A Time to Repair the Roof

Yesterday I visited Harvard University’s John F. Kennedy School of Government and had a chance to share my thoughts about the state of the global economy. As I told the audience – the global recovery is taking root, but our recovery is far from complete. So I posed this question to the students: Can we use this opportunity of growth to secure the recovery and build a more inclusive economy that works for all? Fortunately, the namesake of the Kennedy school had an idea on this front.

Addressing Congress in 1962, about a year after the United States emerged from a recession, President Kennedy said:

“Pleasant as it may be to bask in the warmth of recovery… the time to repair the roof is when the sun is shining.”

I explored this idea with the students. Here are some of the highlights from my speech:

A key challenge in economic cycles is gaining perspective on what comes next while you are in the midst of it. This is an important part of the work we do at the IMF. In July, we projected an increase in global growth – even better than previously anticipated – for 2017 and 2018. Next week, we will release an updated forecast and it will likely be even more optimistic. As measured by GDP, nearly 75 percent of the world is experiencing an upswing – the broadest acceleration seen in a decade. This means more jobs and improving standards of living in many places all over the world.

But the recovery is not complete.

Far too many people are still not feeling the benefits of the recovery. Persistent low-growth in the decade since the global financial crisis has put a spotlight on the problem of inequality. It has also exposed weaknesses in our ability to adapt to technological change and global integration.

As a result, our social fabric is fraying and many countries are experiencing increased political polarization.

It’s true, we are seeing some sun break through on the global economy — but it is not a clear sky. There are two ways to approach a moment like this. 

The first is to sit back, enjoy the progress, and wait for the next crisis before making big changes. 

The second - and better - path is to approach this moment as an opportunity to make changes that will enable prosperity over the long-term. This is the right thing to do and this is the right time to do it.

Research done by the IMF has shown that reforms are more potent and easier to implement when economies are healthier. Or, to put it in Kennedy’s terms: when the sun is shining, we must repair the roof. But how do we get the job done? We need the right tools to repair the roof.

Sound monetary and fiscal tools and policies are essential to promote long-term, sustainable growth, but they can only take us so far. We need the ‘whole toolkit’, including structural reforms, to fully repair the roof. There are two areas in particular I highlighted:

First, lifting incomes and creating jobs.

A key factor in lifting wages is boosting productivity – making us more efficient. This requires, among other things, cutting red tape, increasing spending on research and development, and investing in infrastructure.

In some countries, wages are also being limited by weak demand, reflected in high unemployment or involuntary part-time employment. So increasing demand can help drive up wages.

We also need to increase female participation in the labor force – which our studies have shown could increase many countries’ GDPs.

Empowering women is an economic no-brainer.

There is a second area we need to focus on: investing in people’s futures and fostering inclusive growth.

Over the past three decades, economic inequality between countries has declined sharply. However, if we look at inequality within specific countries, especially some advanced economies, we see widening gaps and increased concentration of wealth among the top earners.

IMF research has shown that excessive inequality hinders growth and hollows out a country’s economic foundation. It erodes trust within society and fuels political tensions.

We know that inequality is often cemented through disparities in schools and access to health care. This means we need to make education a priority.

Thirteen years ago, at Harvard, a young man invented a social media platform that would connect the world.

But the next Mark Zuckerberg need not come from Harvard. With the right investments in education, she can come from the south side of Chicago, or Sri Lanka, or Senegal.

These are all tools that can support our efforts to repair the roof but there is one more crucial tool we need: international cooperation. Many of the challenges we face require global solutions.

Consider financial regulation where significant progress has been made since the crisis to strengthen the safety of our global financial system but we need to ensure this progress is protected.

Or trade, for example, which has raised global growth and lifted millions of people out of poverty but some have been negatively impacted. Steps need to be taken to improve the system, increase transparency, and make trade work for all.

Cooperation is also critical on climate change —a threat to every economy and every citizen.

Cooperating on all these challenges can help rebuild trust with skeptical citizens — especially if we prove that cooperation translates into more jobs and a brighter future.

Cooperation remains the best way to create a more prosperous future for every nation.

And it is the best way to use this opportunity of growth to repair the roof.

That is the message I will underscore next week when representatives from our 189 member nations convene for our Annual Meetings.

I hope you will follow along at #IMFMeetings https://www.imf.org/external/am/2017/index.htm