{ "title": "\"Lifting the Small Boats,\" Speech by Christine Lagarde, Managing Director, IMF", "publication": "IMF News, June 17, 2015", "sourceUrl": "https://www.imf.org/en/news/articles/2015/09/28/04/53/sp061715", "canonical": "https://www.imf.org/en/news/articles/2015/09/28/04/53/sp061715", "overlayPath": "/en/news/articles/2015/09/28/04/53/sp061715/index.md", "summary": "Delivered at Grandes Conferences Catholiques, Brussels, June 17, 2015. As prepared for delivery.", "authors": [ "Christine Lagarde" ], "publishDate": "2015-06-17", "sections": [ { "heading": "Introduction and central message", "content": "- Delivered at Grandes Conferences Catholiques, Brussels, June 17, 2015. As prepared for delivery.\n- Core thesis: Reducing excessive inequality by \"lifting the small boats\" (poor and middle class) is both morally/politically right and sound economics. More equitable distribution supports higher, more inclusive, and more sustainable growth." }, { "heading": "Global economic outlook", "content": "- IMF spring forecast: global economy will grow 3.5 percent this year and 3.8 percent in 2016.\n- Advanced-economy trends:\n - US: outlook for a strong expansion; weak first quarter viewed as temporary.\n - Euro Area: prospects improving, partly due to European Central Bank monetary easing.\n - Japan: beginning to reap rewards of the “three arrows” recovery strategy (monetary, fiscal, and structural).\n- Emerging and developing economies: forecasts generally slightly worse than last year, notably because commodity exporters (especially oil) are affected by price declines.\n- Country divergence: examples range from still strong growth in India to recession in Brazil and Russia.\n- Medium-term concern: IMF view that growth potential of both advanced and emerging economies is likely to be lower in the years to come due to changing demographics and lower productivity — the “new mediocre.”" }, { "heading": "Causes and consequences of excessive inequality", "content": "- Global vs within-country inequality:\n - Global income inequality (between countries) has fallen steadily over past decades as average incomes in emerging markets (e.g., China, India) rose faster than richer countries.\n - Income inequality within countries has risen substantially in most advanced economies and major emerging market economies over the past two decades.\n- Key statistics and notable findings:\n - Top 1 percent in advanced economies account for about 10 percent of total income.\n - Oxfam estimate: in 2016, combined wealth of the world’s richest 1 percent will overtake that of the other 99 percent.\n - In the United States, a third of total wealth is held by 1 percent of the population.\n - Latin America: declining inequality levels but remains the world’s most unequal region.\n - China lifted more than 600 million people out of poverty over the past three decades but has become one of the world’s most unequal societies.\n- IMF research findings on distribution and growth:\n - Lifting the income share of the poor and middle class by 1 percentage point increases GDP growth by as much as 0.38 percentage points in a country over five years.\n - Lifting the income share of the rich by 1 percentage point decreases GDP growth by 0.08 percentage points.\n - Possible mechanism: the rich spend a lower fraction of their incomes, reducing aggregate demand and undermining growth.\n- Drivers of extreme inequality:\n - Technological progress and financial globalization widen earnings gaps between higher- and lower-skilled individuals.\n - Overreliance on finance (credit) can distort income distribution, corrode political processes, and undermine stability and growth.\n - In emerging and developing economies, inequality of access (education, health care, financial services) is a major driver:\n - Almost 60 percent of the poorest youth population in sub-Sahara Africa has fewer than 4 years of schooling.\n - Nearly 70 percent of the poor in developing economies give birth without access to doctors or nurses.\n - More than 80 percent of the poor in developing economies do not have bank accounts.\n - Low social mobility amplifies inequality across generations.\n- Gender dimension:\n - Women are less likely than men to have paid jobs (especially in the Middle East and North Africa), are more likely to work in the informal sector, and earn three-quarters as much as men in the same occupation and with the same education.\n - Worldwide, about 865 million women have the potential to contribute more fully to the economy." }, { "heading": "Policy priorities and recommendations", "content": "- Overarching priorities:\n - Macroeconomic stability: sound monetary policy, fiscal discipline, and control of public debt are essential to prevent slower growth, rising inequality, and instability.\n - Good governance: combat endemic corruption which signals social and economic inequality.\n - Prudence: acknowledge that some inequality provides incentives; policies should balance equity and incentives.\n - Country-specific approaches: tailor policies to political, cultural, and institutional settings; avoid one-size-fits-all.\n- Smart fiscal policy:\n - Widen the tax revenue base by clamping down on tax evasion.\n - Reduce tax relief on mortgage payments (benefiting the rich), and reduce/remove tax relief on capital gains, stock options, and profits of private equity investment funds (“carried interest”).\n - In many European countries: reduce high labor taxes, including cuts to employer social security contributions, to incentivize job creation and reduce part-time/temporary positions.\n - Reallocate savings from reducing energy subsidies to education, training, and stronger safety nets.\n - IMF study: governments worldwide will subsidize oil, gas, and coal to the tune of $5.3 trillion this year — equivalent to what they spend on public health each year.\n - Expand access to education and health care; rely more on conditional cash transfers (CCTs) as efficient anti-poverty tools.\n - Bolsa Familia example (Brazil): for expenditure of 0.5 percent of GDP per year, 50 million people are supported — one in every four Brazilians.\n- Structural reforms:\n - Prioritize education across levels and regions: “education, education, education” as the primary structural tool to reduce income inequality.\n - Emerging/developing economies: promote more equal access to basic education.\n - Advanced economies: focus on quality and affordability of university education.\n - Labor market reforms:\n - Well-calibrated minimum wages, policies to support job search and skill matching, and reforms that protect workers rather than jobs.\n - Nordic model example: limited job protection combined with generous unemployment insurance that requires jobseekers to find new positions — increases labor-market flexibility while safeguarding worker interests.\n - Gender-focused policies: affordable childcare, maternity leave, workplace flexibility, removal of legal barriers and tax discrimination to increase female labor force participation.\n - Financial inclusion:\n - Microcredit, building credit histories for unbanked people, and cell-phone-based banking as transformative in developing economies, especially Sub-Saharan Africa.\n - Financial equality enables poor families to invest in health and education, boosting productivity and income potential." }, { "heading": "IMF role and concluding outlook", "content": "- IMF engagement:\n - Promote global economic and financial stability; assist 188 member countries in policy design, implementation, and lending in times of distress.\n - Support Sub-Saharan Africa with zero-interest loans, increased financing, and capacity building.\n - Stepping up research on inequality, gender, and climate-related issues as macro-critical topics.\n - Exploring ways to increase access to IMF loans for developing countries to buffer external shocks, with increased focus on the poorest and most fragile countries.\n- Calls to action and global agenda:\n - Leverage once-in-a-generation opportunities:\n - UN summit to replace Millennium Development Goals with Sustainable Development Goals.\n - U.N. conference to finance the new development agenda.\n - December meeting of leaders from 196 countries in Paris to seek a comprehensive deal to cut carbon emissions, protecting the poorest who are most vulnerable to climate change.\n - Leadership, courage, and collaboration required from politicians, policymakers, and business leaders to translate intentions into bold, lasting actions.\n- Moral and practical conclusion:\n - Measure society’s health at its base; lifting the “small boats” builds a fairer society and a stronger economy, creating greater shared prosperity for all.\n\nSource: Speech by Christine Lagarde, Managing Director, IMF — \"Lifting the Small Boats,\" June 17, 2015.\n\n---\n\n Content in this bundle\n\n- 061715apdf (PDF){rel=\"external\" type=\"application/pdf\"}\n- 061715cpdf (PDF){rel=\"external\" type=\"application/pdf\"}\n- 061715jpdf (PDF){rel=\"external\" type=\"application/pdf\"}\n- Sdn1108pdf (PDF){rel=\"external\" type=\"application/pdf\"}\n- Sdn1302pdf (PDF){rel=\"external\" type=\"application/pdf\"}\n- Sdn1508pdf (PDF){rel=\"external\" type=\"application/pdf\"}\n- Wp12161pdf (PDF){rel=\"external\" type=\"application/pdf\"}\n- 061715rpdf (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\n References\n\n- Brazil and the IMF\n- India and the IMF\n- United States and the IMF\n- People's Republic of China and the IMF\n- Chile and the IMF\n- Japan and the IMF\n- Speeches\n- Christine Lagarde\n- PRESS CENTER\n- IMF note\n- IMF paper\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2015/09/28/04/53/sp061715" } ], "bullets": [ "[Markdown version](/en/news/articles/2015/09/28/04/53/sp061715/index.md)", "[Structured JSON version](/en/news/articles/2015/09/28/04/53/sp061715/index.json)", "[Bundle manifest](/en/news/articles/2015/09/28/04/53/sp061715/bundle-manifest.json)", "Authors: Christine Lagarde", "Published: June 17, 2015", "Delivered at Grandes Conferences Catholiques, Brussels, June 17, 2015. As prepared for delivery.", "Core thesis: Reducing excessive inequality by \"lifting the small boats\" (poor and middle class) is both morally/politically right and sound economics. More equitable distribution supports higher, more inclusive, and more sustainable growth.", "IMF spring forecast: global economy will grow 3.5 percent this year and 3.8 percent in 2016.", "Advanced-economy trends:", "Emerging and developing economies: forecasts generally slightly worse than last year, notably because commodity exporters (especially oil) are affected by price declines.", "Country divergence: examples range from still strong growth in India to recession in Brazil and Russia.", "Medium-term concern: IMF view that growth potential of both advanced and emerging economies is likely to be lower in the years to come due to changing demographics and lower productivity — the “new mediocre.”", "Global vs within-country inequality:", "Key statistics and notable findings:", "IMF research findings on distribution and growth:", "Drivers of extreme inequality:", "Gender dimension:", "Overarching priorities:", "Smart fiscal policy:", "Structural reforms:", "IMF engagement:", "Calls to action and global agenda:", "Moral and practical conclusion:", "[061715apdf (PDF)](/-/media/websites/imf/imported/external/arabic/np/speeches/2015/061715apdf.pdf){rel=\"external\" type=\"application/pdf\"}", "[061715cpdf (PDF)](/-/media/websites/imf/imported/external/chinese/np/speeches/2015/061715cpdf.pdf){rel=\"external\" type=\"application/pdf\"}", "[061715jpdf (PDF)](/-/media/websites/imf/imported/external/japanese/np/speeches/2015/061715jpdf.pdf){rel=\"external\" type=\"application/pdf\"}", "[Sdn1108pdf (PDF)](/-/media/websites/imf/imported/external/pubs/ft/sdn/2011/_sdn1108pdf.pdf){rel=\"external\" type=\"application/pdf\"}", "[Sdn1302pdf (PDF)](/-/media/websites/imf/imported/external/pubs/ft/sdn/2013/_sdn1302pdf.pdf){rel=\"external\" type=\"application/pdf\"}", "[Sdn1508pdf (PDF)](/-/media/websites/imf/imported/external/pubs/ft/sdn/2015/_sdn1508pdf.pdf){rel=\"external\" type=\"application/pdf\"}", "[Wp12161pdf (PDF)](/-/media/websites/imf/imported/external/pubs/ft/wp/2012/_wp12161pdf.pdf){rel=\"external\" type=\"application/pdf\"}", "[061715rpdf (PDF)](/-/media/websites/imf/imported/external/russian/np/speeches/2015/061715rpdf.pdf){rel=\"external\" type=\"application/pdf\"}", "[Brazil and the IMF](http://www.imf.org/external/country/BRA/index.htm)", "[India and the IMF](http://www.imf.org/external/country/IND/index.htm)", "[United States and the IMF](http://www.imf.org/external/country/USA/index.htm)", "[People's Republic of China and the IMF](http://www.imf.org/external/country/CHN/index.htm)", "[Chile and the IMF](http://www.imf.org/external/country/CHL/index.htm)", "[Japan and the IMF](http://www.imf.org/external/country/JPN/index.htm)", "[Speeches](https://www.imf.org/en/news/searchnews)", "[Christine Lagarde](https://www.imf.org/external/np/omd/bios/cl.htm)", "[PRESS CENTER](http://presscenter.imf.org/)", "[IMF note](https://www.imf.org/external/pubs/cat/longres.aspx?sk=42986.0)", "[IMF paper](https://www.imf.org/external/pp/longres.aspx?id=4750)", "[https://www.imf.org/en/home](https://www.imf.org/en/home)" ], "related": [ { "title": "061715apdf", "role": "document", "sourceUrl": "https://www.imf.org/-/media/websites/imf/imported/external/arabic/np/speeches/2015/061715apdf.pdf", "binary": { "path": "/-/media/websites/imf/imported/external/arabic/np/speeches/2015/061715apdf.pdf", "mime": "application/pdf" } }, { "title": "061715cpdf", "role": "document", "sourceUrl": "https://www.imf.org/-/media/websites/imf/imported/external/chinese/np/speeches/2015/061715cpdf.pdf", "binary": { "path": "/-/media/websites/imf/imported/external/chinese/np/speeches/2015/061715cpdf.pdf", "mime": "application/pdf" } }, { "title": "061715jpdf", "role": "document", "sourceUrl": "https://www.imf.org/-/media/websites/imf/imported/external/japanese/np/speeches/2015/061715jpdf.pdf", "binary": { "path": "/-/media/websites/imf/imported/external/japanese/np/speeches/2015/061715jpdf.pdf", "mime": 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