Economic Progress

Davos leaders agree: share more wealth, or face the consequences

Attendees walk past a sign in the Congress Hall during the annual meeting of the World Economic Forum (WEF) in Davos, Switzerland, January 17, 2017. REUTERS/Ruben Sprich - RTSVXVE

With inequality on the rise, is wealth redistribution the answer? Image: REUTERS/Ruben Sprich

Peter Vanham
Previously, Deputy Head of Media at World Economic Forum. Executive Editor, Fortune
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Economic Progress

This article is part of: World Economic Forum Annual Meeting

As the world faces an upsurge in nationalist and anti-globalist movements, participants at the World Economic Forum in Davos this week considered a novel “old” cure: wealth redistribution. But they seemed split over the model (voluntary or through taxation), and over whether a more familiar recipe wasn’t better: to make the pie bigger, rather than to give others a bigger slice. Have leaders in Davos got the message?

The Brexit vote, Donald Trump’s election, and rising nationalist sentiments from China to Russia put income inequality higher on the “Davos” agenda than usual. If anyone still needed reminding of the causes of public discontent, Winnie Byanyima from Oxfam International provided a rallying cry for more equality. “8 men have the same wealth as 3.6 billion of the world's poorest people,” she wrote on Agenda. “We must rebalance this unjust economy.”

Her message was echoed by many participants. In a dinner session on Tuesday, Oxford academic and writer Ian Goldin repeated a conclusion he came to in his book, Age of Discovery. It is that “individuals and societies need to be smart and well organized to emerge as ‘winners’ in a new renaissance,” as the FT paraphrased it. “They should create social safety nets for the dispossessed.” In other words: the wealthy should share more with the rest of society.

If that message was still rather veiled on Tuesday, it came out in the open on Wednesday. In a session that was aptly called “Squeezed and Angry: How to Fix the Middle-Class Crisis”, Christine Lagarde, the chief of the International Monetary Fund, called explicitly for a redistribution. “It’s an opportune time to put in place the policies we know help,” she said. “When you have a real crisis, what kind of measures do we take to reduce inequality? It probably means more redistribution.”

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She was joined in her analyses by Richard Baldwin, a professor of international economics at the Graduate Institute of International and Development Studies in Geneva. He said in an interview with Bloomberg in Davos that “there may just be a need to man up. We have to pay for the social cohesion that we need to keep our societies advancing, and accept that this may be a higher tax burden on people.”

In his last speech as US vice-president, Joe Biden made it clear he too was an ardent supporter of higher taxes to pay for rising standards of living for the middle class. “Our goal should be a world where everyone’s standard of living can rise together,” he said, adding that there was an urgent need to take “common sense” steps like “implementing a progressive, equitable tax system where everyone pays their fair share.”

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Some participants went even further, supporting a plea made by Scott Santens that “we should all have a basic income”. Most notably, World Economic Forum Foundation Board Member Marc Benioff opined in Fortune that “we need to look at universal basic income, where governments would provide citizens additional income beyond what they already earn at their jobs.” And Guy Standing, a Research Professor in Development Studies, launched a similar call in his session.

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But not everyone agreed that such “radical” solutions needed to be government-led. In a session on corporate social responsibility Thursday, Chobani founder Hamdi Ulukaya urged more voluntary action by employers. He is leading by example: he started a profit-sharing programme at Chobani five years ago. “We gave all full-time employees a chance to share in our growth,” he said this week. “Compensating our workers fairly was not only the right thing to do; our record shows that it has also been economically smart.”

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But for every advocate of redistribution and corporate action, there seemed to be another one for government “laissez-faire”, preferring a pro-growth medicine to heal the ails of a struggling middle class. “Davos would do better thinking of growth, rather than redistribution,” Ken Moelis, Founder and CEO of Moelis & Co. told the Wall Street Journal’s Matt Murray.

Ray Dalio, founder of the American investment firm Bridgewater Associates, suggested the key to reinvigorating the middle class was to “create a favourable environment for making money,” The New York Times reported. He touted in particular the “animal spirits” unleashed by stripping away regulations.

It opened the door to a “two-track economic plan”, which Rwandan Minister of Finance Claver Gatete said had worked best for his country: one to promotes growth, and another one to eradicate poverty and strengthen the middle class. But with inequality increasing rapidly, the World Economic Forum’s own recommendation was clear: “Move away the focus from plain wealth creation towards accomplishing a combination of other goals, producing more inclusive development.”

Christine Lagarde did her best effort to underline that message. In Martin Wolf’s closing panel on the Global Economic Outlook she reminded participants that “growth will not be sustainable if it is not inclusive”. It followed her earlier warning that “if policy makers don’t get it now, I don’t know when they will.”

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