War, inflation and living wages are hot topics at this year’s World Economic Forum
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“My fear is that we are sleepwalking into this world. But hey, here is Davos! Wake up! Do the right thing!” That’s the rallying cry of Kristalina Georgieva, managing director of the International Monetary Fund, imploring the global elite at this week’s World Economic Forum to be vigilant as an almost unrivaled list of perils weighs on the world’s leaders. Recession looks set to sweep across the globe, nations are leaning more heavily on coal amid tight energy supplies and the cost of servicing debt is soaring. Getting things wrong, Georgieva says, means dragging the “world into a place where we’ll be all poorer and we would be less secure.”
In this week’s episode of the Stephanomics podcast, host Stephanie Flanders chats with a star-studded list of international economists, finance ministers and corporate chieftains from Davos, Switzerland. Gita Gopinath, first deputy managing director of the IMF, explains why finance ministers and central bankers are caught in an almost impossible dilemma: High inflation requires central bankers to raise interest rates to cool the economy, even as governments spend more to help consumers hurting from soaring energy and food costs. Longer term, real interest rates may stay high unless countries can get more targeted with their relief programs, instead of spreading assistance universally, argues Raghuram Rajan, a finance professor at the University of Chicago and former governor of the Reserve Bank of India. The US overspent during the pandemic, partly because “every constituency got a share of the spending simply because they couldn’t make choices,” Rajan says.
Next, Flanders has a decidedly more upbeat chat with Nandan Nilekani, chairman of Indian tech giant Infosys Ltd. With news that China’s population has declined for the first time in decades, India is set to become the world’s most populous country. What’s more, Nilekani sees the country benefiting from manufacturers seeking an alternative to China, spooked by the latter nation’s repeated factory shutdowns amid its Covid-zero policy. Per capita incomes may grow from $3,000 now to $15,000 in the next 25 years, and “that’s much more than a middle-income country,” Nilekani says.
Finally, Nela Richardson, chief economist at US-based payroll and business outsourcing firm Automatic Data Processing Inc., says real wages have declined across the world recently, even if nominal wage gains have created a myth that workers are “in the driver’s seat.” Businesses would benefit from paying workers a living wage, which despite the apparent expense actually results in better productivity and lowers costs, Richardson tells Flanders. “Will inflation moderate enough and wages stay solid enough that workers actually benefit from lower inflation? We don’t know that yet,” Richardson says.
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