The head of the International Monetary Fund, Christine Lagarde, has called for urgent action to tackle a “middle-class crisis” hitting working people as she warned that inequality, distrust and a lack of hope were fuelling growing populism.
Speaking at the World Economic Forum in Davos, Lagarde said she had first highlighted the dangers of rising inequality four years ago but had been ignored. “I hope people will listen now,” she said.
Lagarde said the gulf between rich and poor was evident from an Oxfam report showing that eight billionaires own the same amount of wealth as the poorest half of the world’s population – 3.6 billion people.
“With lower growth, more inequality and much more transparency, you have the good ingredients for a crisis of the middle classes [a US term to describe working people] in the advanced economies,” she said. Lagarde added that the answer was not for countries to turn their back on globalisation but a mix of policies designed to stimulate activity and ensure the fruits of growth were more evenly spread.
“Policymakers need to get the signal now, and really think about how to address the public discontent. It [the policy response] needs to be granular, it needs to be regional, it needs to be focused on what will people get out of it. It probably includes more redistribution than we have in place at the moment.”
Lagarde’s view that the middle class was in crisis was shared by the outgoing US vice-president.
Joe Biden said globalisation and new technology were in effect “hollowing out the middle class, the traditional engine of economic growth and social stability in western nations”.
He added: “We cannot undo the changes that technology has wrought in our world, nor should we try. But we can and we must take action to mitigate the economic trends that are stoking unrest in so many advanced economies and undermining people’s basic sense of dignity.”
Addressing his audience directly, Biden said the top 1% was not “pulling its weight” and urged that income tax be made more progressive.
Larry Summers, the Harvard professor and former US Treasury secretary under Bill Clinton, questioned whether concern over income inequality really explained the crisis in the middle classes. “The US has just elected the world’s biggest example of conspicuous consumption. That is a bizarre manifestation of a concern over inequality.”
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