As the head of the International Monetary Fund, Christine Lagarde, warned that inequality, distrust and a lack of hope were fuelling growing populism, she has called for urgent action to tackle a middle-class crisis.

She had been ignored when she had first highlighted the dangers of rising inequality four years ago, said Lagarde while speaking at the World Economic Forum in Davos. “I hope people will listen now,” she said.

Showing that eight billionaires won the same amount of wealth as the poorest half of the world’s population – 3.6 billion people, the gulf between rich and poor was evident from an Oxfam repport, Lagarde said.

“With lower growth, more inequality and much more transparency, you have the good ingredients for a crisis of the middle classes in the advanced economies,” she said.

The answers lay in a mix of policies designed to stimulate activity and ensure the fruits of growth were more evenly spread and not for countries to turn their back on globalization, Lagarde added.

“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.”

The outgoing US vice-president also shared the view of Lagarde that the middle class (the term used to describe working people in the US) was in crisis.

Globalisation and new technology were in effect “hollowing out the middle class, the traditional engine of economic growth and social stability in western nations”, Joe Biden said.

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.”

The top 1% was not “pulling its weight” and urged that income tax be made more progressive, Biden said addressing his audience directly.

Questions about whether concern over income inequality really explained the crisis in the middle classes was raised by Larry Summers, the Harvard professor and former US Treasury secretary under Bill Clinton. “The US has just elected the world’s biggest example of conspicuous consumption. That is a bizarre manifestation of a concern over inequality.”

In addition to the election of Donald Trump as US president represent, concerns that the results of referendums in the UK and Italy together pose a retreat from globalisation into nationalism and protectionism have dominated this year’s Davos.

Summers suggested that the surge of populism was due to issues such as “national unity and strength”, not just envy over wealth and said many voters thought “too much is being done for the poor, rather than that too little is being done for the poor”.

Governments weren’t working for them is the feeling among the middle-class voters, he added. “They feel the governments are fighting for people in developing countries, for people who have recently come into their countries, for minority groups who used to suffer discrimination, but not the people “in the centre of the country”.

He added: “They feel they are not being heard, and they’ve expressed that in the Brexit vote, the Italian referendum and in the US election.”

(Adapted by The Guardian)

Categories: Economy & Finance