IMF Warns That Likelihood of Civil Wars is Increasing

The International Monetary Fund’s managing director, Dominique Strauss-Kahn, has pointed out that the global is economy is built upon a destabilizing and dangerous combination: emerging economies, where brisk growth has created two-tiered societies with rich and poor on hugely unequal footings, and developed nations, that are still wracked with high unemployment and have little relief in sight.

He suggests these imbalances are igniting the breed of deep-seated animosity that can lead to civil wars, especially in those countries with the largest wealth disparities and highest unemployment.

According to the Telegraph:

“‘It is not the recovery we wanted. It is a recovery beset by tensions and strain, which could even sow the seeds of the next crisis,’ he [Dominique Strauss-Kahn] said.

“‘Global unemployment remains at record highs, with widening income inequality adding to social strains,’ he said, citing turmoil in North Africa as a prelude to what may happen as 400m youths join the workforce over the next decade. ‘We could see rising social and political instability within nations – even war,’ he said.

“The IMF has published a paper entitled Inequality, Leverage and Crisis arguing that the extreme gap between rich and poor – with echoes of the US in the late 1920s – was an underlying cause of the Great Recession from 2008-2009. The paper, by the Fund’s modelling unit, warned of ‘disastrous consequences’ for the world economy unless workers regain their ‘bargaining power’ against rentiers. It suggests radical changes to the tax system and debt relief for workers.”

For the purposes of the IMF paper, the discussion focuses on how changes in income distribution can result in an abuse of leverage, and a build up to the kinds of crises witnessed in the 1920-1929 and 1983-2008 periods. However, the IMF’s more bottom-line warning seems to be that lower income groups, without bargaining power over income, are becoming more likely to respond with violence than with a traditional picketing. You can see more details in the Telegraph’s coverage of how the IMF is warning of civil wars as global inequalities worsen.

Best,

Rocky Vega,
The Daily Reckoning