'Fight inequality to save globalisation'

The US should increase its minimum wage and do more to counter a growing income polarisation; France needs to deploy public benefits better to reduce inequality; Italy ought to bring more women into its labour force.

For a long time the International Monetary Fund has had an image as a neoliberal bastion of bureaucrats with an obsession for fiscal rectitude and a tin ear for social and political consequences. But in its advice to three of its biggest members last week the fund displayed a concern with issues that a few years ago might have seemed out of step with its traditional focus on growth and budget deficits.

Confronted with this year's political howl against globalisation in the US and other western economies - and with the threat that this might yield very real consequences embodied in last month's British vote to exit the EU - the IMF is embracing its own brand of activism. What began in recent years as a series of provocative papers emanating from its research department on topics such as inequality, gender economics and climate change is starting to manifest in some of the IMF's core work, such as last week's annual reviews of the US, French and Italian economies.

In an interview with the Financial Times to mark the start this month of her second five-year term as managing director, Christine Lagarde says she wants the IMF to go 'deeper' and 'further' in its work on topics such as income inequality. These issues are 'macro-critical' in many countries, she says, pointing to a growing theme in IMF research. IMF's advice to US, France and Italy focuses on those who feel they have been left behind.

A recent fund study of income polarisation in the US, for example, found that the hollowing out of the middle class had since 1998 lopped 3.5pc off consumption, the equivalent of a year's growth. Tackling inequalities, Ms Lagarde argues, is vital to restoring confidence in the globalisation that has brought millions out of poverty but is under assault in rich economies, where not enough has been done to help those left behind.

"We still need to be rigorous [and] disciplined," Ms Lagarde says. "On occasion we will still make recommendations that people are not happy with, because it is hard. But . . .I would like the IMF to have that human face." Not everyone is convinced that an organisation still viewed as a bogeyman, which appears only to deliver harsh medicine in times of crisis in many parts of the world, can become kinder and gentler. Sargon Nissan of the Bretton Woods Project, a London-based watchdog, says the changes Ms Lagarde is pushing are yet to filter through to the conditions it attaches to loans to poor countries.

Looming over the initiative is the IMF's unhappy experience in Greece, where it has for years been accused of imposing excessive austerity on an economy now in its third Europeanled rescue. Ms Lagarde says the IMF is just a 'convenient scapegoat' in Greece - especially given that it is arguing forcefully for Athens' European creditors to grant debt relief - but she concedes that "it has not been a successful experience, let's face it, for anyone, particularly for the Greek people themselves".

If critics see Greece as a failure of orthodox economics and last month's vote by the UK to leave the EU as evidence of the failures of globalisation, the IMF is still making the case that the alternatives are worse.

The sort of protectionist policies US Republican presidential candidate Donald Trump advocates would be 'disastrous' for the global economy, Ms Lagarde says.

David Lipton, the IMF's number two and its top US official, says the possibility that voters in the US and other countries will elect populists keen to reverse globalisation is one of the biggest risks facing the world economy. "If those frustrations [about globalisation] end up being expressed in political action . . . that is a problem," he says.

But further down the ranks of the fund, there is a growing debate on how to tread the fine line on issues such as inequality and self-criticism. When a recent article by three senior economists in the IMF's flagship magazine carried the headline 'Neoliberalism: Oversold?' it drew protests from traditionalists.

It also prompted a rapid IMF denial that a revolution against the free market was afoot at the fund. Indeed most of the fund's advice remains orthodox, and focused on fiscal policy and liberalising labour and other markets.