‘Excessive inequality may hinder sustainable growth’

IMF MD Christine Lagarde says there is a need to put in place redistribution policies

Shahbaz Rana January 19, 2017
Economic stresses that are leading to the hollowing out of the middle class and social disruptions caused by technological change have to be addressed. PHOTO: FILE

DAVOS, SWITZERLAND: International Monetary Fund Managing Director Christine Lagarde has urged to put in place redistribution policies, cautioning that excessive inequality may put the brakes on sustainable growth.

“We now have the opportune moment to put in place policies that will help,” said Lagarde while speaking at the World Economic Forum annual meeting.

Gap between poor and rich getting wider

She also urged a stronger social safety net, fiscal and structural reforms and education to help both young people and mature workers prepare for the technological change that is disrupting the workplace.

Lawrence H Summers, Charles W Eliot University Professor, Harvard University, US, said that inequality was only one of the causes of rising populism. He also cited “a desire for national unity and strength” and a sense among the middle class that it is no longer in control.

Summers urged not only more investment in infrastructure and education to provide support for the middle class, but also aggressive action against the tax and regulatory arbitrage that permits many large companies and wealthy individuals to play by different rules. Summers also noted that globalisation today is less about importing and exporting goods, and more about integrated global supply chains.

“We may be at a point where globalisation is ending,” said Ray Dalio, Founder, Co-Chief Executive Officer and Co-Chief Investment Officer, Bridgewater Associates, USA. Dalio cited the rise in populism, which he too attributed not just to the biggest wealth gap since the 1930s, but also to a sense among the middle class that governing elites do not represent them. Dalio said that the world should not turn its back on globalisation and technological change, so the question for the coming years is: “Can the middle be cohesive enough so that the extremes won’t be in control.

“I don’t think we are exiting globalisation,” argued Pier Carlo Padoan, Minister of Economy and Finance of Italy. “We are entering a new stage.”

PM arrives in Switzerland for World Economic Forum

Padoan urged his fellow European policymakers to listen to middle-class concerns for their own futures and those of their children. The right responses should include coherent strategies to face the challenge of migration and to generate business confidence.

US Vice-President Joseph Biden called on the United States and Europe to confirm the transatlantic alliance and continue to work together to defend the liberal international order that has brought stability and peace in Europe since the end of World War II.

“History has proven that the defence of free nations in Europe has always been America’s fight,” Biden said in a special address to participants on the second day of the World Economic Forum Annual Meeting. “The United States should fulfil our historic responsibility as the indispensible nation, but we have never been able to lead alone. It is only through championing the liberal international order that we will retain our position of leadership.

Recognising that recent economic and social challenges in the US and Europe have allowed nationalist and populist forces to capitalise on citizens’ concerns, Biden rejected the politics of fear. “Impulses to hunker down, to build walls, are precisely the wrong answer,” he argued.

Economic stresses that are leading to the hollowing out of the middle class and the social disruptions caused by technological change have to be addressed, Biden told participants. Unskilled workers are losing their jobs, while higher-paid skilled workers are getting paid more and more. “Globalisation has not been an unalloyed good,” the vice-president said.

“It has deepened the rift between those racing ahead at the top and those hanging on in the middle or falling to the bottom.

“We cannot undo the changes that technology has wrought in our world, nor should we try.”

Business leaders at the World Economic Forum Annual Meeting agreed that there is an urgent need to restore the compact between business and society, ensuring that companies are responsive and responsible to all their stakeholders.

There is a crisis of confidence in leadership, said Jim Hagemann Snabe, Member of the Board of Trustees, World Economic Forum. “We have an opportunity to reinvent how we do business, to refocus our efforts towards ensuring long-term sustainability,” he added.

To restore trust, we need a consistent North Star, stressed Frans van Houten, President and Chief Executive Officer, Royal Philips, Netherlands and a Co-Chair of the World Economic Forum Annual Meeting 2017. “Global companies need to rally around a multistakeholder approach to doing business,” he added.

The Fourth Industrial Revolution is putting lower and medium-skilled jobs at risk. More than 60% of jobs and 30% of activities can be automated today, said Dominic Barton, Global Managing Partner of McKinsey & Company, USA. “We can’t rely on government to reskill people in the face of rapid technological change and automation; business will have to drive this,” he added. In this regard, McKinsey & Co has announced the Generation Initiative, a philanthropic commitment of $75 million across five countries to develop an approach to getting unemployed and unskilled youth into jobs.

Published in The Express Tribune, January 19th, 2017.

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