Georgieva’s Heat Level: Piping Hot Policies on Inequality

  • + Georgieva’s policies are hot right now as she is taking pre-emptive steps to tackle rising inequalities worldwide.
  • + First, she is urging fiscal policy to raise taxes across major countries.
  • + Second, her plans have received wide support from the G7 and the World Bank.

Georgieva’s Hot Topic

Kristalina Georgieva is obsessed with tackling rising inequalities across income, opportunities, and generations. Far from surprising, in a recent report in January 2020, the Bulgarian noticed that continually boiling inequalities are a risk that the world cannot afford. Nor the IMF. 

Namely, rising income inequality has concerned leaders across Chile, Lebanon, and France as political turmoil has caused instability, threatening existing governing structures. Georgieva knows that all organizations, including the IMF, are not safe. To tackle these issues, the IMF proposes a series of policies that all regard a rise in public social spending. Not only for governments but also for organizations such as themselves. 

The IMF has thus devised fiery policies to reduce the growing inequality gap all the while acknowledging that although not politically easy to implement, the end will justify the means.

Global income inequality: the fire fueling the IMF

While global income inequality has declined since the 1980s, only China and India can take credit. Without the two super populations, global income inequality has in fact risen between 1988 and 2015. In other words, most of the globe has really not become more equal. It is in the most advanced societies, like the United States and the United Kingdom, as well as the largest developing economies, like Chile and South Africa, that it is more present.  
In the view of the IMF, it is urgent for these countries under the threat of losing their middle class, to implement progressive income taxation. The IMF is HOT because it claims that with the help of a digitalized taxation system, and a marginal tax rate increase, economic growth will not be affected and corruption will be significantly reduced. They are betting on an interventionist government that redistributes wealth with effective fiscal policy; investing in communities and individuals that lag behind in an open market. However, this may appear idealistic. While the IMF’s research paper shows that in advanced economies fiscal policy offsets about a third of income inequality, such sizzling scenarios are highly idealized and will require the right approach from Georgieva for real-world impact.

Georgieva’s heated concern: unequal opportunities

Unequal opportunities especially concern Georgieva as she advises policymakers to take action through gender budgeting. Given that the problem cannot be solved without incentives, the IMF strongly advises that structural spending should include policies directed at the promotion of women in the workforce. However, she does not delve into any specific recommendations or practices; quotas for example.

Additionally, the IMF is HOT right now as it is taking an ideological position to tackle issues. They say the best way to tackle all inequalities lies in increasing public investment in the education and healthcare systems. First, to help young generations enter the job market, second, to aid adults with training programs and third, to guarantee a quality of life for the elderly.  Within this aspect, The IMF specifies that not only will productivity rise, but investments across regions will grow as re-employment will be quicker. 

Fortunately, not all are abstract theoretical recommendations. There are some projects where the IMF has implemented solutions. For instance, in Egypt, they contributed to a rise of 200% in coverage of cash transfers. Additionally, in ageing Japan, they advised the government on pension reform options. Unfortunately, not everything is flowers and lullabies in their solutions. While the IMF admits that there is no ‘one size fits all’ strategy (see the failed Washington Consensus), they say ‘our empirical evidence shows that it is possible to achieve inclusive, sustainable growth with the right mix of policies.’ Naïvely suggesting that they have the formula to solve income inequality, and governments should simply follow their guidelines.

What now?

In conclusion, Georgieva’s piping hot policy urges policymakers to act in accordance with her social spending strategy so that inequalities can be globally reduced. She has already shared her obsession in reducing inequalities with G7 leaders, the World Bank, and the International Labour Organisations. Although Georgieva has its theoretical support, time will tell if it is pure politics or real change.

Luis J. Martinez

Team member of Project Development