Financing international development

What is the forthcoming international conference about?
John Langmore

In this paper, I want, firstly, to tell the story of the International Conference on Finance for Development to be held in Monterrey, Mexico, in March 2002, including some remarks on the reasons for its organisation by the United Nations. Secondly, I want to discuss a few of the issues that are on the conference agenda:

  • domestic sources of finance and, in that context, the importance of improving international co-operation about domestic tax matters and considering new and innovative sources of funding;
  • official development assistance;
  • global public goods; and,
  • global economic and social governance.

The international community has begun to focus on the growing ‑ and increasingly explosive ‑ inequities globalisation entails. At the major international United Nations conferences of the 1990s, such as the World Summit for Social Development, proposals for a more balanced and equitable approach to development were articulated and agreed by world political leaders. The Millennium Declaration of 8 September 2000 articulates clear goals and a framework for action. The conference on Financing for Development offers an unprecedented opportunity for further advances.

The decision of the General Assembly in December 1997 to convene a "summit, international conference, special session of the General Assembly or other appropriate high‑level intergovernmental forum on financing for development" was a breakthrough.1 Developing countries had been proposing a conference on financial issues for many years. Amongst the reasons noted in the resolution were the continuous decline of official development assistance and the need to "explore ways of generating new public and private resources to complement development efforts ...".2

The reasons for the US withdrawing its opposition to the proposal are not clear to me. It was said at the time that the growth of foreign direct investment in developing countries had led to the expectation that private capital flows could provide the external financial resources needed by most developing countries. One can assume that the proposal for a conference on financial issues must have been more difficult to resist after the Asian financial crisis. Moreover, the realities of the global economic and social situation were also clearly powerful factors. These factors include the following.

1. Global interdependence is growing strongly.

2. After half a century of uneven but often rapid and widespread economic growth, the world is richer than ever before in human history and has unprecedented technological capacity.

3. Yet, despite the resulting opportunity to achieve security for all, half of humankind is living on less than $2 a day and is in or close to poverty, and so is certainly suffering from deprivation and insecurity of many kinds.

4. Inequality of income, wealth, assets and power between and within most countries is high and generally growing. One simple statistic is enough to illustrate this: the 20 per cent of people with the highest incomes receive 86 per cent of total global income.3

5. A particularly powerful symptom of the difficulties of the current imbalances is that, rather than the growth in net capital contributing to developing countries, in recent years a high and growing portion has been going to the US. In 2000 the US received two-thirds of net international capital flows. The International Monetary Fund (IMF) reports that a "striking feature of international capital flows during the year [2000] was the dominant position of the United States as a recipient of flows, compared with 60 per cent in 1999 and an average of about 35 per cent during 1992‑97. Net flows to the United States exceeded $400 billion ... including a record level of foreign portfolio investment ...".4

An accurate recognition of the international economic environment faced by developing countries involves acknowledging that:

  • Most receive little foreign private capital, and what they do receive is often short-term and volatile;
  • Potential foreign investors normally have several location options, putting them in a powerful position to negotiate major tax concessions and infrastructure assistance;
  • Capital flight is a continuing drain on their savings;
  • Exports of their agricultural and manufactured products are still restricted by import barriers in developed countries;
  • Debt service and repayment still absorb a large part of the budgets of many;
  • Concessional support has stagnated.

It cannot be seriously contested that most developing countries need additional external financial resources to maximise their rate of development. That point is especially easy for Australians to accept, for our country has depended on foreign investment for most of our history, over which the norm has been to run current account deficits financed by capital inflow. For impoverished countries with extremely limited capacity to save or tax, the picture is even clearer. This is not at all to deny the importance of mobilising domestic resources, as I will discuss in a moment.

Why a UN conference?

A few countries were uneasy about this subject being discussed at the United Nations, believing that the Development Committee of the World Bank or the International Monetary and Financial Committee of the IMF would have been more suitable forums. This is to misunderstand the nature of the international institutional structure.

The United Nations is the political heart of the international system. One of the four principle goals of the UN, as set out in the Charter for which Australia was an active negotiating participant, is "to promote social progress and better standards of life in larger freedoms". The third of the four Purposes in Article 1 is "To achieve international co-­operation in solving international problems of an economic, social, cultural and humanitarian character ...". The Economic and Social Council was established to undertake these functions, and amongst its powers is calling "international conferences on matters falling within its competence."

It is probable that the unease of representatives of the US and Australia about discussing development finance at a UN conference was more to do with a perceived challenge to their sense of control. Developing countries account for 85 per cent of the world's population, and that proportion is rising. At the United Nations, where each member state has a single vote, developed countries have 17 per cent of the voting power. At the World Trade Organisation (WTO) developed countries have 24 per cent of the voting strength. At the World Bank and the IMF they have 61-62 per cent, and at the IMF the US has an effective veto.5 There are no developing countries amongst the G8, and Mexico is the only member of the OECD that could be defined as developing. [The present Australian government is alone, by the way, in considering that the United Nations has no role in the discussion of economic and social policy. Australia was the only developed country that did not send a public servant from its capital for the Special Session of the General Assembly in Geneva in 2000, and the only developed country other than Japan, where an election was being held that week, which did not send a minister to lead its delegation.] Also, it is government treasuries that generally have responsibility for national relations with the Bank and the Fund ‑ though some countries send development ministers to the Development Committee ‑ but it is the foreign ministries that have prime responsibility for intergovernmental relations work through the UN. The reluctance of a few finance ministries to discuss economic policy at the UN is equivalent to their reluctance to recognise that there are trade‑offs between alternative national economic policies, that these have a political dimension, and therefore that political discussion of the costs and benefits of the alternatives is appropriate.

This is not to say that the UN is the appropriate place to discuss technical details of stabilisation policy or lending procedures and policies. Rather, it is to suggest that discussion about the aims and political economy of international development strategy should take place at the UN. Nor is it to suggest that the present bodies with these responsibilities in the UN have done this adequately to date, any more than that claim could be made for the equivalent bodies at the Bank or the Fund.

Until the agreement on holding the Finance for Development event, there had not been an opportunity for discussion of these crucial issues at the United Nations. I do not want to pretend, either, that global conferences are ideal for such discussion. They are both too large and their procedures too cumbersome. (That is why a new global council, as recommended by the Zedillo Panel, is needed - see below).

Nonetheless, international conferences are forums at which both important conceptual and concrete decisions have been and can continue to be taken. For example, the World Summit for Social Development in Copenhagen in 1995 marked a turn in the tide of political opinion away from a narrow preoccupation with market liberalisation to more balanced socio‑economic development. The wellbeing of people and societies were recognised as being the goal of policy, with economic strategy as a means to that end. The Social Summit Declaration was a carefully balanced expression of a strategy aiming for "societies for all" which offerred employment opportunities, high quality social services and declining inequity; in short, a strategy seeking security, freedom and social justice. It was also the start of a global campaign to end desperate poverty, a campaign equivalent to that for the ending of slavery.

There are constraints on what the conferences, as currently organised, can achieve. There have been too many conferences with overlapping agendas, forcing wasteful repetition of discussion. The process of negotiation is tediously detailed and time consuming. Too often countries are represented by diplomats - rather than by experts - who have too little knowledge of the subject, leading to unevenly informed discussion. Too often the outcomes have been indecisive or weak, in part because the norm of decision by consensus commonly allows one or a few countries disproportionate influence on the outcome. As well, the UN has been starved of funds, principally through the delinquency of the United States (which, despite recent overdue payments, still owes over US$1 billion), forcing the use of makeshift working methods. Yet, some of these problems are inherent in political processes ‑ look at the experience in national parliaments everywhere. While there are shared interests in resolving many international conflicts, there are huge differences of interest and perspective between countries.

On the other hand, it is striking that member states continue to decide to extend the range of UN conferences. Just think of the subjects of special UN conferences in the last two years: the least developed countries, children, racism, HIVAIDS, illegal trade in small arms, finance for development, ageing, and sustainable development. And this list includes only the additional conferences sponsored by the General Assembly and its subsidiary bodies. It does not include the regular meetings of the bodies or the conferences organised by the specialised funds and agencies. These meetings will reach agreements on some issues that will take international action forward in incremental steps. The agreements will influence governments in what they do ‑ strengthening action in some, shaming others into initiating action. They will add to pressure on developed countries to be more multilaterally engaged and developing countries to improve the quality of govermnent. They will lead to modest reforms of the international system. What happens at the UN depends principally on national governments. If they want to improve the effectiveness of the UN, they can decide to do so. If they want to undermine it, they can do that too.

The preparatory process

In any case, after extensive formal and informal discussion, the General Assembly decided in December 1999 to convene "a high‑level intergovernmental event of political decision makers, at least at ministerial level, on financing for development ... [and that it] will address national, international and systemic issues ...".6 The organisational session, which met on two occasions in the first half of 2000, agreed on an indicative agenda, which included the now familiar six subjects: domestic financing, international private finance, trade, Overseas Development Aid (ODA), debt, and systemic issues.

The next stage was preparation of the Secretary‑General's report. The important feature of this process was the engagement of other agencies in the international system, including the World Bank and the IMF, both of which appointed full-time representatives. Working groups on each of the agenda items included representatives of the relevant organisations. For example, the working group on systemic issues included, as well as the Fund and Bank, representatives of such institutions as the OECD, the Bank for International Settlements (BIS), and the Commonwealth Secretariat. While the final report was solely the responsibility of the United Nations Secretariat, a very serious and generally successful attempt was made to negotiate agreed wording with these institutions. The front page notes that the "report has benefited from the inputs and close collaboration of many individuals and agencies ‑ both within and outside the United Nations system ... special efforts were made to take into account the ideas, views and perspectives of the secretariats or staff of the three 'major institutional stakeholders' ... the World Bank, the IMF and the WTO."

The Secretary-General's report made 87 recommendations, some conceptual, some concrete, and some simply for further discussion. They include issues such as: the timing and extent of capital account liberalisation; co-operation amongst national competition authorities; financial crime; public policies on FDI; market access for developing countries to developed countries; a campaign for the Millennium development goals; increasing ODA; new and innovative sources of finance; debt relief and even debt cancellation; pursuit of more participatory, accountable and open processes by international bodies; international tax co‑operation; and the possibility of "periodic round‑table meetings at the highest level to address broad, cross‑cutting questions in relation to global economic growth, stability, equity and integration".

While this preparatory process was underway, preparations were also being made for the Special Session of the General Assembly on social development and, later, for the Millennium Assembly. The twenty‑fourth Special Session of the General Assembly held in Geneva in June 2000 agreed, after prolonged discussion but without dissent, to about 40 initiatives. Amongst those of relevance to the Conference on Finance for Development (FfD) was mandating the conduct of "a rigorous analysis of advantages, disadvantages and other implications of proposals for developing new and innovative sources of funding, both public and private, for dedication to social development and poverty eradication programmes." There was agreement, for the first time, on a global target for poverty reduction of halving the proportion of people living in extreme poverty by 2015. The ILO was requested to prepare an international employment strategy, beginning by holding a global employment forum ‑ which it did in November. Other agreements included: recognition that achievement of the agreed target of access to basic education for all by 2015 will cost around $8 billion a year; a call for all UN agencies to take action through trade agreements and increased incentives for research to improve the access of developing countries to affordable and effective pharmaceuticals; and a strengthened commitment to basic workers rights and social protection for the vulnerable. There were concrete announcements as well. Ireland, for example, announced plans to reach the aid target of 0.7 per cent of GNP. Japan announced cancellation of debt for low‑income countries. Italy announced an aid initiative of over A$100 million.

The Millennium Assembly, attended by 147 heads of state and government, including the Australian Prime Minister, adopted a Declaration that begins by recognizing

that, in addition to our separate responsibilities to our inidividual societies, we have a collective responsibility to uphold the principles of human dignity, equality and equity at the global level. ... [And in Para 5.] We believe that the central challenge we face today is to ensure that globalization becomes a positive force for all the world's people. For while globalization offers great opportunities, at present its benefits are very unevenly shared, while its costs are unevenly distributed.

The Declaration goes on to express concern "about the obstacles developing countries face in mobilizing the resources needed to finance their sustained development. We will therefore make every effort to ensure the success of the High‑Level International and Intergovernmental Event on Financing for Development to be held in 2001", promised the leaders.

At the same time, plans were being made for the appointment of a High‑Level Panel on Financing for Development. The establishment of the panel was announced in December 2000 and they reported at the end of June 2000. Ernesto Zedillo, who had just been replaced as President of Mexico, agreed to be chair, and the members included Jacques Delors, President of the EU for ten years, Robert Rubin, Secretary of the US Treasury for six years, and Manmohan Singh, the former Indian Minister of Finance.

The Zedillo Panel estimates that an additional $50 billion a year is required to achieve the international development goals by 2015. This includes ensuring access to basic education and health services; achieving gender equality in primary education; programs to halve the number of people living with poverty and hunger; halting and reversing the spread of HIV/AIDS; and such goals as halving the number of people without access to safe drinking water. More finance is still needed for secondary and higher education, communications and service infrastructure. Sources suggested by the Panel for these funds include ODA, improving developing country access to the markets of developed countries, debt reduction, improved tax co-operation, and consideration of a carbon tax.

The second session of the Preparatory Conference decided to appoint a facilitator to draft a discussion paper. After that was discussed at the third session, the facilitator was invited to prepare a draft outcome document. This he did, through a process of widespread informal consultation. He was expected to reflect the discussion and inputs at earlier sessions, including the Secretary‑General's report, the Zedillo Report and the ten technical notes on various subjects commissioned by the Preparatory Committee. The facilitator's draft outcome was discussed at the resumed third session in mid-October 2001.

The speeches of the EU and the JUSCANZ countries suggested that they co-ordinated their initial responses, but there were very significant differences between them. They all made an ambit claim, but with quite different emphases. For whereas the EU reaction included describing the facilitator's draft as "unbalanced and incomplete", Belgium on behalf of the EU also said that "the facilitator's draft can serve as a starting point for our discussions this week ...[although] some changes of emphasis, additions and amendments will be required."

In contrast, the US, Japan and Australia took strikingly different stances, completely condemning the facilitator's draft. The US delegate said that the conference should produce a "one page political declaration." He repudiated not only the facilitator's draft outcome, but also the negotiation process. "We are not going to negotiate changes in the [international system]", he said. "It serves too many countries too well." He also argued that the fundamental requirements for development are simply peace, the rule of law and capitalism. This approach was particularly surprising in the context of the priority being given by the US Administration to strengthening of the global alliance against terrorism. The Australian diplomat said that the facilitator's draft:

exhibits neither balanced recognition of the respective roles played by developing and developed countries nor a practical awareness of what is achievable ... it has compiled a list of wide ranging initiatives which, in our view, are inappropriate, impractical and ineffective. ... We don't regard it as a constructive basis for further discussions.

Many delegates expressed surprise and disappointment to me about this. The NGO report card on the day gave Australia a "D" with the comment: "always echoes his big brother!"

On behalf of the G77, Iran noted that the preparatory process for FfD "has been truly unique in many respects ‑ not only as concerns its duration but also due to its inclusive approach to collaboration with the widest possible range of stakeholders. The very long, and even tortuous, preparatory process ... has generated ... very high expectations for its success and final outcome." He said that the developing countries had carefully considered the text "and believe that it is a good basis for the beginning of our deliberations and negotiations", though some new concepts and themes must be added and some deleted.

Perhaps significantly, by the end of the session the US delegate was simply saying that he agreed with the EU. The session proceeded to discuss each of the six themes and, at the end, agreed to the preparation of another draft by the facilitator. Since the session, there has been significant political progress, which we will note in relation to several of the themes.

I have told the story of the preparations to demonstrate that the facilitator's draft had a clear provenance. Every idea had been proposed and supported by delegates, the Secretary‑General, the other international economic and financial institutions and/or the Zedillo Panel. Each of them had been carefully considered and supported with professional comment. To imply that the proposals in the paper were a wish list, as did the Australian representative, was simply ill informed. It is likely that Australia's comments were simply rationalisations for doing little or nothing, or for protecting turf. Yet for those concerned about issues like development, justice and poverty eradication, they were a disappointing repudiation of Australian multilateral engagement in an especially vivid way. Let us hope that Australia's response was an opening negotiating gambit rather than a final position, and that our government will now participate more effective in the detailed negotiations.

All six of the themes for FfD are crucially important, but I will briefly discuss only some issues relating to domestic financial resources, ODA and global economic governance.

Domestic financial resources

Development principally depends on what countries do to help themselves. As the facilitator wrote in the draft outcome: "Our point of departure is the recognition that each country has primary responsibility for its own economic and social development." And in the the next paragraph: "a critical challenge is to ensure the necessary internal conditions for mobilizing enough domestic savings to sustain adequate levels of productive and human development investments." The draft goes on to discuss a series of policies to this end, including consolidation of good governance and the rule of law, pursuing sound macroeconomic policies, promoting fiscal discipline and ensuring sustainable investments in education, health, nutrition, and social security programs. It is difficult to see what the US and Australia were objecting to in this. The orientation seems fine. Perhaps they wanted more detail?

Both private and public domestic financial resources are required. Crucial to the mobilisation of increasing saving for investment is the growth of a widely accessible retail banking system. Micro-finance schemes and post office saving schemes are other ways of mobilising savings for on‑lending that are proving successful in various countries. Subsidies for such small credit schemes are a cost‑effective way of ensuring the availability of capital for small entrepreneurs with initiative. The Foundation for Development Co-operation has undertaken valuable research and produced valuable publications on this subject, so I will not elaborate further.

The total amount of revenue available to pay for public goods is a political choice. There has been a widespread tendency recently to believe that revenue must be cut, under pressure of immutable global forces. In fact, this is a misleading oversimplification. In advanced economies, for example, revenue collections have not fallen at all to date. The average revenue collected as a proportion of GDP in the OECD countries continued to edge up through the 1990s. It has now plateaued, with the falls in some countries having been offset by rises in others. So, while there certainly is tax competition between countries in certain areas - notably corporation tax and perhaps top marginal personal income tax rates - this has been offset by increased collections from other sources, despite the alarmism. Much of the exaggeration was the result of advocacy by ideological or interest groups using what they claimed to be the imperative of globalisation as a rationale for tax reductions.

Total revenue collections in many developing countries have been reduced as a result of structural adjustment programmes. Reduction in import and export duties, which have been major sources of revenue in many developing countries, have reduced revenue in some countries by as much as 1 or 2 per cent of GDP.

Moreover, increases in revenue collections are quite feasible for most countries. Increased collections could commonly be achieved simply by improving the efficiency, comprehensiveness and honesty of tax‑administrations. Technical assistance to improve tax administration is a particularly cost-effective form of development co-operation. Other possibilities with minimum political cost include: reducing tax expenditures; increasing the progressiveness of tax systems and introducing or increasing taxes on activities widely recognised as being damaging, such as pollution. As well, many reforms are possible that would expand the national tax bases of most countries. Examples include extending income tax systems, introducing domestic financial transaction taxes, resource rent taxes and property taxes, all of which are progressive and contribute to reducing inequities. Taxes and charges are more politically acceptable when linked with the improvements in services they are used to pay for. Furthermore, within many national budgets there may well be scope for reconsidering the allocation of resources, for example by reducing military outlays and corporate subsidies in order to release funds for higher priority human services. Such reallocation has the twin benefits of improving services and of increasing labour‑intensive employment.

International co-operation on tax matters

There is a growing imperative to improve arrangements for co-operation between national tax authorities. Increasing international economic and financial interdependence is constraining national taxable capacity in relation to some traditional revenue instruments. Governments are limited by international competition in both the forms of tax and the tax rates they can apply. There is also a growing need to improve international co-operation between taxing authorities so as to: to reduce opportunities for evasion and avoidance; to mitigate international instability; and to avoid the danger of countries striving to increase their revenue in ways that deplete the global commons. These goals require major improvements in international taxation co-operation. The existing United Nations Ad Hoc Group of Experts on Tax Treaties between Developed and Developing Countries that meets every two years is valuable, but is unable to address the full range of important inter‑country tax issues. There are no other global institutions or regular meetings equipped to provide a universal forum for discussion and resolution of taxation issues.

A careful study is required of potential means of improving co-operation. This study should include consideration of the possibility of establishing an international taxation organisation. The functions of an international taxation organisation could include: provision of a forum for the discussion of tax matters, including sharing of national taxation experience; the development of definitions, standards and norms for tax policy and administration; the identification of international tax trends and problems; the gathering and publication of statistical information; the production of a periodical world tax report; and technical assistance to national tax authorities. Such an organisation would typically have a governing body representative of the members and be responsible for drawing up broad objectives and major issues of policy; a highly competent staff, hold regular meetings and issue technical publications. The FfD conference may therefore wish to recommend the commissioning of a study of means of improving cooperation between national tax authorities.

Vito Tanzi, former Director of the Fiscal Affairs Department of the IMF and currently a minister in the Italian Government, has published extensively and persuasively on the importance of filling this institutional and policy gap The OECD has published excellent studies on the subject and wants to continue to remain active. It is difficult to understand why this would be inconsistent with a global initiative. The issue is unfamiliar to many diplomats at the UN, so this is a subject on which involvement by experts from capitals would be important. The role of the UN is to identify the need for improved international co-operation on tax matters, to suggest ways of filling the gap, and to invite expert opinion on ways of addressing the need.

New & innovative sources of financing

The issue of new and innovative source of financing is within the category of domestic revenue, since only national governments have the power to tax. New sources of funding for development are vital, for there are tight constraints on what developing countries can generate themselves; ODA remains depressed; debt relief is sclerotic; further multilateral borrowing is a poisoned chalice; poorer countries continue to be unattractive to foreign investors; and short term financial flows add to the danger of volatility.

Many possibilities are available for new and innovative sources of external funding, including a carbon tax and a currency transaction tax. It is clear that carbon emissions are raising global temperatures and that this should therefore be discouraged. An international agreement to impose a tax on the consumption of fossil fuels would contribute to combating global warming. The Zedillo Panel has suggested that this could be structured in a way that could support developing countries by allowing them to recycle receipts into their own economies while industrial countries would be required to pay a part of their receipts to international organisations responsible for financing global public goods. The negotiation of such an agreement, however, would be complex.

An equally politically difficult but technically simpler proposal is for a currency transaction tax (CTT) or Tobin tax. A rigorous analysis of the possibility of recommending introduction of a currency transaction tax was mandated by the special session of the United Nations General Assembly in Geneva, and the meeting of European finance ministers has also commissioned a study from the European Commission. Leading figures in several developing countries have also spoken in favour of such a tax including from Brazil, India and Malaysia. It is worth quickly reminding ourselves of the reasons for this interest:

1. A CTT would certainly reduce the volume of short‑term international financial flows, reducing the difficulty of monetary management.

2. It would contribute a little to preserving some measure of national monetary autonomy. This was James Tobin's principal original reason for suggesting the tax.

3. At a time when global integration is eroding some national revenue bases, especially from corporate tax, a CTT offers national governments a replacement that is easy to collect and politically acceptable. It is easy to collect because there are so few foreign exchange dealers, and as most of them are banks the incentive for them to conform and so avoid risking their licenses is very great. A CTT is politically acceptable because it taxes wealth holders and therefore is progressive. As a member of Australia's parliament, I received strong and widespread support in advocating a CTT and only one criticism - from an investment banker! A significant new source of revenue could be very attractive to governments and treasuries wanting to reduce other taxes, or to increase essential spending and that appears to be reason for the interest of the British Chancellor.

4. If introduced as the result of an international agreement, part of the agreement could be for the allocation of a portion of the funds for international purposes, such as development. A doubling of the current level of official development assistance would scarcely be enough to enable the achievement of such Millennium targets as universal access to primary education and basic health services.

Governments at settlement sites could collect a tiny levy from all foreign exchange transactions. Applying the levy at a uniform rate to wholesale trades at the point of bank settlement would make it possible to collect (without the hazard of avoidance through diversion from taxed to untaxed jurisdictions), provided only that the authorities issuing the currencies which are acting for the time being as vehicle-currencies (five or six at present) would co-operate.7 Such a tax would discourage very short‑term financial movements, while making little impact on foreign direct investment or trade. Imposing a penalty tax on dealings with tax‑free jurisdictions would minimize avoidance. The global daily currency turnover, of around $1500 billion in 1998, could well fall significantly if such a levy were introduced. A low tax rate of 0.1 per cent would generate substantial total revenue for governments, perhaps over $150 billion a year. The Zedillo Panel, while expressing scepticism of the proposal, also explicitly supported conducting a rigorous analysis of it.

Official development assistance

As well as domestic resources, an effective strategy for international development and social justice requires major additional international financial resources to fund economic and social programs, peacemaking and peacekeeping, protection of the environment and other global public goods, and to achieve a more equitable distribution of income, wealth and power. It is simply morally untenable for those who live comfortably in rich countries to neglect the impoverished half of humanity. Economic justice alone suggests that the beneficiaries of globalisation compensate the countries that receive little or no benefit. Of course, the sceptics argue that additional funds for development would be wasted, and that is a risk. But there is extensive experience now in implementing development strategies, and in allocating funds in ways that minimise these risks. To conclude, it is relevant to suggest some examples of sources of additional resources.

Despite enormous benefits, the rich countries have generally reduced compensating flows of aid during the 1990s and debt reduction has been very limited. The unweighted average ratio of aid to GNP in Development Assistance Committee countries fell from 0.44 per cent in 1986‑87 to 0.39 per cent in 2000.8 The biggest beneficiary of globalisation, the US, is also the smallest donor relative to national income, contributing only 0.1 per cent of GNP in 2000.

Donor countries must redouble their effort to increase the amount of overseas development assistance and set target dates for achieving their commitment to provide 0.7 per cent of GNP for aid. This continues to be essential because it is impossible for many developing countries to attract significant private funds, and they can only escape the poverty trap with additional external funding.

recently there has been significant movement. The EU's Development Council, which includes the development ministers of all the member countries, supports the call by the World Bank for a doubling of aid, and envisages asking each member government to establish a timetable for meeting the aid target. Poul Nielsen, the EU Commissioner for Development and Humanitarian Aid, recently said that, "In view of how the world looks after 11th of September, ... there is a new understanding of interdependency."

Gordon Brown, the British Chancellor, made a major and important speech to the Federal Reserve in New York in which he endorsed the Zedillo Panel's recommendation to double ODA, saying that, "If we are to move with the urgency that the scale of today's suffering demands, we must each, as national governments, be bold and acknowledge the duties of the richest parts of the developed world to the poorest and least developed parts of the same world."

Global public goods

An intellectually powerful paradigm through which to evaluate and consider the reform of the international system is that of global public goods. Though the term may sound unfamiliar, global public goods are not at all strange in practice. The importance of the framework for international infrastructure, such as the International Air Transport Association, the International Telecommunications Union, the World Meteorological Organisation and the International Monetary Fund is clear. The most recently negotiated global public good was the International Criminal Court.

Public goods are freely available to all ‑ roads, basic health services, and public open space ‑ generally without competition or exclusion.9 Inge Kaul proposes expressing the concept positively by defining public goods as inclusive (public in consumption), participatory in decision‑making (public in provision) and offering a fair deal for all (public in benefits).10

One advantage of considering global public goods rather than the far broader issue of global governance as a whole is that the debate is immediately concrete and specific. Gaps and weaknesses can be identified and means of filling or strengthening them discussed. An extension of the range of global public goods is essential in many areas such as the control of diseases like malaria and AIDS, protecting the environment, reducing international crime, reducing financial volatility, extending distance learning, and to resolve or at least manage international conflicts more effectively. An example of a gap in the framework of global public goods is the inadequacy of co-operation about tax issues between countries.

Global economic & social governance

The functioning of the institutions of international political economy needs urgent reform. The evolution of international political and economic institutions lags well behind the deepening of global interdependence. This holds true in particular for the institutions needed to make globalisation work for all. Interest in reducing the global democratic deficit and improving the political effectiveness of international institutions in achieving goals such as those articulated by the Millennium Summit is growing.

During the first half of the 1990s the Human Development Report and the Report on Global Governance suggested the establishment of an Economic and Social Security Council, and this proposal is receiving increasing attention. A major gap exists in the structure of international economic and institutions through the absence of an open, representative, accountable forum with political legitimacy for discussing the central issues of global political economy. This is a dangerous situation, for economic issues have become pre­-eminent in international relations. The existing institutions are either exclusive ‑ such as the G8 and the OECD ‑ or insufficiently effective, such as the Economic and Social Council of the UN.

The Zedillo Panel has argued that "Despite recent worthy efforts, the world has no fully satisfactory mechanism to anticipate and counter global economic shocks." Further: "... global economic decision‑making has become increasingly concentrated in a few countries. Tensions have worsened as a result. For a range of common problems, the world has no formal institutional mechanism to ensure that voices representing all relevant parts are heard in the discussion."11 The Panel describes several vacuums in global governance, such as the lack of any agency to provide some global public goods and the struggle of some existing agencies "to respond to problems for which they are ill‑equipped or lack a precise mandate."

The Zedillo Panel endorses the recommendation of the Commission on Global Governance to "create a global council at the highest political level to provide leadership on issues of global governance. ... through its political leadership it would provide a long‑term strategic policy framework to promote development, secure consistency in the policy goals of the major international organizations and promote consensus building among governments on possible solutions for issues of global economic and social governance." Recognizing the political difficulty of launching such a council, the Panel has suggested as a first step convening a Globalisation Summit "large enough to be representative and small enough to be efficient."

The establishment of a permanent global council within the structure of the UN would involve changing the Charter, an especially complex political task. An alternative, which is immediately possible, is to upgrade the existing Economic and Social Council (ECOSOC). A simple means of increasing ECOSOC's effectiveness would be for it to meet more regularly, for a day or two, whenever economic or social circumstances suggested that would be useful. If there is a financial crisis or a natural disaster, ECOSOC should meet immediately to discuss responses. There could well be a debate now on action to offset the global economic slowdown. A consequence of this approach would be that national representation to the UN in New York would have to become more economically and socially literate, perhaps by extending the range of departments from which Mission staff are appointed. One benefit of strengthening ECOSOC is that it would then be a more effective forum for discussing the strategic framework of the international financial institutions.

This proposal may well be the one to which the US and Australia were most opposed. The proposal is relatively new to the official international agenda and initial reaction to the unfamiliar is often opposition. All that the facilitator's draft proposes is the launching of consultations in the General Assembly and requesting the Secretary-General to establish a group of eminent persons with the mandate to propose options and recommendations. This is a politically complex proposal, but the rationale for such a study is watertight. There will certainly be increasing discussion. The German Development Minister said at a meeting in Berlin at the beginning of the month that she was staunchly in favour of creating an economic council as recommended in the Zedillo Report.

Conclusion

To summarise, improvement of global governance is essential. New policies and institutions are required. The economic and social forums of the UN must be strengthened, and the international economic and financial institutions reformed. The extension of the range and depth of global public goods is necessary, as are rapid increases in finance for development. An additional $50 billion a year is required to achieve the goals for the provision of basic education and health services, and the other global goals, by 2015. This could be achieved through such measures as improved national tax administration, aid at the target level and the introduction of currency transaction or carbon taxes.

In a generation, we can expect that many of these proposed reforms will have been implemented and the debates about them will seem anachronistic. To paraphrase Hugh Stretton, the task for those concerned about equitable global development is to articulate simple visions, design the complex policies necessary to implement them and to ensure competent implementation. Advocates, networks and parties that do that will be basing their work on fundamental moral and political values, and responding to the felt needs of the majority of the people.


John Langmore is the Director of the ILO Liason Office to the United Nations, a former member of the House of Representatives in the Parliament of Australia, and a former member of the Evatt Foundation's Executive Committee. See also John Langmore's report on the outcome of the conference: Modestly hopeful Monterrey.


Notes

1. UNGA, A/RES/52/179, 18 December 1997.

2. Ibid

3. Secretary‑General's Millennium Report. For much more information, see the chapter on equity in the United Nations Report on the World Social Situation, available on the web page for the Division for Social Policy and Development.

4. IMF Survey, July 30, 2001, p. 252.

5. Quoted by Gerald Karl Helleiner, "Can the Global Economy be Civilized?", Tenth Raul Prebisch Lecture, UNCTAD, 11 December 2000, from Ngaire Woods, "Governance in International Organisations", International MongLtM and Financial Issues for the 1990s, Vol. IX (United Nations).

6. UNGA A/RES/54/196, 22 December 1999.

7. R. Schmidt, 2001, "Efficient capital controls", Journal of Economic Studies, 28, 3, pp.199-212.

8. DAC, Development Co-operation, 1999 and 2001 editions.

9. More technically, they are defined through non-rivalry in consumption, or indivisibility of their benefits, and non-excludability. Non-rivalry in consumption means that the consumption of a public good by one person does not detract anything from its consumption by other, additional persons. And non-excludability refers to the fact that it is impossible, or at least extremely difficult, to exclude people from the good's consumption. Inge Kaul et al (eds) Global Public Goods, OUP, 2000.

10. Due to their publicness in consumption, public goods are subject to under‑provision. People will have an incentive to attempt free-riding: waiting for others to step forward to provide the good and then enjoying it for nothing. Another frequently mentioned reason for under‑provision has become known as the prisoner's dilemma. It characterises a situation in which the independent pursuit of self‑interest by two people makes both worse off than they would be if they had co‑operated. Thus, "under provision" has, in the minds of many, become another, second, defining characteristic of public goods, leading to a third one, viz. the equation of public goods with state‑provision. Since public goods can involve market failure and also to co-operation failures, the state is commonly called in to provide them.

11. United Nations General Assembly, Report of the High-Level Panel on Financing for Development, (the Zedillo Report), A/55/1000, 26 June 2001, p. 23.

Suggested citation
Langmore, John, 'Financing international development', Evatt Journal, Vol. 2, No. 2, March 2002.<http://evatt.org.au/papers/financing-international-development.html>