Christine Lagarde on slow growth, inequality and fighting cynicism

Christine Lagarde, the managing director of the International Monetary Fund and one of the world’s most influential women, arrives in Toronto Monday for a rare visit to Canada that will include meetings with Prime Minister Justin Trudeau and cabinet ministers in Ottawa on Tuesday. Last week, Lagarde met with Maclean’s for an exclusive interview on the morning after the conclusion of the Group of 20 summit in Hangzhou, China, for this feature profile.

Here is an edited version of that conversation:

Q: You and the fund came to the G20 meeting with a stronger message than you’ve delivered in quite some time, but the G20 communiqué that came out of the meeting didn’t match the message you delivered. I don’t want to load the question with words like ‘frustration’ or ‘disappointment,’ but given where you were, and where it ended, what are your feelings?

A: Communiqués are prepared long before the leaders actually meet or have a chance to read the papers that are prepared for them. We came in with a strong message that was articulated around the theme that [growth] has been too slow, for too long, for too few. We keep revising down our growth forecast. It is going to be the sixth or seventh year where growth in a post-recovery phase is going to be below the average we have known in the last 20 years before the crisis. That is not a satisfactory position to be in, particularly because it relies on monetary policy. The other policies are either lagging behind modestly or not leveraged at all. So our message to the leaders was, ‘You have the policy levers to make your growth as you’ve advocated for years—stronger, more sustainable, more balanced.’ And I will come to a fourth one: inclusive. This is now becoming incredibly important, to respond to the backlash against globalization, the rising populism, and to have a society that is more homogenous and less unequal because that is not only going to be a difficult political equation for you to resolve, but also socially difficult and economically counterproductive. That was the message.

Q: Were you satisfied with how your message was received in the room?

A: It clearly had an impact because while some leaders said, ‘Yes, we have an issue, but I don’t see it as dark as presented by Christine.’ That came from countries that generally have lower unemployment rates than others, that have slightly better growth. But other leaders said, ‘Yes, that is true. We really have to respond and prepare.’

Q: Could you sense some movement? You toughened your message, but it is still similar to the message you have been giving for several years now.

A: We are going to be more specific. A general message doesn’t pay tribute to the specificity of each and every country. So we have to get country-specific, both in the area of structural reforms and in the area of fiscal space. We have been saying, for example, that countries like Canada, Korea, China, Germany can and should use fiscal space. Some of them are doing it, not all.

Q: Which one isn’t?

A: Figure it out. (Smiles.) All of them are using it. Let’s put it that way. We have to be fair. All of them are using it, but some are very minimal.

Q: How do you explain to the average person why trade is good, why globalization is good?

A: There are two things. We have to first of say that those negatively affected by globalization, those who are losing their jobs, and losing their skills, people out of training, must be looked after. Governments must establish policies, and governments and companies must actually address that issue, so that those who lose out from globalization can be retrained, recycled, re-established, cared for. That is point No. 1. Because there are, in some countries, factories that have closed down and people who have lost their jobs, people who have not acquired the skills to use computer-assisted techniques and otherwise.

Point No. 2, we draw many benefits from globalization that people take for granted. Poverty has been reduced massively around the world. If you look at the Chinese numbers, it is quite mind-boggling: 700 million people taken out of poverty in a matter of 40 years, the poverty rate having moved from over 30 per cent from hardly six per cent now. That would not have happened if there had not been globalization. Now, people is Europe will say, ‘So what?’ It so happens that because all the economies are strongly inter-connected and aggregated, there is trade that is happening not just from China to the rest of the world, but from the rest of the world to China as well, and that is going to continue. When in one area of the world the standard of living and the size of the middle class increases, it is going to have an effect elsewhere in the world as well.

Consumption has massively benefited from globalization. People can buy the kind of things they consider as normal and take for granted because of globalization and trade and use of supply chains and the reduction of the cost base of the manufacturing of some products. We would not be enjoying those cellphones and those tablets at the price where they are had it not been for globalization, both in terms of trade and in terms of constant technological innovation. Improved productivity is another direct benefit of globalization.

Q: How do you confront the cynicism out there?

A: It resonates much louder than any of the positive I have mentioned. I think that is the reason we have to start with taking head on their arguments: ‘We have lost jobs, factories have closed down, it hasn’t benefited me.’ We have to address those arguments first and foremost. And then we move to the pluses and the benefits. We need to be more specific and we are going to do more analytical work and make it more comprehensible in the coming weeks because I think there is urgency in the matter. When I hear some political views about trade agreements for instance, I’m getting increasingly concerned. And of course, trade agreements  can be beneficial, but of course they need to avoid infringing on certain areas and respect diversity. There are goods that are outside trade and in the public domain and that should be reserved and protected.

Q: Several trade agreements are either stuck or unravelling. What has gone wrong with the way we think about and negotiate and present these agreements?

A: The difficulty that negotiators have is often based on the cultural difference that various countries have. For instance, in some countries, they protect their cultural rights or will protect certain public-service domains and take it out of the trade negotiable domain. Before a negotiation can proceed and be completed, what is outside the scope of negotiation needs to be agreed. And there might have to be a reset of those parameters at the moment, but it doesn’t mean that trade agreements should be just thrown away as if they were not providing benefits, because they are.

Q: The IMF has changed under your leadership—talk of gender, inequality, climate change, all of these things were not there when I first started covering the fund. How much of that is you?

A: Gender, I think I would claim, that it is entirely me. (Laughs) Climate change [activism], I supported it very strongly, but the truth is the fiscal affairs department had begun some work on it, but I very strongly support it and will continue to support it. For all these themes, I gave them visibility. I put my own personal credibility on the line because it was not obvious at the start, and it was not necessarily approved by all board members that the IMF should go into all of those areas. On inequality, there had been some research work done as well. And corruption will be another one I really want to delve into and try to explore the economic transition costs and process by which countries can try to encourage the eradication of corruption. Yeah, I did not discover those topics, they have been there for a long time, but I have put my credibility and my own accountability on the line for them and I will continue to do that. The work is not over. While we have now, I think, a good body of research and academic papers, it also needs to permeate the entire organization.

I will give you an example that I am keen on. We are working with Egypt at the moment and we have a staff-level agreement with Egypt, and although clearly monetary policy is going to be critically important, and fiscal issues will be at the forefront, I have specifically asked the team that as part of the social safety net, there be a particular focus on support for women. The Egyptian society needs to include its women if it wants to have economic prosperity. There has to be a dimension in the program that supports that. So we need to put our good research, our good work, our principles into actionable items whenever we can.

Q: Why do you feel so strongly in pushing the IMF in this direction?

A: Because we cannot just look at a country by looking at charts, graphs, and modelling the economy. Behind the numbers there are people.

Q: Let’s shift to Canada. You have attended all of the G20 summits. How does Prime Minister Trudeau measure up?

A: He was extremely engaged and made really strong and valuable contributions to the meetings. I can’t go into the details of what he said because those are private to the circle. He has not only youth and passion, but he has a lot of substance as well. And he has a way to communicate that is very efficient. He brings into his presentation—even though it’s five minutes, because they are all bound to stay within the five minutes—he brings a couple of real-life examples that will be very convincing.

Q: What does the new government need to do?

A: I’ve mentioned Canada as the good student in the class. It’s one of the few countries that have embraced, endorsed, the three-pronged approach that we recommend: use of good monetary policy, use of some fiscal space—and Canada had fiscal space—and structural reforms. And given the low financing costs, investment in infrastructure. And a special focus on female favourable policies.

Q: What is the best way to get more women into the workforce? What is the one thing that Canada and other countries can do to narrow that horrendous gender gap in the workforce?

A: I was myself surprised by the discrepancies and the difference embodied in the legal systems of so many countries. So that is No. 1: make sure that the legal base has no discrimination. We did a study of about 150 countries, and 80 per cent of them have discriminations. So make sure you start from a really solid base. Second, it should come from the highest possible level in the country. Whether it is a man or a woman, I don’t care, but the president, the prime minister, the leaders in the business associations, the leaders in the trade unions, all these people should be leading the charge and set standards at the highest level. Third, money is always an issue. The child care centres, assistance given to parents when children are small, all of that is going to also be important. Then you have the culture and there are countries where it is a massively important issue. I wouldn’t think that is the case in Canada.

Q: On the money part, is there one policy that is better than the others? Some argue for a subsidized daycare across the board, for example, while others go for individual benefits. Do you have an opinion on what is the best policy?

A: No, because I think it has to be country-specific and culture-specific. There are countries in the world where, for instance, the grandparents are going to be important and influential. Maybe they should be receiving some of the support. There are countries where a much more socialized and collective system is respected and valued. Whatever it takes in those countries, based on the culture, based on the social and family structure, there has to be a way. I’m certain it is a net positive for the country.

Q: I wondered what role you saw for Canada on the issues that you are putting forward. Would you like to see the prime minister, the finance minister, the trade minister, others out there with you advocating for these policies?

A: Canada stands out as making a sensible and positive contribution to the world. I’m saying that maybe because of its inclination toward multilateralism. Support for the environmental protection cause. It’s relationship between people and nature. There is a degree of independence about Canada that is extremely useful and I am saying that from old, legal habits. When you think of a safe and solid arbitration place, you think of Switzerland, Sweden, Canada. Those attributes may be associated with clichés, but I think they resonate with a lot of people and they are a solid base for Canada to co-operate and help others. If Canada can support us, and we can support Canada, advocacy for the three-pronged approach, that would be fantastic.

Q: Two of my favourite things I have ever heard you say are, one, when you said you would belly dance if that’s what it took to get took to get IMF governance reforms passed by the U.S. Congress. I won’t ask you to elaborate on that one, but I will ask you to elaborate on my second favourite, which is the “Lehman Sisters” comment when you said if it had been “Lehman Sisters” instead of Lehman Brothers, then maybe we wouldn’t be in this mess. Do you really think that?

A: Yes, I do.

Q: Why?

A: It is the issue of diversity. If you have an overwhelming majority of one sex over the other, and clearly in our case at the moment—and it has been like this for a long time—it is male over female, you tend to have group thinking. You tend to have common references, combined with competition, combined in this case with testosterone. I’m not suggesting it’s a toxic mix, but I’m saying it needs to be tempered and altered and modified and made better by diversity. Diversity in and of itself is a strong positive. In the area of trading, it is now an academically demonstrated fact that women tend to be a little bit more risk-adverse. They don’t move positions as quickly and as erratically as men. Maybe it is a bit less profitably, but I think it would have been less risky.

Q: What is your experience dealing with men? Do you see those sorts of things play out at these events? You were one of four women here this weekend. When you go to the executive board of the IMF it is you and a bunch of guys. You observe these dynamics?

A: Yes. I hate to overgeneralize. Some men, and I am thinking about some of them yesterday in the room, fall into that category that I just referred to, but others are much more; have a feminine side about them, as we all do. I think I have a male side about me and you have a female side about you. It’s a question of repressing or not. Some men were trying to bring about a more consensual view and were not as group-thinking as others.

Q: People must look at you and remark on the tremendous personal sacrifice that you had to make to follow this path. Do you think, because you’re a woman, you carry a slightly heavier burden than perhaps many of the men around you?

A: On the latter, yes, it is the case. Women, as the minority, have to prove their worth all the time. That’s the reason we tend to over-prepare, over-study, over-anticipate. I think it’s the case with many women leaders. We tend to over do it. As a minority, we tend to overdo it because you have this anxiety to fail and let your colleague females down on occasion. I feel that responsibility. Sacrifices? Yes, but I think men who would have engaged in the same kind of professional career as me would have had the same sort of sacrifices.