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Backlash against globalisation 'not the way to go' warns Christine Lagarde

Published 13/09/2016

Christine Lagarde has warned against protectionist policies and closing borders
Christine Lagarde has warned against protectionist policies and closing borders

The head of the International Monetary Fund (IMF) has warned that a backlash against globalisation is destined to fail, and that protectionist policies and closed borders are "not the way to go".

In a speech delivered in Toronto, Canada, on Tuesday, IMF managing director Christine Lagarde championed the benefits of "openness and integration," while stressing that countries need to work to alleviate the negative "side effects" of globalisation - including concerns over wages and jobs.

"The ability of countries to rise above narrow self-interest has brought unprecedented economic progress over the past 70 years," she said.

"History clearly tells us that closing borders or increasing protectionism is not the way to go. Many countries have tried this route, and just as many have failed.

"Instead, we need to pursue policies that extend the benefits of openness and integration while alleviating their side effects. We need to make globalisation work for all," she said.

Economic integration has lifted living standards even in advanced economies, she said, explaining that more efficient spending has helped increase productivity and lower consumer prices. Globalisation, Lagarde added, has also helped raise real incomes.

Ms Lagarde's comments come just months after the Brexit vote, the result of which many experts have put down to a backlash against globalisation and further economic integration.

The IMF managing director was a strong supporter of Britain remaining part of the European Union, having warned of the downward economic risks of Brexit. She also rebuffed claims that migration had a negative effect on the labour market.

In her speech on Tuesday, Ms Lagarde acknowledged some of the risks associated with globalisation, which has opened the door to financial contagion, increased inequality and put downward pressure on the wages for low-skilled workers amid overseas competition.

But economic reforms could help ease those "side effects", she said.

Countries in the euro area in particular could raise productivity by lowering barriers to entry in the service sector and increase research and development.

Globally, governments could step up direct support for low skilled workers through education and training, while authorities could strengthen social safety nets through unemployment insurance, pensions and health benefits.

Inequality could also be addressed by clamping down on tax evasion and addressing uneven competition.

However, Ms Lagarde went on to stress that governments should also pursue stronger international ties, working to "reinvigorate trade" and pursue new deals.

Between 1980 and 2000, global trade regularly grew at twice the rate of the world economy at 7%, she explained. That is compared to 2% today.

Ms Lagarde said there is now scope to explore trade in the services sector, which is currently worth five trillion US dollars per year, and digital services that could help "realise the full potential of global e-commerce."

"A stronger trade engine means more competitive industries that have greater incentives for innovation ," she said.

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