Lessons From Spring Meetings of IMF and World Bank

Jeff Sachs reports on the meetings of the IMF and the World Bank. We are moving to a multipolar world in an era of global economic problems, and deepening concerns about sustainability. It is not a pretty picture.

He begins with some data which show how the global economy has shifted. Europe's share of global GDP was 31% in 1980. It was 20% in 2011 and it projected to be 17% by 2017. The share of global GDP held by the US was 31% in 1980. It fell to 19% in 2011, and it is projected to be 18% in 2017. Global GDP growth has been fueled by growth in emerging markets. Particularly in the BRIC economies comprised by Brazil, Russia, India and China.

The IMF may require more funding in order to deal with potential problems in the eurozone. The BRIC nations are willing to help, but they demand a stronger policy role in the IMF which has been dominated by the Europe and by US. Since the US is struggling with its economy, and its political dysfunction, it is not willing to provide more funding to the IMF.  Moreover, even if the BRIC nations are willing to help, they are primarily concerned with their own problems which differ from country to country. We have a global economy, with serious problems, but there is less leadership in a multipolar world.

Increasing demand for commodities, as well as speculation in commodity markets, has raised commodity prices. Since there are constraints on supply, without raising the marginal cost of production, prices will continue to rise. This contributes to a sustainability crisis in which the global economy is vulnerable to supply shocks and ecological instability. The solutions to the sustainability problems require global cooperation and leadership. There is nothing close to the global leadership that is required to deal with the global problems that we face.

Sachs did not discuss another problem that we face because of the declining place of the advanced economies in the global market. As their share of the global economy falls, the nation states will have to deal with difficult transitions. It will be increasingly difficult for fragile democracies to provide the leadership that will be required. On the other hand, multinational corporations have benefitted from the growth of global economy. It has contributed to cost reduction and the expansion of their markets. There will be increasing tension between the nation states and their relationships with large corporations which have little real nationality.