By Shoeb Kagda
The concerns that are leading to populist movements in many developed countries are real, but the right policies can address them. “We now have an opportune moment to put in place policies that will help,” Christine Lagarde, managing director of the International Monetary Fund (IMF) told participants at the 47th World Economic Forum Annual Meeting.
Lagarde suggested more redistributionist policies, since “excessive inequality puts a brake on sustainable growth.” 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 at Harvard University, said inequality is 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.
“It’s a mistake not to recognize that the middle class in my country and in others is concerned that the government is not fighting for it.” 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 globalization today is less about importing and exporting goods, and more about integrated global supply chains.
On that subject, Ray Dalio, founder and co-CEO at US firm Bridgewater Associates, had a dire warning. “We may be at a point where globalization is ending,” he said. 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.
“Populism scares me,” Dalio said, calling it “the number-one issue for market participants.” But Dalio said that the world should not turn its back on globalization 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?”
Henrique Meirelles, Minister of Finance of Brazil, reminded participants that “globalization is allowing massive numbers of people to get out of poverty. If you look around the globe, the net effect is extremely positive.”
He said that the current trends of middle-class anger are specific to certain developed countries, while many emerging countries such as Brazil have seen strong growth in the middle class over the past 20 years. Brazil is currently seeing a reversal in this trend due to a recession, but Meirelles expressed confidence that his country was only suffering “a short-term problem” and “we are in a moment of establishing a middle class.”
Pier Carlo Padoan, Minister of Economy and Finance of Italy, was also more optimistic, “I don’t think we are exiting globalization,” he argued, “we are entering a new stage.” 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. “In Italy, let me assure everyone that we are continuing our reform strategy, despite what you might be hearing.” Padoan explained that, even without new legislation to attract headlines, implementation of reform laws is advancing.