The many challenges faced at the World Bank/IMF spring meetings
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The world’s finance ministers and central bank governors have decided to live with the virus: this week they are back to meeting in person for their regular April event known as the World Bank/IMF spring meetings. As usual, the IMF has published its flagship reports, which are useful reading to assess where the intellectual pinch points are in the global economic policy debate.
In recent years, the IMF’s World Economic Outlook, Global Financial Stability Report and Fiscal Monitor have presented a fascinating display of rapid iconoclasm. As I have written about before, the fund sometimes seems at the forefront of a new Washington Consensus, which the current US administration has joined by overturning many of the old Washington Consensus’s dogmas.
There are hints of the same this year. The Fiscal Monitor devotes a chapter (and a blog post) to cross-border co-ordination of taxation to reduce tax dodging and improve enforcement — a goal also pursued by US Treasury secretary Janet Yellen (and even her predecessor Steven Mnuchin, when Donald Trump would let him). And the WEO’s very good account of global trade in the pandemic, while arguing against concentrating production inside national borders, makes a good case for designing diversified and substitutable cross-border value chains so as to maximise resilience to shocks (you read it here first — two years ago, in fact). That sounds quite compatible with the strategy of “friend-shoring” that Yellen announced in an important speech last week.
At the same time, the world has not changed so much that old challenges have gone away. Excessive private debt has long been a concern of economic technocrats, and the WEO has a good chapter (and another blog post) on the possible dangers of the rise of corporate debt in the pandemic. Among the useful advice is to make sure corporate bankruptcy regimes are fit for purpose and able to deal with insolvency problems efficiently to reallocate resources to new activities. Another debt-related problem, highlighted by a GFSR chapter (and blog post), is that government debt and national banking systems are becoming more interlinked in emerging countries, putting them at risk of the kind of sovereign-bank “death spirals” that laid several eurozone economies low in 2010.
But the most innovative bit of analysis this year, in my view, is the WEO chapter on the “greening” of labour markets. I confess I had not yet thought of applying shades of green to the labour market, but it makes a lot of sense. The IMF’s research sheds light on the question on many politicians’ minds: how to decarbonise our economies without causing a jobs crisis for those employed in CO2-emitting industries.
The chapter is full of useful measurements, simulations and policy advice (and again a blog post nicely summarises the findings). The classification of jobs into “green-intensive” and “pollution-intensive” is a useful, if tentative, heuristic, though probably in need of a little tyre-kicking. It finds that most jobs are neutral with respect to the carbon transition. The jobs that are particularly exposed to a fall in fossil fuel use, and those particularly in demand as decarbonisation proceeds, are concentrated among quite small groups of workers, the IMF’s methodology finds. Less surprising is the nature of the concentrated group holding the green jobs: more educated, more urban and better paid than workers in the pollution-intensive group.
If the IMF’s methods for classifying jobs are robust, one hopeful conclusion emerges. The green agenda will require shifting labour from polluting to green jobs. But the required shift is of moderate scale: about 1 per cent of total employment over a decade in advanced countries, and 2.5 per cent in emerging countries. Both numbers are well below the 4 per cent of the workforce involved in the earlier shift from industry to services.
The biggest political obstacle to effective decarbonisation is the fear that it will create a class of politically reactionary left-behinds. Call it yellow-vest syndrome. If the IMF research is right, that risk may be lower than it seems. But it also gives ample cause for worry: pollution-intensive jobs seem to be particularly difficult to get out of, so even a moderate rate of required structural labour market change will be hard to pull off. A bright point is that what it takes to pull it off, according to the report, dovetails with what decarbonisation in any case requires — in particular, a clear path for rising carbon prices. In addition, however, policies directly aiming to make job switches easier and safer for workers are needed, the IMF says: funding for skills training, redistribution and incentives for staying in work (though I am a bit cagey about the fund’s recommended earned income tax credits, which risk depressing wages).
We are in turbulent times: much of the discussion this week revolves around how to deal with the economic fallout of Russian president Vladimir Putin’s war on Ukraine. But as these reports show, even without the shock of a war we face huge economic challenges ahead of us. Get ready for them.
I wrote six weeks ago that like in the 1940s, Ukraine and western leaders need to start planning for the peace now. This month, a group of eminent economists wrote a blueprint for Ukraine’s reconstruction. It is excellent, succinct and argues that the guiding vision should be to fit Ukraine’s infrastructure, institutions and economy for EU membership. Do read it all. But if you are short on time, take a peek at a recorded webinar with the authors — or read my column on the blueprint.
There are a number of new publications worth reading about how to tighten sanctions further on Russia. An international group of experts has published a comprehensive list of the possibilities. A new CEPR Policy Insight shows how to implement sanctions on Russian oil sales. And authors from the Bruegel and Peterson Institute think-tanks show that Europe must intensify sanctions on Russian banks.
A conversation with Branko Milanovic.
The New York Times reports on the breathtaking progress in electric aviation.
Our economies are undergoing large structural reallocation and have to undergo more still. So how can it be right for central banks to try to make investment more expensive and job growth slower?
Also at the spring meetings, the IMF presented downgraded forecasts for economic growth — unsurprising given the war in Ukraine.
China said its economy grew 4.8 per cent in the first quarter compared with a year before.
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