The world needs more global public transfers
Poverty, conflict, refugees, disease and environmental threats, economic fragility, climate change. The world faces significant challenges and we lack the ability to address them properly. To help us do so, UN member States will hopefully agree on an ambitious set of Sustainable Development Goals in September in New York.
To succeed, the world needs more global public transfers or – to use the standard expression – development aid. Therefore, it is of concern that countries do not live up to their commitments. It is of concern that more decision-makers in rich countries still talk about development aid as if it were something of the past. As if it were old-fashioned. As if it were no longer needed because private flows are increasing. This is wrong. There is a significant need for more global public transfers for four different reasons.
First, we need to recognise the limits of private resource flows to meet all developmental needs. There are basic requirements - for instance in health, education, sanitation – in poor countries that cannot and will not be covered by commercial private funding. Governments lack the ability to finance the basic need for hospitals, schools or food. The private sector can play a role in the actual delivery of these basic services, but international support is required to overcome financing constraints and this support needs to be concentrated on the poorest countries.
Second, private financing will always be insufficient to provide the necessary amounts of public global goods. Fighting climate change, preserving air quality, avoiding the spread of diseases, promoting bio-diversity or combating conflict benefits everybody, not only those countries where the money is spent. Here a stronger involvement of the public sector is essential.
Third, public and private financing are complementary. Public investment in transport, energy, education and other basic infrastructures open new possibilities for the private sector activity to create jobs and drive growth. The rule of law and a well-functioning administrative system support both private sector development and the efficiency of public spending but they also need financing. In addition, public funds are needed in new and innovative “blending” or “leveraging” financial models where the public flows help to bring down the risk and identify projects that can attract private funds. The mobilisation of additional private funds requires additional public resources.
And fourth, an increasingly integrated but still deeply unequal global economy requires a system of international public transfers to bridge development gaps and redistribute gains. All developed countries and regions, including the EU and the US, have internal distribution mechanisms to even out inequalities between states, regions or communities. Such a mechanism is also, and increasingly, needed in the world. And a more balanced world is not just a more equitable world; it is also better equipped to deal with shocks and provide a sustainable foundation for our common prosperity.
Morally, we cannot be indifferent to the suffering of the poorest. Economically, we should not either, because we are living in an increasingly interconnected world, where shocks and turbulences are transmitted across borders. Shared prosperity is the foundation of a more peaceful and resilient world. This must be the key message from the third International Conference on Financing for Development in Addis Ababa next week.
The world needs more global public transfers.
If you wonder why the animal accompanying my blog is a cow, it is because cows are fascinating animals; the cows of our host country, Switzerland, are famous for their quality; and because I am still a farmer, and miss the cows I had in Denmark. Now I got one back.