Do loose networks like the G20 strengthen or weaken developing country voice?

Networks are (yet) another development buzzword, contrasting with markets and hierarchies. They are proliferating in the international arena, as well as in academic literature – how many ‘Gs’ can you name apart from the G20 and the G8? What’s the difference? According to ‘Networks of Influence? Developing countries in a Networked Global Order‘, edited by Leonardo Martinez-Diaz and Ngaire Woods, ‘Like networks, markets are non-hierarchical, but in a market with many buyers and sellers, a particular set of participants may transact once but never again. In a network the same group of actors interacts repeatedly in an iterative process. As in networks, actors that are part of hierarchical institutions may interact regularly, but in a hierarchy, there is by definition someone with the authority to arbitrate and resolve disputes when conflicts arise. In networks, there is no such delegation of authority.’

Networks of Influence builds on 8 case studies, all loosely involving financial networks such as the G20, several written by network insiders, to try and sort out whether networks are a blessing or a curse for developing countries. Are they exciting new avenues for poor country governments and civil society to influence the big decisions, or sneaky ways to get round accountability and exclude the great unwashed through a 21st century version of invitation-only gentleman’s clubs? Will they replace or strengthen formal international institutions like the UN or IMF? Are North-South networks different from South-South ones? (both are proliferating).

It’s time for some wonky lists. The book sets out five functions of networks: agenda setting; consensus building; policy coordination; knowledge exchange and production and norm-setting and diffusion. It identifies two categories of network. Advocacy networks aim to mobilize support for a cause and concentrate on the agenda-setting, norm-setting and consensus-building functions, while ‘self-help’ or ‘problem-sharing’ networks focus on improving members’ capacities through knowledge production and exchange and policy coordination.

It then uses the case studies to test four hypotheses (last list, promise):

Hypothesis: Networks emerge as a reaction to real and perceived failings of formal institutions, particularly international organizations
Conclusion: Yes

Hypothesis: The largest contributors of resources to a network use their influence to ‘capture’ the network and steer it in their own interests
Conclusion: Not completely. Big contributors are kept in check because weaker players simply vote with their feet and leave the network if they see the big guys abusing their positions.

Hypothesis: Even with unequal resource contributions, networks provide developing countries with greater voice and influence than international organizations
Conclusion: Mixed results, but overall, yes, where there are adequate resources for the network and the stronger players don’t try and take over.

Hypothesis: Networks will replace international organizations because they are much less resource-intensive, more flexible and more egalitarian
Conclusion: No. Networks are rarely effective on their own – they need to form a symbiotic relationship with international organizations. The emerging world order will be of these organizations interacting with clusters of networks, each playing to its strengths.

It’s that last conclusion on symbiosis that is the most interesting. International organizations burdened with procedures and bureaucracies can take tricky issues off-line for discussions and consensus-building in networks, but binding decisions require rules and formal institutions, so in turn, networks have to bat them back to the organizations to be turned into something concrete. The interaction between the G8/G20 and the IMF and World Bank is a classic example. Networks have to be properly ‘nested’ within a larger institutional landscape if they are to be more than mere talking shops. One lesson for international advocacy is that if we are proposing new networks on tax, arms control or whatever else, we need to think long and hard about the best institutional ‘nest’ for them.

Worth comparing this with Owen Barder’s recent attempt to rethink the aid system in terms of a hybrid of markets, networks and hierarchies.

What happened at the Pittsburgh G20?

I didn’t attend the G20 summit in Pittsburgh last week, but I’ve been poring over the communiqué. Here are some initial thoughts on what it all means (numbers in square brackets refer to paragraphs in the original), incorporating analysis and intel from the Oxfam team at the event.

Headline: Pittsburgh formally enshrined the rise of the BRICs and relative decline of the G8: ‘We designated the G-20 to be the premier forum for our international economic cooperation’ [preamble, 19]. The passing of the baton takes place in Canada next June, where the G8 and G20 summits will coincide.

Winners and Losers: Institutions
The World Bank and IMF were once again anointed as the lead agencies on almost everything. ‘The World Bank and other multilateral development banks are critical to our ability to act together to address challenges, such as climate change and food security, which are global in nature and require globally coordinated action…. The World Bank should strengthen.. its focus on food security, … Its focus on human development and security in the poorest and most challenging environments, … support for private-sector led growth and infrastructure… contributions to financing the transition to a green economy through investment in sustainable clean energy generation and use, energy efficiency and climate resilience.’ [24]

The IMF ‘must play a critical role in promoting global financial stability and rebalancing growth’, including an enhanced role in providing oversight of the global financial system and its imbalances [20].

In return, the G20 put numbers on IMF and World Bank quota reform: ‘at least’ 5% of voting power for both institutions [the World Bank figure was 3%, on top of 1.5% already redistributed] will shift from over-represented to under-represented countries’. The US had offered 5%, and the BRICS had been asking for 7% – the ‘at least’ means this isn’t totally shut down. Europe, which will lose influence under the reforms, had been asking for no target at all.

The shift means that middle income countries whose GDP or trade has grown in recent years (eg China, South Korea, Singapore, Turkey) will get bigger shares, at the expense of countries whose quota share is now bigger than the calculations justify (eg Belgium, Saudi Arabia, Venezuela, France). It is still the richest countries in charge, but updating the quotas at least takes account of which countries are now the richest. To protect the voting share of the poorest countries, the G20 gave guarantees that whatever happens, they won’t lose vote share as the emerging countries like China and India increase their muscle

How much difference will this make? Some pretty rich countries are counted as ‘developing’ by the IMF. Our calculations (which rely on some assumptions about how this would be done) suggest that the shift for high income countries would be from around 68.3% to around 65% of the votes and the maximum benefit for the poorest (PRGF-eligible) countries is from 7.7 to 7.8% of the vote. Hardly seismic.

Other aspects of IMF reform were explicitly put on the table, including size and composition of the Board, role of governors, effectiveness of the Board, staff diversity. [21]

The ILO also had a good summit, with a major focus on job creation in the crisis response [43-47] and a strong endorsement of its work: ‘The international institutions should consider ILO standards and the goals of the Jobs Pact in their crisis and post-crisis analysis and policy-making activities.’ [46]. The G20 agreed an early 2010 meeting of G20 Employment Ministers ‘to assess the evolving employment situation, review reports from the ILO and other organizations on the impact of policies we have adopted, report on whether further measures are desirable.’[46]
 
As for losers, once again the UN was largely missing in action – the circus at the General Assembly in New York prior to the G20 can’t have helped. All it got was a token acknowledgement that the ‘UN’s new Global Impact Vulnerability Alert System will help our efforts to monitor the impact of the crisis on the most vulnerable’ [34] and a couple of vague short paragraphs on the UN-led climate change negotiations that merely ‘note’ the principles agreed at the July G8 in l’Aquila [32-33].

Winners and Losers: Issues
Reflecting US priorities, food security received serious attention: ‘Sustained funding and targeted investments are urgently needed to improve long-term food security. We welcome and support the food security initiative announced in L’Aquila and efforts to further implement the Global Partnership for Agriculture and Food Security and to address excessive price volatility. We call on the World Bank to work with interested donors and organizations to develop a multilateral trust fund to scale-up agricultural assistance to low-income countries.’ [39] The communique called on the Bank to set up yet another multilateral trust fund – the proliferation of such funds on health, agriculture etc is threatening to undo much of the recent progress in trying to reduce the bureaucracy of aid reporting requirements, which eats up scarce staff time in poor country governments.

At the last minute, German insistence led to a new, if oblique, paragraph on the Tobin Tax: ‘We task the IMF to prepare a report for our next meeting with regard to the range of options countries have adopted or are considering as to how the financial sector could make a fair and substantial contribution toward paying for any burdens associated with government interventions to repair the banking system.’ [16] President Sarkozy and Chancellor Merkel both specified that this para refers to the Tobin Tax, and TT campaigners are celebrating – this is a new high water mark in getting the idea onto the international agenda. Still this language seems vague enough to allow considerable room for backing down – taxing the financial sector could be a lot more restricted than a currency transactions tax, and in any case, is only being discussed in terms of paying back bailouts, not wider issues such as using a Tobin Tax to fund climate mitigation and adaptation. Lots to play for, here.

Clean energy [31] and getting rid of fossil fuel subsidies [29] both prospered and that is important (ending subsidies could reduce greenhosue gas emissions by 10%, according to the communique). But that was the extent of environmental concern, apart from a liberal and apparently random sprinkling of the word ‘sustainable’ all over the text. A wider shift to a low carbon development model was missing, and without that the overall statement that ‘our objective is to return the world to high, sustainable, and balanced growth’ [3] increasingly looks incompatible with the objective of stopping the planet from frying. The ‘G-20 Framework for Strong, Sustainable, and Balanced Growth’ [annex] is almost entirely oblivious to environmental constraints and issues (‘sustainable’ appears to refer more to economic than environmental sustainability – the word should perhaps be changed to ‘sustained’ to avoid confusion).

On climate finance, the can was kicked firmly down the road by asking the G20 finance ministers’ meeting in November to report back on climate financing. [33] An effort to outline principles for climate finance in an earlier draft of the communiqué was dropped.

Reportedly, there was lengthy discussion on climate change at the leaders’ lunch at the summit. Swedish Prime Minister Fredrik Reinfeldt and French President Nicholas Sarkozy both suggested that the leaders could talk again on climate change in as little as two weeks time – possibly by videocon. Other reports suggest, however, that President Obama indicated that reaching a final global deal at Copenhagen was not vital, suggesting that if anything the summit may have undermined momentum.

On aid, there was no new money for the poorest countries, but at least an endorsement (reportedly after a struggle) of the promises made at the Gleneagles summit in 2005.   There was a recognition that a number of G20 members will recycle their SDRs (the IMF’s version of quantitative easing) through the IMF.  It is not yet clear how much more they will recycle but it is likely it will only be used to deliver the amounts already promised in London.

On Tax Havens, the vaguely promising language around exploring a multilateral mechanism that was in the communiqué for the G20 finance ministers meeting in London in early September was dropped from the Pittsburgh communiqué, which instead patted itself on the back for ‘impressive results.’[15]. Really? Care to offer some examples of increased flows of tax payments to poor countries? There is, however, a threat to go further: ‘We stand ready to use countermeasures against tax havens from March 2010.’ [15]

Finally, at the opposite extreme from the bank mega-bailouts that have characterized the crisis, the G20 set up a ‘G-20 Financial Inclusion Experts Group’ to look at how to promote financial services for the poor and specifically for small and medium enterprises (SMEs).[41] Oxfam has a rather good paper coming out on this next month, so we may have some useful suggestions for them.

Overall verdict? Even though the impact of the crisis on the poorest countries has become more pressing since the London Summit in April, it felt like development had slid down the agenda this time around. No more money on the table, missing the moment on climate change, and a general sense that the regulatory tide is receding as we move to ‘a critical transition from crisis to recovery’, in the words of the communique’s triumphalist first para. As I discussed in a recent lecture at Notre Dame, maybe the crisis simply isn’t proving big and painful enough to trigger the structural changes we need.

How to find $280bn for poor countries this weekend

This weekend the finance ministers of the G20 – the world’s most powerful nations -will meet in London.  While the rich world’s green shootists apparently feel that the worst of the economic crisis is behind us, the poorest countries are being hammered, with those living on the margins of the global economy paying the highest price for the bankers’ folly. Here are 3 easy ways the finance ministers can raise $280bn (the cost of two AIG bailouts) to help ease the pain.

Hold on a minute – ask the rich countries to stump up lots more money for aid in the middle of a recession? Are you crazy? Actually, if there’s one thing the last year’s barrage of bailouts, rescues, stimuli and quantitative easing has shown it is that when they need to, governments can pluck huge amounts of cash out of thin air (and be out of office before the fiscal hangover kicks in).

This year alone, as a result of the economic crisis, between 50-100 million more people worldwide will be trapped in poverty, scraping by on less than US$1.25 a day.  Read that again, $1.25 a day. This means millions more families forced to make impossible choices between buying life saving medicines, or the cost of sending their girls to school, or finding food for the next week. 

The G20 in April this year promised to provide US$240 billion for developing countries to help them deal with the impact of the economic crisis and as part of this, US$50 billion to the world’s poorest countries. It showed the leadership the world needed in the face of this economic maelstrom. But those were largely loans, not grants, (so they’ll add to developing country debts) and since then it has become clear that even that amount is not enough. A second set of bold actions is required from the G20 when its leaders meet in Pittsburgh later this month.

How much are we talking about? The World Bank predicts overall that developing countries will need between $352 billion and $635 billion in 2009 just to stand still; much more is needed beyond this to actually enable these countries to develop and fight other crises such as HIV/AIDS, rising food prices and climate chaos.

But with three steps, the G20 can generate US$280 billion of new financing for the world’s poorest countries, at minimal cost to themselves; in fact they stand to benefit significantly should they do so. 

1. Implement a Currency Transaction Tax (CTT, also known as a Tobin Tax) of at least 0.005% on international currency transactions. At that rate, such a tax could generate a minimum of $33 billion per year if applied to the four major international reserve currencies (US Dollar, Yen, Euro and British Pound). If more currencies were included, this figure could increase to as much as $50bn. A slightly higher rate could also provide more resources for government spending in rich countries facing cuts in services.

2. Transfer half of rich countries’ new allocations of Special Drawing Rights to the poorest countries. SDRs are a form of IMF quasi currency distributed to member countries, which can be exchanged for hard currency. The April G20 agreed to create $285 billion dollars worth of SDRs, but $177 billion of that will go to its richest members.  Why not agree to transfer half of that, US$89 billion, straight to the poorest countries?

3. Deal with tax havens. Put in place a multilateral agreement for the automatic exchange of full tax information and require country-by-country reporting of subsidiaries, sales and profits by multinational corporations, to help developing countries recoup lost tax revenue. This could result in a further US$160 billion for poor countries, and at the same time would enable rich countries to recover their lost tax revenues.

$280bn. A lot of money, no? Yes and no. In fact, it is roughly double what was forked out to rescue the insurance giant AIG, or the cost of two years of US operations in Iraq. It’s all about priorities.

This post is based on ‘Money for Nothing‘, a new Oxfam briefing ahead of the G20 Finance Ministers’ meeting in London

Did you notice last week’s UN Conference on the crisis? Thought not…..

In the end the UN Conference that considered Joe Stiglitz’s Commission’s report on the crisis was even more underwhelming than I predicted (given the chaotic preparations, which included a last minute postponement). Only 14 heads of state attended, 10 of them from Latin America; most of Stiglitz’ recommendations bit the dust (e.g. his proposal for a new Global Economic Council); press coverage was minimal and the resulting communiqué was littered with ‘best endeavours language’ that commits countries to precisely nothing – lots of ‘we encourage’s and ‘shoulds’, but precious few ‘shalls’ or ‘wills’ (for tips on reading communiques see here). But at least they agreed on a text, which at one point seemed far from certain.

The UN may be chaotic, slow and often frustrating but it has one thing the G20, G8 etc will never have – the legitimacy that derives from being the G192 of all the world’s countries, including the poorest ones that are usually absent from the more exclusive gatherings. So let’s indulge in a little straw-clutchism and accentuate the positive in what the conference agreed [numbers in brackets refer to paras in the communiqué]:

The plight of the poorest countries was squarely at the top of the agenda, with a call for them to get a ‘larger share of any additional resources’ [14], both from bailouts and long term financing.

In very general terms it recognized the systemic nature and depth of the crisis: ‘many of the main causes of the crisis are linked to systemic fragilities and imbalances…. Regulatory failures, compounded by over-reliance on market self-regulation, overall lack of transparency, financial integrity and irresponsible behaviour, have led to excessive risk-taking, unsustainably high asset prices, irresponsible leveraging, and high levels of consumption fuelled by easy credit and inflated asset prices.’ [9]

It kicked a few cans down the road, rather than abandoned them altogether, agreeing to set up a working group to report back to the next General Assembly [54], and called on that meeting to make the impact of the crisis on development its main theme. Many more leaders will be present then.

On corruption, the UN said ‘we urge all States that have not done so to consider ratifying or acceding to the UN Convention Against Corruption and call upon all States parties to vigorously implement the Convention.’ [19]

Some positive new language (compared to the G20, for example) on conditionality [17], avoiding protectionism [12], resisting discrimination against migrant workers [27], policy space [18], additional resources for social protection [22], greening development [32], debt standstills [15] and new issues of Special Drawing Rights [35] (SDRs are IMF funny money – what Paul Collier calls ‘global quantitative easing’).

Generally, the communiqué was about mood music rather than specifics – there were no new numbers on aid in sharp contrast to the G20 communique. But sometimes mood music matters in setting future agendas.

After a reported stand-off between the US and China, a very watered down version of Stiglitz’ proposal for a new global reserve currency struggled into the final text – check this out for a classic example of best endeavours language: ‘We acknowledge the calls by many states for further study of the feasibility and advisability of a more efficient reserve system, including the possible function of SDRs in any such system and the complimentary roles that could be played by various regional arrangements.’ [35] Weak language perhaps, but it’s a big deal and it’s still in play.

The challenge now is to build on the good bits, between now and the next UN General Assembly, which takes place in New York from 22 September – 2 October, coinciding with the rather shorter G20 Pittsburgh Summit (24-25 September).

The G20: What happens next?

Now the dust has settled, we’ve caught up on lost sleep, and recovered from that slight hint of Stockholm Syndrome created by the collective hysteria of a summit, it’s time to stand back and think about what happens next. As part of that exercise, here are the forward-looking processes that the G20 put in place to review, monitor, propose further steps etc. Paragraphs are taken from the G20 Leaders’ Statement, with my comments in italics:

On Tax Havens:
‘We have asked the FSB [Financial Stability Board] and the IMF to monitor progress, working with the Financial Action Taskforce and other relevant bodies, and to provide a report to the next meeting of our Finance Ministers in Scotland in November.’ [para 16]

And buried in the annex on ’strengthening the financial system’ is the para ‘We are committed to developing proposals, by end 2009, to make it easier for developing countries to secure the benefits of a new cooperative tax environment.’

Tax campaigners will probably need to develop channels of communication and advocacy with the new FSB, an enlarged, strengthened version of the Financial Stability Forum. The review mentioned in the annex will be essential to make sure that whatever emerges can actually be used to stem the haemorrhage of revenue from developing countries.

On the IMF:

‘We commit to implementing the World Bank reforms agreed in October 2008. We look forward to further recommendations, at the next meetings, on voice and representation reforms on an accelerated timescale, to be agreed by the 2010 Spring Meetings.’ [20]

‘Building on the current reviews of the IMF and World Bank we asked the Chairman [Gordon Brown], working with the G20 Finance Ministers, to consult widely in an inclusive process and report back to the next meeting with proposals for further reforms to improve the responsiveness and adaptability of the IFIs.’ [20]
 
With the IMF emerging hugely strengthened from the summit, the issue of reforming both its governance and its policies is going to become a major focus of attention over the next few years. Gordon Brown’s review could be an important part of that process. The IMF’s Spring meetings are in Washington DC on 25-26 April, so there will be an immediate opportunity to generate further momentum around the reform process.

‘In addition to reforming our international financial institutions for the new challenges of globalisation we agreed on the desirability of a new global consensus on the key values and principles that will promote sustainable economic activity. We support discussion on such a charter for sustainable economic activity with a view to further discussion at our next meeting. We take note of the work started in other fora in this regard and look forward to further discussion of this charter for sustainable economic activity.’ [21]

This cryptic paragraph could be something or nothing – perhaps it marks the start of drawing up a ‘charter’ to replace the Washington Consensus, or perhaps it’s just a bit of communiqué padding that leads nowhere. We need to find out more about what lies behind this bit of text.

On Aid/Financing for Development

‘We have committed… that additional resources from agreed sales of IMF gold will be used, together with surplus income, to provide $6 billion additional concessional and flexible finance for the poorest countries over the next 2 to 3 years. We call on the IMF to come forward with concrete proposals at the Spring Meetings;

We have agreed to review the flexibility of the Debt Sustainability Framework and call on the IMF and World Bank to report to the IMFC and Development Committee at the Annual Meetings; and

We call on the UN, working with other global institutions, to establish an effective mechanism to monitor the impact of the crisis on the poorest and most vulnerable.’ [25]

Busy times ahead for anyone working on the IMF and debt relief. It will be interesting to see what the UN makes of the invitation to take the lead in monitoring the impact of the crisis. Potentially it could be a good place to pull together all the various institutions doing impact monitoring (World Bank, DFID, NGOs like Oxfam and ActionAid, think tanks like ODI and IDS) to build a really powerful narrative as the crisis develops and strengthen arguments for help for the poorest people and countries.

On Jobs:
‘We will support employment by stimulating growth, investing in education and training, and through active labour market policies, focusing on the most vulnerable. We call upon the ILO, working with other relevant organisations, to assess the actions taken and those required for the future.’ [26]

A clear mandate to look at the labour impact of responses to the crisis, and for the ILO to lead it. Shame they didn’t also include the ILO’s plea for a Green New Deal to make sure that fiscal stimuli also move rich economies onto a low carbon pathway.

And finally, on the G20 process itself, since it looks like it’s here to stay with a further summit by the end of the year [29], there are at least two issues to watch:

African representation: The G20 may be an improvement on the G8, but there are still 172 countries left outside, and the issue of their representation, especially of Africa (which currently only has one G20 member – South Africa), is vital. I was told by the African delegation that the four African leaders at the summit (3 of them at the invitation of Gordon Brown) were assured that Africa would be properly represented in future. Need to ensure that is not forgotten.

UN: The virtual exclusion of the UN from the G20 process is outrageous. There will be an opportunity to address this at the UN Conference on the Global Economic and Financial Crisis and its Impact on Development, from 1-3 June in New York, where the report of Joseph Stiglitz’ Commission (details here) will provide a real opportunity to assess the extent to which the G20 has really risen to the challenges presented by the crisis.

Fidel uses Oxfam killer fact

I’ve been up since 5am writing on Oxfam’s post mortem on the G20 summit (will post on it later today), but have been completely distracted by this email that just came in to alert me that Fidel Castro is citing Oxfam’s work, including our latest killer fact, in his regular ‘reflections of Comrade Fidel’ column in Granma, Cuba’s Communist Party newspaper:

‘OXFAM, a well-known NGO, declares that with the 8.42 trillion dollars of public money committed by the governments of the rich world to the bank bailout plan world poverty could be eliminated for the next 50 years. It also has many arguments on behalf of hundreds of thousand of poor people in the world who will sink even further into poverty and on behalf of women who are among those most severely affected by the crisis’

For the record, the work on the killer fact was done by two ace number crunchers: Richard King (my colleague in the research team) and Jim Henry (who has been doing some work for us on tax havens and the financial bailout). Bethan Emmett wrote the paper on the gender impact of the crisis and Amy Barry the paper on the general poverty impact, all with loads of help from Oxfam staff in numerous countries. Order of Lenin to all of them.
 
 

Final post from the London Summit – full analysis to follow tomorrow

So, it’s 7.30pm, some 14 hours after I started blogging this morning, and Obama is wrapping up his press conference. He looks exhausted. And the big question is, has this been a historic day or not? The answer is ‘maybe, but it’s too early to say’, but at least there’s a ‘maybe’ in there. I feel unusually optimistic for the end of a summit, so let’s see if that optimism is justified, scrutinising the final communiqué: Read More …

G20: What’s in Play as Summit Day dawns?

The big day dawns in a fog of confusion and press reports of rifts between continental Europe and the Anglo Saxons, following what were portrayed as rival press conferences by Obama and Brown in one part of London, and Sarkozy and Merkel in another. Today will show how much of this was just playing to the domestic gallery – Sarkozy may just want to look tough in the French press. But what is happening on the issues that matter for developing countries? Here’s a quick round up of what we are hearing through a range of sources (some of whom are undoubtedly spinning an overly optimistic/pessimistic line to us, so all of this should be taken with a pinch of salt!): Read More …

How to read the G20 Communique – some thoughts

Had a great day yesterday meeting my fellow g20voice bloggers, a wonderfully diverse crew from every corner of the world who will be blogging furiously at the G20 summit today. I led a discussion on how to read the communiqué that should emerge some time this afternoon: this can be pretty stressful, since they are written in diplomatic code and pundits are expected to come up with an almost instantaneous assessment within minutes. Here are some ideas (but I’m no expert, so if there are any more seasoned summit junkies out there, please feel free to add your own): Read More …

What does the leaked draft G20 communique tell us about development and climate change?

The FT has got its hands on a leaked copy, as has der Spiegel (a different draft, it seems, but I can’t find that one on the net). The FT version is nice and short (24 paras). Here’s what it says on Oxfam’s main asks for the summit, namely: Read More …