NEWS Release - Mending the Trust Divide - By Christine Lagarde, IMF Managing Director International Bar Association Conference, Washington, DC
Good evening. President Rivkin, Dr. Ellis – thank you for your kind introduction.
Ladies and gentlemen, distinguished guests: I am delighted to be here tonight, in the company of so many from my own profession. I still felt safe at the French Finance Ministry, but at the IMF, we attorneys are just hopelessly outnumbered. So it is great to see so many of us together, even if only for a short while!
Of course, as members of the IBA you are not only lawyers, you are also “internationalists.” A group that understands the importance of coming together across countries and expertise to share experiences and forge solutions to common challenges. You have a lot in common with the IMF.
An oft overlooked fact is that the IMF is a creature of public international law. Its Articles of Agreement are a formal treaty concluded at Bretton Woods, New Hampshire in 1944. They entered into force in December 1945 with the support of 44 members.
Today, we are a truly global institution with 189 members. And we have a unique mandate: promoting economic prosperity and financial stability – through international cooperation and an open system for the free flow of goods and investments.
Over the past few decades, this open and integrated architecture has worked well – for the most part. Globalization brought large welfare gains to developing and emerging economies. [1] But it has been a double-edged sword—the shift in global production has also meant job losses or environmental damage for millions of people.
In fact, while inequality across countries has fallen in recent years, it has generally increased within countries. [2] We have recently seen some good news in the United States – an uptick in median household incomes in 2015. [3] Longer term trends, however, have been less favorable, especially for middle-income families, who have seen their income shares in total income shrink – from 47 percent in 1970 to 35 percent in 2014. The loss in income share was almost fully offset by the increase in the share of high-income families. [4]
In these circumstances, it is not surprising to see a growing backlash against globalization, especially in industrialized economies. Coming on the heels of the financial crisis, this backlash has evolved into a deeper problem – a growing gap in trust in institutions.
According to the 2016 Edelman Trust Barometer, trust among the broader publicin institutions is well below 50 percent – hardly budging from its lows in 2008. It is also lowest for government institutions and the financial services industry. Trust among the elites in all institutions, on the other hand, is at an all-time high, at 60 percent. [5]
A key factor fueling this distrust is corrupt and unethical behavior, actual or perceived – and in both the public and private sector. Think not only of Bernie Madoff or the Libor rigging. But also the FIFA scandal that shook the sports world, or the travails of Petrobras that almost engulfed a whole political system.
Both the actual behavior and the perception that there is corruption can be highly corrosive to society. This has contributed to the growing support for populist policies.
Addressing corruption and unethical behavior involves not only improving the quality of the legal framework but also the quality of the individuals who implement this framework.
Indeed, more than 2000 years ago, Aristotle believed that the central preoccupation of political science should be about “ forming its citizens to be of good character and capable of noble acts.”
So today I would like to focus my remarks on the macroeconomic consequences of corruption, in its many forms – why it matters, and what the IMF is doing about it.
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