Globalization, which is often presented as a positive phenomenon is awakening growing concern, indeed rejection. Why didn't anyone foresee this turn of events?

Christine Lagarde: Globalization has enabled millions of people to emerge from poverty. It has accelerated the movement of capital, improved competition, generated productivity gains, reduced prices for the benefit of consumers. Every country has benefited from its achievements.

But it also has negative aspects because activities have been moved offshore to low cost countries which has led to disruption of whole industries and regions without accompanying measures being taken to promote the reintegration and social protection of the people who are the direct victims. This is the blowback that we have to deal with now.

Globalization is also regarded by some as responsible for the rise in inequalities. Is this a poor process?

C.L.: Here again globalization has produced contrasting effects. It has led to a reduction of inequalities between countries but it is also true that inequalities have worsened within certain countries, particularly in the USA, Germany or in China. In other countries, inequalities have remained constant, e.g. Great Britain or France. Finally, there are countries where inequalities have started to diminish, e.g. in Latin America.

The rise in inequalities is not solely attributable to the development of international trade. It can also be explained by the financialization of the economy, the development of new technologies and the insufficiency of redistribution policies. It is not possible to establish a perfect correlation between the two phenomena.

Neo-liberal economists affirm that these inequalities are the source of competition and growth, that that wealth "trickles down to the poor." What should we make of such theories?

C.L.: This theory has been challenged. All empirical studies published in recent years by the IMF or other major institutions have shown this. Statistically, worsening inequality is a factor of instability negatively affecting growth. Continue reading

Sources

• La Croix International, article by Antoine d'Abbundo, section editor at Eco Service Cross.
• Image: Encyclopaedia Britannica

The country that is the cradle of democracy has decided to ask the people if the financial markets have the right to rule over them.

Predictably the response has been a mixture of fury and disbelief. 'You are asking the people what they think? We tell you what to think' is the implicit message.

The great absurdity of modern geo-economics is that the world of money, which is just a human construct, is being treated like a natural force that must be obeyed, much as we have to respect the law of gravity.

One might call it the cart-before-the-horse syndrome. Money is supposed to serve us, but increasingly we are becoming servants to those who run it.

Few are being asked to be more servile than the Greeks. When the IMF came in with what is amusingly referred to as its austerity 'plan', the Greek economy was expected to grow at over 2 per cent, unemployment was below 9 per cent and the debt was about 120 per cent of GDP.

By 2014, after the 'plan' had taken effect, the country's economy had shrunk by a quarter, unemployment was over 25 per cent, youth unemployment was over 50 per cent and the debt had risen to over 170 per cent of GDP.

The IMF's abject failure to provide a sound strategy was hardly a surprise. IMF prescriptions have a long history of failing, and countries that ignore them are often the ones that do surprisingly well.

One especially prominent example was the reaction of Malaysian prime Mahathir during the Asian Financial Crisis in 1998. He was roundly criticised for ignoring the IMF prescriptions, instead fixing the currency and imposing capital controls.

Malaysia performed best during the crisis and it was later hailed as a master stroke. It is almost a case of the best strategy is to ask the IMF what to do, then do the opposite. Continue reading

• David James is a business journalist with a PhD in English literature. He edits Personal Super Investor.

It can be heard at the World Economic Forum in Davos, Switzerland, and at the annual meeting of the International Monetary Fund.

Bankers sprinkle it into the presentations; politicians use it leave an impression on discussion panels.

The buzzword is "inclusion" and it refers to a trait that Western industrialized nations seem to be on the verge of losing: the ability to allow as many layers of society as possible to benefit from economic advancement and participate in political life.

The term is now even being used at meetings of a more exclusive character, as was the case in London in May.

Some 250 wealthy and extremely wealthy individuals, from Google Chairman Eric Schmidt to Unilever CEO Paul Polman, gathered in a venerable castle on the Thames River to lament the fact that in today's capitalism, there is too little left over for the lower income classes.

Former US President Bill Clinton found fault with the "uneven distribution of opportunity," while IMF Managing Director Christine Lagarde was critical of the numerous financial scandals.

The hostess of the meeting, investor and bank heir Lynn Forester de Rothschild, said she was concerned about social cohesion, noting that citizens had "lost confidence in their governments."

It isn't necessary, of course, to attend the London conference on "inclusive capitalism" to realize that industrialized countries have a problem.

When the Berlin Wall came down 25 years ago, the West's liberal economic and social order seemed on the verge of an unstoppable march of triumph.

Communism had failed, politicians worldwide were singing the praises of deregulated markets and US political scientist Francis Fukuyama was invoking the "end of history." Continue reading

Source and Image:

• Spiegel Online