Transcription
It is. I'd like to welcome everybody here. This panel, I am so excited about it and frankly I am so honored to be on this stage with this group of people. Uh I would like to introduce them. Uh first sitting next to me is the president of Singapore, Dharmman Shan Mugaratnam. >> She she practiced >> for 24 hours but he told me just to call him President Tharman or Mr. President. And then of course uh president of the European Central Bank Christine Lagarde uh is next to him. And then of course the managing director of the IMF Cristina Gorgva, Adena Fre Adena Freriedman of the NASDAQ. She's chair and CEO of NASDAQ and Gordon Hansen who is the Peter Worerheim Professor in Urban Policy at the Harvard Kennedy School.
uh this is a tremendous group of people to talk about the economy in flux around the world and how many changes there really have been over the past 6 to 12 months and that's where I want to start uh managing director Gorgva I want to start with you how much has the world economy changed over the past six to 12 months.
>> This is an excellent question visav 12 months ago. It has gotten worse but vis 6 months ago it has gotten better. So what is our story? Our story is when we were here in April there was a big trade shock and tremendous uncertainty of what the impact may be. Our fear at that time was that there could be contraction of growth and that was reflected in our projections. Since then what we witness is the world economy has been remarkably resilient and when you look at the reasons for this resilience two stand up. One, countries over the last decades have built strong fundamentals, good policies, strong institutions. And this is particularly applicable to a big part of the emerging market world. Good policies pay off. Two, the uh private sector also over this last decades has gradually moved forward for a bigger row in the economy and private sector is more agile. Um and then we had the um so far nice surprise that countries decided not to retaliate in their vast majority when hit by tariffs. So with only two exceptions, we have 191 members. The US and two plus two China in in the beginning Canada retaliated. Everybody else said thank you but no thank you. We don't want a trade war. We prefer to retain trade as an engine for growth.
now resilience so far but I want to be straight with this audience I don't know whether this resilience has been fully tested and I can think of three big risks if they materialize there will be trouble risk number one maybe this restrain on trade is not going to last. Um, we see, for example, Chinese goods that were to come to the United States being redirected to Asia, to Europe, would that be managed still with patience or there could be a down spiral of tariffs. Two, financial conditions, they're wonderful. That's actually another reason for resilience. There is access to money. There is access to capital. But that has led to stretched valuations especially in AI investments. Huge enthusiasm. AI would lift up productivity. But what if it doesn't? That could lead to that could lead to a shock. And the third big risk as always is the unknown. We got we learned over the last years since co think of the unthinkable. I don't know what the next shock is going to be. I don't know when it is going to come but I'm pretty confident there would be one and then we are tested.
>> There's a lot to unpack there. Uh, President Thurman, I want to go to you just to talk about what your experience has been as the head of an open economy in Southeast Asia during this period in terms of what you've observed and how much has changed in terms of trade flows and the consistency that people feel like there is from policy.
>> Well, I think there's a this is a setback. It's a setback for Asia as a whole. It's a setback for the Southeast Asian nations. And we got to start thinking about how we can make it an opportunity. The setback is clear. Uh if you look at most Asian countries outside China, we know about the problems China is facing, but look at it outside China. They're facing a double whammy. There's the US tariffs on the one hand, which will itself have a fairly significant impact. There's also the diversion of Chinese exports >> from the US to other Asian countries and to Europe which Calina just mentioned. And then there are two other I would say underlying forces which are also reducing the tailwinds u that were in favor of growth in Asia. One underlying force didn't start with the US tariffs but is now picking up steam is the onshoring of investments into both the US as well as into China. China is also onshoring investments and going for more self-sufficiency. And a second um underlying challenge I would say is that a lot of Asia's growth rested on a US China trade corridor and as that corridor thins as it thins out we've already got to find a substitute for it and this is where I come to the opportunity if the US is going to reconfigure trade we've got to reconfigure trade as well.
>> Mhm. We've got agency.
>> The middle powers and the smaller nations of the world have agency. Just think of what's possible. The CPTP, the EU, the GCC, ASEAN, they're not small trading arrangements. By the way, if the CPP, TPP, and the EU start collaborating with each other, that's about 42% of world trade. If ASEAN and EU start collaborating with each other, that's more than a third of world trade. So if you want to reconfigure world trade, let's reconfigure world trade. Let's go for new arrangement that will allow developing countries in Asia to continue to rise up that ladder of value added trading first within each other, within ASEAN, within Asia, but very importantly across the world. and the good you know this is a blessing of the US tariffs it's spurring regional integration and it's spurring bridges between regions.
>> so I think we will end up after a period of some difficulty and some adjustment with a new resilience and we've got to work towards it let's work towards this new resilience.
>> Madame Lagard, you're a policy maker you've been at the helm of the ECB for almost six years how difficult Ult is it to understand things like inflation, like economic strength when you have the dual shocks of the idea of tariffs on the one hand, but also exports from China coming into Europe and actually suppressing price growth. How do you weigh all of this?
>> Well, and don't forget as well the unjustifiable war of Russia against Ukraine which is at the doorstep of Europe. So, first of all, it's really nice to be back here. Last time I was here, I think it was my Farewell party. So, being back here is really really nice.
>> Let let me say I'm going to um follow up on where Cristina left it because my conclusion is that the worst is not always certain.
>> And if I may say, we've been surprised to the upside. Mhm.
>> Year ago, step forward today, we had anticipated retaliation tit fortat. Europe didn't do any of that. As a result, the expected inflation contributor did not participate in the process. On the exchange rate front, we expected euro uh to depreciate and the dollar to appreciate. What did we see? Exactly the opposite. So it was no imported inflation as a result. And on the third point, uncertainty. We had uncertainty uh granted, but eventually this driver was not as uh bad as we had anticipated. So because of all that, our monetary policy was not confronted to the traditional trade-off between stalling growth and rising inflation. Number one. Number two, the risk to growth and inflation eventually eventually narrowed and were far more balanced. And as a result of that, we have and that impacts the tools that we're using. In other words, models. We had to navigate a far more difficult situation where a lot of what was happening sort of in the course of normal business, which was not normal at all. We had to face war. We had to face an tariff. We had to face uh I would say accelerated greed as a result of the impact of new technologies and uh social media and we had to face ubris in quantities that we could not anticipate and that certainly impaired our capacity to rely extensively uh on models and encouraged us to use more judgment. Bottom line, we are currently at least in the euro area at 2% inflation, which was our medium-term uh goal. We are at 2% interest rates. It's a surprising coincidence, but we consider that where we are today, we are in a good place, and we are well positioned to face future shocks. And future shocks there will be both Cristina and Talman said it. I completely agree with that. We will be facing shocks. In what direction? How do we adjust our policies in order to deal with it? What kind of regulatory framework we have to in order to reduce the financial instability risks that abound as a result of uh new technologies breaking through into the financial system. It will be incumbent upon us advanced economies, emerging economies, low-income countries to agree on what will be the best way to cooperate in order to maintain financial stability, price stability while helping with the development of growth, which hopefully will be inclusive and sustainable.
>> There's a lot to unpack there, too. Several panelists uh have been talking about the technological backdrop and Adena, you've been watching this as head of the NASDAQ in terms of just how much private company innovation has dominated what we've seen in terms of the upside surprise uh that Madame Lagard was talking about. How sustainable do you see this? Is there a disconnect here between the uncertainty in the broader economic backdrop and the public sector and the real dynamism that we're seeing and elevated valuations in the private sector particularly having to do with tech?
I I actually would say that I think that investors have done a good job of synthesizing everything we've been talking about here and demonstrating it in the markets and how they're engaging with the markets. So, you know, on the back of COVID and in the aftermath of COVID with a very changing uh monetary policy and a very fastchanging monetary policy to tighten monetary policy, investors kind of took a step back and took a very riskoff stance. And you saw that in terms of not as many IPOs coming to market um and some and some market frankly some market, you know, market cap reductions in 2022 going into 2023. But since then, I think that the investors have synthesized the fact that going into 2025, we have u likely a you know a moderating monetary policy in the United States. We've already seen that in Europe. That's very that's very helpful. Um and that's also extremely helpful to small caps. I do need to call out small cap companies. you know going from that change in monetary policy small cap companies are facing a situation where 40 to 45% of their earnings are going to paying interest expense right now.
>> So they just cannot reinvest their capital to grow. They're having to re they're having to to use their capital to pay off pay off debt or to manage their debt. And that's that's very constrictive. So as we are seeing some changes in monetary policy, you're seeing the small caps starting to lift up as well. But the rest of the market in particular the large caps have had um an incredible environment around them. There is an incredible technology that is is coming. It's on the scene. It's extremely early but it's already having effect. I think that people you know as a general general thesis tend to be very you know very very excited enthusiastic early and at the end of the day this technology in my opinion will be the fastest moving and most consequential technology that we'll see in many decades. Uh it's an incredible technology that will come and and I do think it will achieve a lot of incredible productivity gains over time.
>> It takes time though you know it's very early and people get very excited but the fact is that as we build out the infrastructure the models are improving every single month every single quarter. the way that the models are being able to be brought together now through agents and digital workers to be able to um string together capabilities will drive productivity and you are and investors are understanding that. So investors are there to predict the future and they definitely predict a bright future. But I would also point out that since the beginning of 2024 until today while the NASDAQ 100 is up 47% the earnings of the companies in the NASDAQ 100 are up 32%. So there is a lot of justification for the fact that the markets are performing the way they're performing and then you've got the promise of more and then you also have an easing monetary environment which also tends to be um supportive of markets and then you have a deregulatory environment which tends to be supportive of growth. So there's a lot to synthesize but I would say investors are synthesizing it and demonstrating it and what they're showing in the markets right now.
This is all predicated on the idea that we're not necessarily going to be tested. And I'm going back to what Cristina Gva, the managing director, had to say. And Professor Hansen, I'd love you to weigh in on this because I know you have a pretty provocative idea about how it could be tested in the near term in terms of the tit fortat and just how much we have seen the complete portfolio of the trade tussle that's been going on.
So we're really still in the early stages of uh defining a new trade regime >> and um and it's been extraordinary in so many dimensions. One is uh that the nine most important policy makers when it comes to global trade policy are the Supreme Court justices of the United States. uh sometime probably and after hearing arguments about uh the international economic emergency powers act probably in that will happen in early November uh in January in all likelihood they will decide whether the president of the United States has free reign uh to set tariffs or uh whether uh big changes in tariff policy across the board have to go through the US Congress. Um, if we're in that first world, then I think the incentives uh to retaliate fundamentally change. The managing director was, you know, spot on in saying that the limited economic consequences we've seen from the trade war so far are grounded in the absence of retaliation. But that retaliation is in part because you don't know which United States uh you're taking on. And we're going to learn that uh quite soon. Once that gets resolved, then I think we're going to be countries are going to be choosing between the world that President Tharman laid out uh in which uh the EU, parts of Asia, Australia, Canada come together and say we want civilized trade uh relationships. Come join us and we can play by a fixed set of rules. And then we'll have kind of trade barbarity going on in the rest of the world in which you got to take on the United States, the United States is going to do one thing one day and it's going to do another thing um the the next day. But if we're in a different world, if the president of the United States is constrained, then the you that that pressure for retaliation looks quite different and we're more in a world that's like what happened with uh anti-dumping policies and retaliation against anti-dumping. It's about specific industries. It's bilateral conflicts at different moments in time and the things that we can manage that don't throw us into allout trade war.
>> Does anyone want to respond? Just want to throw this out there because I see a lot of people writing.
>> Madame Lagard, >> I'm very I'm delighted to pick up on your two points because I think it describes exactly the policy of the European Union. the two things that are happening that have been awake awoken if you will by the uh the uncertainty of which administration we're dealing with. Number one, there's been significant public investment and a drive towards beefing up defense in particular at both public and private level. So that's a boost that is coming from investment and development of activity. The second one which is obvious it's an acceleration of the negotiations that were underway at a slow laborious way with quite a lot of partners specifically in Eastern Asia but other countries of the world as well. So our trade secretary in Europe is actively engaged in exactly that movement just in case.
>> Well, but I wonder President Thurman how much you see already people rearranging versus actually waiting to see about the Supreme Court case to decide how much to move away from a US-driven model.
I think um the unstated assumption in China and most Asian countries is uh there will be continued unpredictability.
>> Mhm.
>> Uh there has been a step change in the whole regime of global trade. So regardless of how the Supreme Court rules on this or that, uh you're now in a more unpredictable situation and it'll be wise to start building alternatively, building new resilience, building new trade connections, building new investment connections, uh investing together to tackle the challenges of the global commons, even if it doesn't include the US for now. I think they'll eventually come back, but even if it doesn't include the US for now, we've got to press ahead. So there is, I think, an unstated assumption that we are facing a more unpredictable situation with the largest economy in the world and we can't wait to see what happens. We've got to start making alternative plans and in the meantime, keep our relations with the US as best as we can.
>> Mhm.
>> Keep our relations with the US. It's still a major market. Uh it's got the most innovative companies in the world. Keep our relations with them.
>> Um so my um experience uh over the last almost a year is the following. Um, I lived through a revolution when the former Soviet block collapsed and countries moved from non-market to market economies and I can say that the transformation that we are observing is quite significant. Uh so I'm not sure we will go back to the world we came from of um fairly orderly multilateralism. But it doesn't mean that we would be moving forward in a world that is not based on international cooperation just because we are bound to cooperate in different configurations in a different manner than before. Any place I travel in regions I hear the same message. U IMF help us to think through trade integration, financial integration. We're talking here about trade, but they are also capital markets. There are financial um like you know the EU is of course much ahead of everybody else and that as u as president Tarman said this move towards collaboration within regions. I was in in uh the Gulf Gulf cooperation council is moving very rapidly in trade integration and is talking very seriously about financial integration. The same is in Assean. Um Central Asian countries they used to be not too comfortable working together. They're now looking for opportunities to work together. So that is going to happen and then this groupings then they would collaborate across borders. The EU is very active in reaching out and some of these relations would be more stable and some would be less stable. Therefore we have to get accustomed to some inefficiency in the way we cooperate but cooperate we will. And my last point on this where we are headed um is this this notion of uncertainty. I actually think that we are now in an era in which uncertainty is the new normal. It's it we are not going to have the comfort of predicting you know five years ahead what is going to happen. And you see a little bit and I would be interested in Christine's view on that. You see a little bit of this impact of uncertainty on the trajectory of gold and also on longer term yields. People are saying okay you want me to lend you money for 10 years, 15 years, 20 years. God knows what would be then you need to pay me more. So that I think is something that um policy makers here may not be comfortable with because certainty is preferable. But I think we should embrace it and say hey that opens up more opportunities because there are multiple combinations of relations that could be winning uh relations.
>> Dina.
>> Yeah. I I mean we operate markets in in Europe as well and um I would say that what's happened over the last year has been an enormous catalyst for Europe to come together and think differently about what can be in terms of financial cooperation um and bringing bringing the you know the savings and investment union construct is a new you know it's a new energy around how do we actually bring Europe closer together how do we unlock the potential of this enormous economy um and And what I found is as you go around the world, you're hearing that in in other parts of the world too. We we operate we uh provide technology to about 140 markets around the world. So we speak to the capital markets and the governments all over the world about what they're trying to do. you know they ask of course how do you create you know how do you create this innovation economy and there are lots of things and I think we'll talk about that but it's it's um it's very possible and people are thinking differently about what they they're taking agency as you said >> in terms of what they can do with their own economies how they can spur their own growth how they can collaborate and cooperate across across borders in ways that weren't before and personally I think in the end that will result in a stronger world um and just a different relationship with with the United States and elsewhere. But I I'm an optimist, so I usually see this as a catalyst for us to to think differently about innovation, to think differently about tax policies and and economic policies and equity ownership and all those things that kind of frankly spur growth in a country and and drive investment also by the way that can strengthen countries.
>> Happy happy to follow up on that because it's nice to be praised by non-Europeans. So thank you. But I think I think there is a momentum you're right in two directions. The first one is at home. We have an internal market which is the largest economic zone in the world still at the moment. But we have inflicted upon ourselves one border after one barrier, one license requirements after another uh hurdle that uh entrepreneurs and corporates have to jump over. I think the momentum is here to now reduce as much as possible of those internal barriers and the excellent study produced by the IMF which indicates that on goods it's as if we had a 40% tariff and on services as if we had 110% tariffs is you know a big kick in the butt to say get on with it remove that 40% remove that 110% and don't complain about you know your your status the second direction we are heading into and as often with Europe it goes goes one step at a time and there is no big bank so to speak is on the capital market union where we really want to be attractive to non-European capital number one so investors can come over and we want to make sure that the savings that are currently massively into deposits you know even you know they're here in the United States 300 billion of those of yours European savings are right here yeah so we want to say you don't have to travel the Atlantic you can just stay here at home and generate a good yield. One last point uh because uh Cristina prompted me on that. Yes, the long-term yields have behaved in a quite surprising way and they have gone up and it's certainly attributable to a risk premium that is expected and required by the investors. But it's particularly true in the 30 years, not so much in the 10 years.
>> And it's not as as as heavy as we had feared in the first place. It's it's come down a bit. And I think that the risk premium requested is now much more um reasonable by all standards.
>> And we're going to get into uh the fiscal deficit and how that changes and gives a very em tinge to some DM. But Professor Hansen, I'd love to get your take from China's perspective >> and sort of how much differently they're approaching this new landscape and how that kind of changes things in ways that people might not fully appreciate.
So, we're in uh the second big phase of of China's economic growth uh since it it joined the the global community of trading nations uh in the 1980s and really in the in the 1990s. And that that first phase was a pretty mechanical one. It was China making good on its latent comparative advantage in manufacturing, reallocating labor from farms uh to factories and undergoing a process of urban urbanization that had been staunched by the mauist policies of central planning that were in effect uh for 30 years. That had played itself out by around 2010. And now what we're going through is this new phase of Chinese growth which isn't driven towards that natural process of of comparative advantage. It's driven by the state deciding where China should go and enlisting competition among companies and competition among regional policy makers to figure uh all of that out. the the f that first epoch kind of China shock one was market forces were stronger and the government was neutral to some extent when it came to specific industries. Now the government is much less neutral. What China wants to be in command of are quality productive sectors. Um and what's different about this time around is whereas last time what you're really talking about is engineering redistribution inside countries. The US went from producing manufacturing to producing intellectual property. Now what we're really talking about is the potential redistribution of technology frontier industries from one set of places to China. That makes the stakes of what we're living through uh very high. But I don't want to I don't want to be the voice of gravity uh on this panel. their reasons for optimism and that is because there are self-regulating mechanisms here and that is what China is doing is extraordinarily expensive uh and you can't make those sorts of investments forever un unless you're going to generate a self-reinforcing process of productivity growth and we're not there yet.
>> Well, managing director, this goes to the question of the resilience of developing markets and developed markets to spend in order to be in this race because right now these are all highly capital inensive endeavors. So how limited are developed markets at a time when the fiscal deficit is so large?
>> So what we are seeing is very interesting. Uh many emerging markets and even some lowincome countries have gotten the lesson of history that if you have strong institutions you can withstand shocks better. We did a study and it shows that those emerging markets where they made the investment in strong institutions and good policies if a shock is to come would have half a percentage up to 1 percentage point higher growth and they would have 0.6% lower inflation because they have this fundamentals right. Some of this they they have created um uh independent central banks. They have created fiscal councils. Some of them have put fiscal rules in place. They built reserves to protect themselves. Uh and this is not a small part of emerging markets. So in a way what I fear is that now we see some of the advanced economies being a bit more um leisurely. Well here in this country there there are discussions around independence of the fed. Uh that is something um emerging markets learned. Don't touch let them do their job. We are safer uh when we have it. uh we have to recognize that there are vulnerable middle inome countries that have not done this hard work. They haven't built foundation for growth. They haven't built reserves. When a shock comes, they're in trouble. And then there are vulnerable countries because of their location on this planet and their vulnerability to climate shocks. they get they can see 200% of GDP loss just by one day of hurricane and that is a different not that they don't want to be uh resilient but they are in a very difficult position and then we have low inome countries fragile states uh so when you look at the world what you see is a I I'll give you a number 100 poorer countries countries, middle inome and poor countries hold somewhere between three and 5% of global reserves. 10 countries hold 2/3 plus of global reserves and this is where we come into play. The the the IMF, the World Bank, we are there to provide extra layer of resilience. uh and yet I think it would be much better if we are more proactive in creating opportunities, creating jobs, building a bridge between the capital in the north that is now here to the labor in say in Africa where there are young people eager to have a job. So as a world what where I'm concerned about the current developments is that we are losing sight of some of the big from a humane standpoint big questions. How do we have a a world that is converging? It used to be that the idea was and trade was the the um um transmission line for this convergence that you are poor then you do uh labor intensive stuff then you get richer then expand in manufacturing and you go up like this and now now what is going to be compensatory for the loss of this transmission line. uh and Tarman I would I would u urge us when we think about configurations for the future to also think about this because it is morally right but also because it is in our own self-interest if we if we have a diverging world it would be a more insecure world for all of us.
>> Can I add just one word because there is a great study that you did at the IMF which shows as well that trade is conducive to innovation. If we put a break on trade, >> we're just shooting ourselves in the foot when it comes to innovation and productivity is is, you know, one thing that we absolutely need.
>> There was a lot to to unpack there. And President Thurman, on the independence of a central bank point of view, how independent can a central bank get in your experience in monetary policy and as an economist for many, many years if the deficit gets to a certain level?
Well, I think it's a uh repeated there's been repeated history, repeated episodes in history of uh governments running up large deficits and then having to find ways to finance it. either by putting pressure on central banks to lower interest rates or to just gradually by way of um stealth inflation um making their debts cheaper to service >> through inflation. Uh it's not just about one or two countries today. It's been a repeated uh practice in history and it happens in countries where you've got seemingly independent central banks as well as in countries where central banks were were never independent. So it's a real risk but I think that's uh you know we it's a headline issue today. Uh it captures a lot of attention. Uh I think our focus really has to shift to what Cristina was talking about. You know we are treading water today. We're obsessed with the short term.
>> Uh, and if you keep treading water, we'll eventually be drinking sea water. We've got to start looking at the really big issues on the horizon. And they're not distant issues, by the way.
>> Climate change, by the way, is not a distant issue. It's about insurers today deciding that some states are uninsurable and many homeowners are uninsurable and will not be able to get their mortgages. It's coming home to roost. These are not distant issues. They're not in the air. They're on the ground and they will affect communities. So we've got to shift our whole focus in fiscal policy and in economic strategy especially towards addressing the really big issues because if we don't do it we're going to have to end up spending a lot more than we otherwise would. So even from the point of view of just fiscal prudence is better to repurpose fiscal spending and repurpose revenues today rather than have to drink sea water in future. spend more to mitigate climate change and to adapt where you really have to particularly in Africa and some of the developing world. Spend today with really what are limited allocations of resources to prevent the next pandemic or to make it much less hurtful when it comes much less hurtful to human society. It's very sensible thinking. spend today to help the developing world become a source of demand for the rest of the world to grow the global middle class. Not a huge amount of money required, just a fraction of the surplus savings that today goes towards funding rich countries fiscal deficits, which is where most of the surplus savings in the world go. just a fraction of that, >> whether it's through aid money or through the World Bank and the MDBs or by working with the private sector and adding a little bit of a public guarantee, >> right? Not a huge amount of money, but the bang for the buck that comes from addressing the really big issues is significant compared to the way we're just treading water today. So, repurpose fiscal strategy. When Christine first took over as managing director of the IMF and I happened to then be the chair of the IMF. I was thinking back Portugal was such a success story. They started off in a mess. They ended up four years later, not 10 years later, four years later as a success story. They repurposed both revenues and spending. They cut spending on education and health and it may appear oh terrible austerity is going to lead to hardship. What happened? The educational performance caught up with the rest of Europe. Their health performance caught up. They ended up cutting 6% of GDP from their primary fiscal deficits and they became a vibrant economy.
>> They expanded their social safety net for the poor. So they repurposed spending away from the middle class and the upper middle class to the poor.
>> They cut out the waste in healthcare spending which by the way is a huge issue in the US and most of Europe still today. Huge issue.
>> If you've got a back pain they send you for imaging. If you've got a headache they'll send you for im imaging.
>> There's just huge waste in healthcare. So think about repurposing health care spending, repos repurposing social spending in general, taking care of the poor, taking care of social mobility, and then using the resources that are freed up to address the really big issues. Think like the insurers do. Insurers have no time for ideology. They've got their bottom line and they are starting to price very differently climate change. But act like venture capitalists.
>> Think like insurers but act like venture capitalists. Take risks and invest for the future.
>> I think the recipe that Tommen is giving would also address the immigration problem >> which is a recurrent issue the world over in advanced economies. Repurposing fiscal investing in the right place making sure that both from climate change poverty people in those low-income countries are protected will also address immigration in a big way. I also just to add to that point when you think of the power of the capital markets to also be an agent of innovation around those issues. I I also think about every country has the potential to have a vibrant capital market. I mean it it's it's not just you don't need to be an enormous economy to achieve that. And one of the examples that we like to point out is Sweden. It's a country of 10 million people and it has an incredibly vibrant capital market. But it's not because the techn is great, which we we're we're part of that, so we like it. But it's really because of decades of work by the government to establish a whole policy regime that encourages private investment. So it encourages equity ownership of the citizenship of the citizenship of the country with incre really great intentional financial literacy programs, tax policies to have low tax savings accounts, bankruptcy laws that allow people to try and try again an innovation economy that really encourages and spurs um the university systems and others to invest in in innovation alongside the cap the private markets. And as a result, if you look at Sweden, it's got um 56% of the citizens in Sweden own equities. The only other country that has anything like that is the United States, >> and it's more than double what the rest of Europe um has. And then the second is you've got this pension system that really invests very heavily in the domestic markets, which is also another pool of of capital that comes in that also benefits citizens. You also have these um low tax savings accounts that have been incredibly effective in Sweden and in Japan in spurring equity ownership. Um and you have um we had I would say in Sweden over the last 5 years have been 233 new issuances on the Swedish stock market which is only second to the UK in Europe. Um and it's been a lot of small to medium enterprise businesses in addition to the large caps. We've had $6 billion raised in the US in the Swedish markets this year, which is more than double any other country in Europe. So, it's a small country and it's becoming a more diverse country too. And yet, it still has this this whole system that is created that allows for that innovation economy to grow. And I just I always say people can solve these challenges when they think long term and then that innovation can go towards the a lot of the innovators in in Sweden do go towards climate change, do try to address the bigger problems, you know. So it's really interesting model to look at as the IMF or as the World Bank.
>> Professor Hansen, I'm not saying that you're going to serve as as sort of the the wet blanket, but I do want a reality check about what actually is happening and that a lot of funding has moved away from some of these things, right? I mean, it's sort of whether it's climate change, whether it's international uh investments because there is a prioritization of spending on the AI race, on some of the other technological infrastructure that is crucial for this. I mean, how much do you actually see those flows taking place that really helped places like Sweden and Portugal?
So I think um one way to think about it is in addition to maintaining macroeconomic uh resilience uh which we've learned how to do painfully over the past 40 years but independent central banks and well-managed fiscal accounts and what the IMF preaches to the rest of the world. We've kind of it was wasn't easy but we figured it out.
>> What we've had a harder time figuring out is how we achieve microeconomic resilience. Uh what do I mean by that? That's the ability of an economy to move capital and labor from doing the thing you were doing to the thing now you need to do and figuring out what that thing is. On the capital side, well functioning capital markets are important, especially that feed into the the formation of of young small businesses. The labor side is where we really mess up and we've learned this over the past several decades when we looked uh have looked at how economies have adapted to the loss of manufacturing. Um, this could be the China trade shock. It could be technological change. Could be changes in the regulatory uh environment. And the issue isn't what are college educated folks doing. It's what are folks with a secondary education or what are folks with some college education. In the US that would be community college. Um, an example of how to do this well is what Costa Rica did. Costa Rica felt it world its world changed in 1996 when Intel decided to go there and all of a sudden it brought electronics manufacturing. Then a couple decades later, Intel decided, "No, we're getting out of town." In the interim, Costa Rica had invested in technical training and English language training in high schools, which made its uh labor force resilient to that sort of shock and was able to sustain production in semiconductors, expand into medical devices, uh and keep the economy moving forward.
>> Yes, >> we've learned lack of resilience by what has happened, uh in the United States. So if we think about adapting to climate change, we think about adapting to AI, the other shocks that are coming along down the lines, we need to make sure we have the investments and the institutions in place to help us redeploy labor. Otherwise, we're going to pay the price like the a similar price we uh that we paid for the adverse adjustments to manufacturing decline.
>> And and actually I'd say in Costa Rica today, a lot of software businesses have teams in Costa Rica. English English language is one as you said the technical education the ability there's it's a great skill base in a small country it's a good example where they've been able to diversify their economy beyond that.
>> President Thurman, I know you've had a lot of experience and uh Singapore is rated very highly in terms of AI adaption uh in particular what's sort of the recipe there that you've seen >> and you were minister of education for a period of life what happened best time of my life.
>> um but just to follow on from the point that Gordon was Um, why is it Sweden? Why is it Costa Rica? Why is it Singapore? Why is it Chile?
>> Because we are countries which have very little room for complacency. We're small, always a little bit vulnerable. We have just very little room for complacency. So the reason why we go for resilience, the reason why we act early, the reason why we act with a certain robustness to prepare our workforce and to help anyone who's displaced by technology or competition is simply that sense that we have very little room for complacency. And I think we we're now in a situation because of the AI revolution and because of the uncertainties we now face globally in world trade and investment where large countries have to start thinking a little more like small countries recognizing that there's very little room for complacency and you're just so much better off if you act early and if you act quickly to help someone who's displaced and a community that's displaced. Sweden. 90% of workers who are displaced in Sweden end up back in a job within a year.
>> And it's not by any magic. It's not a new economic formula. It's getting going. Just getting going with it. Bringing the employers in to talk to training institutions, looking at where the workers are and what pool of skills they already have, what skills are adjacent to the skills they have which they can move into and getting them new jobs. Not anything magical, not a whole new economic formula, but a sense that you can't be complacent and you've got to move early.
>> Madame Lagard, one theory out there is that central bankers, particularly in the developed world, should heir on the side of running the economy hot in order to facilitate this type of economic backdrop where people can get jobs. There is a theory that if you're going to air on one side or the other, it's better not to have a group of people that are left behind for a cycle, especially at a time of such technological transformation. What do you think about that?
Well, the purpose of uh monetary policy is certainly not to put people on the door and to get them unemployed and redundant. But the purpose of the monetary policy that I have to put in place with my colleagues is focused on one priority which is price stability. We have a single mandate. It's a primary objective. We also look at all sorts of other factors including uh the economic uh purposes pursued by the other institutions, the employment situation what have you. But the primary objective that we have is price stability and that's the way in which we you know procure this in environment where fiscal policies where other policies can be deployed with a degree of certainty about what is the future. So we do manage that as as closely and as well as we can to procure that stability.
>> Should it be a dual mandate central bank?
>> You know, I don't ask myself that question. I've got enough on my plate. Thank you very much. And I do what I have to do.
>> I'm wondering uh from from your standpoint, managing director Gergeva, this idea of how to create resilience and and frankly faith in institutions at a time of such transformation. I'd be curious. Do you think we're doing a good job?
Uh well I think that we are doing a better job uh now than we did 10 years ago and then 10 years beforehand. We are learning. There is a um amazing learning process that is going on. Uh and I my conclusion of what I have experienced in my life what I experienced in this institution is three-fold. One, keep channels of communication open with others. Whether you agree with them or you don't agree with them, make sure
that they are opportunities so you can pick up on something that maybe may matter to you. I think of the IMF as being par excellence place where we keep channels of communication open. 191 countries, they come, they talk with each other. Uh make it as non uh provocative as possible. I'll tell you one thing I I communicate when the members come. My message is leave your trade wars, your cold wars, your cold wars outside. Come here. Let's talk about the economy. How can we do better for people?
Uh my second conclusion is um um Tarman is right that countries that are faced with more constraints may be actually more active. But I think there is one more ingredient and it is leadership. You have countries in similar situations and one does much better than other and you look under the hood of these countries very often more often than not there is leadership um and the third conclusion I draw is that there are certain things we know we don't have to discover them we know them we know that fiscal buffers protect you when a shock comes. We know that transparency in institutions, accountability to people make it more likely they would make good decisions. We know that uh when we provide people with opportunity to learn to learn they can adjust to a changing environment. So there is a menu of things we know and then the question is how do we make sure they get done and then we hit the toughest component of all common sense. The most common thing about common sense not very common. We do do so many stupid things just because we we refuse to be uh to be sort of honest with the reality that's around us.
Dina, >> So I, you know, we've thought a lot about the what's been happening with this technology and where it's going. And as you think about the last 20 years or 15 years, the world had to deal with an economic shock of the financial crisis that resulted in most of the developed world and the developing world building out resiliency, building out institutions, putting a lot of I would say gates in the in the gears to make it so that we could have more safety and more security in the financial markets and in the economies. But we have this technology that's an unstoppable force that's coming and and I would say that at this point with that level of transformation from this incredible capability that's that's on our doorstep, we have to move to a a time of agility and adaptability.
>> Absolutely.
>> And so we have to look at what's made us so resilient. There are a lot of things. I mean I I will point to the US markets for a second. I mean we are hyper resilient as a system. The US equity markets we're all interlin. We'reworked. We have failures. We've had mistakes. And so we've all figured out how to make that resiliency work. Can handle immense amount of volumes. You're seeing huge volumes and huge shocks in the system. And they were all being handled and absorbed. So that resiliency is there. But now it's a time to say, okay, on that basis of that foundation, what do you really need to have to remain resilient while becoming adaptable? Because that adaptability that whether it's digital assets or AI adaptation is happening. And so if if the institutions aren't prepared for it or a country's not prepared for it and they're calcified in their views, they will be left behind. But if they say, "Okay, I want to have this base. It's and make it so that we have a resilient base and then we we change our policies. We think differently about regulation. We think differently about taking down some of the gates, whether it's state regulation for us and zoning or whether it's country regulation in the U that's holding us back from allowing this this new technology to take force and thinking about education, thinking about all the things that as a as a as a region or as a country really need to change. I personally think that we're at this cusp of this moment and that leadership is critical to making sure that it's successful and it's propagated around the world.
Mhm.
>> We're almost out of time, so I do want to get to this question and Madame Lagard, I'm going to put you on the spot with this. There is a lot of hope, as you can see, in all of the things that artificial intelligence can do. There's also a question about whether we have priced that all in and then some, and the systemic risk that comes with how high valuations have gotten, how high spending has gotten. How concerned are you about that given the fact that in the near term you need to manage financial stability as a risk as well?
>> Well, I agree very much with some of the points made by Adina, but I was also thinking that this should not happen at the expense of financial stability, right? And this should not happen um at the expense of the right distribution and the right diffusion of those improvements resulting from artificial intelligence. We don't want to create a universe where there would be a massive divide between those who benefit from it and those who suffer as a result. So I think when it comes to policy makers we have to be very careful that those two factors are taken into account and you know it cannot be just technology unleashed and happen what happens. I think policy makers have a key role to play.
>> So I want to say here we all give a round of applause to Madame Lagard for saying financial stability matters because we are in the house of financial stability. Bravo.
>> Well, that's a good place.
>> And I I completely agree with your comments. Let him regard it. Definitely. Well, I just want to thank you all so much for taking the time. This has been a tremendous privilege for me and I'm sure everybody in this room as we all try to grapple with the reality. Thank you.