Lagarde issues call for more equitable growth

18 Jun 15

Better governance and a clamp down on corruption would help policymakers around the world to build a fairer economy that would boost the incomes of the poor and middle class, the head of the International Monetary Fund has said.

In an address to the Grandes Conferences Catholiques in Brussels yesterday, IMF managing director Christine Lagarde said that excessive inequality had become a problem for economic growth and development.

She said in too many countries economic growth failed to lift poor and middle class households, which Lagarde dubbed “small boats”, adding that the “gorgeous yachts” had been riding and enjoying the wind in their sails.

“My key message tonight is this: reducing excessive inequality – by lifting the ‘small boats’ – is not just morally and politically correct, but it is good economics,” said Lagarde.

“You do not have to be an altruist to support policies that lift the incomes of the poor and the middle class. Everybody will benefit from these policies, because they are essential to generate higher, more inclusive, and more sustainable growth.”

She blamed the growing and excessive inequality on the overreliance on finance in major economies like the US and Japan, saying too much finance can distort the distribution of income, corrode the political process and undermine economic stability and growth.

In emerging countries, extreme income inequality is largely driven by an unequal access to education, healthcare and financial services, she said.

Lagarde said if governments wanted to see durable growth, they needed to generate more equitable growth.

She reminded leaders that reforms required “leadership, courage and collaboration” and actions needed to be bold.

Countries should look to end endemic corruption, and enforce good governance, Lagarde said.

She urged the adoption of “smart” fiscal policies, such as reduced tax relief on mortgage payments, which benefited the rich, and cuts to or removal of tax relief on capital gains.

Governments, particularly those of emerging and developing countries, need to invest more in education, healthcare, labour markets and infrastructure to overhaul inequality, she added.  

“In particular, policymakers need to take advantage of what I think is a once-in-a generation opportunity for development,” Lagarde said, referring to the new set of Sustainable Development Goals.

This year the United Nations SDGs will replace the expiring Millennium Development Goals, at a UN Summit in September 2015, which will include new aims on sustainable development and poverty eradication.

Lagarde’s appeal to policymakers also comes ahead of the UN’s July Financing for Development (FfD) conference in Addis Ababa, which aims to finance the next-stage development agenda.

  • Judith Ugwumadu

    Judith writes about public finance, public services and economics across Public Finance International and Public Finance. She previously undertook reporting stints at Financial Adviser, Global Security Finance and The Sunday Express.

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