INTRODUCTION
Finance at the Crossroads
Left, right, backward, forward. . . . The crossroads facing us and the decision we make collectively has never been so important. It’s about finance and how we make use of it, and the direction we take will either save our world or lead us on the road to ruin.
Everyone has a view on what finance means. In my experience, this is usually taken as a reference to Wall Street or the City of London or sometimes to Bank X or the chief executive officer (CEO) of Hedge Fund Y when they happen to make the headlines. Actually, I am referring to a much broader perspective. By finance I mean the financial tools used by the players in the international finance ecosystem (such as banks, investors, pension funds, institutions, and lenders). And, yes, I mean tools and not companies or specific institutions. Far from the magic and mirrors it has come to seem in recent years, finance has never been anything but a tool, an instrument manufactured by humans to be of use, to aid survival, and to act within the environment. In this case, the tool of finance is first and foremost a mechanism for the mobilization and allocation of resources to benefit the economy.
Do we save the world or ruin it?
Over the past several decades, we have, perhaps subconsciously, been creating a new, extremely powerful force, potentially one of the strongest humanmade forces on earth. It has been quietly humming in the background of people’s lives, and we have been oblivious to what was building up. The 1920s and 1930s are rapidly vanishing from living memory, leaving only bumps in the road (some quite serious) of “localized” financial crises acting as sirens but seemingly falling on deaf ears. The financial crises of 2007–2009 were the price we all paid for not keeping up with regular health checks on a system that had quietly continued to grow to a scale few understood. This lack of understanding contrasted starkly with the strength of finance and the extent to which it governs all of our lives. Almost everything we do is underpinned by the structure that hitherto most had ignored, either by choice or ignorance.
The decisions we make now, the actions we take now and implement with full vigor and accountability, will directly influence our future. It is about regaining control and not just being the witness to a chain of events imposed on us. If we let finance continue on the path that led us to the financial crisis—serving the elite and feeding the speculators profiting from harnessing the power of finance in narrow and self-serving ways—then we are certain to drive up the level of discord. People will continue to feel increasingly disenfranchised. The recent resurgence in nationalism and protectionism will accelerate, and political disharmony will be inevitable. This story does not end well. Pulling down our respective shutters has not served us well in the past; there is no basis, beyond short-termism, to believe it would be any different now. A return to the depression of the 1930s would be only too real. Those were dark times in our history. We cannot underestimate the power of this new incredible force we have created.
We are facing a crossroads.
We barely survived a massive crisis. What comes next is not yet written. We are facing a crossroads. We have to be the ones who choose. “We” comprises each and every one of us. If it is just the so-called elites, then it will not succeed and will lead to resentment and a greater risk of more of the same issues recurring. This is not easy, as it requires hearing the voices of those who have been ignored in the past. How can this be achieved? It requires an ongoing, sustained commitment from every element. This means accountable government, civil society organizations, multilateral efforts, nongovernmental organizations (NGOs). The list goes on, but it is critical to have everyone’s voices heard.
When I participated in G20 (Group of 20) meetings, I did so representing the World Bank Group. This meant that a group that is, by definition, narrow in its participants had someone who sought to represent the views of our clients, emerging market countries, including small island states, that would not have otherwise necessarily had a direct voice at the table. When I participated in the Financial Stability Board discussions (as a representative of the World Bank group including its private sector arm, the International Finance Corporation (IFC) and its investments in hundreds of financial institutions), I could bring to the table an informed voice reflecting this wide exposure. These are just two examples, but this is how we have to build forums where all our voices can be heard.
We can and we must choose a direction. We must be proactive and committed in the decision making, and that responsibility lies with each of us. Finance can save the world. It is a strong force that belongs to us and serves us. Finance is not the master and should not be allowed to be manipulated by the elites. Finance exists for the common good.
By using finance as our servant, we have the ability to hit reset. We can reposition its use. Finance is for everyone, and we need to use it accordingly. We need to set the agenda for financial inclusion and give access to everyone. Empowering people in the right way will reenergize the level of trust in the tool and enable all of us to assert our rightful authority over it.
We have to strengthen our multilateral approach. This is, however, not obvious for all, as we are reminded by an Op-Ed in the Wall Street Journal on May 30, 2017: “The world is not a ‘global community’ but an arena where nations, non-governmental actors, and business engage and compete for advantage. We bring to this forum unmatched military, political, economic, cultural, and moral strength. Rather than deny this elemental nature of international affairs, we embrace it.”1 I do not subscribe to this vision, as will become clear in the following pages. I believe that, despite territorial tensions, countries have to work together in a revamped manner. It is not easy or quick, but by walking down the path together in a cohesive, collaborative, and respectful way, we will have stronger outcomes. In times of difficulty, it is, of course, much easier to narrow our focus, adopt a nationalistic approach, seek higher levels of protectionism, all under the banner of helping ourselves first. This does not work anymore. Globalization and the deep level of interconnectedness we have are real and irreversible. Taking a narrow approach is destined to fail because complete sovereign control, in financial terms, is a myth. By contrast, moving ahead with multilateralism, albeit revamped, will be to the benefit of all of us. This is even more the case with finance, a fungible commodity that is blind to international boundaries.
Now is the time to regain control over money to serve the common good.
Using finance will help us build a truly sustainable framework for development. It is inconceivable that development should be only short term in its outlook and unequal in its distribution. The immense power that we can unleash with finance is much more far-reaching that most people believe. We can drive growth through sustainable development. The goals outlined by the United Nations (UN) and endorsed by all nations are broad, but they set the compass in the right direction. This can be achieved only if the necessary financial resources are mobilized in a revised manner. We will not achieve sustainable development without a new sustainable approach to finance. Each of us needs to take ownership and change the way we think about and use finance. Whether we manage or invest money or are stakeholders in other ways (don’t forget, ultimately it is almost always our money), we have a duty to make our voices heard. Invest responsibly in a clear and credible way, not just by paying lip service or seeking out the most benign hurdles to step over.
The decision before us as to which direction to choose is serious and must be accorded the appropriate level of respect and consideration. We should not make the mistake of thinking that our role is to be one of a passive actor or, even worse, a willing victim. Finance can be a force for good. It is a force that will not go away. We ignore our responsibilities at our peril. Taking back the power over finance means we can then undertake the changes that are needed to serve the common good. Regaining trust in the system after every thing we have been through recently, and living with some of the undesirable consequences of that, is part and parcel of the new approach we have to adopt. Finance can save the world, but only if it gets the guidance it desperately deserves.
It all started in 2000 as a dream.
Was the year 2000 just a dream? Perhaps. From May 1968, when I was born, until the dawn of the new millennium, imagination still held sway. Like many, I had hoped that there was a bit of magic at work, a mix of technology and a new and improved human race, with just a soupçon of the “end of history,” per the famous phrase of Francis Fukuyama after the fall of the Berlin Wall. Then, as 2000 approached, we felt the anticipation of the Y2K (year 2000) bug, Europe’s adoption of a single currency, and the ambition to remove the boundaries between nations to create a unified, limitless human race.
When that fateful hour arrived, we counted down the seconds separating us from the new age. We kissed our loved ones and shouted out our hopes for the New Year amid champagne and fireworks. We expected it to be magical. The hopeful feelings lasted throughout the year, culminating in September in New York at the UN headquarters with the largest gathering of heads of state and government the world had ever seen: the Millennium Summit, where humankind enthusiastically set goals for itself to accelerate the pace of development.
All did not go as planned.
More than 15 years later, and the world has changed so much. Yet the film doesn’t quite match what that September 2000 trailer in New York promised.
Who would have thought in 2000 that a financial system thought to be synonymous with peace, prosperity, and progress would lead the world so close to the brink of disaster? The many crises of the 1990s seemed behind us. After years of turbulence, we hoped that the “Great Moderation” was bearing serious fruit. Who would have thought that Europe would be so close to crumbling, to failing, at the conclusion of a major humanitarian drama? Who would have thought that Kodak could go bankrupt, that the World Trade Center could fall? Who would have thought that China could in a generation overtake the United States as the top world economic power? Who would have thought that these same powers, and others, could one day sign the Paris climate accord together? Who would ever have thought that, as bright as the euro’s future looks on the European continent, 52 percent of the British population would choose to withdraw from the construction of Europe?
Unleashing finance led us to a disaster.
All of this is to say that the years since 2000 have turned out to be tumultuous. We have all felt the splintering and fracturing that is still playing out, and we have yet to learn what these ruptures will make of us in the end. Our financial, economic, political, geopolitical, environmental, social, and cultural worlds are all changing.
The 2007–2008 financial crisis and the deep worldwide economic recession that followed have made finance the enemy in the eyes of many global citizens. Many current tensions throughout the world, starting with the hints of populism and nationalism, are an echo of the great disillusionment that has overtaken those who believed, since 1944 and the Bretton Woods Agreement, that the financial system would bring us economic development and guarantee international cooperation.
In the United States as in Europe and around the world, we can sense a deep-seated fear among populations who feel they may have been passed up by a movement they no longer understand, or perhaps they never did. The directions in which globalization and a united Europe are headed have never been so uncertain, never so weakly embodied by its leaders, and all the while, geopolitical tensions are rising around the world. Think of the thunderclap that was Brexit, the crises in Ukraine, the Sahel, the Sea of China, oil-rich countries, and the Middle East, the upswing in terrorist attacks around the globe, from San Bernardino to Lahore, Orlando, Copenhagen, Brussels, Paris, Nice, Istanbul, Ankara, Beirut, Tunis, Sousse, Bamako, Ouagadougou, Bagdad, Sana, London, and on and on. Advanced economies and emerging economies are regularly tempted to use strong-arm tactics to shape monetary policy, and some people are coming to realize that global economic growth might be entering a lasting era of stagnation, embodied in the unprecedented number of bonds with prices at low if not negative interest rates in a number of developed nations.
A lack of confidence now dominates.
Yet the world has never been so well equipped to deal with these threats! Humanity has never been so wealthy, so productive, so avid, so invested. But this amazing abundance is far from being equally split. Bit by bit, balance is actually getting harder to achieve, given the risks inherent in the management of big data and the Uberization of the economy—not to mention the climate threat and the acceleration of the rate of pandemics—in a world that is so well connected. The path globalization has taken is sometimes terrifying. To countries like the United States or France that have had so much influence over the shape of previous stages of globalization, this threat is even more dizzying. Our communities tremble at the idea of being passed by.
Faced with numerous uncertainties, humankind is also faced with an unprecedented crisis of confidence.
Confidence—in our future, in our colleagues, in ourselves—is exactly what we need at a time like this to meet the crucial challenges we can no longer avoid: the elimination of poverty, the preservation of peace and our climate, the reorganization of a digital civilization, the fight against pandemics. All these require, more than ever, our cooperation, our willingness, and our courage to get the work done.
Nonetheless, humanity has committed to sustainable development and shared prosperity.
As recently as 2015, we saw that humankind can still experience bursts of confidence and audacity: three successive international conferences, in Addis Ababa, New York, and Paris, gave us a year-long opportunity to come to an agreement on the decisive roadmap for the coming years with respect to development funding, the sustainable development of our planet, and the fight against climate change. All nation states have chosen and agreed on a roadmap for our planet. We do not have to invent anew. The roadmap is there for us to implement.
We are at the crossroads. The choice is ours.
We have to take these declarations of principle seriously. They are not just pieces of paper. They demonstrate our utmost desire, as a human race, for unity to overcome division. If only hope will continue to keep us above the cynicism and fatalism we have come to expect! And if we take these declarations seriously, we have to commit the necessary resources and financial tools.
We should not be naïve and underestimate these commitments or treat hope like a toy. These immense but necessary ambitions can become reality only if we manage to mobilize all our centripetal strength against the innumerable and often brutal centrifugal forces tearing us apart. By joining forces at all levels, we can defeat the forces of dispersion. Our lovely promises will come true only through united efforts between and within nations, and cooperation between public and private actors and the community at large. We must walk the same road together if we are to open up dialogue between multilateral international institutions and the various advanced, emerging, and developing economies, if we are to rebuild the connections in Europe, and in the 50 United States, and across the Pacific and Atlantic Oceans. And we must come together to make the G20, the group of the 20 largest economies of the world, more than just a yearly gathering of heads of state with little to say and even less to do.
Such mobilization is possible, I am convinced, having had the chance to participate in numerous summits, projects, meetings, and working groups during this period. But I also know that following that road of the declarations is not going to be easy.
Where do I come from?
I have found myself in the position of a privileged witness and an actor, in the United States and in Europe, in some of these major changes that have happened in the world since 2000, in times both exciting and dramatic.
I have seen finance firsthand as a problem.
I was an investment banker for Lazard in New York when the dotcom bubble burst. I saw the September 11 attacks from my window. I worked in Paris alongside Michel Camdessus, managing director of the International Monetary Fund (IMF) from 1987 through 2000, and Jacques Chirac, then president of France, who led with Gordon Brown two of the major financial innovations for development in recent decades.2 During the 2007–2008 financial crisis, I watched the collapse of a whole system from the inside, as a senior executive first for Crédit Agricole and then for Société Générale. Finally, at the World Bank, I was involved, to varying degrees, from Washington, DC in the three international summits in 2015 that may make it a historic year for decisions made in the name of humankind.
It was not destiny but rather chance encounters and assignments that led me to these experiences—which I joke makes me more like Forrest Gump than anyone else. I always thought that after finishing my degree, I would spend my whole career with the same government agency (the Ministry of Finance) or the same company. Life thought otherwise.
My meeting with Michel Camdessus, when I was the treasurer for the Semaines sociales de France,3 turned out to be decisive, allowing me to work in multiple roles on the problems related to development. As a banker, and therefore thought to be an expert in international “liquidity,” coincidence led me to work on the question of water with Michel Camdessus from 2000 until 2003 as part of President Chirac’s team for the preparations of the G8 summit in Évian, France. Initially knowing little about the subject, I found myself reflecting on funding for water infrastructure and cowriting a book on the topic.4 In turn, I also was the reporter for a working group on international funding innovations to relieve poverty, and I collaborated on the drafting of a report about ideas for new growth in the French economy.5
As chief financial officer of two of the largest global banks, occupied by the day-to-day management of the financial crisis, I never thought I could find the time again to reflect on these matters when, in 2012, I was asked to join the World Bank as managing director, with a broad financial mandate. I immediately accepted this opportunity to put the convictions I had gained from my experience into action: to make use of one of the best financial laboratories in the world to attempt to innovate for the public good, to demonstrate how finance might also contribute positively to the global market, rather than being reduced to the destructive force so cruelly unleashed in 2007.
In hindsight I appreciate how much these apparently unrelated, seemingly disconnected experiences actually make sense. They offered me a relatively complete view of the international financial system. Through various public and private sectors, at both the national and international levels, I was able to take stock from successive and diverse perspectives: as a civil servant with the Ministry of Finance, as an investment banker on Wall Street and in the City of London, as a commercial banker who was regulated, and later as a regulator and leader of a multilateral development bank. These viewpoints have given me an understanding of the limits of the system, as well as the potential for reinvention it harbors.
I want to promote finance as a solution. And I have started.
Working through the World Bank was, in this sense, a synthesis of all my past positions. In addition to seeing the potential for financial innovation, I was able to observe the system of international governance from up close, the many frustrations it created, as well as its profound utility. It is imperfect, and yet indispensable! My experiences revealed an exceptionally diverse world in which the elites are so alike and yet so different, with a common language overlaying so many singular life experiences. This commonality can help. It also sends a serious signal outside, which can raise widespread and legitimate questions about an aloof and disconnected global elite.
Finance is an amazing renewable energy that needs to be controlled.
The numerous professional trips I took also fed this vision. From the Salomon Islands to each of the BRICS nations (Brazil, Russia, India, China, and South Africa), I visited nearly one hundred countries, rich and poor. I was able to engage with people of all kinds and from all places, some ordinary, some extraordinary.
From these precious experiences and the many ideas they led me to consider, I learned a number of lessons that may be helpful to share today, at this crucial moment, with globalization and humanity at a crossroads. If I have but one conviction to share, it is that the mobilization of every source of energy is vital to combat the disruptive forces that threaten our world today. Such mobilization is, indeed, possible, as I have been able to prove several times over. I also know from experience that we are far from our goal—it is so much easier to play devil’s advocate, to rest firmly on our preexisting interests and positions! The way we will be able to get all humanity working together is to share a clear vision of our future, to get a compass, and to have legitimate leadership to guide us and concrete means of cooperation.
Finance is a tool to serve the common good.
The financial catastrophe that occurred in 2007–2008 must not cause us to make mistakes: finance is not the enemy, for the simple reason that, in and of itself, it has no quality of being good or bad. It is only a blind mechanical force that, poorly used or unsupervised, could take a turn for the worse (as we saw with the subprime crisis), or, used well and properly maintained, can offer us something better: prosperity shared by all without harm to our planet (as seen with the development of the green bonds). Let us not forget that old saying “Money is a poor master, but a good servant.” The same tool, used well or poorly according to the will of the actors, can lead to the creation or destruction of value. The same finance that took us to the brink of ruin can also lead us to the enrichment of billions of people. It remains a marvelous tool that allows us to work on projections and imagine and prepare for the future, managing risks, space, and time, and to unite humankind to build together, for everyone.
Our love for money has faltered, but perhaps all we need is a second honeymoon, a chance to find the feelings that led to its creation once more. To be proactive on purpose, isn’t it time we rekindled our love for finance?
It is the hand that must control the tool and not the tool the hand.
We won’t accomplish anything by repeating our past mistakes. Although the temptation is real, we must find a better, more enduring foundation for reinventing finance by thinking harder about concrete and effective responses to the problems of the real world, beginning with those in development. By reconstructing the financial system, increasing the number of real innovations that lead to this extraordinarily inventive tool, we have the capacity to redesign in depth an inclusive globalization that benefits most people.
I offer this book not as yet another attempt by a “converted banker” to distract you from the difficult truths by pulling the same old tired tricks out of the magician’s hat. Not at all! Having spent three years at the heart of one of the greatest financial laboratories in the world, having had the chance to participate in large-scale financial projects that were both generous and ingenious, I have acquired a clear conviction that financial innovation can accomplish great things in the service of the common good, and that multilateral institutions have a key role to play, thanks to their credit, the quality of their human resources, and their mission. But they certainly won’t do it alone, and they won’t do it simply “as is”! Change is needed, and at scale. If change does not occur, temptation will remain to allow finance to play its own game. Remember the (in)famous words of Chuck Prince, former chairman and CEO of Citigroup, as reported in the Financial Times in July 2007: “As long as the music is playing, you’ve got to get up and dance.” I don’t think we can afford to let the same thing happen again.
Regaining control over money requires a collective effort.
Obviously, regulators, more than anyone else, have a crucial role to play in finding an appropriate, holistic setup for a system that has little by little been limiting itself solely to the banking system. Financial players, starting with institutional investors, also have to play a critical role in directing their resources toward sustainable projects. Multinational companies are beginning to participate in the movement themselves, to respond to the growing concerns of their current clients and their future stakeholders. In this new financial coalition, for which I have high hopes, international organizations, forums, and development groups will play a key role as catalysts. Civil society will also have the responsibility to weigh in on this interplay, to support it, and to push it forward. Through these united efforts, leveraged by and through the tool of finance, we can change the game; we can carry out this revolution that will have us looking back on 2015 as the year we made history together.
Throughout this book, I take the reader through a brief history of some key steps and discussions that have taken place at different places around the world. Part 1 touches upon critical moments and gives context to the main thesis of the book: finance, when controlled, can be the best servant to each of us, not just for an elite few but for everyone.
The recent financial crisis triggered perhaps the greatest and most sustained criticism of how finance has been manipulated to create a complete distortion of wealth and power. The evaporation of trust has resulted in debates about the very nature of money and the role it plays in society. These are the aspects I cover in Part 2, where I call for a return to basics and discuss how changes have begun.
Part 3 addresses the renewed international cooperation and how we all need to take seriously the commitments made in 2015, not just treat them as good words to be lost to history. Along with this, we need to take stock of the ongoing changes in the financial world. The business model of the banks is changing; their role is also being modified, particularly against the backdrop of a more prominent position being taken by institutional investors. In the public sector, various elements are also increasing the pressure on the multilateral banks, forcing them to adapt to a different world of greater public finance constraints and driving them to redefine their role.
The separate pressures on the private and public sectors are precisely what are causing both sides to rethink how they must work with one another. This discussion is compounded by the low or negative interest rate environment and the ever-present search for yield, expectations of a new generation (the so-called millennials), massive disruptions brought about by technological revolution, and the lack of trust in the system following the financial crisis. All of these elements are helping to foster a new framework within which to discuss the role of finance. How do we make best use of all the available resources in order to mobilize finance to lead to greater, sustainable development?
Part 4 discusses how this cooperation can be achieved through a new way of joining forces, at scale, because of the environment we have found ourselves in and our new set of expectations. What is discussed is not revolutionary, but it is far-reaching in its potential impact. Working together by its very nature will require a resetting of incentives and drivers of actions at every level, not just in how our financial institutions are regulated or through the reform of international organizations.
As is often the case, it is obviously easier said than done since there is no single point of decision. That is why the following pages might sometimes come across as being naïve or vague. On the one hand, this is true, but there is no easy prescription. Rather, it is a call for action based on what I and others have been able to do over the past few years. It is not and cannot be the so-called elites speaking to the elites, but it must include everyone, each of us making a difference. It is about what we want our banks, pension funds, the people who manage our assets, our governments, the international organizations that act on our behalf, and the NGOs to do with the resources we have granted them, whether through the taxes we pay or through entrusting them with our savings or gifts.
Finance can make a difference if pressure is applied throughout the system, not to different silos but across the board as a unified force. We have an opportunity to shape a genuinely new framework that would replace the one that began in the 1970s but that finally collapsed with the financial crisis.
Tangibly, this means reinforcing core values that should affect products, markets, and behaviors. These must be taught and monitored as well as regulated and supervised. The core values must include ethics, accountability, intelligibility, and they must be ingrained into how people operate every single day. I also try to make sense of the various innovations at play everywhere, such as green finance, which are still not central but are gaining momentum.
In discussing how to renew international cooperation, I remind the reader of the universal nature of finance and money and why this requires, more than anything else, a concerted approach. However, international cooperation should not just be a place for regulation. It should also be a place where we collectively decide to work better together and use finance in a useful manner for all. We have created institutions and forums of all kinds since 1944, such as the UN, the Bretton Woods institutions (the IMF and the World Bank), and the various Gs (Groups, including the G7, G8, G20, G24, and G77). They are not always as effective as one would expect; reform is needed as well as continual evolution. Nonetheless, they are what we have today, and we can make good use of them; it is time to shake the tree and demonstrate that we can do something like mobilizing the various resources to address the infrastructure gap.
A critical question before us is how to finance the sustainable development of our planet. We have agreed on a set of objectives. However, to achieve them we need to shift the financial paradigm and mobilize the different kinds of finance and actors that are required. This is what I have called “the billions to trillions” roadmap: the needs are in the trillions, but public aid is in the billions. How we bridge this gap is key. I review what in particular the multilateral organizations should be doing and how to better leverage these platforms. I talk about the importance of a renewed way for the public and private sectors to work together, going beyond the traditional public– private partnership (PPP) approach. I discuss how this can work, notwithstanding the differences and suspicions between the public and private sectors. I conclude by highlighting specific areas—such as education, pandemics, or road safety, to name but a few—where this approach can continue to be implemented.
Finance can become the great servant.
Although finance was certainly part of the problem, today it can be part of the solution, too. We are poised to make good on our great ambitions for development and climate change that we set in 2015. Our top priority, for all of us in the public, private, and civil sectors, is first to accept our challenge (it would be too easy to call it impossible and give up), then to roll up our sleeves, all together now, and to put back the pieces before us in the best possible configuration.
Hope could well become a credible option for us to achieve this undertaking. It can move us off this trajectory toward fragmentation and reorient us more positively toward unification and progress. With a reset finance, we have a chance to truly achieve our goals for sustainable development. What comes next has not yet been written: we are standing at the brink of the best of times, or the worst. This informed and practical account can help global decision makers lead us in a positive direction, and can help all of us push them, and the system, in an appropriate direction.
As Saint-Exupéry says, “Your task is not to foresee the future, but to enable it.”6
It would be to our advantage to acknowledge that the euphoric predictions that preceded the crisis have not come true. As the queen of England famously asked economists in 2008, “Why did nobody notice it?” Now is the time to enable that future to come true. There is still time to change course and be serious about the eradication of poverty or to address the issue of climate change—but we need to move now, decisively.