Four crises are converging into one difficult moment: health, environmental, economic and social. In designing the recovery from Covid-19 and managing its economic impact, the focus should be on how to move forward sustainably and equitably. This will entail a shift from short-term narrow thinking and accounting to long-term vision that erases false trade-offs between sustainability and profit.
Central banks, including the Federal Reserve, have a key role to play to get us there. In a recent discussion, Patrick Harker, president of the Federal Reserve Bank of Philadelphia, and Raphael Bostic, president of the Federal Reserve Bank of Atlanta, agreed that, in designing a sustainable and equitable recovery, you can’t have one without the other. ‘An equitable recovery will be, by its very nature, more likely to be sustainable and vice versa’ said Harker. This presupposes, among others, a labour market where everyone can participate. This includes working mothers who have been especially impacted by the pandemic, students trying to enter the labour market at a turbulent time and economically vulnerable communities in poorer and rural areas.
Five messages stood out from the conversation in terms of how to deliver it:
- ‘Intentionality’ was the key word in the conversation. Bostic emphasised the need to set sustainability and equity as an objective of the recovery: ‘If you have intentionality then you will actually focus resources to achieve the things that are important. So, calling this out as something that is desirable and important is a critical aspect of getting towards success.’ Both presidents remarked that the gradual progress that had been made in this area over the last few years has been severely affected by the pandemic and that, as central banks, they had an important role to play in getting back on track.
- It’s wrong to think about economic development and sustainability as a trade-off. A challenge presented in the recovery has been finding the balance between a healthy population and a healthy economy, with some arguing that , similarly, we need to find a balance between sustainability and economic growth. Bostic affirmed that, ‘There is potentially a trade-off, but I don’t think there has to be one. What has struck me in the pandemic is how the discourse has moved immediately to an “either/or” between a healthy community and a vibrant economy. This is not the right mindset.’ He added that, ‘We have to have in mind the goal that we can have both growth and sustainability, and then figure out how to do that. Getting both requires effort and sophistication and nuance and knowledge, but it’s not impossible… If an economy works for everyone, it’s a stronger economy and it’s a more resilient economy.’ This resonated with the words of Federal Reserve Bank of San Francisco President Mary Daly earlier this year in OMIF’s Gender Balance Index. When discussing the benefits of an equitable and diverse workforce, she observed that ‘we all do better when we all do better’.
- How we frame issues in terms of timing is key. Agreeing with Bostic, Harker stated: ‘I generally reject dichotomies [of sustainability versus growth]. It’s all about the time frame you are thinking about. If you start to think longer-term, you realise that these issues are going to impact your short-term bottom line. With many of the issues on the agenda, within a decade we could be seriously damaged if we don’t deal with them upfront.’ A sustainable recovery is dependent on long-term considerations.
- Recovering from the pandemic is both a global priority and a fraught, emotional issue with implications for everyday life. Central banks are trying to find the balance between intervening to help the world get back on its feet and overreaching their mandates. This tightrope walking act also extends to sustainability and the climate crisis. On responding to criticisms that sustainability is ‘too political’ for central banks, Bostic observed that, ‘In my experience the goal is to be dispassionate, arms-length, fact-based and clear to be linked to economic performance and success.’ Harker agreed, adding ‘We need to double down on the dispassionate, objective research that we do with respect to the economy that can help this debate.’
- In walking this tightrope, trust remains central banks’ biggest asset. The importance of meeting societies expectations to properly address sustainability risks cannot be underestimated. As Harker noted: ‘As central banks we are trusted, honest brokers of information, data and facts. We cannot lose that trust.’
Both presidents are committed to ensuring a sustainable and equitable recovery in the US. While they acknowledged that there are large barriers to overcome, the overwhelming tone of the conversation was one of optimism.
Watch the full discussion here.
Danae Kyriakopoulou is Managing Director, Sustainable Policy Institute, OMFIF.
More discussions from Fed Week, including on central bank digital currencies, artificial intelligence and financial stability, can be found here.