Lagarde’s take on income inequality leaves a lot to be desired


During a speech she delivered in London on Monday, IMF managing director Christine Lagarde stated that economists, presumably including the several hundred who work at the IMF, have finally recognised the importance of income and wealth inequality:

“Today, we are more keenly aware of the damage done by inequality,” she told the audience at the annual Richard Dimbleby lecture.

“Put simply, a severely skewed income distribution harms the pace and sustainability of growth over the longer term. It leads to an economy of exclusion, and a wasteland of discarded potential.”

Among other data, she cited figures from a recent Oxfam report about the 85 richest people in the world owning the same amount of wealth as the bottom half of the world’s population.

However Lagarde’s speech ignored the analysis of the Oxfam report and also most of its recommendations.

Her suggested solutions for reversing the increase in inequality were limited to progressive taxation, better access to health and education, targeted social programmes and increased labour force participation of women.

Oxfam’s report, “Working for the Few: Political Capture and Economic Inequality”, in fact blames some of the policies that the IMF has supported as being among the leading causes of increased income inequality.

These include financial deregulation, which the IMF supported until the 2007-2008 financial crisis, and austerity economics, which the IMF has frequently promoted, including in countries most affected by the post-2008 economic crisis.

Oxfam’s report concludes that “strengthening wage floors and worker rights” are among the six most important measures that countries wishing to reduce inequality must adopt.

In several countries, particularly in Europe, recent IMF programmes have actually reduced minimum wages and other wage floors and undermined workers’ rights by requiring the dismantling collective bargaining institutions.

Lagarde’s speech made no mention of the declining labour share in national income and the failure of wages to keep up with productivity as causes of increased inequality, nor did she refer to the strengthening of workers’ rights as a key instrument for reversing the trend.

Her only reference to labour market issues was the proposal to increase women’s participation in the labour force.