The latest evidence of global fracture came earlier this month, when President Biden proposed a partial ban on U.S. investments in Chinese technology sectors that could have military applications.
After more than three decades of increased global integration, U.S.-China tensions — plus the aftereffects of Russia’s invasion of Ukraine — are threatening to harden into a permanent global divide, according to Georgieva. A populist tide, meanwhile, has transformed the United States — once the principal advocate of trade liberalization — into a champion of inward-looking industrial policy.
Better than most policymakers, Georgieva, who grew up under communism, understands the costs of a globe partitioned between adversarial powers. Under the most severe scenario, potential losses in global output could reach $7 trillion, according to IMF estimates. Individual freedoms would suffer, too.
“The reason I’m very concerned about fragmentation — based on my personal experience — is that I know the consequence is going to be: We would all be poorer and less secure,” she said in a recent hour-long interview in her office.
Born three years before Nikita Khrushchev’s 1956 “secret speech” denouncing Stalin, Georgieva, 70, was raised behind the Iron Curtain in Sofia, Bulgaria. Hers was a happy “ordinary family,” she said. Her father worked as a civil engineer while her mother managed a shop. Neither parent was a Communist Party member.
Bulgaria was the poorest of the original members of the Soviet-led economic bloc that was established in 1949 in response to the U.S. Marshall Plan for Western Europe. For years, Bulgaria was regarded as Moscow’s “most loyal ally,” said Theodora Dragostinova, a history professor at Ohio State University.
Georgieva remembers the long lines at the grocery store where the shelves on some days held nothing but bottles of vinegar. The years when a television was an unattainable luxury and when her entire schoolgirl wardrobe consisted of two uniforms of a black skirt and white blouse, one for everyday use and one for formal occasions.
“Things were cheap, but not available,” she said.
Life became more difficult when her father needed to have a leg amputated because of thrombosis. “It was very traumatic and the country was not friendly to handicapped people, at all. The streets were not easy to navigate. So it really killed him, you know. He died at 66,” she said.
Along with material deprivation, Georgieva was surrounded by corruption, mediocrity and insecurity. The chronic scarcity of goods meant that Bulgarians engaged in a constant search for an influential friend, who might provide bananas or toilet paper or milk in return for a small bribe.
“The cancer that scarcity created is very difficult to treat,” she said. “You poison the behavior in the minds of people.”
Mediocrity flourished in a system where decisions emerged from unchallenged authority rather than the marketplace of ideas. Todor Zhikov, the leader of Bulgaria’s Communist Party, who effectively ruled from 1954 until 1989, ran a top-down system staffed with sycophants while businesses sought to satisfy arbitrary government plans, not consumer demand.
At any moment, an innocent joke might land a person in trouble. During mandatory military training as a high school student one summer, Georgieva sang an irreverent marching song that parodied the army routine. Officials promptly detained her and held her in a state facility for three weeks.
“My form of protest was mostly to make fun of all this stuff,” she said.
In the late 1980s, after Soviet leader Mikhail Gorbachev introduced his historic program of glasnost and perestroika — openness and restructuring — Moscow’s allies also began to loosen the reins.
After earning her doctorate in economics at Sofia’s Karl Marx Institute, Georgieva won a scholarship to study at the London School of Economics and later at the Massachusetts Institute of Technology. Her meager stipend permitted few luxuries. But she recalls spending 7 British pounds (roughly $12 at the time) for a ticket to the musical “Cats.”
Thinking London might be her only chance to see the West, she filled three suitcases with textbooks, classroom notes and articles torn from the Financial Times before returning to Sofia.
The transition years after the Berlin Wall fell were in some ways harder than life under communism. Georgieva, by then a young mother, rose each morning at 4 a.m. to wait in line to buy milk for her daughter. Annual inflation in 1991 topped 300 percent, according to the World Bank, on its way to reaching 2,000 percent later in the decade.
Few Bulgarians had any inkling about the workings of the free market. Georgieva wrote the country’s first microeconomics textbook and began teaching market economics to university students who had grown up in a completely different environment.
“What is difficult to understand is the scarring this leaves and that moving from restrictions on freedom to freedom of choice is not like drinking instant coffee. It takes time,” she said.
Living under communism taught her the impact of government policies on people’s lives for both good and ill, a lesson she brought to positions with the European Commission, the World Bank and in 2019 to the top job at the IMF. She spent a total of roughly 20 years at the bank, in two stints, beginning as an environmental economist and rising to interim president before moving to the fund.
But it was five years in Brussels as Europe’s humanitarian and crisis commissioner — responding to floods in South Asia and famines in Africa — that Georgieva said best prepared her to run the IMF as the coronavirus pandemic began. “The most important lesson I learned: Think of the unthinkable. Because the unthinkable will happen,” she said.
In her meetings with foreign leaders, she sometimes cites her own experiences to buttress her calls for global unity.
“Growing up behind the Iron Curtain has given her a perspective no other head of the IMF has had. It’s a unique vantage point,” said one former IMF official who worked alongside Georgieva and spoke on the condition of anonymity to discuss confidential discussions.
Today, the lack of trust between the United States and China is at the center of Georgieva’s concerns about fragmentation.
China’s turn toward renewed authoritarianism under President Xi Jinping defied the hopes of U.S. leaders in the 1990s. Presidents Bill Clinton and George W. Bush both said that bringing China into the World Trade Organization would encourage its communist government to liberalize politically. That hasn’t happened.
Even as some U.S. hard-liners now call for China’s trading privileges to be revoked, Georgieva remains a believer in the benefits of robust commercial ties. Poor countries would be hardest hit in a fragmented world. But a full decoupling of the United States and China would hamstring global growth and leave Americans paying higher prices for many consumer goods, she said.
Cooperation between the world’s two largest economies also is essential to combat climate change, according to Georgieva. Critical minerals needed to complete the transition to a low-carbon economy, including electric vehicle production, are located in a handful of countries. In a divided global economy, key producers could organize mineral trading cartels that would restrict access.
“Even if trade has not quite worked in the case of China, does that justify to throw the baby [out] with the bathwater? My view is that it does not,” she said.
The globalization that she seeks to preserve has lifted nearly 1.5 billion people out of extreme poverty, mostly in China and other developing nations. In the United States, it helped keep inflation under control for two decades and gave Americans a wider array of product choices.
Yet trade deals also created winners and losers in advanced economies. Her family’s struggles may explain Georgieva’s sympathy for those — including less-educated factory workers in the United States — who feel themselves victimized by global economic forces.
Many of those in manufacturing-dependent communities cast their votes for the protectionism that Donald Trump campaigned on in 2016.
Georgieva called the current flirtation with nondemocratic politics in advanced economies including the United States “deeply concerning,” but indicated that such developments should not be seen as unexpected.
For years, those who lost out in the labor market shuffle that accompanied liberalized trade were promised government help. Yet the retraining and other aid they received was rarely adequate.
“The reason populist tendencies are flourishing is the fact that genuine grievances of people have not been properly addressed. Globalization did lift up the world economy, but it did not work for everyone,” she said. “It did lead in countries like the United States to loss of employment on a scale that is far too large to be ignored. We have to recognize that it would only work if the grievances of those who are negatively impacted are addressed.”
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