Smick: Your boss is being criticized worldwide for destroying the global order. Some argue that it was already crumbling long before President Trump entered office. What is the Administration's ultimate goal having now shocked the system? Is there a broader long-term game plan? The beginnings of a new global order?
Malpass: The goals are clear and President Trump has shown continuity from the campaign into his policies. Growth should be faster, both in the United States and globally. The President also believes in peace through strength. That means a strong defense is a good and necessary path to a peaceful world, with fewer of the crises we have seen in recent years.
Smick: There has been a lot of criticism of the World Trade Organization, particularly its inability to contain the Chinese in the area of intellectual property theft. How would you fix that system?
Malpass: The system needs to be fixed, but it also needs to be changed dramatically so that it works in a more balanced way that will promote growth. The global system would benefit from substantial change. That can be seen in terms of the weakness in median income that preceded the current administration, not just in the United States, but globally. The International Monetary Fund year after year showed lower and lower growth rates for global growth.
With regard to trade, the need for change is clear in the large and persistent imbalances in trade and the ineffectiveness of the WTO. There needs to be substantial, sweeping change.
Smick: Do you have a crystal ball for the global economy? The U.S. economy is strong, but large parts of the world are starting to weaken. Former U.S. Treasury Secretary Larry Summers is now suggesting that the world's governments and central banks are ill-prepared for the likelihood of a downturn. There's worry that the European Central Bank could be behind the curve, particularly given that, unlike in the United States, there was no European bank bailout after the financial crisis. The ECB is basically the lone institution able to come to the rescue in the event of a crisis.
Malpass: Growth picked up in 2017, which was welcome. That was particularly true in the United States, which passed tax and regulatory reform.
We have to be concerned that structural changes in other parts of the world have not been as robust as in the United States. For example, China's movement toward a market economy has stalled, raising concerns about distortions and capital misallocation. Japan needs substantial reform in its retail and agriculture sectors, and also needs to reduce the size of its fiscal deficit and the magnitude of Japanese government spending.
In Europe, we see important imbalances in the fiscal accounts. The debt-to-GDP ratio in Italy is part of that problem.
Some of the emerging markets have not used capital as effectively as they should have. So, yes, there are concerns in the global growth outlook.
But the good news is the United States can be the engine of global growth, and the world should welcome that.
Smick: To what degree do you see an Italian exit of the European monetary union, or a poorly handled Brexit, or both, becoming a problem?
Malpass: Brexit is a unique and major change in the world outlook, and it poses big challenges. The United Kingdom and the European Union are expending a lot of effort to try to figure their way through the issue. The United States is supportive of a good outcome for both the United Kingdom and the European Union in this process. We just don't have too many guideposts from history on how they should do it. As for Italy, it has had political and economic challenges for many decades. I would focus there on the urgent need for structural reforms in terms of the labor markets and the banking system in order to find a path toward faster growth. Government spending restraint is also a key challenge there and elsewhere.
Smick: Industrialized world policymakers never seem to see change until it hits them in the face. Nobody predicted...