Inequality crisis worsens as World Bank and IMF persist with failed policies

4 April 2019

In January, international civil society organisations Christian Aid and Oxfam published their Financing Injustice and Public Good or Private Wealth? reports, respectively. The reports stressed that inadequate policy responses from governments and multilateral organisations, including the World Bank and IMF, continue to exacerbate inequality. They documented the failure of policies widely supported by the Bank and IMF, such as the privatisation of essential services, over-reliance on private sector investment and related regressive tax policies and austerity, which hurt the poor and women and girls in particular (see Observer Winter 2018, Summer 2017, Spring 2017).

After IMF Managing Director Christine Lagarde warned dignitaries at the IMF and World Bank’s Annual Meetings in Bali in October about the need for a multilateral system that is “more inclusive and deliver[s] results for all”, the reports documented a worsening inequality crisis that, in addition to its human rights implications, imperils the attainment of the Sustainable Development Goals, to which both the Bank and Fund are committed (see Observer Spring 2019). They followed the 2018 World Inequality Report (WIR), published by France-based World Inequality Lab, which concluded that “income inequality has increased in nearly all countries, but at different speeds, suggesting that institutions and policies matter in shaping inequality,” and that the world seems to be moving “toward the high-inequality frontier.” The WIR authors, echoing Lagarde, warned “that if rising inequality is not properly monitored and addressed, it can lead to various sorts of political, economic, and social catastrophes.”

Additional evidence of the consequences of IMF policies was provided by a January academic paper by Timon Foster, et al., which analysed the impact of IMF structural adjustment programmes on inequality between 1980 and 2014 and found that “overall, policy reforms mandated by the IMF increase income inequality in borrowing countries.”

Just 1 per cent of the wealth of the world’s richest man is equivalent to the entire health budget of Ethiopia.Oxfam's Public Good or Private Wealth? report

More billionaires than ever

Oxfam’s report evidenced the growing inequality crisis, noting for example that, ten years after the global financial crisis, the world has more billionaires than ever, and that, “just 1 per cent [of the world’s richest man’s] fortune is equivalent to the entire health budget of Ethiopia,” a country of 105 million people. Countering arguments of rapid poverty eradication, it noted that “evidence from the World Bank shows that the rate of poverty reduction has halved since 2013,” and “extreme poverty is actually increasing in sub-Saharan Africa.” The report recommends policies that remain unsupported or are actively contradicted by the Bank and Fund, namely : i) delivery of universal free healthcare, education and other public services that also work for women and girls; ii) freeing up women’s time by easing the millions of unpaid hours they spend every day caring for their families and homes; and iii) ending the under-taxation of rich individuals and corporations.

The failure of the Bank and Fund’s policy mix is also evidenced by studies noting that up to two-thirds of global poverty reduction during the past 25 years can be attributed to China, which has not followed the prevailing policy recommendations of the Bank and Fund (see Observer Winter 2017-2018).

Management of capital requires changes

The Christian Aid report underscored that rising inequality, worsening debt distress and related austerity measures, and climate change, imply that changes are needed in the way capital is managed and invested.

The report highlighted the negative consequences of the current approach to financing the SDGs, supported by the World Bank and IMF, which it argues not only privileges private finance but “is not primarily based on evidence or experience, but on the views of those with the greatest power to influence how the agenda is set: private investors and corporations seeking to open up new opportunities to make profit.” The report called on the IMF to “require debt restructuring or cancellation by previous lenders as part of its bailout programmes, when clear assessments of debt sustainability – that include human rights and debt legitimacy – show that debt restructurings are required” (see Observer Spring 2019).

Considering the World Bank’s stated focus on ‘shared prosperity’ and given Lagarde’s recognition that “excessive inequality is associated with marginalized people, damaged communities, and eroded trust,” marginalised communities will be desperately hoping for a change in the policies supported by the World Bank and IMF.

These reports support the critiques of CSO coalitions such as the Fight Inequality Alliance and the Asian People’s Movement on Debt and Development, who claim that Bank and Fund policies aid and abet inequality globally (see Observer Autumn 2018, Summer 2018).