by Jeff Black and John Follain
Lagarde: Advanced Economies Seeing Middle Class Crisis
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The great and the good of Davos agree they have a problem with
Finding a solution is the hard part.
On the second day of the World Economic Forum's annual meeting in
the Swiss Alps, delegates disagreed on how best to address the
upending of the western political order, a debate made doubly urgent
by the string of elections in Europe this year where
anti-establishment parties could gain more ground.
International Monetary Fund chief Christine Lagarde
urged a list of policies from programs to retrain workers to more
social spending, others fretted that the turbulence is only
Hedge Fund billionaire
Ray Dalio warned on a panel chaired by Bloomberg Television's
Francine Lacqua that,
"we may be at a point
where globalization is ending, and provincialization and
nationalization is taking hold."
That leaves technocrats
trying to patch together potentially expensive remedies to make the
current system of global trade, banking and business links that the
Davos club represents acceptable to the public at a time when
newcomers like U.S. president elect Donald Trump threaten to
dismantle it by scrapping trade deals and introducing tariffs.
"We need to go to a
system where we are protecting workers, not jobs, and society
will help people retrain or reorient," Richard Baldwin,
professor of international economics at the Graduate Institute
of International and Development Studies in Geneva, said in an
interview in Davos.
"There may just be a
need to man up. We have to pay for the social cohesion that we
need to keep our societies advancing, and accept that this may
be a higher tax burden on people."
Lagarde speaks during a panel discussion at Davos, Jan. 18.
Photographer: Jason Alden/Bloomberg
Lagarde said policy makers,
"really have to think
it through and see what can be done" given the feedback from
voters who say "No."
Among measures that could
be implemented are fiscal and structural reforms, she added.
"But it needs to be
granular, it needs to be regional, it needs to be focused on
what will people get out of it and it probably means more
redistribution than we have in place at the moment," Lagarde
told the panel entitled "Squeezed and angry: how to fix the
were a brake on sustainable growth, she said.
Davos over the
decades has become synonymous with globalization and open markets,
but in the background this year is the failure of business and
political elites to predict any of the seismic political events that
That has raised
questions over whether they are capable of understanding and
addressing the anti-establishment forces that have roiled the U.S.
and Europe over the past year.
Brexit, there are more votes coming
Elections are due
a possible early poll in Italy following a constitutional referendum
where voters rallied against the government.
Even in Davos,
there are those who are ready to scrap major pillars of the postwar
in Europe in particular, things need to change.
Stiglitz said that if the
Euro can't be made to work, it should be dropped.
who has written on inequality in the global economy, said in an
interview that the cleft between voters and their elected officials
has never been wider.
In part, he blamed
the European Union.
the European Union would certainly help, even though it would do
a lot of other bad stuff," he said. "There's a sense of
overreach. There's the sense that people have very little
control of what the EU does."
The panel on
middle-class anger saw former U.S. Treasury Secretary Lawrence
Summers attacking Donald Trump while Dalio, founder of
Bridgewater Associates, struck a more pessimistic tone than
"I want to be
loud and clear: populism scares me," Dalio said. "The No. 1
issue economically as a market participant is how populism
manifests itself over the next year or two."
Now at Harvard
University, Summers said populism is,
counter-productive" for those it claims to help.
President-elect has made four or five phone calls to four or
five companies, largely suspending the rule of law, and
extorting them into relocating dozens or perhaps even a few
hundred jobs into plants in the United States," Summers said.
The panel also
discussed how to combat the backlash against governments and the
elite by taking back control of the political narrative.
for dealing with populism twisted Trump's campaign slogan.
objective should be to make America greater than ever before,"
Summers said. "That's very different from making it great
He suggested three
"public investment on an adequate scale starting from
infrastructure" also embracing technology and education
"making global integration work for ordinary people"
"enabling the dreams of every young American" including
education, finding work and home purchasing
And if that seems
distant in the U.S., in Europe there may be even less chance of a
big policy effort in a region still weary from the sovereign debt
crisis, with budgets stretched and debt levels high.
Minister Pier Carlo Padoan told the panel that Britain's
departure from the European Union and Trump posed a challenge to
"They have a
vision, we don't have a vision in Europe, not a vision which is
comparable in terms of powerful message," he said.
"Sorry to be
pessimistic, but that is the case."
Middle Class Crisis forms