“Be Outraged!” Some big names in development take on the Austerians

This week Oxfam supported the publication of ‘Be Outraged’, an angry and eloquent broadside from some big names in the development scene, including Richard Jolly, Carlos Fortin, Giovanni Andrea Cornia, Diane Elson, Ruth Pearson, Frances Stewart and Stephany Griffith Jones. Many of them led the fightback in the late 1980s against the excesses of the Washington Consensus, working out of UNICEF and producing the hugely influential critique, Adjustment with a Human Face. A generation later, they’re back, vaguely reminiscent of a more gender-balanced version of the Magnificent Seven – battle-weary gunslingers returning for one last shoot-out (over to you, photoshoppers – Richard Jolly as Yul Brynner has to be worth a go).

The targets of their wrath are the TINA Austerians – ‘there is no alternative to austerity’. They critique each aspect of the austerity agenda, then contrast it with inspirational examples of more constructive approaches. Here are some highlights:

“Pushed to extremes, austerity is bad economics, bad arithmetic, and ignores the lessons of history. We, an international group of economists and social scientists, are outraged at the narrow range of austerity policies which are bringing so many people around the world to their knees, especially in Europe. Austerity and cutbacks are reducing growth and worsening poverty. In our professional opinions, there are alternatives – for Britain, Europe and all countries that currently imagine that government cutbacks are the only way out of debt.

Unemployment: A waste for economies and a tragedy for people. Stimulus can increase employment and economic growth. The first phase of stimulus in 2009 and recovery did have positive effects, which should not be ignored. But the stimulus was not maintained – the first failure. It was not backed up with measures to overhaul bank regulation and control – a second failure. And only limited actions were taken to tackle the dangerous trends of financial globalisation, growing inequality and ‘precarisation’ in the labour market – a third failure. The fact that women and care were hardly considered, if at all, constituted a fourth failure.

Examples for Inspiration: In response to the 1997-2000 East Asian crisis, countries such as Korea, Indonesia, Thailand and China vowed “never again!” They strengthened regional institutions and built up reserves. Their response to the current crisis has been to maintain growth and invest heavily in education and in programs for unemployed youth, in contrast to Europe which is often cutting back on opportunities for youth.

The Financial Sector must change from Bad Master to Good Servant. The sector, both national and international, has two main functions. Firstly it should serve the needs of the real economy. Secondly, it should help manage and mitigate risk. In the last two decades it has done neither. Countries need a far smaller, simpler, more transparent and accountable financial sector, focussed on lending to the real economy, not on making exorbitant profits and salaries for outrageously overpaid bankers and banksters.

Examples for Inspiration: In post-World War II USA and Europe, and many developing countries like Brazil and India today, the financial sector has been well regulated and controlled. Well-run public banks have played an important role. It is clear that finance can support and not undermine the real economy, but strong and clear regulation is required.

Extremes of Inequality can be reduced. Levels of poverty and inequality today are staggering. In 2011, salaries, benefits and bonuses of top directors in the FTSE 100 companies increased by an average of 49%, “despite minimal growth in their companies”. The richest 1% (61 million individuals) earn the same amount as the poorest 3.5 billion (56% of the world’s population).

Examples for Inspiration: In the last decade Brazil, Thailand, Malawi, Argentina, Chile, Malaysia, Venezuela and Bolivia have all reduced inequality, through:

• Fiscal policy that aims to balance the budget along with expansionary expenditure
• Minimum wage legislation
• Increasing access by all social groups to secondary and higher education
• Increased taxation and rising tax/GDP ratios, especially from oil and mineral exports
• Social protection measures involving cash transfers to poor people

The care economy and equality for women. The care economy and social infrastructure needs support and investment. Cuts usually leave women to pick up the pieces and children to bear the brunt. Women’s work and support for care can strengthen both society and the economy, if combined with more equality for women. It is counterproductive to sacrifice women’s and children’s rights and support in the name of credibility in financial markets.

Examples for Inspiration: The Nordic countries lead the world in government support for child care and pre-primary education services, including good wages for public pre-school teachers.

[And the final peroration]

Leaders of the world need to regain the vision and determination to strengthen the international system and prevent future crises. State action is also needed to help sustain more dynamic national economies and a more stable and balanced global economy, especially when backed by decisive global and regional action. The key priorities for economic recovery are support for employment, for the poorest people, and for women and children, while avoiding environmental destruction. The crisis will only become more serious as positive action is delayed.

There are alternatives

People are suffering unnecessarily

We can make a difference

Action is needed now!”

‘As serious as a heart attack’: Robin Hood Tax Global Week of Action Kicks Off

Update on substantial progress (and the risk the money raised won’t go to development and climate change) from Oxfam head of advocacy (and generally merry man) Max Lawson

This week sees a Global Week of Action for the campaign for the Robin Hood Tax (aka the Financial Transactions Tax, or FTT). The FTT rose to prominence as a result of the financial crisis, which continues to keep it in the spotlight as Greece stumbles towards the euro exit, not least because journalists are desperate for fresh ways to report a crisis that is simultaneously huge news and desperately dull. So from Cape Town to Paris, campaigners are pulling on their green tights and fat cat costumes, starting with a wedding in Berlin for Francois Hollande and Angela Merkel (right).

In policy land, a revised impact assessment of the FTT by the European Commission was obtained by the Guardian.  The new assessment shows that the EC got its numbers wrong in a previous study that was seized upon by the FTT’s opponents. Recognizing that the majority of small and medium size firms do not rely on financial markets for investment (and so their access to capital would be unaffected by an FTT) reduces the cost to growth of an FTT to a tiny 0.2% reduction on a total predicted growth of about 80% between now and 2050.  Moreover, if the revenues from an FTT (€57 billion a year according to the EC) are invested in creating jobs, then this tiny negative then becomes positive so that an FTT would actually boost growth in Europe. Got that? An FTT is pro-growth. Alas, such positive conclusions are unlikely to make it into any speeches by David Cameron or the front page of the Financial Times.

The pressure on EU leaders is extreme.  The political debate is shifting from austerity to growth, with Angela Merkel faring poorly in some major state elections, and the victory of the socialist party in France. Monsieur Hollande has highlighted the FTT as one of the three main ways to boost growth in Europe.  The FTT is going to figure highly in the EU leaders’ ‘Growth Summit’ on 22nd May. The Wall Street Journal made the link last week, saying that ‘even if they are calling for an FTT, at least the left are talking growth’. 

With millions across Europe facing unemployment and serious suffering, especially in Greece, it is great to finally hear leaders speaking out against the death spiral of austerity and recession.  It is also great that the FTT is one of the key things being cited to help with this.  The Robin Hood Tax has always been about helping the poorest in developed nations as well as helping finance the fight against climate change and poverty in developing countries.  If the proceeds of a tax on the unproductive and destabilising casino behaviour of the financial markets is used in part to create jobs and protect public services in Europe this would be a great redistribution and a great thing.

But this is also the biggest threat.  With global aid levels falling, and the Green Climate Fund sitting empty, revenues from the FTT are vital for global, as well as domestic causes. Before the election, Francois Hollande said publicly he would favour up to 30% being used in this way, but he has been ominously silent since.  Just last week in a closed door meeting with the heads of major NGOs, Chancellor Merkel reiterated her support for doing this.  But the exigencies of austerity and the European crisis make this far from certain.  Green groups in particular need to pile the pressure on France and Germany, ahead of next month’s Mexico G20 and Rio Earth Summit.  

I was in South Africa last week for meetings with civil society and government G20 negotiators.  South Africa has a strong interest in a successful Green Climate Fund. They agreed to speak to Brazil and Argentina as the three countries outside Europe that joined the FTT ‘coalition of the willing’ at the G20 in Cannes, focusing on supporting an FTT for funding development and climate change. Pressure on France and Germany from these governments will be critical.

In the US, the G8 is taking place today, and President Hollande has promised to raise the FTT in discussions with fellow G8 leaders.  The Robin Hood Tax USA campaign is also being launched, by thousands of nurses dressed as Robin Hood, marching in Chicago. Interviewed on US news recently, the head of the US National Nurses Union was asked by the presenter whether she was serious; she replied ‘we are as serious as a heart attack’.

And in place of the customary Bill Nighy video, here’s a nice infographic

‘It’s the share of the rich, stupid’: brilliant inequality stats + politics from Gabriel Palma

A while back I reposted Andy Sumner’s blog on new research on inequality from the Chilean economist Gabriel Palma (right). But I’ve now read the paper, catchily titled ‘Homogeneous middles vs. heterogeneous tails, and the end of the ‘Inverted-U’: the share of the rich is what it’s all about’ and am so blown away, that I have to come back for another go – it really is a brilliant piece of work. The Development and Change paper is gated (when is the revolution in academic journal publishing going to hit the development sector – time for DFID and the ESRC to take a lead?), but there’s a longer version on the Cambridge economics website.

Rather than just look at the single number of the Gini index to describe inequality, Palma crunches the numbers on inequality decile by decile (decile 10 is the richest 10% of a country’s population , decile 1 the poorest 10%) and what he finds is extremely important. Namely:

‘There are two opposite forces at work.  One is ‘centrifugal’, and leads to an increased diversity in the shares appropriated by the top 10 and bottom 40 per cent.  The other is ‘centripetal’, and leads to a growing uniformity in the income-share appropriated by deciles 5 to  9.  Therefore, half of the world’s population (the middle and upper-middle classes) have acquired strong ‘property rights’ over half of their respective national incomes; the other half, however, is increasingly up for grabs between the very rich and the poor. 

Globalisation is thus creating a distributional scenario in which what really matters is the income-share of the rich —  because the rest ‘follows’ (middle classes able to defend their shares, and workers with ever more  precarious jobs in ever more ‘flexible’ labour markets).  Therefore, anybody attempting to understand the within-nations disparity of inequality should always be reminded of this basic distributional fact following the example of Clinton’s campaign strategist: by sticking a note on their notice-boards saying “It’s the share of the rich, stupid”.  

In passing he also points out that there is no evidence at all for a ‘Kuznets curve’ in inequality, which argues that ‘things have to get worse before they get better’, i.e. that countries that want to develop have to accept a period of greater inequality, before they all end up like Sweden.

Looked at in terms of the Gini index, Palma finds a convergence between countries over the last 20 years, with the least unequal countries becoming more unequal (especially former communist bloc economies), while the most unequal (mainly in Latin America) have become slightly more equal (and got a lot of hype and praise for doing so).

But it’s the decile breakdown that is really interesting. The first graph (right – if it’s too small, click and keep clicking ’til it expands) shows the share of deciles 10 and 9 across 135 countries. What it shows is that the real driver of inequality variations within countries is the richest 10% (and probably only the richest fraction of them). Even the next richest 10% basically gets the same chunk of national income across all countries. Palma puts this down to ‘one of the key characteristics of neo-liberal economic reforms: its ‘winner-takes-all’ proclivity.’

But if you add up the income shares of the 50% of the population just below that rich 10% you find that in almost all countries, they receive about half the national income (see graph 2, below). As Palma puts it:

‘A schoolteacher, a junior or mid-level civil servant, a young professional (other than  economics graduates working in financial markets), a skilled worker, middle-manager or  a taxi driver who owns his or her own car, all tend to earn the same income across the  world.’ [when their incomes are 'normalised' for the differences in the income per capita, that is].

Thus he finds ‘extraordinary contrast between the distributional-heterogeneity at the top and bottom of the income distribution and the remarkable homogeneity in the middle.’

All this has some intriguing implications, not all of them terribly welcome. For example his analysis: ‘casts doubts on the role that ‘human capital’ is supposed to have on income distribution according to mainstream economics and UN reports.  According to this theory, the level of education is a crucial variable (if not the most crucial variable) in the determination of income inequality.  However….. if most of the world’s  educational diversity (both in terms of quantity and quality) is found among the  population in ‘D5–D9’ — e.g. in terms of the share of the population with secondary and  (especially) tertiary education — why does one find extraordinary similarity across  countries in the shares of national income appropriated by this educationally highly  heterogeneous group?’ Oops.

More happily, his analysis also shoots down the ‘aristocracy of labour’ explanation for the uniquely high levels of inequality in Latin America. A favourite argument of the structural adjustment brigade in the 80s and 90s, this argued that ‘excessive’ labour rights and unionisation was keeping poor people out of the skilled labour force and driving up inequality. But Palma concludes ‘what really differentiates Latin America’s inequality is located at the tails of the distribution of income — hardly where skilled workers are located.’

Then he starts to get enjoyably heated, describing the region’s oligarchies as ‘living fossils’ and arguing that

‘Perhaps those following the Washington Consensus should give their ideology a  sabbatical and go back to their drawing boards, and start thinking again about why the  capitalist élites in Latin America and South Africa are able to appropriate a share of  national income that is so much higher than anybody else’s.  In particular, so much  higher than in other middle-income countries — such as those in North Africa, the former  Soviet Union, Eastern Europe, the Caribbean, and the second-tier NICs — where often  there are more markets rigidities; where prices, institutions and social capital are less  ‘right’; where property-rights are often less well-defined and less well-enforced; where  there is often more educational segmentation; where the educational systems for the  poor are even more dismal; where there is even greater gender discrimination; even  more shortages of skilled labour; where democracy could be described as more ‘low intensity’; where there are more problems of ‘governance’; where success or failure in  business depends even more on political connections and corruption, and so on.’

Instead, he puts it all down to politics:

‘In Latin America the middle classes seek to defend their share of income with different forms of alliances with the élite (some more successfully than others).  This is different to India, for example, where the administrative classes defend their position mostly via alliances with the poor (which gives them the political power to mediate in the different conflicts between the capitalist élite and the state)’. Vintage stuff.

How can we measure Scotland’s well-being? New index from Oxfam.

Really interesting project from Katherine Trebeck and colleagues in Oxfam’s UK Poverty Programme – constructing and testing a wellbeing index for Scotland. Guardian coverage here.

Here’s how it works:

Oxfam consulted 3,000 people across Scotland (focus groups, community workshops – see pic, street stalls, an online survey, and a YouGov poll) to establish what aspects of life make a difference to them.

The consultation process produced an index based on a weighted set of elements (‘sub-domains’) that people reported as affecting the ability to live well in their communities (see table). People identified the following (in descending order of priority) as being the most important assets in their lives:

• An affordable, decent and safe home and good physical and mental health

• Living in a neighbourhood where you can enjoy going outside and having a clean and healthy environment

• Having satisfying work to do (whether paid or unpaid); having good relationships with family and friends; feeling that you and those you care about are safe; access to green and wild spaces; and community spaces and play areas.

Using official data, the Oxfam Humankind Index was then calculated for 2009-2010 and 2007-2008, with at least one surprising result: ‘Since 2007-2008, Scotland’s prosperity has increased by 1.2%.’

Eh? Things are getting better in the middle of a recession? The reason is that since people weighted issues like housing, health and safety higher than economic factors like job security and having enough money, even though the economic factors have slumped since the onset of the current economic crisis, improvements, particularly in perceptions of health and community spirit, more than made up for the deterioration. This also reinforces the discussion at the big well-being conference in South Korea a few years ago, where well-being experts said that well-being demonstrates much less volatility than some of the more conventional economic numbers.

The index also explored the differences between the average numbers and those for some of Scotland’s most deprived areas and found that

‘Deprived communities come off worse on 12 of the 15 subdomains for which differences between the two communities were able to be measured. The major disparities are in terms of whether people are able to enjoy going outside and having a clean and healthy environment; access to green spaces and play areas; and safety. These three areas account for just over 40% of the difference between deprived communities and all of Scotland. People living in deprived communities are also less likely to feel they are part of a community, and overall the majority of the deficit thus arises from differences in the quality of life in the local area.’

The project highlighted some gaps in the official data (on relationships with family and friends, job and income security and human rights and respect), that the Scottish Government could usefully fill.

The good news is that the project will improve with age, as updates of the survey start to build a picture of how Scotland’s wellbeing and the multidimensional inequality evolves over time, enabling a really interesting comparison with the traditional economic indicators.

Last word to Gerry Hassan, one of Scotland’s most influential commentators, from his piece in The Scotsman:

‘We have just been given the beginnings of a debate that could start to shape an alternative Scotland, one where we consciously imagine and create our own collective future and idea of society. Maybe, many years from now, we might remember this week more for that, than for all the hullaballoo about the Murdochs, Trump and Rangers FC.’

And a really lovely 3 minute youtube video – reminds you what it’s all about.

How poor people get through crises: some excellent ‘rapid social anthropology’ from IDS and the World Bank

On Wednesday, I spoke at the launch of a new book, Living Through Crises: How the Food, Fuel and Financial Shocks Affect the Poor, by Rasmus Heltberg, Naomi Hossain and Anna Reva. It’s a joint World Bank and IDS publication, also available for free online. I think it could prove quite influential.

The starting point for the book is that we live in a world increasingly characterized by shocks (economic, political, climatic), rather than steady incremental change, but there is a huge hole at the centre of our what this means for poverty. With a few exceptions (e.g. the early warning system on malnutrition), we have only the vaguest idea of how such shocks are affecting poor women, men and children in real time. Instead, the ‘poverty community’ relies on some decidedly blunt instruments – models (poverty rises by X million every time GDP falls by Y%) or household surveys with significant time lags. Moreover both these tools generally reveal little about the lived experience of being poor – the social exclusion, anger, shame, humiliation and fear that can lead to revolutions or despair. Yet through this fog of ignorance, policy makers and aid donors must take decisions in real time – what can be done?

Living through Crises tries to show how that gap can be filled, with 8 country case studies and a global synthesis on the impact of the multiple crises of food and fuel prices, and financial systems, that rocked numerous economies from 2008-11. The studies are both rigorous and qualitative (not an oxymoron, whatever some quants say) in what Robert Chambers in his excellent foreword terms an exercise in ‘rapid social anthropology’. The methodologies are varied, but typically involve focus group discussions, repeated over a period of months or years, in a sensitive, skilled effort to dig into the experience of poor people living at the sharp end of a global economy in turmoil.

What does this add to the traditional ways of exploring the impact of crises? Firstly, some surprises, for example that the informal sector is hit harder than the formal sector, even though a global economic slowdown hits international trade and finance first; that informal, local safety nets (religious organizations, communities, family and friends) are in general more significant sources of support than the state.

Second, this exercise in ‘deep listening’ identifies and fills some important gaps in our understanding – that indebtedness to microfinance organizations can become an acute burden in a crisis, or that intra-family violence (men on women, adults on kids) is likely to increase.
This approach identifies the importance of social capital and relationships: ‘marginalized and poor people with weak social capital experienced the most severe and irreversible hardships’. But it also points to the erosive nature of coping – for all their energy and invention in confronting shocks, poor people run down their assets as well as their stock of social capital, with knock-on consequences for their future well-being. Rapid social anthropology also identifies gender differences, for example in the impact of crises on the care economy, which are usually overlooked altogether by conventional analyses.

Food riots in Mozambique

All this echoes Oxfam’s own faster (we published two years ago) but less in-depth qualitative research on the gender and wider impacts of the crises, and there is overlap in both past work and future plans (we are just starting a 10 country follow up to the qualitative work on food prices conducted with Naomi Hossain at IDS last year).

The book launch (in a venerable committee room at the House of Commons), generated some thought provoking discussion:

Role of the State: the research finds that the state is often ‘absent’ during a crisis. Rather than turn to the authorities, poor people turn to family and friends, their religious organizations, and other community structures. So does that mean we give up on state provision of social protection, crisis response etc etc? No. But we need to think differently. For example, adopt a ‘Portfolios of the Poor’ approach of researching what community ‘social coping’ mechanisms function well and support those, as well as identifying gaps that the state needs to fill directly; or identify which aspects of state provision are effective and back those – school feeding programmes emerged as really significant.

Beyond the state: but the research does suggest looking beyond the state and seeing how to cooperate with the other institutions that matter. What about providing disaster management training to religious leaders? Putting money into community savings schemes as a way of getting cash quickly into a shock-hit village? I blogged on a discussion with Robert Chambers on this a while back, and the ideas still make sense (at least to me).

The links to structural adjustment: Those of us who worked on structural adjustment programmes in the 80s and 90s recognized a lot of similarities with the social impact of (and response to) structural adjustment programmes – e.g. Caroline Moser’s work on their erosive impact in Ecuadorian shanty towns. The other link is that SAPs in some cases increased vulnerability to shocks, for example by liberalizing financial markets, privatizing state banks and thus reducing the range of levers available to governments.

More coverage of the launch in the Guardian.

Why are rich countries trying to silence alternative economic voices at the UN?

The UN system is normally a terribly polite sort of place, but something is seriously amiss at UNCTAD. Despite its name (The UN Conference on Trade and Development), UNCTAD is a permanent body founded in 1964, which even at the height of Washington Consensus orthodoxy, provided developing countries with an invaluable source of thinking on alternative, heterodox policies on trade and finance (see my recent post on its latest hard-hitting report).

Now, it is under threat in the run-up to its big once-every-four-years conference, which kicks off in Qatar on 21st April. Developed countries stand accused of trying to narrow its mandate and effectively shut down its role as an alternative voice. On Wednesday, a phalanx of former senior staff and other big economic cheeses like Dani Rodrik went public with a press conference in Geneva and presented the following statement.

“Statement by former staff members of UNCTAD, Geneva, 11 April 2012

Silencing the message or the messenger …. or both?

Since its establishment almost 50 years ago at the instigation of developing countries UNCTAD has always been a thorn in the flesh of economic orthodoxy. Its analyses of global macro-economic issues from a development perspective have regularly provided an alternative view to that offered by the World Bank and the IMF controlled by the west.

Now efforts are afoot to silence that voice. It might be understandable if this analysis was being eliminated because it duplicated the work and views of other international organizations, but the opposite is the case – a few countries want to suppress any dissent with the prevailing orthodoxy.

No multilateral institution is perfect, but UNCTAD’s track-record of analysis and warnings on global trends and problems certainly stands up to those of other organisations. As otherwise unfavourable commentators have occasionally admitted, UNCTAD was ahead of the curve in its warnings of how global finance was trumping the real economy, both nationally and internationally. It forecast the Mexican tequila crisis of 1994/5. It warned of the East Asian crisis of 1997 and the Argentinian crisis of 2001. It has consistently sounded the alarm of the dangers of excessive deregulation of financial markets. It has stressed the perils of rapid, non-reciprocal trade liberalization by developing countries. UNCTAD economists have not had to suffer the psychology of denial so prevalent in other organisations.

So why is the UNCTAD message so unwelcome? The fact that UNCTAD has no formal responsibility for the global management of the international economy and none of its own funds to dispense means that its analysis is free of vested interests. No organisation correctly foresaw the current crisis, and no organisation has a magic wand to deal with present difficulties. But it is unquestionable that the crisis originated in and is widespread among the countries that now wish to stifle debate about global economic policies, despite their own manifest failings in this area.

Because of the crisis, we do now have a better explanation of the inter-relationships between the real economy and the world of finance. Those explanations are now a good deal closer to what UNCTAD has been saying for nigh on three decades about the dangers of finance-driven globalization. And it is precisely in its analysis of interdependence that UNCTAD brings added value to an understanding of how the functioning of the global economy impacts on the majority of the world’s population who live in developing countries. Given the current pressure on the organisation and its secretariat, that contribution could now be gone for good.

Why now? UNCTAD is about to have its next quadrennial conference (Doha, 21-26 April). UNCTAD conferences are a shadow of their past, being now simply a time to agree on secretariat work programme priorities for the next four years. But that is precisely what is at stake.

Developing countries in Geneva, again, are struggling to resist the strong pressure piled on them by OECD countries and to defend the organisation to which they had been “umbilically” tied. They are not fully succeeding, in spite of the BRICS pledge of support manifested at its recent summit. So the developed countries in Geneva have seized the occasion to stifle UNCTAD’s capacity to think outside the box. This is neither a cost-saving measure nor an attempt to “eliminate duplication” as some would claim. The budget for UNCTAD’s research work is peanuts and disparate views on economic policy are needed today more than ever as the world clamours for new economic thinking as a sustainable way out of the current crisis. No, it is rather – if you cannot kill the message, at least kill the messenger.

All of the undersigned have worked as senior officials for UNCTAD at one time or another. Individually, we may not necessarily have agreed with what UNCTAD was saying on specific issues. We have no vested interest in this matter except that we all fervently believe in the value of maintaining an independent research capability that serves to focus inter-governmental debates on how the workings of the global economy affect developing countries.

At time when pluralism is finally being meaningfully discussed in the election of the President of the World Bank, it is ironic that OECD countries are endeavouring to stifle freedom of speech within another multilateral organization.

If those who were proud to work for UNCTAD do not speak out now, who will?”

If true (and the signatories are serious people), the attack on UNCTAD feels more like some G8-led skirmish from the 1990s than a response to a global economy in turmoil. Surely now, more than ever, we need new thinking, and power and voice needs to shift to the developing countries? I’m genuinely baffled by why thisis happening now – if anyone from DFID or elsewhere cares to explain, feel free. More background in the Guardian from the LSE’s Robert Wade.

Are aid cuts inevitable and if so, what should aid campaigners do about it?

While I was snowed in in a holiday cottage last week (quite fun actually, especially when you’ve packed your West Wing box set just in case), the 2011 OECD aid numbers came out (see table).

The numbers show total aid falling in real terms for the first time since 1997. What was also striking was the variation between OECD members, with crisis-hit Greece and Spain slashing aid by a third, while oddly, Italy increased it by the same amount (due to a one-off rise in debt forgiveness, as well as an increase in refugee arrivals from north Africa, according to the FT).

I won’t repeat the standard criticisms of governments breaking their aid promises (Oxfam press release here). Instead, just a couple of observations:

Firstly, this is remarkably in keeping with previous World Bank research on the impact of banking crises in donor countries in 24 financial crashes spread over the 30 years to 2007. This found that aid budgets behave like wily coyote running off the end of a fiscal cliff, continuing to rise for 2-3 years before going into free fall (see graph). We appear to have reached that point now – the FT reports that Spain, Canada, Austria, Belgium and the Netherlands are seeking to reduce their aid budgets further this year.

Secondly, what should we be doing about it? In particular, should we be changing our language or emphasis on aid? One option is to focus on minimising the decline, for example by highlighting the differences between countries in standard heroes-and-zeroes press work. History is not destiny and maybe this time we can avoid poor countries taking the hit for the failings of global finance. But damage limitation is hardly the stuff to inspire campaigners.

Another option is to shift the focus onto quality of aid, rather than the emphasis on overall quantity that has dominated NGO messaging in recent years (see this new website on US aid for ideas). The problem here is that the experimental/innovative kinds of aid are likely to be the first to be cut, while the bad stuff (tied aid, aid linked to security or other political self interest) is likely to be the last to go. An aid downturn may not be a propitious moment for trying to improve quality.

A third (probably my favourite) is to look for alternative sources of revenue. At an international level, closing down tax havens and introducing a Robin Hood Tax can ease the pressure both on aid and the domestic spending of cash-strapped OECD governments . And since aid is just a small part of raising finance for development, let’s look much more at domestic sources of revenue through tax reform, natural resource royalties etc.

A fourth option, of course, is to decide that campaigning on aid is just too much of a downer and give up altogether, but that strikes me as a pretty lousy choice. Extracting those aid promises at Gleneagles back in 2005 was a massive achievement and should not be abandoned lightly. One way or another, poor countries are going to need finance, including aid, to develop. Any views?

Robin Hood Tax update: more campaign success on the Financial Transactions Tax

The RHT campaign continues to show the remarkable ‘how change happens’ potential of a response to shocks (in this case, financial crash + austerity = governments desperate for new sources of revenue + impending collapse of aid flows from many donors + massive public antipathy towards the banking sector = perfect time to campaign for a new tax on banks). Here’s a summary of the latest briefing from Sherwood foresters Max Lawson and Jasmine Burnley. Full briefing here.

• Despite fierce opposition and lobbying by the financial sector, there is a good chance that a coalition of 9 countries (Austria, Belgium, Finland, France, Germany, Greece, Italy, Portugal and Spain), representing 90% of Eurozone GDP, could push ahead and implement an Financial Transactions Tax (FTT, the official name for the Robin Hood Tax) in 2012. This could raise 38 billion euros. All of the nine finance ministers wrote to the Danish Presidency to ask them for the FTT to be fast tracked and bypass EU27 blockers such as the UK.

• France has passed legislation to implement an FTT of 0.1% on shares at national level, which will come into force in August. This is explicitly proposed by President Sarkozy as a first step towards a broader FTT at EU level. There is nothing in the legislation to link the revenues to development and climate change. The French Socialist candidate Francois Hollande, who is front runner to win the election, has said publicly to spend he would spend a third of an FTT on development and climate change and there was a public commitment from the French Minister for Cooperation to give increasing levels of the FTT to development and climate change from the start of 2013.

• German finance minister Wolfgang Schauble has said clearly that it is unlikely to reach agreement in the Eurozone, and is open to a stamp duty like tax, which includes derivatives as a possible compromise. This would be an FTT by any other name and would raise significant revenue, but it would of course be better if it covered all transactions not just equities. Schauble is now speaking publicly about going ahead this year with the coalition of 9 countries, although there is not a unified German government agreement, as the junior partner, the FDP, remains opposed.

• New research by former JP Morgan city figure Avinash Persaud overrides EC Impact Assessment’s claim that FTT will result in a drop in growth by demonstrating FTT will lead to a rise in growth of 0.25%

• Support for an FTT grows in the US against backdrop of increasing resentment over unemployment, lower than needed growth and the costs of the financial crisis – US Robin Hood Tax campaign to be launched at G8 with Chicago rally of unions and CSOs

• Fast-track to end June: There is a strong likelihood of a European FTT although opposition is fierce– the major challenge is to get a portion allocated to development and climate change.

What should a European Voice on Development actually say?

Had a slightly frustrating session (but they’re often the most productive) at ODI recently on the next-but-one (2013) European Report on Development, which will be on the post-2015 debate, aka what comes after the MDGs (ODI’s doing lots on this).

My frustration sprang from the contrast between the avowed mission of the ERD – to open up a space for a European Voice on development, presumably to counterbalance overwhelming US dominance, and their plans for the report, which gave me little sense of distinctive European-ness, in terms of lessons from Europe’s own experience, whether historic or current, a different way of seeing the world, or the areas in which other parts of the world might see Europe as naturally credible - quality universal health and education maybe, sound economic management – not so much.

So here are a few thoughts for what a distinctive ERD might contain:

A European approach: how about focusing much more on the political economy of development, rather than an economic report which just berates leaders for not adopting all those ‘first best’ policies that economists love to recommend? For example, how about looking at post-2015 in terms of what kinds of reforms are most feasible in a downturn? Aid is highly likely to fall over the next decade or so, and the austerians are likely to remain dominant, so it seems pretty pointless to ask for more aid money. But economic shocks in the past have led to lots of other interesting reforms – re-regulation, new forms of revenue raising etc. Why not start there?

What’s going on in our neighbourhood? Europe is within a few miles of one of the most exciting development stories of recent years – the Arab Spring. What did it tell us about development? (e.g. if you have a rapidly improving university system, but no jobs for young people plus lots of corruption, watch out). Or about how the aid system reacts to sudden shocks and windows of opportunity? (by ignoring them, in general). Could we get away from the planner’s paradise of the MDGs and discuss complexity and emergent, unpredictable changes and how the international community and aid system respond?

Where does Europe have credibility? Asking a range of developing country thinkers would be the place to start, but my short list of possible would include welfare systems; conflict prevention through integration; getting (relatively) serious on climate change; food (UK excepted); much better cinema than Hollywood; Social democracy/welfare capitalism, social contract etc.

Then of course, a European Voice could concentrate on improving Europe’s own developmental impact, e.g. by reducing its greenhouse gas emissions, reforming financial markets, dropping counterproductive biofuels mandates, CAP reform, or stopping using trade negotiations to inhibit tech transfer. Don’t hold your breath on that one, but even if they did devote the ERD to it, would it really have much impact? (after all, look how little has been achieved by 30 years of research and criticism of the Common Agricultural Policy).

This all matters because I think the ERD’s underlying proposition is sound. Europe’s voice needs to be louder, but I see little evidence that the reports have found that voice yet. They began in 2009, and have covered fragility in Africa (2009), social protection (2010). Snappy title award goes to this year’s report, ‘”Effective natural resource management for inclusive and sustainable growth in the context of increased scarcity and climate change: what role for the public and private sector?”. My impression is that they are more ‘me too’ exercises than distinctive contributions, but feel free to set me straight – which ERDs have you heard of or used in your work?

Is this the UN’s most powerful critique to date of finance-driven globalization?

Ten years ago, Supachai Panitchpakdi was in charge of the World Trade Organization as it led a global push for the liberalization of trade, investment and just about everything else in the early days of the Doha Round. The talks ran aground (they still aren’t concluded) amid a big pushback from many developing countries (backed by organizations like Oxfam) against the free market fundamentalists. Now Supachai is in charge of UNCTAD and has just written (or at least put his name to) one of the most comprehensive critiques of the WTO model of globalization that I’ve seen from an official body. ‘The World Turned Upside Down’ is his report to UNCTAD’s upcoming meeting in April (UNCTAD XIII – they’re held every four years) and it’s a punchy, outspoken and well written document. From the UN. That’s correct. Some highlights:

On the role of the state: “When things fall apart, the state remains the only institution capable of mobilizing the resources needed to confront large and systemic threats. The idea that the nation state had somehow outlived its usefulness in a borderless world was never very serious. Since the state is pivotal to establishing an inclusive social contract and strengthening participatory politics, it is both imprudent and unrealistic to reduce or bypass its role in managing economic development and change. The more worrying trend in recent years has been the growing influence of financial markets in bending public policy and resources to their own needs and interests – leading a former IMF chief economist to warn of a “quiet coup” – including in the post-crisis period.” Further down Supachai “stresses the critical role of the developmental state”.

A sideswipe at the Washington-based institutions: “Neither IMF nor the World Bank, having abandoned their original raison d’être to the siren calls of unregulated financial markets, have been able to forge a vision of a postcrisis world economy consistent with changed economic and political realities.”

What’s the problem?  “I have chosen the term finance-driven globalization (FDG) to characterize the dominant pattern of international economic relations during the past three decades. This is intended to convey the idea that financial deregulation, concerted moves to open up the capital account, and rapidly rising international capital flows have been the main forces shaping global economic integration since the breakdown of the Bretton Woods system. Financial markets and institutions have become the masters rather than the servants of the real economy, distorting trade and investment, heightening levels of inequality, and posing a systemic threat to economic stability. The latest crisis has served as a further reminder that FDG is a political project and is, therefore, the subject of legitimate discussion and debate. To date, the response has largely been one of muddling through, with ad hoc measures to mitigate the damage from economic shocks, informal partnerships to tackle global imbalances, and impromptu alliances to push for greater market transparency.”

And the solution? “Finding the appropriate mixture of reflation, redistribution and regulatory measures to achieve these goals is now the urgent task of policymakers, at the international as much as the national level. I have chosen the term development-led globalization (DLG) to describe the principles, priorities and policies that need to be pursued to turn tentative recovery into an inclusive and sustainable future. Reforming the financial system is the place to begin. Even before the crisis, it was clear that stable and inclusive development was incompatible with speculative market behaviour, boom-and-bust cycles, and the austerity programmes to which they invariably lead. It is telling that the emerging success stories from the South have, in large part, pursued policies that have avoided these dangers. Finance needs to get back to the business of providing security for people’s savings and mobilizing resources for productive investment.”

But solutions go beyond economic policy:  “An inclusive development agenda cannot depend on economic policies alone. Under FDG, the stresses and burdens of unregulated markets have, all too often, been shifted to individuals and households and, in countries where social welfare systems exist, to government budgets. In many cases, unprecedented increases in income inequality have gone hand in hand with underfunded public services and rising levels of household indebtedness. The resulting cost to economic security and social cohesion has been enormous. Even when growth has accelerated, as it did in many developing countries between 2002 and 2008, too many people were left behind. A balanced economy depends on a strong social compact which, in turn, requires a range of universal and targeted social policies, tailored to specific circumstances, to ensure that the benefits of growth are widely enjoyed and its risks are shared fairly. The crisis has confirmed UNCTAD’s long-standing insistence on the importance of policy space…. Each country must be able to experiment and discover what configuration of institutions and governance works best in its circumstances and in line with the expectations of its population.”

Conclusion? “Rebalancing is not a narrow technocratic challenge.  A true break with the fundamentalist thinking underlying FDG will involve a change of attitudes, morals and values.”

Stirring stuff. The only shame is that these days UNCTAD, which in the 1970s and 80s led calls for a ‘New International Economic Order’, often seems such a marginal voice in the international scene. Yet in an era of FDG crisis, perhaps its hour has come again?