Dame Minouche Shafik is one of the world’s most distinguished academics. Born in Alexandria, Egypt, in 1962, Shafik went on to study at Amherst College, Massachusetts, the London School of Economics and St Antony’s College, Oxford, and has since worked for some of the most prestigious global institutions.
At the age of 36 she became the youngest ever vice president of the World Bank. Between 2011 and 2014 she was deputy managing director of the International Monetary Fund. She served as deputy governor of the Bank of England until 2017, when she became director of the London School of Economics.
In this interview with Kathimerini conducted on the occasion of her visit to Athens to speak at an event about the future of the global economy, Shafik offers her thoughts and ideas on the challenges and opportunities faced today at a Greek, European and global level.
In today’s world it feels like we are observing the unmaking of globalization. Trade barriers are being raised and geopolitical tensions are being fueled by populist politics. Is this the beginning of the end of globalization or it is just a glitch before we get back to normal?
Globalization has been effective in promoting growth around the world – and reducing poverty in developing countries, so it may not be time to write it off completely. But globalization has not benefited everyone equally. The middle class in emerging countries have benefited alongside the richest 1 percent, while the incomes of the middle and lower-middle classes in advanced economies have been stagnant. This inequality is coupled with increasing feelings of insecurity as our systems of employment and welfare are under increasing pressure from a rapidly changing world – with advances in technology and aging populations. We need to put in place policies which will help citizens and workers adapt to changes or we will see worsening divisions and lose some of the benefits gained via globalization.
What are the chances that a major conflict between big powers – the so-called Thucydides trap – could disrupt global peace and cause a major recession this decade?
The Chinese are worried about two traps – the Thucydides trap and the middle-income trap (the pattern that many countries rise to middle-income level and never become high-income countries). The determination to become a high-income economy is driving the push to become world-leading in technology and high value-added industries – which is part of the conflict with the US. We need to find a way for the US and China to achieve a mutual accommodation, otherwise the rest of the world will suffer. There is an African proverb that when the elephants fight only the ants get hurt. Smaller countries always benefit more from a rules-based system since large countries can use their power to their advantage. So for countries which are not one of the big powers, the best hope is that the world economy is governed by rules that apply to all.
It has been said that the root cause of populist politics is widening inequality coupled with the ability of social media to amplify hate speech and division – hence advancing the polarization of politics. Do you agree? Is democracy in danger?
There appear to be two strong forces behind the rise in populism – a growth in economic insecurity and a sense of threat to identity, coming from immigration and other aspects of modernity. Social media appear to be exacerbating this by spreading misinformation and encouraging extremist views which fuel populism.
Populists do express some valid concerns. Prosperity from globalization and technological developments has not been widely shared. However, while some of their diagnoses may be correct, their solutions are not. Populist policies will only lead to stagnation and worsening economic conditions. And their anti-pluralist rhetoric is a threat to democratic values and norms. For example, the dismissal of evidence, the rise in partisan debate – with loyalty rewarded above all else – and the avoidance of transparency, scrutiny or due process. To tackle both the challenges around globalization and rise of populism, we need to address the underlying causes – create a fairer economy, increase social mobility and develop more inclusive counter-narratives about identity.
Do you regret Brexit? Do you think it is a major step back for both the United Kingdom and the European Union? Could it be the beginning of the slow unraveling of both the UK and the EU?
It is important to remember that the UK is still European, even after Brexit. The deep historical, cultural and human ties across Europe remain. We will have to find new modes of cooperation outside the EU. A new trade agreement is an important step and even some of the more optimistic predictions suggest there will be a hit to the UK economy. But there are many other dimensions – security, research, and cooperation on international issues. For universities, specifically, we have serious concerns about the future of student exchanges, the immigration system and research funding in the long term. International research collaboration and funding are essential in tackling major challenges like global disease and climate change, so a long-term solution to ensure this collaboration can continue is vital. The good news is that everyone I speak to in universities across Europe is keen for those collaborations to continue.
The West is constantly accumulating mountains of public and private debt – something that is forcing countries to adopt austerity policies and implement unending central bank interventions (quantitative easing, negative interest rates etc) as a way of preserving solvency and keeping the show on the road. You’ve been the Bank of England’s deputy governor for markets and banking and you must have been thinking about this more seriously than others. So, given all the constraints on modern economies, is there any plausible path for Western democracies to rapidly rekindle growth and tackle inequality? In other words, to borrow the title of your Athens talk, where is the world economy going?
I will try to tackle this question in my lecture in Athens. The debts accumulated by the advanced economies is largely the result of trying to cushion the impact of the financial crisis in 2008. Instead of having a Great Depression, we had a recession and large amounts of debt accumulation. On balance, I think that was a better outcome. Now we are faced with a period of very low interest rates because savings are greater than investment. That high level of savings reflects aging societies; the low investment is a product of low economic dynamism. Monetary policy has done a lot of the heavy lifting to sustain our economies in the recent period. Going forward, fiscal policy and economic reform will have to do more of the work.
In this European and global context, where is the Greek economy going? You were deputy managing director of the IMF between 2011 and 2014, a critical period of the Greek stabilization program. Do you think Greece should have been treated differently by the IMF? Do you believe the EU institutional lenders should now relax the primary surplus provisions for Greece as a way of boosting growth?
Greece bore a heavy burden of adjustment during the years of the eurozone crisis. Some of the reforms implemented were long overdue. But the adjustment could have been eased if the architecture of the eurozone had been better developed. The creation of the European Stability Mechanism and the measures taken by the European Central Bank certainly helped. But the job is not complete – we need better risk-sharing mechanisms for things like bank deposits and fiscal shocks so that countries hit by negative shocks can adjust more gradually with support from their neighbors.
In the age of artificial intelligence, will work as we know it become obsolete? Do you support the idea of a universal basic income (UBI)?
Automation and AI will inevitably have an impact – it has been estimated they will affect about 50 percent of jobs within the next 20 years. Robots can substitute for human labor as well as compliment humans.
There will be new jobs that we can’t even imagine now that will emerge.
I am not worried that work will disappear; I am worried that if we don’t prepare people for these changes, many of them risk unemployment. A key change is people will need to continually retrain in new roles, especially as retirement ages rise with aging. Hence adaptability and the ability to learn are so important (and why governments should be investing more in education and lifelong learning).
I think there are many better options than a UBI. Paying everyone a fixed income is expensive and inefficient because it pays even rich people, rather than targeting those who need it. It also implies that some people have nothing to contribute to society, which risks undermining the widely held principle that anyone who can work should, and it does not take into account the importance of meaningful work to well-being. I think much better solutions could include part-time work, wage subsidies, earned-income tax credits or higher minimum wages, combined with better access to services such as education, health and other public goods.
You have said, “In the past, jobs were about muscles, now they are about brains, but in the future, they will be about the heart.” What do you mean by this?
Tasks that are simple and repeatable are likely to be automated in future. Robots are poor at tasks that involve creativity, empathy and working with people.
Consider the huge progress being made in machines being able to diagnose eye diseases, identify breast cancer or do simple surgery. Doctors’ jobs will change – they will spend less time running diagnostic tests and simple procedures. But once that diagnosis or surgery has been performed, a person will want to speak to a human being to consult about their treatment, get advice about how they will cope, and benefit from emotional support.
It is not obvious (at the moment, at least) how emotional intelligence, team-working and human understanding can easily be replaced.
You are a woman who was born in Alexandria, Egypt. How many additional barriers have you had to overcome in order to achieve such a distinguished academic and professional career? What would you advise young women who are hoping to advance in the areas of politics, science and public affairs?
Alexandria, a city that benefited enormously from Greek influence, was, when I was growing up, a cosmopolitan melting pot open to the world. Of course I faced barriers from a culture that thought women should marry young and stay at home. But I also benefited from those who encouraged me. My father, whose property was nationalized during the revolution, always said to me, “They can take everything away from you except your education.” So I was pushed to get a good education from a young age. And throughout my career, many people opened doors and gave me opportunities that counterbalanced the barriers I faced. I always remember that with gratitude and try to do the same for others.
You’ve been director of the LSE for more than two years. What is the LSE’s competitive advantage? What distinguishes it from other academic institutions in terms of its worldview and the preparation it offers young minds to better tackle the challenges of the future?
There are several things that are distinctive about LSE as it approaches its 125th birthday. LSE accepted women and international students from the beginning – we were global well before it was fashionable!
Today our students come from approximately 150 countries and we have over 100 languages spoken on campus, and nearly half of our staff hail from outside the UK. We are an elite institution that is world-leading in the social sciences, yet we are not elitists – keen to attract students from all backgrounds and to support them with scholarships when we can. As part of our world-leading research and education we have a focus on having a positive impact and tackling the world’s most pressing problems. Within the school, our motto, “To know the causes of things,” is well known, but it also sits alongside our founding purpose, “For the betterment of society.” We are not an ivory tower – our students and our faculty are actively involved in shaping the world everywhere and every day.
Dame Minouche Shafik will be on stage with National Bank of Greece Board Chairman Costas P. Michaelides in a conversation titled “Where Is the World Economy Going and What Can We Do About It?” on Thursday, February 27, at the Auditorium of the Karatzas Mansion in Athens (82 Aiolou).