Global Middle Class in Crisis

The director of the International Monetary Fund, Christine Lagarde, has called for global action to tackle a middle-class crisis, warning that inequality, distrust of the elites and a lack of hope for the future were fuelling growing political populism.

“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,” Lagarde said, NewEurope reported.

Speaking at the World Economic Forum in Davos on Wednesday, the IMF chief said the middle class is both growing and shrinking: growing on a global basis, but shrinking in countries like the US.

Lagarde said that turning back on globalization would be a wrong approach, although the gap between rich and poor becomes ever larger.

She 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.

She also insisted that policymakers must listen to the voters and called for greater wealth distribution to respond to populist advances across the world.

Policymakers across the world must act now to check inequalities even as there is no “silver bullet” to contain this problem, she said amid a raging debate at the WEF on widening wealth gap and the resultant rise in populism.

If there is excessive inequalities, it becomes difficult to achieve sustainable growth, she reiterated.

An Oxfam report coinciding with Davos this week said eight billionaire men 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.

For its part, the IMF often demands unpopular reforms from governments in return for its financial aid stoking voter discontent where it is active, including in Greece.

“When you have a real crisis or when you have very strong signals as we have received 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.”

At the same session, eminent economist and Harvard Professor Larry Summers said wealthy feel they need to look after themselves while poor feel that they are not being heard.

He said globalization itself has changed considerably today, while adding that one needs to be very cautious with adhoc policy making.

The panel also discussed whether poor employment prospects and low-income growth in many developed economies have laid the groundwork for the rise of populism. It also focused on whether policymakers ignored these trends or did too little to address them.

Besides, the panelists talked about what can be done to restore growth in the middle class and confidence in the future.