‘Inequality hampers growth’

DAVOS-KLOSTERS: The rise of populism in developed countries is a concern but could be overcome with the right policies, Christine Lagarde, managing director of the International Monetary Fund says.

Speaking at the annual meeting of the World Economic Forum, Lagarde said the rise of populist movements was a real concern but called for the implementation of policies to stem the tide.

“We now have an opportune moment to put in place policies that will help,” Lagarde said. She suggested more redistributionist policies, since “excessive inequality puts a brake on sustainable growth”.

She 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 was disrupting the workplace.

Lawrence H Summers, Charles W Eliot University Professor at Harvard University, 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 was no longer in control. “It’s a mistake not to recognise 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 permitted many large companies and wealthy individuals to play by different rules. Summers also noted that globalisation today was 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, of US-based Bridgewater Associates. 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 did not represent them. “Populism scares me,” Dalio said, calling it “the number-one issue for market participants”. – ANA