More ideas on world public finances, development and global public goods

In a previous contribution  I made a proposal to link the debate on world public finances to development and global public goods. Today, similar ideas are also promoted by organisations like UNCTAD and the World Development Movement. Based on the failures of aid policies of the past decades, both propose a more direct, multilateral financing of development and refer to the possibility of raising global taxes.

The recent Trade and Development Report 2006 of UNCTAD is very interesting. As usual, the authors are rather critical for the Washington Consensus policies that the World Bank and the IMF have been imposing on poor countries for more than two decades. This year, they make a proposal for a fundamental policy re-orientation, favouring policy autonomy for developing countries.

In fact, their proposals are based on the ideas that were put forward in the 50s. Poor countries need economic growth, not as an aim in itself, but in order to have capital accumulation that will allow investments in productive capacities with domestic resources. Development aid was ‘invented’ in order to bridge the capital gap between the investment needs and the domestic resources. UNCTAD states that the Washington Consensus has done away with most development ideas that were favoured in the 60s and 70s, but that they failed to produce growth. Once again, empirical data are given to show that economic growth was faster in the 60s and 70s than it was in the 80s and 90s.

In the 90s, the World Bank introduced poverty reduction strategies, aimed at redirecting public expenditure and making neoliberal reforms socially acceptable. But, according to UNCTAD, these policies cannot have any lasting impact as long as structural change remains slow and capital accumulation is insufficient to boost growth, increase productive capacities and create employment for the poor. In other words: poverty cannot be reduced without development.

Consequently, countries need possibilities in order to promote proactive trade and industrial policies; they need intermediate solutions for the stability of their financial markets and UNCTAD even considers selective capital controls.

In a recent study on Africa (Doubling Aid: Making the ‘Big Push’ Work), UNCTAD even looks back at the Marshall Plan for Europe after the second World War. And it also notes that countries with successful development policies, like South Korea and Taiwan, Botswana and Mauritius, received enormous amounts of aid. In other words: development needs an important capital input.

UNCTAD therefore proposes a fundamental change in the aid architecture with more and more multilateral aid, preferably through a UN agency. Here, the idea of global taxes has to be mentioned.

The thinking of the World Development Movement goes in the same direction (Out of Time – The Case for replacing World Bank and IMF). Do the WB and the IMF fail to look at real world evidence or do they refuse development for poor countries, asks WDM. Just like UNCTAD, it states that the poverty reduction strategies only implied a name change, but that Washington Consensus policies with their conditionalities on privatization and liberalisation continue to exist.

It proposes to scrap the IMF and to replace it with an International Clearance Union as proposed by Keynes after the second World War. As for the World Bank, it could be replaced with a new ‘Development Fund’, based on international taxes and aimed at grant giving. It looks at aid as a global social security.

The Global Justice and Solidarity Movement does not have to agree with the development proposals of UNCTAD and WDM. But it is very important to carefully analyse their main message. What both proposals have in common is a rejection of the WB/IMF policies. Slowly, a global consensus is emerging around this very important statement that has been repeated by several NGOs and social movements for years. The second element is that both institutions think that aid continues to be very important in order to promote growth in poor countries. For UNCTAD, development policies are the basis for poverty reduction, for WDM aid is a kind of social security in itself. And both institutions think of a new global fund and mention global taxes.

Time seems to have come to further develop these interesting ideas. With the concept of world public finances, the idea of global taxes can be embedded in a broader perspective of financing development and a global social security as global public goods. If aid is multilateralized, it can also be depoliticized and serve as a basic element of global redistribution of incomes. Conditionalities will not totally disappear but they can shift to development policies, productive capacities, research, redistributive policies, and so on. Because development necessarily will have to be endogenous, it will have to be promoted by governments and peoples themselves. They are the only ones who know what they need and want. Policy autonomy is indeed a necessary condition for ‘ownership’.

It is extremely interesting to see that after twenty-five years of failing ‘Washington Consensus’ policies, the development thinking of the 60s and 70s is re-emerging. There surely is still a long way to go, since the World Bank and IMF will not disappear spontaneously, and since the United Sates might have an all together different agenda. Still, for development NGOs and social movements, there is some more hope and new ideas to work on. Poverty reduction and MDGs cannot be met without economic and social development policies. The fans of the Make Poverty History Campaign and GCAP (Global Call for Action against Poverty) should have no problems to incorporate this new thinking into their programmes. Fighting inequality is not less important than fighting poverty.

World Public finances has also a great potential for bringing together movements that work for global taxes, development organisations and poverty reduction activists.

The World Social Forum in Nairobi is a good opportunity to start re-thinking development, since the old ideas of the 60s and 70s will not be enough. First, we now better see the need for an ecologically sustainable development. Secondly, economic development will have to be integrated in a concept of social development, two mutually reinforcing concepts on which the United Nations already worked a lot.