Speech of the Week: David Malpass, President, World Bank Group and Giorgia Meloni, Prime Minister Italy

In the phrase of the moment, the financial markets are in “febrile mood”. Perhaps not surprising then that a speech from one of the world’s leading bankers contains the words “crisis”.

However the speech by David Malpass, President of the World Bank Group, to the Stanford Institute for Economic Research (SIERP) at Stanford University this week titled  “The Crisis facing Development” stood out for its clarity and perspicacity. If you really want to know what’s going on in the world, at the macro-economic level, this was a pretty good place to start. Moreover, David Malpass provided a high level overview not only of the main financial forces at work in macro-economics, but also gave an insight into a number the primary causes of disruption (and indeed concern) in the world at large today .

In fact, the speech was littered with insight which told a different world story from the comfortable world vision of the head of the world bank. For example:

• There has been a 4% decline in global median income, the first since 1990
• There are devastating flows of arms into Africa
• Russia’s invasion of Ukraine, and limited and high-priced natural gas supplies, means the closure of coal-fired power plants are being postponed across the world. Indeed coal mining has accelerated.
• China’s economy is tanking, forecast is down to 2.8% from 5% in April

And how about this for a bombshell: 

“Capital does not flow well from rich to poor countries. Quite the contrary: capital generally flows from poor to rich countries.”

In general, however the speech paints a stark picture of the difficulties we face. Apologies for the lengthy quotation, but there’s no sugaring this:

“The developing world is facing an extremely challenging near-term outlook shaped by sharply higher food, fertilizer, and energy prices, rising interest rates and credit spreads, currency depreciation, and capital outflows. Under current policies, global energy production may take years to diversify away from Russia, prolonging the stagflation risk….

These shockwaves have hit development at a time when many developing countries are also struggling in other areas: governance and rule of law; debt sustainability; climate adaptation and mitigation; and limited fiscal budgets to counteract the severe reversals in development from the COVID-19 pandemic, including in health and education. The human consequence of these overlapping crises is catastrophic.”

And there’s more, a perfect storm is brewing:  

“A series of harsh events and unprecedented macroeconomic policies are combining to throw development into crisis. This has consequences for all of us due to the interlinked nature of the global economy and civilizations around the world.”

Of most concern, it seems that global inequalities are growing. Indeed it appears the very structuring of the banking world itself is causing the imbalance to worsen:

“The regulation of banks has the explicit bias that debt of advanced country governments is considered zero risk while other debt, especially that of small countries, developing countries or new entrants, is treated as risky and requires bank equity capitalization.

The challenge for development is whether global capital will be enough to fund the capital needs of the advanced country governments and have enough left over for the investment needs of developing countries.”

The money is going to the richer countries, who are deemed better risk and withheld from poorer nations, even though “poor countries have lower levels of capital per worker than rich countries – and therefore higher potential returns to added capital”

And the tragedy is that many of the poorer developing countries are also having the bear the brunt of climate change:

“Droughts are taking a toll in the Horn of Africa and in South America, affecting food production and hydropower generation and throwing nine million more people into severe food insecurity across Ethiopia, Kenya, and Somalia alone. Developing countries are being hit by more frequent and more severe climate-related disasters. Man-made greenhouse gas emissions are causing climate change, which in turn is having tragic impacts on development in multiple ways.”

On the macro-economic front, the truth is that the shift in economic policy that was brought about by the global financial tsunami in 2008, and which led to a change from “monetarism to post- monetarism” in Malpass’ terms, has created a situation in which the current tools aren’t fit for the current challenges. We’ve got the wrong system in place for the current troubles:

“At the core of the macroeconomic crisis facing development is the sea-change in fiscal, monetary, and financial regulatory policies of advanced economies since the 2008 financial crisis. Monetary policies over the last decade have been guiding capital to well-capitalized segments of the global economy – to governments, bond-issuing corporations, and wealthy individuals – at the expense of broad-based growth and development.”

The money is flowing to the wrong places. And Malpas goes on to say:

“Starting in 2008, advanced economies adopted wholly new monetary policies to combat the global financial crisis. Central banks set interest rates to zero or below and bought bonds financed by their own accumulation of excess bank reserves. These crisis-focused activities helped contain the impact of the financial melt-down. But as Larry Summers said in 2021 “…the beginning of wisdom is seeing that the quantitative easing prescription makes little sense today”.

Quantitative easing and “low for long” are now not the solution.

David Malpas does offer some solutions: clear shift in policy towards increased production; With inflation high, look beyond interest rate hikes; create the conditions for supply to increase in response to price increases; in the advanced economies, reduce the size of government current spending and target more to the poor and vulnerable, reducing non-productive demand and taking pressure off inflation; and reduce the maturity of the central banks’ current and future bond holdings.

But if one is honest, to a good speech, the solutions were rather less convincing than the problems.

Giorgia Meloni: a new Prime Minister in Italy

Sometimes a speech is of note simply because it has been made. This was case with the victory speech of Giorgia Meloni, the new Prime Minister of Italy: a speech from the first female Prime Minister of Italy. Of course she is also leader of a far right party – Fratelli d’Italia, or Brothers of Italy – and any time a right wing party gets voted into power there’s going to be massive attention.

Meloni understood this – and her victory speech was all about the right noises:

“This is a night for pride for the Brothers of Italy…. We will govern for all Italians, with the aim of uniting the people, exhalting what unites them rather than what divides them.”

But what was interesting about this speech, and the coverage it received, was the links to another, more famous speech by Georgia Meloni back in 2019 and which has received much world attention.

Probably because that speech was a barnstormer, in which Meloni rounded on the woke and the establishment:

“I think it is unenlightened when a state which is usually willing to sponsor any old thing, even exhibitions featuring a crucifix immersed in a beaker of pee, is ashamed to sponsor an event such as this.”

The speech is known for her close in which she quotes the English writer G.K. Chesterton, saying:

“ ‘Fires will be kindled to testify that two and two make four. Swords will be drawn to prove that leaves are green in summer.’ That time has arrived. We are ready.”

But even more interesting than Meloni’s knowledge of arcane areas of English literature, was her statement that we have become the perfect slaves at the mercy of financial speculators and that because of this identity is lost:

“I can’t define myself as an Italian, as a Christian, a woman, mother. No!”

Now take a look at the way she has revolutionised (literally?) that statement for a crowd at the “Vox” rally in Spain earlier this year (for full effect watch on YouTube):

“I am Giorgia.

I am a woman.

I am a mother.

I am Italian.

I am a Christian.

You can’t take that away from me!”

In such rhetorical refashioning are populist politicians and indeed populist movements created! In the sea change of style between these two statements (which effectively say the same thing), one understands the whole of political speech making to the crowd and what populist declaration is all about – and maybe all speech making. Across the ages. With her new language Meloni is now a politician;  a leader. The first female Prime Minister of Italy.

Who said the study of rhetoric was dry, fusty and for the Ancients!