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The International Monetary Fund Should Challenge the One Per Cent

07/05/2015 06:28 EDT | Updated 07/05/2016 05:59 EDT
Dimuthu Jayawickrama via Getty Images
concept photo showing heavy weight 1% and light weight 99%. This demonstrates inequality of wealth distrubution in USA

Two remarkable developments during the past 10 days that could have a significant impact in many countries are worth a lot more attention in Canada and the United States.

First, a major research document published by five top economists at the International Monetary Fund (IMF) admitted that the strong pro-capitalist policies at the centre of its activities in developing countries for the past 30 years do not work.

One of the IMF's main roles in recent years has been to bail out countries during financial crises. In return for loans, some 60 mostly poor countries have been forced to follow strict rules, such as privatizing government resources, deregulating controls to open markets to foreign investment, and restricting what they can spend in areas such as education and health care.

Now the paper, Causes and Consequences of Income Inequality: A Global Perspective, says there needs to be a shift and that greater income equality in both developing and developed countries should become a priority.

Dutch told to act on emissions

The other significant but unrelated development which received scant attention, concerns a ground-breaking decision from judges in the Netherlands. They ordered the Netherlands government to slash greenhouse gas emissions by at least a remarkable 25 per cent by 2020.

The ruling came after almost 900 Dutch citizens, headed by the group Urgenda, took their government to court in April in a class action lawsuit to force a reduction of greenhouse gas emissions to tackle climate change. Netherlands has been lagging behind other European countries in tackling climate change.

Significantly, the challenge was based not on environmental law, but on human rights principles. Urgenda asked the courts to "declare that global warming of more than two degrees Celsius will lead to a violation of human rights worldwide." 

The court said, "The state should not hide behind the argument that the solution to the global climate problem does not depend solely on Dutch efforts ... Any reduction of emissions contributes to the prevention of dangerous climate change and as a developed country the Netherlands should take the lead in this."

"A courageous judge. This is fantastic," said Sharona Ceha, a member of the climate change group Urgenda. "This is for my children and grandchildren."

The international community is attempting to set limit global warming to 2 degrees Celsius over pre-industrial levels. Countries are to publish their own undertakings to reduce greenhouse gas emissions ahead of a hoped-for global deal to be agreed in Paris in December.

While the Dutch government can appeal the ruling to a higher court, lawsuits against governments and companies in Europe have increasingly been seen as a way to press for action against climate change.

The Amsterdam-based group said the case was the first in Europe in which citizens attempted to hold the state responsible for its potentially devastating inaction and the first in the world in which human rights are used as a legal basis to protect citizens against climate change.

The landmark case could very well set an important precedent for public interest groups in other countries. Cases are already being brought forward in Belgium, Norway and the Philippines.  

Perhaps this is a course Canadian environmental groups should consider. Diane Saxe thinks so. As the Toronto-based environmental lawyer told the CBC's The Current, "The more I read the Dutch court decision, the more I'm getting excited about it, because the arguments made by the three judges could be made in Canada...I think it eventually will happen."

IMF denounces "trickle-down" economics

In the other story, the IMF report contradicted its long-held position of following hard-nosed capitalist guidelines. It said that the dreaded concept of "trickle-down" economics -- which it forced on developing countries and which is practiced by the Harper government -- should be abandoned.

"To tackle inequality, financial inclusion is imperative in emerging and developing countries, while in advanced economies, policies should focus on raising human capital and skills and making tax systems more progressive," concludes the report. Wages and living standards for the bottom 20 per cent should be raised, worker protections improved, and environmental standards implemented.

The practices and policies of the IMF have been controversial for many years.

The rich and powerful countries that control the IMF have used the body's loans program to force their preferred economic policies on poor countries, even though rich countries themselves did not employ the same strict measures on themselves when they were developing.

The report's critical analysis also applies to neo-liberal economic policies practiced by most Western governments, including the United States, Canada and several European countries.

The document was enthusiastically received by IMF critics, who have accused the world body of hindering, not helping, development in several poor countries over the years.

"Fighting inequality is not just an issue of fairness but an economic necessity," said Nicholas Mombrial of Oxfam International in response to the report. "And that's not Oxfam speaking, but the International Monetary Fund."

"By releasing this report, the IMF has shown that 'trickle-down' economics is dead; you cannot rely on the spoils of the extremely wealthy to benefit the rest of us. Governments must urgently refocus their policies to close the gap between the richest and the rest if economies and societies are to grow," said Mombrial.

Austerity increases poverty

Critics strongly object to austerity measures that have been forced upon most of the 60 countries where the IMF has been providing loans.   

"Such belt-tightening measures increase poverty, reduce countries' ability to develop strong domestic economies and allow multinational corporations to exploit workers and the environment," argues Global Exchange, an international human rights organization.

Global Exchange charges that the IMF contributes to poverty instead of alleviating it: "Nearly 80 percent of all malnourished children in the developing world live in countries where farmers have been forced to shift from food production for local consumption to the production of export crops destined for wealthy countries."

It's very likely that the IMF will change some of its policies concerning developing countries. However, change may be slow. The IMF is a huge and complex organization where the wheels grind slowly. Secondly, the Western countries that control the organization tend to be strongly influenced by powerful and wealthy people who benefit from "trickle down" economics.

When the IMF finally makes significant policy changes, and if countries were to follow its lead in their own economic planning, many countries could experience a significant change in income distribution. Perhaps it will result in the one per cent no longer owning 48 per cent of the world's wealth.

Nick Fillmore is a Canadian freelance journalist and blogger who specializes in environmental, finance, and developing country issues. He is a founder of the Canadian Association of Journalists. This article first appeared on The Tyee.

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