Transcript of a CEPR event titled, "The Scorecard on Development, 1960–2016: China and the Global Economic Rebound." Video available here.

(Lightly edited for readability)

Deborah James:

Good morning, everyone. Thank you so much for joining us here on this holiday weekend. We are so happy to have you all here. My name is Deborah James, and I am the Director of the International Program at the Center for Economic and Policy Research, and we welcome you today to this very exciting event on The Scorecard on Development, 1960 to 2016: 21st Century Progress in Developing Countries and the Importance of China. We are also livestreaming this event, and for those of you who are involved in Twitter if you would like to make any tweeting comments about the event, we are also using the hashtag #development and the hashtag #ScorecardOnDevelopment.

So, we have a very exciting panel here today. We are first going to have Mark Weisbrot present the paper. CEPR is just finishing our paper, “Scorecard on Development,” which analyzes the latest trends in global development and their impact on poverty and economic progress throughout the world. It looks at data from 191 countries on economic growth and social indicators over the last 56 years to see how countries have emerged from the long period of reduced economic and social process that characterized the last two decades of the 20th century, and how many countries have rebounded in the 21st century. I am going to introduce the panelists as they speak.

First, we will be hearing from Mark Weisbrot who is an author on the paper. Mark has his PhD from the University of Michigan. He is a prolific expert in the media, and one of the most often cited critics, I would say, of the international financial institutions. He has a regular column in the media that is distributed to over 550 papers across the country, and he is most recently the author of Failed: What the ‘Experts’ Got Wrong about the Global Economy. So, here to present the paper, Mark Weisbrot.

Mark Weisbrot:

Ok, I want to thank everybody for coming. I know it is actually a holiday for a lot of people here in Washington, and so it is particularly encouraging that people actually came here to hear something like this on a holiday. Thanks for the introduction, Deborah. Thank you very much, Jeff and Nancy, for being on the panel, and to everybody who helped organize this.

I just want to introduce this a little bit. We’ve been doing this paper since 2000, a kind of update every five or six years, when we noticed there was a drastic slowdown in economic growth in per capita income, per capita GDP, in the vast majority of low- and middle-income countries, and it wasn’t getting any attention. So this is an update in that sense, and there’s always new things that are happening.

To show why I think this is important, this was President Obama’s last speech at the United Nations. He said, “Over the last 25 years, the number of people living in extreme poverty in the world fell from 40 percent to 10 percent.” This is true, according to World Bank statistics, and then he went on to explain this was a result of “globalization,” the kind of globalization that the United States promotes specifically, and promoted over this period, and that this was an example of great progress and we have to be careful not to let this slide.

So this is true according to World Bank statistics. There is some controversy over this, but nonetheless just accepting that, the first thing is that two-thirds of this poverty reduction was in China. If you go back a little further, from 1981 to 2010, it’s 94 percent of the net poverty reduction in the world, extreme poverty was in China. And then if we look at just the 25 years that President Obama was talking about and, by the way, it isn't just him; there are a lot of people. The academics are more careful about conflating China with the world, but not that much. You see statements like this all the time about the success of globalization, where people neglect to mention that it’s China.

So two-thirds of this poverty reduction was in China in the last 25 years, and the other third, it turns out, China had a lot to do with that as well. You could see, first of all, through trade, in this graph, that from 1990 to 2013, you have the share of exports from low- and middle-income countries to China went from 0.8 percent of their exports to 9.7 percent. So China became a big market for their exports. And another way to look at it is just the and that’s from $4 billion to $520 billion you can also look at it as a percent of these countries, the low- and middle-income countries’ GDP went from 0.1 to 2.6 percent. Now it fell off some from 2013 to 2016, 2013 was the peak, and I think that’s had some impact, but still. And you also had hundreds of billions of dollars of investment, lending, and foreign aid, and these are not always that distinguishable because there is not a lot of transparency in China’s foreign dealings, but nonetheless, it also had a big impact.

And by the way, it also drove up commodities’ prices, and so when you see people refer to the rebound which we will get to of economic growth in the 21st century, it’s often referred to in terms of a commodities boom. And that’s kind of exaggerated. The one thing that the increase in commodity prices that was driven a lot by Chinese imports did, was it helped a lot of countries avoid the balance of payments crises or constraints on their growth that they had previously. So that was an important part of the influence of China in the 21st century.

So, Chinese globalization has done very well, and income per capita in China since 1980 multiplied 21 times. That’s the fastest economic growth in world history by far. But it was based on very different economic policies than the globalization that President Obama and a lot of the people who write for the media, and academics as well, are talking about. So just to look at a couple of them, first of all you have most investment until recently, the majority of investment was controlled by the government and you have a huge role for state-owned enterprises.

As recently as 2010, 44 percent of the assets of major industrial companies was in state-owned enterprises, and it is still very large. We don't have more recent, exact data, but it’s a huge role. And you have the foreign investment that did come into the country, which certainly increased, was controlled so that it didn't interfere, in fact it augmented the state development planning. That is a really big difference from the foreign investment that goes into, for example, most Latin American countries that occurred during this period. We also have requirements for technology transfer, performance requirements these are things like requiring local managers, for example, and a lot of export promotion.

By the way, these are the things that the World Trade Organization set up in 1995 to make it more difficult for developing countries to actually do this, which China did not join until 2000. And when they did, they still managed to continue doing a lot of this, and that’s an issue of contention as you may have noticed recently with the Trump administration, and of course the financial system has been state-controlled. You don't have an independent central bank, which was one of the major neoliberal reforms of the period of globalization. [There were] strict currency controls for most of the period, and more recently, they let up on some of those and there is some debate in China over whether that was the right thing to do. They lost about a trillion dollars in reserves, capital outflows, so it is not clear what the verdict on that is going to be. This is a big thing if you want to compare China’s policies to the other countries that were transitioning from a state-planned economy to a mixed economy.

Theirs was a very gradual and planned transition, unlike, say, compared to Russia and the former Soviet countries. So, that was very different. I’m just summarizing here some of the differences between the neoliberal globalization that was promoted from here in Washington, and the international institutions of global governance. You had a more indiscriminate opening of international trade and capital flows. Central bank independence was a major principle that was increased wherever it could be done politically. And you had the industrial and development policies of the 1960 to ‘80 period that were abandoned. Tighter fiscal and monetary policies, often pro-cyclical and inflation targeting from the central banks. A lot of deregulation, especially financial, and increasing protectionism in the area of intellectual property, which was another founding principle of the World Trade Organization.

So this is a very different kind of globalization than what China went through, and of course the privatization of state-owned enterprises. So what we did here and you can read the paper for more detail on this but basically what we did was we looked at countries, all the countries for which there is data, and we divide them into quintiles by their per-capita GDP. It’s in 2011 purchasing power parity dollars for purposes of comparison and domestic currency for when you are talking about just the rate of growth. And we say, how fast did the countries that were at, say the level of $1500 per capita, how fast did they grow from 1960 to 1980 if they started out at that level? And how fast did they grow from 1980 to 2000? And then again from 2000.

And so you’re not looking at the same country comparison. You can do that too and you do see a big slowdown. Like for Latin America, for example, if you just compare ‘60 to ‘80 with ‘80 to 2000, it’s all the difference in the world. It is like 91 percent growth, cumulative growth, in per capita income. From 1960 to 1980, that was over 90 percent, and from 1980 to 2000 it was only 5.7 percent, so you had drastic change. And that, by the way, even though it’s almost never talked about, that was the major impetus in my opinion to all the elections, the election of all the left governments that you had beginning in 1998 in Venezuela, Brazil, Argentina, Uruguay, Paraguay, Bolivia, Ecuador, Nicaragua, El Salvador, and so on.

But this is a comparison where we are not looking at the same countries in each period; we are looking at the countries that started out at a certain level. And if you think about it, they should do better. If you start out at a certain level in 1980, you should do better than if you started out in 1960, because there is more technology and knowledge, and this should also help on the health indicators as well, because you have advances in medicine and health. So, if anything, you’re biasing towards a better result in the second period than the first. And the other thing this does is it controls for diminishing returns because you would expect and you do find that as countries get to higher income levels, they don't grow as fast as when they are developing. And also it’s harder to go from a life expectancy of 70 to 80, than it is from 50 to 60.

So what you can see here, if you look at the bottom 4 quintiles, you see a sharp slowdown from the ‘60 to ‘80 period to the last two decades of the 20th century, and then you see a big rebound in the 21st century. And just to give you one example if you look at the second quintile, you can see that the difference is, if it’s cumulative for the 20 years, if you take the cumulative growth, it’s the difference between growing 15 percent in the ‘80 to 2000 period, and 60 percent before that, and so that’s a very huge difference in the world, and it affects everything else, as we will see.

And then you have, of course, this rebound in the 21st century where growth comes back. So, just to very briefly note some of the possible reasons for the rebound and we discuss this more in the last version of the paper but first, you have the loss of influence. The IMF lost most of its influence in middle-income countries in the world, and that was a major force. It was the main avenue of influence of the United States on economic policy, especially macroeconomic policy, in developing countries prior to the 21st century. It still is, but most of the middle-income countries went away and didn’t come back to the IMF after the Asian financial crisis of 1997 to 1999.

So I think this helped because they had kind of a creditors’ cartel as well with the World Bank and the other multilateral institutions that gave them power to enforce certain policies, which we would argue that, on net, had a negative influence. And whatever the cause, you can see that countercyclical policies, for example, in the world financial crisis and recession of 2008 to 2009 were much more common than they were in previous crises. So that was positive.

I think the IMF also changed some in some developing countries not that much, not as much as a lot of people think by their research, the policy didn’t change anywhere near as much as their research. But I think there was some positive impact in the sense that they had less of a negative effect in the last downturn. But the main thing was the loss of their influence in many, many countries.

And of course, the high-income countries did not contribute to this rebound at all. If you look at the aggregate growth in GDP of the high-income countries, it actually fell from 3.1 percent annually to 1.9 percent a big drop — so that was actually a negative influence on the rest of the world in the shift to the 21st century. And I won’t go into these in detail, but there is a strong correlation between, if you look at a cross-country comparison, between health indicators and income growth. And this has been around for a long time. Angus Deaton wrote a book about it in 2011, and there’s some debate over why this is true, because it wouldn't have to be as true as it is. For example, there are a lot of reductions in mortality that can be made for very little money, but historically you still see this very strong correlation. And you see it here in the rate of change; this graph shows again, divided by quintile, from the worst off at the bottom to the better off at the top, you see the rate of decline of mortality per thousand live births this is child mortality, under age 5. You see again the same pattern for the bottom two quintiles. You see a big reduction in the rate of progress, and then a rebound in the 21st century. And you see a similar pattern in female and male adult mortality.

Now, in quintile 2, you see actually progress goes to a reversal. You see an increase in mortality in this second quintile in both female and male mortality. Now this was primarily the AIDS crisis, and if you take out the 16 countries which were all in sub-Saharan Africa that had an increase in mortality of more than 3 per thousand during this period, then you get ... on the right hand side you can see for female mortality it goes back to the same pattern of the other indicators. You get a big decline in progress, but not an absolute increase in mortality. So, again this is part of the result of this slowdown in progress. Infant mortality, again for the bottom three quintiles you see this pattern as well.

So, conclusion. First of all, many who praise the globalization of the last 25 years or more, are really praising Chinese economic policy without recognizing it and the public doesn't recognize it, so that’s kind of important. Not to say that the Chinese model is going to be, you know, directly applicable, because they were transiting from a completely state planned economy to a mixed economy. But nonetheless, there is probably a lot that can be learned about development policy from the most economically successful policy in history.

And I think there should also be a lot more skepticism and inquiry regarding this globalization, neoliberal globalization I would call it, and the policies that were implemented in low- and middle-income countries. And there is that skepticism now by the way, regarding globalization in high income countries. Again, I am not promoting something like Brexit, but that skepticism is now recognized in the economics profession as well. You do see a big change from 20 years ago, where there is a recognition that, you know, the standard economic theories “there are winners and losers from opening trade,” for example and now the economics profession is recognizing that, in the high income countries, maybe the losers weren’t compensated enough, the so-called losers. You don't see so much of a change though when you look at development policy in the developing countries during the globalization process that took place. This should be looked at more and also the institutions: the IMF, the World Bank, the WTO which made the rules and still tries to enforce them. These should be looked at more skeptically I think because you had this long term failure of both of these things. The failure and the rebound should be a topic of interest.

And here, I didn't put this here, but I think it’s really, really important, especially in the way that the debate has shifted: the role of economic policy. I know it’s difficult to investigate, there are lot of things going on. And by the way, you know, the results that we have are robust to the period that you picked, so when we compare 1960 to ‘80, ‘80 to 2000, you could change those dates, you get the same results. If we had data for the 50s and included that, the result would be even stronger. The 70s, for example, was a very bad decade. You had two big oil shocks that led to global recessions and very high inflation. So you could make this comparison, obviously it doesn't prove that there is a causal connection between this long term economic failure and the policies that were implemented during the period, but it should be a basis for this skepticism.

The last point I want to make is the importance of economic policy. You have a lot of very influential books, like Acemoglu and Robinson’s Why Nations Fail, for example had a very powerful influence, and there is very little in there on the role of economic policies, it’s all about institutions. Institutions are what drive the differences between successful and unsuccessful economic policy. What about the policy itself? That has really been buried. I mentioned in the paper Richard Baldwin’s book. That one is actually about the driving force is changes in information and communications technology. Again, it’s not economic policy. So I think that should also be a very big topic of interest for economists. I’m going to leave it there. Thank you.

Deborah James:

Thank you so much for that introduction to the theme here today, Mark. I’m very excited to introduce our next speaker. Jeffrey Sachs, many of you know, is a world renowned professor of economics, a leader in sustainable development, a senior UN advisor, a best selling author, and syndicated columnist, whose monthly columns appear in more than 100 countries. He is a special advisor to the UN Secretary-General on the Sustainable Development Goals.

He is the author of six books, including three best-sellers. The most recent of which is, Building the New American Economy: Smart, Fair & Sustainable. He has his Ph.D. from Harvard, and is currently the University Professor at Columbia University. Please welcome Jeffrey Sachs.

Jeffrey Sachs:

Thank you very much. I’m really delighted to be here, and I want to congratulate CEPR and Mark for another outstanding paper. I can’t think of a better way to spend a holiday day than talking about international development. That’s how I spend all of my holidays. I am happy to be doing it together with you and those who are online. It’s a fun subject, it’s fascinating, and it’s also very, very important. And I think this paper gets it just right in many ways.

One, is the idea of looking at these three periods of, broadly, 1960 to 1980, 1980 to 2000, and then 2000 to now, because there really is a difference for the so-called developing countries, the low- and middle-income countries, and how economic performance fared and that tells a lot.

And the second point is, of course, a major emphasis on China, which is very appropriate for our world. China has become, by the metrics for example used by the IMF, which is national, domestic, or gross domestic product, valued at international prices, the largest economy in the world during this period. So it’s very important to understand China’s economy and it’s success, especially over the last 35 to 40 years, in achieving rapid economic growth. It’s also important to understand some of the limitations of China’s development patterns, especially around the environment and also income inequality, which I’ll want to to say a word about. And it’s a good occasion with this paper to look forward. This is the IMF and World Bank Annual Meetings this week, and it is important what those institutions do, and I want to say a few words about that as well.

The period of 1980 to 2000 was not a good period for economic development. And there are many aspects to that. Part of it certainly, as this paper emphasizes, was the kind of economic model that was then called the Washington Consensus, that was pounded on countries during those twenty years. That was the Reagan period. In some measure we’re not out of the Reagan era yet, because Reagan brought in the idea of corporate rule and tax cuts for the wealthy as the dominant strategies for the economy, bashing trade unions and raising the inequality of income. And the tax fight that we are in in the United States these days is exactly a continuation of that strategy. So Reagan really changed the political order and it hasn't changed back yet. And that’s true with Democratic administrations as well, which have been unfortunately kind of soft versions of what has been fairly constant since the early 1980s.

That model of really hard corporate rule and cutting social benefits was certainly embodied in the policies of the World Bank and the IMF for the 20 year period from early 1980s onward. And that was the period when the World Bank said you have to raise your own cost recovery in health clinics, you have to dismantle public financing for social programs to manage the budget deficit and so forth. Those were, for me, formative days of my own career. I got my PHD in 1980, so I was able to both watch and participate in that period. And I grew up fighting the IMF in a lot of very specific cases.

I came to understand that policy close up. To understand it fully, it’s important to add in one factor that hasn’t been mentioned yet I don't think Mark mentioned and that was the developing debt crisis, which came in 1982 in full form. The US had had a high inflation rate in the 1970s, partly around the breakup of the Bretton Woods institutions. Paul Volcker became chair of the Fed. The Fed policy was to really throttle the inflation by putting interest rates up to unprecedented high levels. A lot of developing countries had borrowed private and public debt in order to finance infrastructure or government deficits. When the Volcker interest rates rose to 12 or 15 or even 20 percent these countries became both illiquid and, in many cases, insolvent around 1982. When Mexico went into debt crisis in the middle of 1982, that also led to a contagion of pulling back on new lending or rolling over credits, so the developing country debt crisis became pervasive.

The Reagan ideology combined with the debt crisis to lead to a pretty brutal crackdown on developing countries and their public investments and their social services during that period because the IMF’s strategy was to force primary budget surpluses high enough so that these debts could be repaid.

And I saw that first hand in Bolivia where I was helping a government to fight a hyperinflation, and as soon as the hyperinflation had stabilized in a very fragile way, the IMF demanded that Bolivia start repaying unpayable debts. I had a fit. This was my first development experience and I said, “No, there’s no way you’re going to collect from this impoverished country.” I had a big fight with them, and in the end won that battle. I probably wouldn’t be standing here if I had not won that battle. But in the end Bolivia’s debts were written down by about 90 percent.

But other countries were not so lucky, or were not so persistent, or were crushed under the weight of US foreign policy, and the IMF, and the World Bank. It was a period of just trying to squeeze these countries. It turned out US officials owned a lot of bank shares. There was a lot of conflict of interest and miserable US economic policy for quite a long time.

We can be pretty brutal, our country, you know, on many things, often ending up trying to overthrow governments we don't like or bomb them. But usually a step before that is to try to squeeze them, in a very, very harsh way. And that was done for a lot of countries.

When you crush public investment and public services people become sick and die. Children can’t go to school. The water supply is dangerous, the sanitation fails, epidemics take place, and economic growth collapses. All of that happened throughout the developing countries, and that’s why you see the 1980 to 2000 period as being a really, really tough period.

And this was all under so called Washington consensus, which did not mean any kind of consensus except a few powerful people who, for whatever reason, were imposing this kind of strategy. And it failed very badly in many places and I ended up fighting it without… By the early 1990s it became clear to me, much more than it was in 1985, ‘86 that it really was part of a power and ideological battle that was quite brutal.

I usually could win arguments if the countries I was dealing with were favorites of US foreign policy, but if they weren’t, the battle was pretty brutal and usually unsuccessful because so much of how the IMF and the World Bank operate and operated then was under the thumb of US foreign policy for whatever purposes. So when I recommended Poland get debt relief, then the White House was quite cooperative. It said, “Ok, that’s a good policy,” because Poland was part of America’s foreign policy aims. When I recommended the same thing for Russia under Yeltsin in 1992, the answer was, “Hell no. Why should we do that?” And so it was rarely about economic development. It was about foreign policy, and it was about American power. And the institutions reflected that and very, very badly.

In 1997, the failure of this approach was again exposed with the Asian financial crisis, which was a crisis of how the financial system, starting on Wall Street with fragile interbank lending, could open itself up to financial panic. Just what we saw again in 2008. And after 1997, the Asian financial crisis, in my own analysis I wrote pretty harsh critiques. Why are you telling countries like Korea to squeeze in the middle of this kind of brutal crisis, when the problem obviously was liquidity and you needed a different approach from just jacking up interest rates, squeezing fiscal policy, and so forth.

Well, by 2000, things had changed actually for a couple of reasons. One, this policy was a massive failure everywhere and so the idea that you just brutalize countries to get them to pay debts was not working and it wasn't viable. Second, maybe because it was the year 2000 also, we had some good support from Pope John Paul II and others that the new millennium needed to be different, and Kofi Annan said we needed a different kind of a millennium afterwards. I think the staff of the World Bank and IMF were quite demoralized also. It’s not fun to have broken, nasty programs all the time that are putting people's lives at threat and so on.

So, the Washington Consensus Mark was the leader in fighting it, and I was pounding away, and others were pounding away I think the Washington Consensus went into mostly abeyance, not completely. It didn’t change American policy so much, by the way, but in the rest of the world, it changed.

We entered a new, more fruitful period of the Millennium Development Goals. And the Millennium Development Goals said, “At least have goals.” More than just crushing countries or repaying debt, have goals about economic development. And I take that to be very important because if we don't have objectives, then we will just get lost in power. But the Millennium Development Goals said fight poverty, fight disease, help kids get in school, fight unsafe water, promote sanitation. That was all good stuff, and it did play some role because we had HIPC [Heavily Indebted Poor Country Initiative], which was at least acknowledging that the poor countries that were highly indebted should get relief. That was systemic. It never was deep enough, fast enough, or bold enough to my taste but it was at least a change that said we need to put actual outcomes as something of a priority.

So, I was lucky to work with Kofi Annan and Ban Ki-Moon on the Millennium Development Goals, and I think some of that rebound in improving life expectancy, in reducing child mortality, was directly the result of an international framework that was more responsive to end purposes not just to collecting debt.

Of course, what Mark has said about China is also completely correct, but it needs to be understood in the uniqueness of China as well. China’s development is, by far, the most successful development of such a scale in history. With economic growth around ten percent per year, for roughly 35 years from 1978 to 2012-2013. When you are growing at ten percent you are doubling every seven years, and if you do that for 35 years that’s five doublings. That means two to the fifth power or roughly a 32 time increase from 1978 to 2013 in aggregate GDP, real GDP. It is an amazing accomplishment, and it had a huge beneficial effect in reducing poverty and in the most remarkable transformation of such a scale that the world has ever seen.

What was that model? It was really a complex, mixed economy, complicated institutional model. If you want to find a role model for the Chinese model, I would say it is Japan. I always thought Japan invented this kind of rapid catching up growth. First in the Meiji restoration after 1868, and then again in the 1950s and 1960s Japan had its decade of doubling income under Ikeda starting in 1962. They had an incredible burst also, and it’s a mix of industrial policy, a heavy emphasis on technology. If you talked to, as I did any times, Japanese policy makers or Chinese policy makers, what would come out of their mouth would not be markets, certainly it wouldn’t be Washington Census or Beijing Consensus, it would be technology. How can we accelerate the technological upgrading? It is, by the way, a language still missing too much in Latin America because Latin America doesn’t relentlessly focus on good engineering and technology the way that Korea, Taiwan or Singapore, PRC, Japan and others had. Singapore to their benefit. So I think that is part of the China story.

And it was an opening to the world and joining the world economy through global production, value chains and very sophisticated connectivity to global markets that was quite successful. That is all on the good side. Let me mention two things that were not so much on the good side. This was basically coal-powered development. So China became perhaps the dirtiest country in the world. Because of massive coal pollution, massive greenhouse gas emissions, massive air pollution, water pollution. It was go for growth, and the environment we’ll fix later. And we know that the deaths that come from that and the amount of diseases is just too high to have that kind of strategy. I think the Chinese government has realized that. Nobody wants to breathe that day in and day out. It’s not safe. You feel it when you are in Beijing. You just don’t want to be in that environment and you can’t take three days off and not breathe. You just are compelled to suffer the consequences of that. I think the Chinese leadership has certainly come to understand this.

The other thing that is a big problem also is that rapid growth led to a lot of inequality. Because while poverty was decisively reduced, there were some very big winners. China has its incredible new generation of billionaires. There is a big gap between the urban areas and those still in the rural areas. There is a big gap in education, part of this is market driven, but massive inequality. And China doesn't really have the social safety net. It has family saving, and that leads to massively high household saving, but not until very recently even a healthcare system that was publicly financed.

This is something that China needs to grapple with as well. I think Mark is absolutely right also to point out simplistic ideas [for example] that there is only one way to grow... I regard Why Nations Fail as one of the very bad books about development. It is extremely naive, and their only explanation of China is to say, “Well, it’s going to fail.” Well, I don't think so. But if you have a book that can’t account for the last 40 years of the most important development event in the world, I don't really think you have the kind of power of insight that the book claims. I always call it “on my bad book list.”

It just is not accurate, so ideological. “Oh it’s got to be a free market.” Inclusive institutions defined in a very unclear way to mean any place that succeeds sometimes. I think China really shows, like Japan, like Korea that the path to development, especially technology led development, is definitely more complicated than any kind of simplistic first year economics text book free market model. It doesn't look much like that.

On the other hand let me say not every country can do what China did. The scale of the domestic market, for example, absolutely makes a big difference. China has consciously created national champions to compete with American champions. So if there is a Google and a Facebook and an Amazon. China has its Tencent and Alibaba and others, and that has come through industrial policy and blocking American companies for a while until the Chinese counterparts gained the strength of the national and now truly massive, massively successful, global players.

But if you were a country of five million you could not do that the same way. Many things China did, I would say don't do at home. It does not translate directly. It’s specific to particular set of conditions. I think they have been very clever in a lot of policies but it’s not something you can do in a small scale necessarily the same way. All development needs a more contextual institutional base.

Finally, let me say a word about the IMF World Bank agenda going forward. And it’s very relevant to all of this discussion. My belief in goal-based development is very much amplified and I believe supported by this historical experience of the last 17 years. First the Millennium Development Goals, second the kind of goals in China’s Five Year Plans. Ok, that’s a Chinese institution but God forbid that America should plan a little bit. It doesn’t have to be the morning tweet and the afternoon counter-tweet and the evening tweet. Is that the limit of our thinking? Really, it is a serious problem that we have no institutions that look ahead right now in this country.

We have no planning institutions in Washington. Don’t hold your breath for trillion dollars of infrastructure. That is not something you get in 140 characters or even in the more generous 280 character world that we are now in. You actually have to think, and Trump is not capable of it, literally. That is not a political observation. That is a psychological characterization. He is not a reader or thinker. He has no capacity to lead us, but neither do our institutions right now. We are not looking ahead. That’s a big worry. It's complete improv morning, noon, and night, and it’s all faked. It took eight months, nine months for a tax reform proposal, and then they could not even have one table in it. Not one set of numbers.

I would fail anybody that came after nine months with such a shoddy, little paper. Now, of course there is a reason to it. They are going try to sneak $2 trillion dollars of tax cuts by us in the middle of the night somehow holding the votes. It is so corrupt and crooked. Of course this is what Mr. Mercer, Mr. Adelson and Mr. Trump and a few other billionaires want to do. Somehow I’m hoping that our democratic institutions, that’s small ‘d’, that’s not a partisan statement, that somehow the shame of all of this, the disgusting behavior, holds out and says, “No, we are not going to just give $2 trillion dollars to rich people in the middle of the night. We have a little bit more sense and fortitude.”

But there was no planning in this. It’s all made up. And they are trying to discredit the one institution, the Congressional Budget Office that does non non-partisan forward-looking scenarios. They are trying to bash it. They know that if you tell the truth this stuff cannot get passed.

Ok what about the IMF and the World Bank? They need to think ahead too. It’s not enough that a country repays its debt. Sometimes, I’ve said about IMF policies, all they want is low inflation and debt servicing. If you starve just don't make a macro crisis of it. And I think it’s better than that now.

But still, what are the standards that should apply to an IMF program? Now, to my mind there’s an answer to that. We have global goals now. We have had fifteen years of the Millennium Development Goals. Now we have the Sustainable Development Goals. They give clear goals. Every child should complete at least a secondary education. Universal health coverage. Everybody should have access to electricity, renewable energy. Everybody should have safe water and sanitation. Ok, that costs money. So what I would like to see the IMF staff doing is instead of just balancing the books of extreme poverty, what they should be doing is asking, “How much does it cost to achieve these goals?”

And if the answer is: Well you can’t do that and pay this debt back at the same time. It’s unsustainable. Then if you are going to make the investment for these goals, the debt has to be reduced. That is how coherent public policy should be designed. Start with goals, and then work out through good, detailed, highly professional scenario building how to achieve those goals.

And the World Bank also needs a different kind of strategy from saying, “Well, we have a certain amount of money to allocate to this country. What are you going to do with it?” Because that is maybe how a bank would behave, but it should not be a bank. It should be a development institution and should say, “Ok, we need to support countries to achieve the Sustainable Development Goals. How should our lending capacity be devoted to success of the Sustainable Development Goals?”

I can tell you that is not how the Bank is working right now. It is not organized for helping their members to achieve success on the globally agreed goals. They don't have the scenarios. They don't have the rigor. They don’t have the methodology to do that. So the one thing I want to say about this week’s IMF/World Bank meetings is: Here are two leading international financial institutions, in a context where the world has unanimously adopted Sustainable Development Goals and alongside them the Paris Climate Agreement. We need to have international finance based on achieving the goals we’ve set. That’s the standard.

And that means that the institutions have to change the way they perform so that they are looking at how to achieve success for their member countries. If they do that, they will prove their worth. Thank you.

Deborah James:

Thank you so much. I’m very excited for our last speaker. Nancy Alexander is the director of the Global Governance Program at the Heinrich Boell Stiftung, North America office. She focuses on the global power shifts from the West to the rest, and how they affect sustainable development. She formerly was an advisor to the US House Financial Services Committee and International Labor Organization. She has degrees from Duke and Harvard, and is a long time expert on the big picture of these institutions, having shifted her focus somewhat from the IMF and World Bank to also looking at the G20 and what is happening with global finance now. She is going to give us a forward look at what is coming up in terms of these institutions. Please welcome Nancy Alexander.

Nancy Alexander:

Well thanks to Mark and Jeff for giving us a picture of the economic struggles that we’ve been waging. Some of you were not alive in 1980 when the Reagan/Thatcher revolution took hold, or at least you weren’t thinking about economic policy at that point. And they certainly gave us a very vivid idea of the brutal neoliberal policies that swept the world that package of austerity privatization, high debt, reckless lending, indiscriminate liberalization, that set many countries back and cost them two decades, two lost decades of development. And Jeff really hammered home the human toll of that.

One important thing for those of you that were not doing economic policy in those days is that civil society was very powerful. In the 1980s and 90s. Very powerful. And there was a global movement against structural adjustment programs, another name for neoliberalism. And some of you in this room, including myself, were challenging the IMF and World Bank during those two decades. And my thesis today may not sound cheerful, but I hope that it holds your attention. Namely, that the Washington Consensus of the 80s and 90s, and arguably it has continued, is coming back with new force. New force in an age of oligarchy, an age of skyrocketing inequality, an age of global warming, where we may not meet targets to control the temperature of the earth and make it livable for all species.

So, this new consensus, that’s coming forward Before I describe it, I just want to emphasize, one point. And that is that 2015 was a very major year. Three things happened. First of all, the United Nations adopted the Sustainable Development Goals, seventeen goals that represent human progress. In 2015, the Paris agreement was signed with the climate goals. And what is not known widely is that in 2015, a new development and financial paradigm was adopted.

So, this new model is called From Billions to Trillions. This morning the IMF and World Bank papers for the Annual Meetings this week came out. This Billions to Trillions model they are calling the cascade or maximizing finance for development. And it has a much broader and deeper acceptance than the Washington Consensus.This week is the Chinese Party Congress, and the Chinese also embrace embrace the Billions to Trillions model.

So, this strategy is ostensibly to meet the Sustainable Development Goals to going from the billions of official development assistance to the trillions from the global capital markets. This is the paper in April 2015 that launched the Billions to Trillions model that the IMF and World Bank spring meetings.

The Billions to Trillions paradigm is not exactly intended to achieve the Sustainable Development Goals, it contends that what we need is $90 trillion dollars for mega projects in four sectors: energy, water, transportation and information communications technology.

At the last annual meeting, I listened to the chief financial officer of the World Bank Joaquim Levy say that there must be a juggernaut of investment because global trade flows are dropping precipitously and jeopardize global economic growth.

So, the mega projects are intended to lengthen the global supply chains in ways that compress time and space, accelerate production and consumption and counteract this drop in trade flows.

You can see trade grew by 1.9 percent last year and before the crisis it was growing at 7.2 percent. So, you might ask, well this is really great. You have all these trillions flowing into infrastructure and many Sustainable Development Goals depend on infrastructure. Isn’t this a good thing?

Well, from 2015 to 2030, Sustainable Development Goals are calling for investment of about $60 trillion and the infrastructure plans call for investment of about $90 trillion. So, one could say that the attainment of the SDGs is at least partially dependent on whether infrastructure lending is in fact addressing the Sustainable Development Goals. But it’s really not.

At least not as a priority. The G20 has called upon all the multilateral development banks, including China’s, Asian and Infrastructure Investment Bank and the BRICS New Development Bank to boost infrastructure lending. So we have geopolitical competition in infrastructure lending, and the US is looking at how its global share of global GDP has almost halved since World War II while China's has quadrupled. While there is consensus on the model, there is competition within the model.

So, I’m going to go through each region of the world that has a master infrastructure plan in the four sectors, energy, transportation, water and ICT. The Belt Road Initiative of China: this is the map for transportation of the Belt Road Initiative. So, you see the planning is happening on a vast scale. There are nine axes of infrastructure development in South America. So, if you look at this map, you’ll see these are all the transportation axes in South America from airports to railroads to ports to dams and so on.

In Africa, there´s a pipeline of mega energy projects that Africa master plan is called the Program for Infrastructure Development in Africa, and there is a likewise major transportation master plan. So, how, you might ask, in this new model which I am calling the G20 Consensus, but it is really a consensus of all the development banks, where is this pot of gold? Where are all these trillions coming from? How will this consensus be realized on such a major scale?

And the answer is that the intention of all the multilateral development banks and the bilateral governments is to use public money to leverage institutional investors. Now, who are they? Institutional investors have global savings of over $100 trillion dollars. And they are the pot of gold. And, one of the largest categories of institutional investment are pension funds as well as insurance funds, and these are experiencing incredible, staggering gaps in their obligations to elderly people, insured people. They could go insolvent unless they can find higher yields. So, the crux of this Billions to Trillions model is using enough public money, which means, taxpayer dollars, user fees, and aid to leverage public-private partnerships, private participation in delivering public services.And to bundle the public-private partnerships in portfolios from trading.

So, the whole idea is that the public sector takes the really high risk at the beginning of a mega project. Think about the channel tunnel and everything that can go wrong in a mega project which can comprise like five hundred sub projects. These are vast endeavors. So, the public sector takes the risk then, and the long-term investors come on to the scene when everything is hunkey-dorey, and they take the long-term revenue stream. And, you know, Jim Kim in his speech to the London School of Economics in April, he said his dream was to see, London pensioners building roads through Tanzania, and then Tanzanian user fees or tolls, used to support these old people in the UK. Doesn’t it sound like a dream made in heaven?

Well, I said to the head of some pension funds in the Think 20 in Germany, this year, “You know, what I'm really scared about is that we could have the biggest human rights debacle ever on our hands.” I mean, how many generations should old people in rich countries live on the school fees, the hospital fees, the road tolls, the electricity fees of developing countries? For how many years? She said, “Well, that´s a really good question,” after she said, “Well, they get a road in Tanzania.” Yeah, but for how many generations?

So, coming to a close, here. I want to really emphasize how the 80s are coming back because in the 80s the only way all those debts could be repaid was to compress public investment. And so, they were eliminating subsidies. They were cutting wages. They were cutting the wage-bill caps. That increases value-added taxes, regressive taxes, making very narrow targets for benefits, which the IMF is doing now, privatizing pension and healthcare systems. So, this is going on in 2014, these are the statistics for 82 developing countries and 122 countries overall. So, the whole idea is a massive extraction of public finance in order to subsidize corporate globalization.

So, my hypothesis is that we are entering another era such as 1980-2000, except in 1980 it was Reagan-Thatcher, now it’s Trump-Ji Xingping, a very different era with geopolitical competition, highest debt levels ever. So, this is what the map of inequality looks like today. One tenth of one percent are getting the massive majority of income in the world. And, in these lower bands, income is distributed among the remaining 99 percent of the world’s population.

And, meanwhile, a really important dimension, is if all this infrastructure that is being built, and I’ve shown you the maps, is not low- or no-carbon, then we’re doomed. We’re really doomed. And yet the G20 is controlled by the International Chamber of Commerce, corporations, and they are running this new consensus. And they think that all energy sources are created equal. Coal, nuclear, renewables, whatever, that’s the official stance. And meanwhile, the Fiscal Affairs Monitor of the IMF was just released, and you can see that global debt is at record highs. it’s at 225 percent of global GDP.

So, it’s the 80s but we’re given a much narrower window to reverse course. So, let me close by just saying a number of things that the Heinrich Boll Foundation and its allies are doing to build momentum among academics, civil society, think tanks, to counter this new consensus. We’re working against carbon lock-in. We’re saying, every single mega project should be examined for its carbon content.

Do you know what the number one project in the master plan for Africa is? The number one project is the Nigeria to Morocco pipeline to get gas to Europe. Secondly, we have a major project in PPP contracts in investment law. The World Bank has launched a contract, and I happen to have a list, it’s leaked, of all of the conditionalities being put upon Arica in the G20’s Compact of Africa, and these conditionalities in Africa and elsewhere are requiring countries to adopt the PPP contract that the World Bank has drafted.

We have a team of pro bono lawyers working for us that has shown that this contract would heap debt on governments. It would restrict their right to regulate in the public interest, for social purposes or for climate purposes, you know if you have a coal plan you build a solar plan, then you have to reimburse the coal plan because you cut into their margins.

So, we are working in a team with the Office of the High Commissioner of Human Rights on the ways that mega projects affect human rights, land grabbing and displacement of people, resource extraction, because the purpose of these trade facilitation projects is to build access to resources and markets, deforestation, and biodiversity loss. According to the President of Transparency International, as much as 40 percent of a mega project can go to corruption.

And then, there will be big meetings, this week, between civil society and the IMF and the World Bank to call upon them, to make public the huge debt liabilities that government are taking on when they launch public-private partnerships because the reason that many of them will launch PPPs is because they want to keep their expenditures off budget and hidden, and give the illusion of all this fiscal place to care about people. And that’s a lie.

So, basically, my theme is that the UN Summits exist in a different planet than the means of implementation here in Washington. The UN Summits embrace Sustainable Development Goals and climate goals, but the means of implementation, those of you who know the SDGs, know that the means of implementation of SDG number 17 is an investment juggernaut that protects the rights of investors at the expense of governments and citizens that promotes mega, giga and tera projects with very few norms. All energy sources are the same and in the context of liberalized investment. So, what we need is a revitalized movement the way that we had in the 1980s. The challenge is all the greater because civil society worldwide is experiencing a kind of repression that we have never seen before. And, I leave you with that challenge.

Deborah James:

This was an intellectual tour de force this morning, so exciting. Thank you so much Nancy and Mark and Jeff for your presentations.

[…Question and Answer Section…]

So, I want to thank, first of all, our speakers for joining us today and sharing so much new information. I think it’s a great way to start the IMF/World Bank Week with this critical perspective. We should do this every year.

I also want to thank the team that has been working hard on producing the paper that will be out shortly. Everyone has been putting in a lot of time for that and I want to thank you. And also the team that put together the logistics for today’s event. Thank you very much for that.

I really appreciate all of you coming out as well on a holiday, and I hope you enjoyed the event. We look forward to being in touch with you again on behalf of the Center of Economic and Policy Research. Thank you very much.