IMF policy meeting: Inequality lands on the agenda
International Monetary Fund (IMF) Managing Director Christine Lagarde, right, followed by IMFC Chair and Singapore Finance Minister Tharman Shanmugaratnam, leaves after a news conference at World Bank Group-International Monetary Fund Spring Meetings in Washington, Saturday, April 12, 2014. ( AP Photo/Jose Luis Magana)
Alexander Panetta, The Canadian Press
Published Monday, April 14, 2014 7:21AM EDT
WASHINGTON -- From the Occupy movement, to the corridors of power: the rallying cry against inequality could be heard the last few days in a setting far removed from the street demonstrations that sprouted in 2011.
The past week's global financial meetings heard repeated warnings about inequality and its deleterious effect on economic growth.
This time, it wasn't coming from protesters squatting in parks. It came from the shiny office buildings around Washington's Pennsylvania Avenue, from the heads of the International Monetary Fund, and the World Bank, and at panel discussions about new research papers on the subject.
At least three high-level papers, produced for the IMF and World Bank in recent weeks, sounded the alarm over a growing gap between the haves and have-nots in industrialized countries and provided fodder for different discussions at the annual spring financial meetings.
The head of the IMF, Christine Lagarde, insisted this adjustment of priorities has already translated into action, with the organization incorporating the anti-inequality ideal into the policy advice it offers member-states.
She conceded to having debated with skeptics who questioned whether this is really the IMF's role, and she insisted that it indeed falls under its core mandate of providing economic stability.
Some of that skepticism could be heard at the conference. One Oxfam participant, who supported the new focus, expressed astonishment at what she was hearing from an institution better known for demanding austerity measures and painful structural reforms in exchange for loans.
But the IMF's deputy managing director cast this as a natural role for the organization.
"The fund is always changing, evolving in the past 70 years," Min Zhu, deputy managing director of the IMF, told a panel discussion last Thursday.
"For example in the '90s... when the Soviet Union collapsed... restructuring became the big issue. In the financial crisis global interconnectedness became a big issue. After the crisis, particularly, income inequality became an issue."
One example he cited was tax evasion. He said the most popular demand from countries seeking technical assistance was for help with revenue collection, in the hope of tracking down a greater share of taxes.
The panel discussed the findings of recent papers. One IMF study argued that there is a strong relationship between income equality and economic growth, and that moderate tax increases can actually improve public services without harming the economy.
Another paper, released last month, attempted to diagnose the problem and offer policy solutions. It concluded that equality is going up in the most unequal societies, sub-Saharan Africa and Latin America, but going down in the more-egalitarian group of 21 advanced countries.
In presenting that study David Lipton, the IMF's first deputy managing director, proposed some possible solutions: a shift in tax codes, towards property and income taxes; using revenue from consumption taxes, where they exist, for education programs that primarily benefit the poor; and phasing out tax benefits that disproportionately help the wealthy, like energy rebates.
Canada's new finance minister said he was sensitive to the concerns he heard.
"This is a very serious issue, and I personally take it very seriously," Joe Oliver told reporters at a news conference in Washington.
The issue will almost inevitably become a theme in next year's Canadian election, with various parties promising policies for the working class. The Conservatives, meanwhile, will point out that, unlike the U.S., median incomes in Canada have actually inched upward for most of the past 20 years.
That's not to say Canada makes the top tier of most-egalitarian countries -- either in terms of income equality, or equality of opportunity.
The OECD places it 23rd out of 34 countries on its income-inequality index, between Spain and Japan. It lists Canada's score on the Gini coefficient, a measurement of income or wealth on a scale of 0 to 1, at 0.32 for income.
Canada fares a little better on the scale designed by the University of Ottawa's Miles Corak to measure intergenerational mobility, better known as the "Great Gatsby Curve," but it still doesn't quite reach the level of top-tier countries Norway, Denmark and Finland.
Oliver pointed out that the Conservatives have made strides in several areas -- including the skills-training agreements just reached with the provinces. And he reiterated that tax cuts are coming in the 2015 pre-election budget.
It's not yet clear how those tax cuts will be designed. In his final weeks as finance minister, Jim Flaherty seemed to voice concern that inequality might actually worsen if the Conservatives went ahead with their income-splitting 2011 election promise: "It benefits some parts of the Canadian population a lot. And other parts of the Canadian population virtually not at all," Flaherty said.
There is another difference with the U.S.
In Canada, newly elected prime ministers stand a better chance of implementing the legislative agenda they campaigned on. The nature of the U.S. political system makes it quite possible that the post-2016 president will find his, or her, campaign agenda stalled in Congress.
Economist Jeffrey Sachs delivered one volcanic soundbite after another as he attacked the American political class during last week's IMF panel.
He said politicians there are indifferent to ordinary people's opinions, and ignore polls indicating support for higher taxes on the wealthy. That's because they're beholden to the big-money donors funding their campaigns, he said.
"The rich control the Congress. They've bought the Congress. With $7 billion in campaign contributions. This country's run on a scam, and people know it," Sachs said.
He said Western countries spend a lot of time talking about fixing the institutions in poor countries. He said it's time to fix the "rich institutions" -- the international banking system and fiscal loopholes that allow the wealthy to avoid paying taxes.