Davos, Switzerland – Black German luxury cars snake through the narrow lanes of Davos, passing kilometres of wire fences and thousands of Swiss security forces as they ferry the world’s leaders to the World Economic Forum.
Ordinary people have no access to this annual gathering in the Swiss mountains, but this year, the rise of populism has shocked the assembled elites into looking at what hurts the middle class and why it looks for simple answers.
“The middle class is disillusioned about the future,” Italian Economics and Finance Minister Pier Carlo Padoan said.
“It is expressing this disillusionment in terms of saying no to whatever the policy leaders suggest,” Padoan said. “This is a sign of a crisis.”
In early December, Italy’s anti-mainstream parties got a boost when Italian voters followed their lead and rejected constitutional reforms in a referendum.
Populist arguments against immigration also prevailed in the British referendum to leave the European Union last year, and Donald Trump secured the US presidency by fanning notions of American greatness.
In the United States, the middle class has shrunk since 1970 from 58 per cent to around 47 per cent, according to US government statistics.
“That is the result of more wealth accumulating at the top and people moving down below” into lower income classes across advanced economies, International Monetary Fund chief Christine Lagarde said.
Lagarde had warned about this trend for several years in Davos, but few paid attention. Economic debates at the forum used to focus on growth rates, monetary policies and commodity prices rather than their tangeible effect on regular citizens and consumers.
Anthony Scaramucci, who will lead Trump’s external liaison office in the White House, told leaders in Davos that Europe should follow Trump’s example rather than panic about his populist victory.
“People are lighting matches to their own hair and setting their hair on fire. They don’t really need to do that,” he said.
“I think that European leadership and European elites had better pay closer attention to the working class families and the middle class,” he said.
However, leaders in Davos made clear that they do not plan to follow Trump’s isolationist trade policies, even if they acknowledged that they need to listen more closely to their voters.
The globalization of manufacturing and trade, and the advances of technology, are leading to job cuts, but neither of these trends should be reversed, several politicians said.
Chinese President Xi Jinping (r) with Swiss President Doris Leuthard in Zurich, Switzerland.
“Any attempt to channel the waters in the ocean back into lakes and creeks is simply not possible,” said China’s President Xi Jinping, whose country strongly depends on free trade.
Investment in education must be a key response to current technological developments such as artificial intelligence or robotics, Lagarde and other leaders said.
Closing tax loopholes for international corporations and fighting corruption would generate government income that could be spent to address middle class concerns such as education, Lagarde proposed.
In addition, participants at the World Economic Forum acknowledged that more wealth needs to be distributed from the richest to the middle and lower classes.
“The top 1 per cent are not carrying their weight,” outgoing US Vice President Joe Biden said.
“We can and we must take action to mitigate the economic trends that are stoking unrest in so many advanced economies and undermining people’s basic sense of dignity,” he said.
-dpa
