Finance for development: is 1 the magic number? Alex Evans
May 17, 2010 | More on Climate and resource scarcity, Economics and development | 7 comments
Over at Philanthocapitalism, Mike Green and Matthew Bishop are arguing that
The current 0.7% target [for aid spending] was the product of a different age when the fight against poverty was a matter almost exclusively for governments. With the rise of philanthrocapitalism, this is no longer the case. Out statistics should catch up and recognise that 1%, not 0.7%, is the magic number.
They’ve got some natty stats to back up their case, citing, for example, new Hudson Institute data that shows that
…far from being one of the stingiest countries, the United States is actually one of the most generous … in 2008 the US government gave 0.19% of national income in aid (which is very low) whereas private philanthropy to developing countries added another 0.26%.
At 0.45% in total, this still puts the US less than half way towards the goal of 1% but it is a big improvement to America’s position in the generosity standings, overtaking countries which rely largely on taxes to help the poor of the developing world, including France (0.42%) and Germany (0.41%), and towering over Japan, which is equally miserly with government monies and does little private giving, at 0.2%
I think they’re right that we need to be revisiting 0.7 (as I argued back in March last year). But I think that Mike and Matthew also overlook what to me is the most compelling reason for raising our estimate of finance for development needs: what climate change and resource scarcity mean for poor countries.
Today, most NGOs argue that climate finance to developing countries – for both mitigation and adaptation – should be additional to development assistance. This makes no sense to me. The investment needs arising from scarcity are certainly real, but what they’re not is neatly separable from existing development strategies.
On the contrary, they’re about achieving current development objectives differently, taking account of the increasing importance of scarcity on the way. This is perhaps clearest in the case of climate adaptation – where there’s a clear tension between calls for adaptation to be “mainstreamed” through all other areas of development activity on one hand, and the prospect of adaptation finance being dealt with separately from aid flows on the other.
Instead, we should be asking how much is needed overall for finance for development. One attempt to do this is the one set out by Jeff Sachs in his book Common Wealth. His assessment of the total financing needs arising from scarcity and related issues in developing countries goes like this:
| Global Goal | Financing Need | Illustrative Annual Outlays for Global Cooperation |
| Climate change mitigation | Adoption of sustainable energy systems, with support for the poorest countries | 1.0 % of GNP (donor countries)
0.5 % of GNP (low-income countries) |
| Climate change adaptation | Assistance to support the poorest countries with adaptation | 0.2 % of GNP (donor countries) |
| Biodiversity conservation | Financing of protected areas | 0.1 % of GNP (donor countries) |
| Combating desertification | Financial assistance for water management in low-income dry lands | 0.1 % of GNP (donor countries) |
| Stabilizing global population | Assistance for universal access to reproductive health services | 0.1 % of GNP (donor countries) |
| Science for sustainable development | Global public financing of research and development of new technologies for sustainable development | 0.2 % of GNP (donor countries) |
| Millennium Development Goals | Assistance to help the poorest countries to escape from the poverty trap | 0.7 % of GNP (donor countries) |
| Total | Budgetary outlays for global sustainable development | 2.4 % of GNP (donor countries) |
Admittedly, the figures set out in this table are rough estimates, as Sachs himself underlines, and the table is also missing agricultural investment needs. Even so, it’s a useful indicator of the kind of assessment that’s needed.
A process geared towards producing a more accurate determination of the financing needs associated with different scarcity issues – and the overlaps between them – should be an big priority for policymakers. And a natural hook for it would be the forthcoming UN Summit on the Millennium Development Goals, due to be held in New York in September.
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Alex
Just to explain the rationale for arguing that climate finance should be additional to aid commitments – it’s certainly not an argument that adaptation and mitigation strategies should somehow be separate to ‘normal’ development strategies. The first is development in a hostile climate, the second development in a carbon constrained world – therefore both should be fully integrated in development planning at the national level. But as you know, adaptation and mitigation represent new and additional costs, so whilst at the level of national planning and delivery it makes sense to integrate, at the level of donor accountability and target setting, it is important to keep preserve the principle of additionality.
Now, you could operationalise this donor-level additionality simply by raising the target, I completely agree. However, the current climate of swinging budget cuts and public antipathy towards aid makes this a long shot. I don’t think many donors are up for raising their commitments. Most of the ones I can think of are looking for new things they can count towards the 0.7% (climate finance, security spending etc.) or just de facto giving up on it. So in reality the NGO (and, note, developing country) argument that climate finance should be additional to the 0.7% target is a rearguard action to prevent donor countries counting their climate finance commitments towards this target, which will inevitably result in less money being spent on health, education etc. As far as I can tell, this is pretty much what every donor country intends to do with its Fast Start Financing commitments from Copenhagen. You might respond that the best form of defence is attack therefore, and that NGOs should be calling for higher ODA targets – maybe, but I remain to be convinced.
Another reason for wishing to separate climate finance and regular ODA in the minds of donors is the opportunity to move beyond the aid paradigm. The climate negotiations provide an opportunity to agree innovative mechanisms (such as and ETS for international aviation and shipping, auctioning of international emissions permits, etc.) that could raise significant sums of climate finance predictably, sustainably and off the balance sheets of donor countries. Moreover, they could also agree a new governance architecture which puts developing and developed countries on an equal footing in deciding where and how the money is spent. Such developments would help move us away from the conditionalities, broken promises and geopolitical expediencies that have plagued aid over the years. Worth a punt?
As Rob says, you oversimplified the NGO additionality argument.
The NGOs are calling for it to be additional to existing aid budgets (and commitments). But not for a further explosion of funding channels, projects, etc.
No harm in underlining that point, though. Nor in exposing the double counting and relabelling that is currently happenning so governments can claim multiple results with the same money. Luckily the NGOs and the bloggers are both there to expose that.
I don't fundamentally disagree with either of you – but I think similar observations lead us to slightly different conclusions.
Here's where I think we agree:
1) overall FFD requirements are likely to be substantially higher than 0.7, because climate and scarcity lay additional marginal costs on top
2) it's hard to see donors getting their aid levels even to 0.7 in the existing financial climate, never mind higher than that
But for me, the next logical step is that rather than playing a frantic rearguard action on trying to defend 0.7 – which, let's admit, we all accept to be a more or less unwinnable fight right now – we should get on the front foot and
a) calculate overall finance for development needs – NOT the same as aid needs – as Jeff Sachs tries to do in the table above, ideally through some process with high legitimacy and visibility (this is where I think the MDG summit comes in)
b) then have a serious discussion about where the money will come from – but again, NOT start from the assumption that we're just sharing out OECD aid commitments (which, again, we all know aren't worth the paper they're printed on), and instead take a much broader perspective – as for instance Mike Green and Matthew Bishop do in the post I link to above.
(This, by the way, is where I'd like to see a really serious conversation about emissions trading as a potential source of FFD, to return to an old hobby horse from which I've bored you both before! But truly, I do think the real gorilla in the room is arguing for LICs to get fair shares under global cap and trade – as I've argued before (e.g. herehttp://is.gd/celBR), as have others like Paul Collier, Tony Venables and Gordon Conway (seehttp://is.gd/cep2d) and Owen Barder. The NGOs have been rubbish on this for years – though some recent signs of light: e.g.http://is.gd/cepam.)
To leap to the defence of NGOs again, I'm not sure they've been as rubbish on global cap and trade as you suggest. Christian Aid in particular has been promoting GDRs for years. And a nef report on climate financing (link below) funded by WWF, Oxfam, ActionAid, Tearfund, CAFOD, FoE, Christian Aid etc. from last year is quite clear about the merits of such a framework.
However, this report also acknowledges the political difficulties in agreeing such a framework – and trust me, they are immense. I have lobbied policymakers in rich and poor countries alike on global cap and trade, and have never received a favourable response. Maybe that's an indication of my lobbying abilities – but rich countries don't like it for obvious reasons, and poor ones don't like it because they don't trust rich countries not to put the screws on them once a global cap is agreed. I have seen senior G77 negotiators erupt at even the mention of global emissions budgets.
Sorry – here's the link:
http://www.oxfam.org.uk/resources/policy/climate_…
Maybe the failure of Copenhagen will help create the conditions under which rich and poor countries can have a sensible conversation about fair shares within a global emissions budget?
It's a privilege to read your blog. Humbly suggest that UK growing more of its own stuff and hitting the market with it may sharpen every person's minds. Doing this in a sustainable way might illustrate to the our worldwide chums the need of adopting such methods, as a good first step! Otherwise, as Rob possibly hints at, unfortunately the UK risks appearing like the same old humiliating coloniser it was, only dressed in a different shade of green (to the vulnerable, poorer countries, that is).
i'm in favour of reducing emissions and therefore, not against your global network emissions trading 'hobby horse' proposals. But listening to Rob and Alex above, they may need to be introduced as a concept internationally, more incrementally. Otherwise, there may be paralysis of dialogue.
The typical 'NGO view' on additional climate finance seems to misunderstand how public finances work. There is no chance that any 'innovative sources' of finance – whether that be ETS auctions or a tax on banks – could be counted as 'outside of the budget'. National statistics agencies would be failing in their duties to parliaments if they allowed that.
But even if the public spending watchdogs were asleep at the wheel (!) on this, such approaches do not generate 'additional' resources for donor governments in any meaningful sense. What matters for fiscal management is the 'tax base' (i.e. the range of taxable activities in a country). Measures that simply raise the percentage of the tax base that is actually taxed (without expanding that base) are not helpful from an affordability perspective. If such approaches were easy (e.g. taxing banks or corporate energy spending as per NGO ideas) they would already have been done to prevent the deficits.