The middle classes are squeezed and aggrieved. Once the lynchpin of developed economies, the socio-economic grouping is now threatened by job losses and stagnant wages, paving the way for the rise of populism. In emerging markets, middle class growth rates are stalling.
In this session, Francine Lacqua of Bloomberg TV discusses the reasons and possible solutions with a panel of experts including the IMF's Christine Lagarde and Harvard's Lawrence Summers.
The middle classes feel neglected
Christine Lagarde, managing director of the IMF, sees no silver bullet response to the problem, but suggests a need for policies of redistribution to address inequalities.
Harvard professor Lawrence Summers points out that inequality is often associated with the poor and how poverty can be addressed. As a result, governments are focusing their attention on the poorer segments of the population, including immigrants. Meanwhile, the middle classes are feeling disenfranchised because they have a sense that the government is not looking out for them.
“The people who voted for Donald Trump think that too much is being done for the poor,” Summers emphasises.
“It’s a mistake not to recognise that the middle class in my country and in others is also concerned that the government isn’t fighting for it,” he adds.
This is one of the drivers for the populism seen across many developed economies.
Is globalization to blame?
Globalization is often blamed for the middle class crisis.
Lawrence Summers sees two trends feeding into this view: a narrowing of the wealth gap between poor and wealthy countries and a widening of the wealth gap within countries. He believes, however, that the world economy will soon come out of this phase.
Henrique Mereilles, Brazil’s finance minister, puts forward a similar perspective.
While globalization is raising up the poor into the middle classes, a specific group of people, especially in the developed countries feel that they are losing out, he explains. “For these, we need some specific policies ... It’s a case of helping that group take advantage of globalization.”
Italy’s economy and finance minister, Pier Carlo Padoan, sees the world entering a new stage of globalization, with new ways for nation states to shape and benefit from it. He is concerned about Europe in this context because “it’s inward-looking” and unable to address issues such as the refugee crisis effectively.
Where next?
Asked about how best to address the disillusionment of the middle classes, Christine Lagarde of the IMF believe that by fighting corruption and tax evasion and creating a common solid regulatory platform, the world economy could makes gains which could, in turn, be applied to addressing middle class anxiety.
Italy’s Pier Carlo Padoan calls on policymakers to take populists and their supporters seriously as they are expressing real concerns which must be addressed.
His worry is that Europe is on the back foot when it comes to counterbalancing populism. While the likes of Donald Trump or the Brexit movement in the UK have a powerful vision which people are aligning to, this is missing in Europe:
“We don’t have a vision in Europe - not a vision which is comparable in terms of powerful message.”
Professor Summers highlights the need for public investment in infrastructure, technology and education, especially in the US, and a global strategy to make international integration work for everyone.