Spirit of '44
The spirit of Bretton Woods should inspire us to step up multi-lateral action. We can't escape the old extremes of poverty and the new extremes of the elements without it
Like all birthdays, the 80th anniversary of the IMF and World Bank this year is a moment to look back - and to survey the future. And as I opened our parliamentary conference at this year’s Annual Meetings in Washington, what struck me most is how much we need the ‘Spirit of Bretton Woods’ for the world we face today.
Eighty years ago, the United Nations Monetary and Financial Conference, brought together representatives from 44 Allied nations, to establish the post-World War II economic order and create the World Bank and IMF. It was, said Henry Morgenthau, the U.S. Treasury Secretary, a moment when the world realised “the wisest and most effective way to protect our national interests is through international cooperation.”
And that is exactly the spirit we need today. Because 80 years on, the tragic truth is that, Covid, that pandemic of disease, has triggered a pandemic of poverty: 692 million people worldwide now live on less than $2.15 per day - 8 million more than in 2019. It was quite simply the largest setback in the fight against global poverty since World War II.
But as face this, our troubles now come in battalions; slower global growth, fragmentation of trade, sky high levels of public debt, the escalation of military conflict plus climate change together now mean we are struggling to end both the old extremes of poverty and the new extremes of the elements.
On current trends, we will simply fail to meet the 2030 targets we set ourselves in the Sustainable Development Goals:
By 2030, 7.3% of the global population will still be living in extreme poverty, MORE THAN DOUBLE the 3% target set by the global community of nations.
Between 2024 and 2030, only 69 million people are expected to escape extreme poverty implying that today’s rate of poverty reduction is so slow that 2020–2030 may prove a lost decade for global poverty reduction.
Climate change is compounding the challenge. Greenhouse gas emissions reached record levels in 2022, trapping nearly 50% more heat than in 1990. The result, as we know, is that the frequency and intensity of extreme weather - the hurricanes, heatwaves, wildfires, floods and the droughts events - is increasing.
The impact of this is that nearly one in five of the world’s people (17.9 percent) are at high risk from climate-related hazards, meaning they are likely to experience a severe climate shock in their lifetime from which they will struggle to recover. But the challenge is sharpest in the poorest countries. In countries qualifying for IDA, 50% of population cannot be shielded from these extreme climate risk.
Amongst the best reports laying this out is the World Bank’s Poverty, Prosperity and Planet report. Its conclusions are stark and if you want to listen to a brilliant podcast with the report’s authors, you can access that here.
So what do we do about the challenges?
We take a deep breath and make progress - together.
The short-list of things we need to do is fairly straight forward to pull from the flurry of speeches and reports at this week’s Annual Meetings:
Foster inclusive economic growth by prioritising growth in the poorest economies
Enhance job markets with reforms that support women’s and young peoples’ workforce participation
Increase access to capital by knocking down barriers in investment environments and capital markets and supporting venture capital ecosystems
Boost productivity by improving corporate and national governance, investing in education and R&D
Reduce debt levels and build financial buffers to prepare for future economic shocks, while pursuing gradual fiscal consolidation.
Preserve the benefits of the rules-based global trading system, even as challenges to open trade grow.
Boost climate resilience by enhancing resilience to climate shocks and simultaneously lowering emissions in low- and middle-income countries, while asking high-income countries to significant emissions reductions.
Much of this agenda is work for domestic policy makers. But reform of the World Bank and IMF will help. Both have changed significantly in the last few years.
The IMF has doubled its quota size, issued $650 billion in Special Drawing Rights of which $100 billion has been re-channelled into the Poverty Reduction and Growth Trust and the Resilience and Sustainability Trust. Charges and surcharges on regular lending are being cut. It has put in place a comprehensive package to secure concessional lending capacity to support low-income countries.
Meanwhile at the World Bank, the mission, model and money have all changed. Projects are being approved faster and pricing of IBRD loans has been reduced. A new scorecard will zero attention on 22 core indicators sharpening than Bank’s focus on the things that matter.
But having built a better Fund and Bank, we now need a BIGGER Fund and Bank, to serve a bigger global economy and slay the seven giants that now block the path to the Sustainable Development Goals: Poverty, Hunger, Disease, Lost Learning, Conflict, Debt and Climate Change. And this December, the world has its first big opportunity to step with the replenishment of funds for the International Development Association. It is so important that a cross-party group of senior parliamentarians have written to the Chancellor to urge her to authorise a 40% increase in the UK’s IDA contribution as an example to the world. You can see the letter here.
When John Maynard Keynes wrapped up his remarks at the Bretton Woods Conference - in July 1944, he declared to the American president that;
“We, the delegates of this Conference, Mr. President, have been trying to accomplish something very difficult to accomplish—namely, a new order. We intend to mold the future in accord with our will. And we intend to mold it wisely and justly.”
That is the spirit we need today.
A more stable and cooperative international economic system is now mission critical if we seize the prize of what is possible in the century ahead. It is perfectly possible in the century to come for us to see global GDP multiply thirteen-fold, and living standards that improve nine-fold. But it won’t happen unless we pull together with the same optimism and confidence with which we acted to rebuild from the ashes of World War Two.
Here’s my video wrap-up.