Christine Lagarde wants to jumpstart inclusive growth: Why she should enlist cities

The International Monetary Fund downgraded its forecast for global growth last week during the Fund’s annual meeting in Washington. In her keynote remarks, Managing Director Christine Lagarde made a forceful argument to the finance ministers in attendance that a period in which “growth has been too low, for too long, and benefiting too few” has frayed social and political commitments to global integration and openness to trade and immigration.

To ensure that growth is more robust and inclusive, Lagarde called for a mix of fiscal and monetary stimulus. She called for commitments to infrastructure, research and development and trade. And she called for efforts to level the playing field through education, a higher minimum wage, and greater market competition.

Finance ministers can help deliver part of this agenda from the top down, but the policy interventions that influence how economies grow are just as likely come from the bottom up.

To begin with, cities are not part of the economy, they are the economy. Cities house one-half of humanity and generate nearly 80 percent of gross domestic product (GDP). In a recent report, Jesus Leal Trujillo and I found that the world’s 123 largest global cities alone generate nearly one-third of global output with only one-eighth of the world’s population. And they disproportionately house the trade, innovation and infrastructure assets (see graphic) that will push the global economy out of what Lagarde calls the “new mediocre.”

In addition to their economic clout, global cities are where elected officials together with partners in the business and civic communities are addressing many of the global challenges once discussed only at IMF meetings. That reality came into sharp relief during the Global Cities Summit in September 2016, where hundreds of leaders from 40 different global cities networked and shared solutions.

Here are four takeaways from a panel discussion about the role of cities in addressing many of the world’s most pressing issues.

1. Broadly shared growth is achievable, but local leaders must find strategic bets that advance both competitiveness and inclusion.

Andrew Boraine, CEO of the Western Cape Economic Development Partnership, discussed how his institution organized a common agenda for growth and inclusion through targeted projects that support both. Below he describes a supplier development program that will help local businesses benefit from expanded global investment at Saldanha Bay port.

2. The refugee crisis is remaking global cities, challenging the social fabric and necessitating reforms to boost housing supply.

Stockholm received 160,000 asylum seekers in 2015, according to Chamber of Commerce CEO Maria Rankka. The city’s booming tech economy has helped contribute to a tight labor market, which creates economic opportunities for new refugees. But now the region faces challenges in housing those newcomers in a highly regulated rental market that significantly limits new housing construction.

3. Being open and tolerant of diversity is one strategy to boost both social inclusion and business friendliness.

Atlanta Mayor Kasim Reed stressed that the “southern hospitality” his city provides has benefits for the economic bottom line, as companies with choices increasingly want to tap diverse talent pools that cluster in open and tolerant communities.

4. Political leadership and economic development are inextricably linked with broader challenges around global security.

General Raymond Odierno, former U.S. Army chief of staff and now senior advisor at JPMorgan Chase, explained that secure and safe environments are a critical precursor to economic development in cities, and widespread economic opportunity can also help create the social conditions that prevent extremism.