The New Politics of Inequality at the World Economic Forum (again)
Christine Lagarde, the IMF and the World Economic Forum
Christine Lagarde has once again used the World Economic Forum meeting in Davos this week to highlight her quest to refocus the International Monetary Fund on the task of reducing inequality. Mme Lagarde has repeatedly made such statements at the WEF and I’ve covered these on this blog before.
Speaking at a Bloomberg sponsored event on the ‘squeezed and angry’ middle classes throughout the world, she reminded the audience that she had warned of the destabilising political effect that inequality might have. With the rise of populist political movements now very much in evidence she was once again making the same warning.
Christine Lagarde Speaking at the World Economic Forum this week
I have previously noted the IMF’s interest in inequality under Lagarde and went to meet some of the people in the Fund responsible for the research published in 2013 and 2014 to ask them about it. I concluded then that the concern was genuine but that this was motivated in the main by a concern to prevent political destabilisation rather than an egalitarian ethical standpoint. To be clear here – this is not a critique of the individuals; they appeared to have a very developed ethical commitment to equality, but an organisational one. It seemed to me then that what had enabled their work on inequality (which had been around for a long time) was the stance of the IMF’s Managing Director (Mme Lagarde and Dominique Strauss-Kahn before her) but also the context of increasing political instability. I called this the ‘New Global Politics of Inequality from above’.
The struggle for reform
This week Lagarde commented on her own struggles to turnaround the IMF to focus on inequality. It is worth reading this at length:
“[back in 2013/14] we were demonstrating that excessive inequalities were putting a brake on sustainable growth… I got a strong backlash from economists in particular saying that it was not really any of their business to worry about these things, including in my own institution, which has now been very much converted to the importance of inequality and studying it and providing policies in response to that… we now have a very opportune time to put in place policies that we know will help…”
So to summarise this and the tenor of the Davos debate:
- Mme Lagarde recognises that inequality is a problem;
- Davos stakeholders and policy makers should worry about this because it is bad for growth and creates political instability;
- she has tried, against resistance, to change the IMF and to lead the G20 with some success, to focus more on putting in place policies to reduce inequality.
For those with an ethical or just pragmatic concern to reduce inequality some important questions arise from this. These are about how much the Davos set (such as international organisations like the IMF, multinationals, the G20, policy makers and leading NGOs) have genuinely taken action to reduce inequality as a result of this kind of analysis.
So, is the IMF really trying to reduce inequality?
I can’t answer for all of these different organisations, but recent research I undertook with Dr Paul White, did focus on the extent to which the IMF has changed. We undertook our analysis in several stages.
First, we looked at high level pronouncements and reports from the Fund on the subject of inequality. Speeches from Lagarde herself and several important research and policy documents do indeed have a strong focus on reducing inequality. They map out both the case for reducing inequality and identify a series of evidence based conclusions about precisely which sorts of policies might increase or reduce inequality in different types of country.
Next, we took that list of policies: that is the policies that the Fund itself says will reduce inequality. Rather than evaluating ourselves whether these policies would reduce inequality, we took that at face value and looked for evidence that these policies were being promoted by the Fund when it works with member states.
Few international organisations have as direct a channel of influence on their member states as the IMF. This comes mainly in two forms. The IMF regularly provides advice and recommendation to all members (nearly all countries in the world). While these recommendations are not mandatory, they do carry some weight because capital markets may view this advice as sensible and therefore access to funding for government programmes may be affected if governments ignore it. For governments who borrow from the Fund, this advice obviously has much stronger leverage; it is often part of the conditions that the Fund attaches to receiving financial support.
The next step was to look at the operational guidance that IMF staff work under when producing advice to member states. We wanted to see the extent to which the policies the Fund says reduce inequality are present in that guidance. There have been several changes to this guidance recently and at a headline level concerns with sustaining growth and reducing inequality appeared to have triggered those changes. Evidence then of Mme Lagarde’s reform programme.
But when we looked at the actual detail of the changes to the operational guidance and the various supporting documents, it was difficult to discern the emphasis on reducing inequality. It seemed that whatever message had come from the top about this, got lost somewhere in the technocratic process of re-drafting the operational guidance.
Finally, we looked at recent IMF documents providing advice to member states. We looked only at recommendations produced after the new operational guidelines were in place. We were specifically looking for recommendations which echoed those in the Fund’s own lists of policies which might reduce inequality. We also searched the documents for any mention of concerns with inequality, income distribution and the like. Perhaps unsurprisingly, we found very little evidence of any of this.
So it seems that while there may be an attempt to reform the IMF to focus on reducing inequality, this has not yet fully percolated through the organisation to operational practice. We shouldn’t necessarily be surprised. Reform takes time after all.
Rhetoric and practice
There are several possible explanations for the lack of change.
Perhaps it is an ‘organised hypocrisy’ or ‘legitimation strategy’: high level pronouncements on socio-economic and gender inequality are a veil for the real business of the Fund, which is unconcerned with these sometimes negative consequences of promoting growth and global market integration.
Alternatively, perhaps it merely represents institutional stickiness: reform takes time and not enough time has passed. If either of these explanations is adequate, research like that undertaken by Paul and I, as well as others (Best, Broome, Kentikelenis et al., Weaver, Gronau and Schmidtke etc) help to keep the pressure on and support the reform efforts of committed leaders like Lagarde.
I am not yet in a position to be definitive on this, but I suspect something of both these explanations, placed in a broader analysis of the role of international organisations in the expanding global economy, is the real answer. But to stand up that conclusion, more research is necessary.
Where to from here?
For me the next phase in my research on the IMF is to continue to audit policy documents to see whether there is any identifiable change in practice. I also intend to enquire with Fund staff, and perhaps Christine Lagarde herself, as to what they think explains the apparent dissonance between high level policy and practice.
Whatever the outcome of this research, it is important that those involved in highlighting the issue of global inequality, continue to keep the pressure on, to hold the powerful to account. That includes the IMF, Mme Lagarde and all those present at the Word Economic Forum this week of course.
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