IMF: A new ally in the fight to end inequality?
The IMF could prove to be an unlikely ally in the fight against global economic inequality.
A recent IMF study concluded what unions have been saying for years – that inequality is damaging to economic growth. The report also dismissed outdated ideas that redistributing wealth could make matters worse.
The report Redistribution, Inequality and Growth follows other recent works by the ILO and the World Economic Forum that found inequality to be the number one threat facing the global economy.
Countries with high levels of inequality, the report found, suffered lower growth than nations that distributed incomes more evenly.
“While positive incentives are surely needed to reward work and innovation, excessive inequality is likely to undercut growth, for example by undermining access to health and education, causing investment-reducing political and economic instability, and thwarting the social consensus required to adjust in the face of major shocks,” the paper said.
“And faster and more durable growth seems to have followed the associated reduction in inequality.”
The IMF will present its findings at a joint meeting between Global Unions and the TUAC Working Group on Economic Policy.
UNI Global Union General Secretary Philip Jennings said, “We’re pleased that the IMF has finally caught up with what the global union movement has been saying for years – that inequality is the number one threat to the economic recovery.
“The only way out of this crisis is inclusive, sustainable economic growth with a living wage for all. That means a stronger labour movement and a seat at the table for working people. ”
Economists have been trying to understand better the links between rising inequality and the fragility of economic growth.
“Conventional wisdom would seem to suggest that redistribution would in itself be bad for growth but, conceivably, by engendering greater equality, might help growth,” the authors said.
Public investments in infrastructure, spending on health and education, and social insurance provision—may be both pro-growth and pro-equality, the IMF said.
The report highlighted two key findings:
It would still be a mistake to focus on growth and let inequality take care of itself, if only because the resulting growth may be low and unsustainable. Inequality and unsustainable growth may be two sides of the same coin.
There is remarkably little evidence in the historical data of adverse effects of fiscal redistribution on growth.