IMF Report Admits IMF’s Obsession with Capitalism Is Killing Prosperity

“By releasing this report, the IMF has shown that ‘trickle-down’ economics is dead; you cannot rely on the spoils of the extremely wealthy to benefit the rest of us.”

By Jon Queally

In light of how the International Monetary Fund has spent most of its existence parading around the world telling governments to make their economies more friendly for multinational corporations by suppressing wages, restricting pensions, liberalizing industries, and more or less advocating they ignore the popular will of workers and the less fortunate—all in the name of market capitalism and endless economic growth—a new report released by the IMF on Monday contains an ironic warning: stop doing all that.

Though it perpetuates the idea that economic growth is the master to whom all should bow, the new research—conducted by the IMF’s own economists and submitted under the title Causes and Consequences of Inequality (pdf)—argues that many of the policies promoted by the IMF have actually harmed nations by exacerbating widespread economic inequality. As many have noted, current disparities between the world’s richest and poorest represent a nearly unprecedented level of global inequality which the report described as the “defining challenge of our time.”

In order to strengthen economies, the report declares, nations should admit that “trickle-down” theories of wealth and prosperity do not work. In lieu of those, the study recommends raising wages and living standards for the bottom 20 percent, installing more progressive tax structures, improving worker protections, and instituting policies specifically designed to bolster the middle class.

“Fighting inequality is not just an issue of fairness but an economic necessity,” said Nicolas Mombrial of Oxfam International in response to the report. “And that’s not Oxfam speaking, but the International Monetary Fund.”

This is not the first time the IMF’s own research has bolstered the arguments of its biggest critics. According to the International Business Times, the new analysis on inequality “echoes previous IMF research that show that redistributive policies have a positive effect on countries’ economic output.”

But as the Guardian’s economics editor Larry Elliott notes, the new paper creates obvious “tension between the IMF’s economic analysis and the more hardline policy advice” it continually gives to countries seeking foreign assistance or development funds. With Greece as the most obvious example, Elliott cites details from the report and writes:

During its negotiations with Athens, the IMF has been seeking to weaken workers’ rights, but the research paper found that the easing of labor market regulations was associated with greater inequality and a boost to the incomes of the richest 10%.

“This result is consistent with forthcoming IMF work, which finds the weakening of unions is associated with a higher top 10% income share for a smaller sample of advanced economies,” said the study.

“Indeed, empirical estimations using more detailed data for Organization for Economic Cooperation and Development countries [34 of the world’s richest nations] suggest that, in line with other forthcoming IMF work, more lax hiring and firing regulations, lower minimum wages relative to the median wage, and less prevalent collective bargaining and trade unions are associated with higher market inequality.”

The study said there was growing evidence to suggest that rising influence of the rich and stagnant incomes of the poor and middle classes caused financial crises, hurting both short- and long-term growth.

No one should be fooled into thinking that the new research aims to alter the IMF’s central commitment to advancing the financial interests of the global elite.

In fact, part of the argument presented in the paper is that such enormous levels of global economic inequality could seriously undermine the institution’s public defense of capitalism’s overall supremacy. “For example,” the paper states, “[too much inequality] can lead to a backlash against growth-enhancing economic liberalization and fuel protectionist pressures against globalization and market-oriented reforms.”

According to a recent report by Oxfam International, almost half the world’s wealth is owned by one percent of the population, while the bottom half of the world’s population owns the same wealth as the richest 85 people in the world. For Oxfam’s Mombrial, who heads the international anti-poverty group’s office in Washington D.C., the IMF’s report is a welcome development that should put a nail in the coffin of the austerity-driven policies prescribed by governments and powerful financial institutions like the IMF, World Bank, and others.

“The IMF proves that making the rich richer does not work for growth, while focusing on the poor and the middle class does,” Mombrial said. “This reinforces Oxfam’s call on how we need to reduce the income gap between the haves and have-nots, and scrutinize why the richest 10 percent and top 1 percent have so much wealth. By releasing this report, the IMF has shown that ‘trickle-down’ economics is dead; you cannot rely on the spoils of the extremely wealthy to benefit the rest of us. Governments must urgently refocus their policies to close the gap between the richest and the rest if economies and societies are to grow.”

As Oxfam and other international campaigners have been saying it for decades, he concluded, “The IMF has set off the alarm for governments to wake up and start actively closing the inequality gap, not just between the rich and poor, but for the middle class too. Their message to them is pretty clear: if you want growth, you’d better invest in the poor, invest in essential services and promote redistributive tax policies.”

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Red Cross Holds a Press Conference In Haiti. It Doesn’t Go Well.

Haitian reporters demand answers from the Red Cross but don’t get many.

By Justin Elliot

Haitian journalists grilled an American Red Cross official Wednesday about the group’s Haiti program, but the official declined to provide any new details of how it spent nearly $500 million donated after the 2010 earthquake.

The Red Cross called a press conference, held at the Le Plaza Hotel in downtown Port-Au-Prince, in response to ProPublica and NPR’s story published last week revealing a string of Red Cross failures in Haiti.
The American Red Cross official at the press conference was repeatedly interrupted by Haitian reporters frustrated that he would not give specifics on its spending.

The official, Walker Dauphin, criticized our story for making “misleading allegations” and said that “in total, more than a hundred projects were implemented.”

But Haiti’s most prominent newspaper, Le Nouvelliste, wrote that Dauphin was merely “retracing the broad strokes of the interventions and expenses … while avoiding going into detail.” The paper ran the story on its front page under the headline, “When the Red Cross drowns the fish,” a reference to sidestepping a touchy subject.

Jean-Max Bellerive, who was prime minister of Haiti when the earthquake hit, also publicly criticized the American Red Cross, telling Le Nouvelliste that the Haitian government must “take legal actions to demand accountability.”

In the United States, Rep. Rick Nolan, D-Minn., has called for the House oversight committee to hold hearings on the Red Cross’ Haiti program. The story has also prompted anger and calls for investigation in a number of states. Watch this video where an activist and Georgia state senator interrupt a Red Cross spokesman: “They do not deny anything that’s been said and just direct you to some website,” said Sen. Vincent Fort.

Red Cross spokeswoman Jana Sweeney said in a statement: “The Red Cross is happy to talk with any member of Congress who has questions about our relief work in Haiti, or elsewhere.”

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Growing Global Inequality Gap ‘Has Reached a Tipping Point’

‘When such a large group in the population gains so little from economic growth, the social fabric frays and trust in institutions is weakened.’

By Nadia Prupis

With the gap between the rich and poor growing worldwide, a new study by the Organization for Economic Cooperation and Development (OECD) published Thursday suggests that the only way to reverse such rampant inequality is by implementing government measures aimed at balancing the playing field

Chief among those measures: Tax the rich and push for gender equality.

In its 34 member states, income inequality has reached record highs, the OECD found in its study, In It Together: Why Less Inequality Benefits All. The average income of the top 10 percent was 9.6 times higher than the bottom 10 percent, the OECD found. In the U.S., it was 19 times higher.

“We have reached a tipping point,” said OECD secretary-general Ángel Gurría. “The evidence shows that high inequality is bad for growth. The case for policy action is as much economic as social. By not addressing inequality, governments are cutting into the social fabric of their countries and hurting their long-term economic growth.”

“In recent decades, as much as 40% of the population at the lower end of the distribution has benefited little from economic growth in many countries,” the study found. “In some cases, low earners have even seen their incomes fall in real terms. When such a large group in the population gains so little from economic growth, the social fabric frays and trust in institutions is weakened.”

Working conditions have also deteriorated, largely due to the rise of a “non-standard” economy that incentivizes part-time work, self-employment, and temporary contracting.

“Between 1995 and 2013, more than 50 percent of all jobs created in OECD countries fell into these categories,” the OECD stated in a press release on Thursday. “Low-skilled temporary workers, in particular, have much lower and instable earnings than permanent workers.”

However, the study found that an increase in the number of women working “helped stem the rise in inequality, despite their being about 16% less likely to be in paid work and earn about 15% less than men.”

Inequality is highest in Chile, Mexico, the United States, Turkey, and Israel. It is lowest in Denmark, Slovenia, Slovak Republic and Norway.

Higher inequality also drags down economic growth by making opportunities more scant for the bottom 40 percent and often preventing low-income children from receiving quality education, or enough of it. The long-term rise of inequality “has indeed put a significant brake on long-term growth,” from developed nations to emerging economies, the OECD found.

“If the bottom loses ground, everyone is losing ground,” the report states.

The OECD recommends a wide range of solutions to reverse the growing wealth gap, including removing the obstacles that prevent mothers from working; doing more to provide youth with useful skills and allow workers to continue updating those skills over time; and redistribute wealth through taxes and transfers, which the report describes as a “powerful instrument to contribute to more equality and more growth.”

“In recent decades, the effectiveness of redistribution mechanisms has been weakened in many countries,” the OECD states. “To address this, policies need to ensure that wealthier individuals, but also multinational firms, pay their share of the tax burden.”

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