Head of global fund says 2008 financial crisis proved international cooperation is ‘essential, not optional’
Countries that go it alone and fail to adapt to new economic realities could face a “dystopian” future where an angry majority is left behind, International Monetary Fund chief Christine Lagarde warned on Tuesday.
She urged world leaders to remember the lesson of the global recession that followed the 2008 financial crisis: “International cooperation is essential, not optional.”
The managing director of the Washington-based global crisis lender issued yet another plea to governments, notably the United States, to back away from protectionism and confrontation. At a time when U.S. President Donald Trump is engaged in global trade conflict that the IMF says puts world economic growth at risk, Lagarde said she is pleased by the “significant progress” over the weekend to defuse the U.S.-China trade dispute.
But asked about the sharp decline in U.S. stock markets—which fell more than three percent due to concerns over the trade war and the impact on the economy—Lagarde urged patience.
“Compared to what we’ve gone through its progress,” she said.
Lagarde delivered her message about the need for global economic cooperation wrapped in praise for the key leadership role the U.S. plays in the world.
In the economic prosperity that followed World War II, “We learned from the past, got creative, and changed for the better,” she said in a lecture at the U.S. Library of Congress. “None of this would have been possible without the United States. This country challenged the international economic order when it needed challenging. It forged compromise when compromise was necessary.”
And it was in the U.S. interest to take a leading role because “a stronger and more stable world paid dividends for the U.S.,” she said. “This success did not come at the expense of other nations,” Lagarde said. “On the contrary. This country’s collaborative leadership paved the way not only for decades of opportunity here in America, but also for growth that spread across the world.”
That contrasts sharply with Trump’s “America First” rhetoric and his view of trade as a zero-sum game in which imports equate to countries taking money out of the country.
Policies like that could lead to an “age of anger,” where inequality soars and millions are left behind, Lagarde cautioned. Much of the anger erupting worldwide and the economic anxiety “is a legacy of the crisis,” she said in response to a question.
In Britain, it was channeled into fear of foreigners and led to Brexit, but she said there is “more regret in the U.K. than there was only six months ago,” as the consequences of leaving the European Union become apparent.
To avoid the “dystopian scenario,” countries must adapt, improving cooperation among governments, to strengthen oversight, reduce corruption and reform tax collection. That will free up resources to improve infrastructure and education. That also means fixing the trading system to reduce tensions, including getting rid of subsidies and protecting technology—issues Trump has complained about.
The rapidly changing global economy offers “a fundamental choice: stand still and watch discord and discontent bubble over into conflict, or move forward,” Lagarde said. “Because more than ever before, what happens in one nation can impact all nations.”