Finance for development: is 1 the magic number?

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.