kiev and being removed from power.
But until a provisional government is formed, the country cannot technically ask for help. When it does, Lagarde said the IMF will send “technical assistance.”
“We are ready to engage,” she said.