EARLIER THIS month the International Monetary Fund (IMF) made an uncharacteristically bold statement. In its half-yearly fiscal report, published in October, the international economic regulator argued that increasing tax rates for the top one per cent of earners will not prevent economic growth, and stressed the need to tackle the growing inequality in many advanced nations.
The IMF said that “excessive inequality can erode social cohesion, lead to political polarisation, and lower economic growth.” Among the methods discussed in the report was the controversial Universal Basic Income (UBI) scheme, which would involve governments or public institutions providing an unconditional sum of money to citizens on a regular basis.
The IMF should be credited for its nuanced discussion of UBI, which historically has been dismissed. It devised a framework which divides countries into three groups: countries with minimal/no tax and transfer systems, countries with progressive tax and transfer systems, and countries with inconsistent/insufficient tax and transfer systems. For each group the IMF asked questions to determine whether a UBI system may be appropriate for the local context, such as “if there was a case to adopt U B I ” . Overall the IMF offered cautious welcome to the UBI system, arguing that it is a powerful tool to reduce inequality in countries with little to no tax and transfer infrastructure.
For an international organisation like the IMF to make the case for a system like UBI is a sign of changing times. Support for progressive taxation, nationalisation and schemes like UBI, seem to be shifting increasingly into the mainstream in many parts of the world. One need look no further than Jeremy Corbyn’s Labour Party, which won significant support in the UK 2017 General E l e c t i o n , with the most left-wing Labour manifesto in decades.
Despite growing enthusiasm in recent years, most of economic opinion has remained largely resistant to such interventionist policies. Since the 1980s the predominant orthodoxy in the economic world has been neoliberalism, inherited from the “Reaganomics” approach of Ronald Reagan and Margaret Thatcher. This approach was taken up by the majority of international institutions, regional organisations and western states. Economist John Wi l l iamson c o i n e d the term “ T h e Washington C o n sensus” f o r this new face of capitalism: one which emphasises privatisation, the expansion of market forces within domestic society, trade liberalisation and deregulation of both domestic and international markets.
Far from breaking this powerful consensus, the IMF has been one of its most influential champions, yet it seems after years of austerity and growing inequality, the organisation has become more willing to break the neoliberal mould. While this development doesn’t suggest the IMF has abandoned its support for free trade and the objectives of globalisation, it has shown a willingness to discuss policies many in mainstream economic circles have previously labelled untouchable. In doing so, the IMF has revitalised debate in key areas of economic policy and added some legitimacy to calls for a revival of Keynesian-style policies. Time will tell whether other international bodies will soon follow suit, and whether states will prove receptive to this gradual shift in economic “common sense”.