IMF head Christine Lagarde has conceded the Washington lender had been late waking up to the widening gap between rich and poor around the world, but is now researching answers to help the middle class
By Antonio Rodriguez.
Lagarde on Jan.18 made the admission to an audience of high-flying executives at the World Economic Forum in Davos, Switzerland, that has been dominated by the worrying inroads by populism across the west.
“There has been a strong backlash (against) economists in particular saying that this was not really their business to worry about these things, including in my own institution,” said Lagarde, who is extremely popular with the Davos set.
The International Monetary Fund is “now being very harshly converted to the importance of inequality and studying it and providing policies in response to that”, she said.
An Oxfam report coinciding with Davos this week said eight billionaire men — including Microsoft founder Bill Gates and Facebook’s Mark Zuckerberg — own the same wealth as the poorest half of the world’s population.
That level of inequality “threatens to pull our societies apart”, Oxfam said.
Oxfam linked the chasm between rich and poor to the growing discontent with mainstream politics around the world, a view that has been widely discussed at this year’s forum.
Top executives said they fretted over the potential ravages of anti-establishment politics manifested by Brexit and the rise of billionaire Donald Trump as US president.
‘Populism scares me’
“Populism scares me,” Ray Dalio, founder of Bridgewater Associates, a major US investment fund, told the audience in Davos.
These movements have become “the most important issue globally”, even overshadowing the work of central banks, he said.
But Nobel award-winning economist Joseph Stiglitz, who is a harsh critic of the global order as promoted by Davos, said he held doubts over the elite’s sudden concern.
The very same elite “set up the conditions for Trump,” Stiglitz told AFP as he took a coffee at the Forum.
“To ask them to fix it is a little bit weird,” he said, calling for a “rewrite of the rules” of the US economy.
Lagarde’s IMF is often the most criticised for the crunch on the middle class as it often demands deeply unpopular reforms from governments in return for its financial aid.
This almost inevitably stokes voter discontent, including in Greece, a country that has endured six years of harsh reform medicine as prescribed by the IMF.
Lagarde has been trying to make the IMF more responsive to the public disquiet, acknowledging the link between inequality and globalisation that has spurred voter rebellions.
“When you have a real crisis or when you have very strong signals… from the voters from people who say no, it’s really time to say … what more can we do,” she said.
“If policymakers do not get the signal now, I don’t know when they will.”
That view was reflected by ex-US treasury secretary Lawrence Summers, who said voters are seeking a clearer sense of purpose and security in an increasingly confusing world.
“It’s a mistake not to recognise that the middle class in my country and in others is concerned that the government is not fighting for it,” he said.
This sense of betrayal is also fuelling “a desire for national unity and strength,” he said, a trend that moves against the internationalist values defended at Davos.