Two months after consultancy giant McKinsey dramatically flip-flopped on its long held position of praising globalization, cautioning that - as Britain's vote to exit the European Union exemplified what happens when people feel like the system is letting them down - the system is on the verge of "explosion", comparing the buildup of resentment over globalization to a dangerous natural gas leak in a row of houses, today it was the IMF's turn. In a speech titled "Making Globalisation Work For All", IMF managing director Chrstine Lagarde became the latest in a growing chorus of senior policymakers urging governments to take heed of rising discontent and economic insecurity in the advanced world.
Lagarde said that governments in the developed world should focus their attention on boosting support for low income workers and reducing inequality, amid a “groundswell of discontent” against globalisation. Effectively reiterating the McKinsey report, Lagarde said that there is "a growing sense among some citizens that they “lack control,” that the system is somehow against them", a system which she now slams, even though the IMF been instrumental in helping create and grow precisely this system ever since its inception, saying that “growing inequality in wealth, income, and opportunity in many countries has added to a groundswell of discontent, especially in the industrialized world.”
Chrstine Lagarde and bag
She then slammed both banks, tax regimes and pervasive corruption, saying that "financial institutions are being seen as unaccountable to society. Tax systems allow multinational companies and wealthy individuals not to pay what many would consider a fair share. Corruption remains endemic."
Last but not least she warned about the "challenged"from migration flows:
And there is the challenge from uncontrolled migration flows, contributing to economic and cultural anxieties."
To be sure, Lagarde did have some kinds words for globalisation, highlighting the opening up of world trade and the entry of the likes of China and India into the global economy, which has had “far reaching effects” for low-income workers in the likes of Europe and the US, however even here she highlighted the negatives saying that "the size of the global workforce effectively doubled, putting downward pressure on wages, especially for lower-skilled workers in advanced economies.... Some local labour markets that have faced deep, long-lasting effects from overseas competition."
We are confident this is a bullet point that Trump will be delighted to use during the upcoming debates.
Lagarde added that while the world has enjoyed unprecedented economic progress over the last 70 years, the transformation has caused “dislocation and hardship." It certainly has: as McKinsey found two months ago, 65 to 70% of households in 25 advanced economies were in income segments that had flat to falling incomes between 2005 and 2014, up from less than 2 percent between 1993 and 2005. More troubling is that for some of the biggest supposed winners from globalization such as the US, this number is as high as 81%, while in Italy it soars to just shy of 100%.
Lagarde continued her sermon, warning that while "closing borders and increasing protectionism isn’t the solution... countries need to extend the benefits of openness and integration, while alleviating the side effects" and adding that “we need to make globalization work for all.” So far it has mostly worked for the top 1%.
But before anyone gets the impression that Lagarde was speaking out of the goodness of her heart, the ulterior motive behind her speech became clear when she said that governments can help by creating a sound basis for growth, and "fiscal policy needs to play a bigger role in countries that have additional spending headroom."
Ah, yes, to a working model of globalization through... even more debt. And just in case the message was lost, she said that countries should also step up support for lower-skilled workers and strengthen social safety nets, while the U.S. could cushion job losses by raising the federal minimum wage and increasing the earned income-tax credit.
In other words not just more debt, but much more debt. Which unfortunately means that Lagarde stopped reading the McKinsey report just before the part where it itself warned about the mountain of debt the world already finds itself under, to wit: "Labor-market practices can make a difference, as can government taxes and transfers—although the latter may not be sustainable at a time when many governments have high debt levels."
And the obligatory McKinsey chart:
The good news: everyone now agrees that globalization was largely failed to benefit the vast majority of the population. The bad news, at least according to the IMF, is that