Doing a big Alaska: the case for a global social protection fund

Olivier de Schutter, the UN’s special rapporteur on the right to food, is consistently interesting and provocative. This call to action is currently circulating on the interwebs (although the paper it’s based on came out last October):

‘If protecting human rights could be translated into a single political action, the creation of comprehensive social protection schemes would be it.

Health care, unemployment insurance, food aid, disability benefits: these are some of the services that characterise durable human development and distinguish today’s most prosperous societies from those living one hundred, or even fifty, years ago.

Yet many of the world’s poorer states have not adopted anything like a comprehensive social safety net. Some 80% of the world’s poorest people remain without any access to basic security against poverty and the risks associated with illness, old age, or unemployment. In low-income countries a small increase in food prices can leave the poorest no longer able to put food on the table. Worse, they cannot turn to the State for help. The injustice is particularly acute if considered that, for as little as 2 per cent of global GDP, basic social protection could be provided to all of the world’s poor.

So why are we not achieving faster progress in the establishment of social protection schemes in developing countries? Some countries have failed to invest in social protection because the development models supported by major international institutions have pushed States to lower government spending and reduce the size of the State. Elsewhere it is limited infrastructure and a low ability of local populations to pay into a contributory system that holds States back.

But for others, particularly least developed countries, the main disincentive is the risk of economic or environmental shocks. In small developing countries a large portion of the population is often susceptible to the same risks of natural disasters, epidemic diseases or extreme food price increases, leading to simultaneous surges in demand for social protection and decreases in State export and taxation revenues. States have a legitimate concern that they will not be able to pay out – or will be bankrupted in the process of doing so.

But social protection is too crucial a building block of development to be allowed to fall asunder on this uncertainty, and the multiplier effects of a decent social safety net – for human development and sustained economic growth – are too great to miss out on.

Global solidarity is needed to break the deadlock.  Wealthier nations must assist States for whom the costs are too big to absorb alone. The Global Fund for Social Protection that I have proposed, alongside Magdalena Sepúlveda, UN Special Rapporteur for Extreme Poverty and Human Rights, would allow poorer States to draw on international funding to meet the basic costs of putting social protection in place, while the Fund could also be called upon to underwrite these schemes against the risks of excess demand triggered by major shocks.

States can no longer claim to believe in human rights protection while failing to invest in social protection, for the two are intimately linked. There are many ways and means of funding a decent social safety net – now we need the political will.’

De Schutter’s missive dropped into my inbox just as I was having similar conversations here in South Africa about the case for a universal Basic Income Grant. Could it be funded from mining royalties, people were wondering? I told them to look up the CGD’s ‘oil to cash’ proposal for just that. Call it ‘doing an Alaska’. The CGD/South African proposals are national, de Schutter’s global. One obvious problem with the global proposal is the lack of discussion on how it could be funded. ‘As little as 2% of global GDP’ works out at $1.4 trillion – 10 times the global aid budget. You would probably need to put together all the proposals for international taxation (on financial transactions, arms trade, airlines etc) to pull it off, and what kind of political coalition is going to do that? Which probably explains the lazy reference to ‘political will’ at the end of de Schutter’s email. Politically, doing an Alaska at national level looks a lot more realistic.

And here’s CGD’s Todd Moss trying to do a Hans Rosling in a 4m video explaining oil to cash.

‘Resource Futures’: good new report on how to confront resource scarcity and conflict

Looks like this is going to be crystal ball week on the blog – must be the time of year. Just read Resource Futures from Chatham House (inventors of the ubiquitous Chatham House Rule). The analysis is pretty good, but it really raises the bar on communication, with great interactive infographics and killer facts. Advocacy wonks everywhere, take note.

The paper summarizes the key trends and flashpoints in global resource use, including:

• Resource trade has grown nearly 50% from a decade ago in weight terms owing to expanding trade in oil, iron and steel, coal, oilseeds and cereals
• Large-scale resource extraction remains concentrated in a handful of countries (China, the United States, Australia, the European Union, Brazil, Russia, India and Indonesia)

And then boils it all down into 5 ‘key findings’:

Volatility is the new normal

Volatility (see graph), driven by shrinking ‘buffers’ (eg reserve stockpiles) is spurring resource nationalism and needs to bedampened down by government and international action. The report has some clever ideas on how to design price smoothing mechanisms for oil, food and metals.

Environmental change and degradation are challenging traditional approaches

Environmental boundaries are starting to bite, notably climate change and water scarcity. Not much new in the way of ideas here (remove fossil fuel subsidies, improve water-sharing agreements etc), more ‘just do it’.

Trade as a frontline for resource conflicts

‘Trade is becoming a frontline for conflicts over resources’. Interesting – trade wars on the way back, eg over unilateral export bans by food producers, but in a different guise from the old WTO style struggle over import liberalization

Resource politics matter

‘Resource politics, not environmental preservation or sound economics, are set to dominate the global agenda and are already playing themselves out through trade disputes, climate negotiations, market manipulation strategies, aggressive industrial policies and the scramble to control frontier areas.’

Likely flashpoints that will need international action include resource production in highly eco-sensitive areas like the Arctic and ‘extreme engineering’ such as weather modification. The report picks up Alex Evans’ suggestion for a high profile annual ‘State of the World’s Resources’ report.

Collaborative governance is the only option

The report’s main big idea, in terms of policy proposals, is to set up a ‘new club of the world’s principal resource-producing and -consuming countries to fill existing governance gaps on resource and scarcities governance. This ‘Resources 30’ or R30 grouping, conceived as a ‘coalition of the committed’, would comprise leaders and officials from thirty countries of systemic significance as resource producers, consumers, importers or exporters.’

And here’s report co-author Bernice Lee introducing the findings

How can the global system manage scarcity?

Alex Evans is on a bit of a roll at the moment, with an excellent new paper on ‘Globalization and Scarcity: Multilateralism for a World with Limits’. It’s a great summary of the problems created by the threat of scarcity of food, land, water, energy, and ‘airspace’ (for greenhouse gas emissions). He confines his solutions to the implications for the multilateral system, rather than equally important responses from citizens, nation states or the private sector. Here’s a summary of the summary. First the problem:

“Globalization has improved the living standards of hundreds of millions of people – but growing resource scarcity means it risks becoming a victim of its own success.
 
On food, projections suggest that production will need to increase by 50% by 2030 (and 100% more by 2050), to meet forecast demand. Yet there are already signs that the productivity gains of the Green Revolution are running out of steam, even as significant amounts of crops are being diverted to biofuels. The 2008 food price spike provided a taste of what may be to come.

On land, competition between different land uses is increasing fast – both globally (between land uses including food, feed, fuel, forest conservation, carbon sequestration and growing cities), and in hotspots where land degradation, desertification, fast growing populations and weak systems of land tenure create the risk of political discord or violent conflict.

On water, demand will rise by around 25% by 2025, but even existing consumption levels are already beyond sustainable levels. Water scarcity will intensify over the next decade as groundwater depletion continues in many regions. Declining water availability is also projected to be probably the most significant impact of climate change over the next decade, with particular impacts on regions dependent on glacial meltwater and trans-boundary freshwater resources.

On energy, the International Energy Agency estimates that investment of $26 trillion is needed between now and 2030 to meet projected demand – a figure that rises to $36.5 trillion once the need to reduce greenhouse gas emissions is factored in too. However, current investment totals are nowhere near this level.

Climate change, finally, will intensify all of the above challenges, reducing food and water availability, driving massive shifts across energy and agricultural systems and causing a range of other shocks and stresses. A particular challenge facing policymakers is the fact that climate change impacts are likely to be highly unpredictable, non-linear, and hallmarked by sudden shifts as key thresholds are passed.

These scarcity challenges need to be understood as an integrated whole, not as separate issues. All of them present the greatest risk to poor people and countries, who have the least capacity to cope with shocks or adapt to new realities.

Scarcity issues could emerge as an important catalyst for collective international action to tackle global challenges – in the process helping to ensure that a globalization that is already efficient also becomes more sustainable, equitable and resilient. The paper focuses in on four key policy areas:

Development and Fragile States
Climate change and resource scarcity will hit poor people and countries hardest – not only for geographical reasons (e.g. that climate impacts will impact disproportionately on low latitudes), but also because of their high vulnerability. Environmental shocks are often part of the reason people become poor in the first place; poor people and countries spend high proportions of their incomes on food and fuel; the institutional and political weaknesses of fragile states can make them more susceptible to conflict risks arising from scarcity (although scarcity issues will usually be threat multipliers, rather than stand-alone conflict risk drivers).

Multilateral actors are already massively involved in issues of development, state fragility and conflict response, and this – together with the fact that poor people and countries are most vulnerable to scarcity – means that the multilateral system will have no choice but to take account of scarcity in its work in developing countries, whether in humanitarian assistance, conflict mediation, peacekeeping, long-term development partnership or support in international forums.

Finance and Investment
The key areas in which investment is needed as a result of climate change and resource scarcity are (a) energy systems, where the policy challenge is to deliver both energy security and climate stabilization at the lowest possible cost; (b) agriculture, where there is a need to finance increased crop production, again in a way that addresses climate stabilization, and with far lower input levels than today’s agriculture; and (c) the costs of financing improved resilience (for example, through social protection systems), especially in developing countries.
 
Three roles stand out for multilateralism. Collective action is needed, first, to correct market failures, such as environmental costs that are not reflected in prices; second, to provide ‘signals from the future’ that can improve long-term predictability for private sector investors; and third, to protect poor people and poor countries from the effects of scarcity by financing enhanced resilience.

International Trade
The food and fuel price spike demonstrated the risk of acute trade shocks such as price spikes, and how these can lead to knock-on social, economic and political consequences. At the same time, such impacts risk leading to countries losing confidence in open international trade, while the potential for unilateral use of ‘carbon tariffs’ risks leading to a slide towards tit-for-tat protectionism. Over the longer term, increasing energy scarcity or tight emissions controls could impede international supply chains and reduce the overall volume of international trade.

Effective multilateral cooperation can help to head off these risks by creating trust between countries that they can rely on the trade system to meet their needs.

Strategic Resource Competition
Finally, increasing scarcity will create new strategic resource competition between states – at worst, involving the risk of inter-state conflict.158 of the world’s 263 international river basins lack any kind of cooperative management framework, with projected glacial melting an especially important risk driver in the future. Already, both developed and emerging economies are engaged in a scramble for energy resources in numerous regions, and a similar dynamic may be emerging in the context of land and food access deals. Climate impacts, especially rising sea levels, will create new political disputes over newly available resources and sea lanes, whilst challenging existing legal infrastructure (for example, water sharing agreements).

Multilateral cooperation is needed not only to contain worst case scenarios, such as the risk of inter-state conflicts over resources, but also the risk of a generalized shift away from international cooperation, and towards zero sum competition.”

The paper provides specific short and medium term suggestions for how the multilateral system can better handle scarcity in each of these areas. As is often the way, the recommendations are not quite as powerful or original as the diagnosis, often reading like pretty standard development policy (increase aid and R&D spending, educate girls, build social protection systems), but the paper as a whole is incredibly useful.

The Plundered Planet: review of Paul Collier’s new book and impending personal crisis

A new Paul Collier book is always a good workout in the brain gym and his latest, The Plundered Planet: How to Reconcile Prosperity with Nature, is no exception. You can either be seduced by his writing, conceptual acrobatics, anecdotes and soundbites (who isn’t sick of hearing ‘Bottom Billion’ in every seminar?) or you can choose the more exhausting (but more useful) path of trying to enjoy all this while spotting the gaps in his thinking. Good and bad, they are all there in abundance.

His overall thesis? ‘We are not curators of the natural world, preserving nature as an end in itself. We are not ethically obliged to preserve every tiger, or every tree. We are custodians of the value of natural assets. We are ethically obliged to pass on to future generations the equivalent value of the natural assets that we were bequeathed by the past.’

For Collier, plunder can take two forms: ‘In one, natural assets that should belong to all the citizens of a nation are expropriated by the few… In the other, natural assets that should belong to all generations are expropriated by those currently alive.’

There are two big parts to the argument. First, how to manage the non-renewable natural assets in the territories of the bottom billion (oil and gas, minerals). Collier sees them as the only chance of dragging the countries out of poverty – ‘the failure to harness natural capital is the single most important missed opportunity in economic development’.

So drill baby drill, but change the governance of the chain of decisions and spoils-sharing. That means getting every link right in a chain that includes discovery, who captures the value, of the assets, the proportion of government revenue that should be consumed, and how the rest should be invested. Collier has problem/solution analyses for each stage, building on his excellent work on the Natural Resource Charter.

Second, international renewable assets such as sea fish are likely to be plundered to extinction, while natural liabilities, such as carbon, tend to accumulate. The combination of scarcity + improved technology means that for an economist like Collier, the nature of the problem has changed. In the past, the fish supply was effectively infinite and so the value of fish was set by the investment, labour and risk of catching them – mining fish was like mining coal. Now, they have now become a scarce resource, hoovered up by giant factory ships. They have to be managed by quotas, and that means that governance becomes the key issue – mining fish has become like drilling for oil, and the issue of ‘rents’ has become central. Governance must change accordingly.

And so to climate change. Carbon emissions are a ‘renewable natural liability… the natural equivalent of a debt’. Collier is scathing about carbon trading and the Clean Development Mechanism, which he likens to the Catholic Church’s former tradition of selling forgiveness (indulgences) to finance the construction of St Peter’s in Rome (nice joke – ‘sins of emission’). Since the CDM finances firms for emitting less than they would otherwise have done, ‘the sale of indulgences through the CDM creates incentives not so much to reduce carbon emissions but to threaten to increase them by as much as possible.’

Instead, Collier argues that only a carbon price of say $40 a tonne will change the incentives and trigger the wave of technological innovation required to move us to a low carbon economy. That can be achieved by a combination of regulation and taxation that can be left up to national decisions, but the $40 a tonne figure has to be a ‘commonly agreed-upon world shadow price’. Here’s where he starts to lose the plot – he ridicules the ‘haggling’ of climate change negotiations, but gives no idea of how a universal $40 a tonne figure could be agreed and policed. As always, politics is his achilles’ heel.

But before I get onto the downsides, my favourite left field idea in the whole book: world government funded by fish. To solve the over-fishing problem, we should ‘assign the natural assets of the oceans to the United Nations. The UN would auction the quota rights to fish traders who would then on-sell them in each wholesale market. Analogous to a tax, a wholesale transaction of fish would be legal only if attached tot the appropriate quantity of quota rights. These quota rights would trade on the world market.’ Taxpayers would know how much of their fish bill goes to the UN and so take more interest in its workings (a fish-based social contract), and the money could fund the World Food Programme. Result.

So what’s not to like? First the lazy triangulation – Collier sees the debate polarized between romantics (opponents of GM, supporters of peasant agriculture) and ostriches (growth will solve everything, climate change isn’t a problem): ‘Run by romantics, the world would starve; run by the ostriches, it would burn.’ That’s good polemics, but a pretty feeble contribution to debate.

And he has a serious problem with ‘the middle class love affair with peasant agriculture’. He thinks agriculture should be handed over to Brazilian-style industrial farming, and the peasants should head for the cities (‘Africa needs more megacities’). The problem here is that Collier, as so often, is ahistorical, or bases his analysis purely on European history. Recent take-offs in countries such as Vietnam show just how crucial investment in peasant agriculture is in the early stages of take-off – urbanization happens after that, but the starting point is the peasantry.

His advocacy of the Brazilian model points to another blindspot – inequality. Collier cares deeply about inequality between countries, and has devoted his life to Africa, but he seems blind to the equity impact of a universal carbon tax (poor people priced out of access to fuel) or the mass joblessness that would ensue from a sudden transition to industrial megafarms.

But his biggest blindspot is undoubtedly politics, and here I detect some kind of impending personal crisis. His analysis of the obstacles to change seems to be pushing him towards a more political standpoint, calling for a ‘critical mass of ordinary citizens’ to rise up and demand good governance. But he doesn’t really do politics, has no idea about how such a critical mass might form, which organizations it might involve, what events might precipitate it etc. instead he talks vaguely about the need for ‘social pressure’ at national and global level. For him, this movement simply requires lots of economic literacy and data on oil revenues – a kind of mass movement of mini-me Paul Colliers that will storm the citadels of corrupt and incompetent rulers.

This weird gestalt shift from sophisticated economist to ingénue activist peaks in the conclusion to the book, where he thunders ‘this bottom-up approach holds out greater promise than re-engineering inter-governmental cooperation’, but fails to describe any plausible bottom-up approach. It all smacks of desperation – an atheist saying ‘trust in God’. Obviously as an NGO activist, I agree with the sentiment, but it’s analysis-free and wonderfully naïve, as in ‘citizens around the world can surely accept that their country should not be guilty of free-riding on the efforts of others’ on climate change. Oh really?

As you can see, the book certainly got me going. Anyone else read it yet or seen any good reviews? (And I don’t include John Vidal’s rant in the Guardian in that category).

See here for my past reviews of War, Guns and Votes,  Collier’s plan for Haitian reconstruction, how to clean up dirty elections and other stuff

Lifting the Resource Curse (or how to make finding oil a blessing)

‘Lifting the Resource Curse’, a new Oxfam paper, revisits the difficult question of how to ensure natural resources are a blessing, and not a curse, for poor countries. Countries like Angola, where oil revenues (which represent 80 per cent of national income) are estimated at $10bn per year, yet 70 per cent of the population live on less than $2 per day. By one estimate, between 1997 and 2002 more than $4bn in state oil revenues ‘disappeared’ from the Angolan treasury; an amount almost equal to total government spending on social services in the same period.

The first step for any country is to get your hands on the money. There are some successes to point to: Bolivia saw oil and gas revenues rise from $448m in 2004 to $1.531bn in 2006, due to the redistribution of profits agreed in contracts after 2005.

But then you have to use the money wisely (and not nick it). Indonesia and Norway are good examples of countries with significant revenue from natural resource extraction, where public spending is aligned coherently with long-term development goals. Oxfam’s research highlights some key ways to improve the opportunities offered by revenues from extractive industries: upgrading legal and fiscal frameworks in poor countries with natural resources; renegotiating contracts with big extractive companies; and putting in place or reinforcing public financial management systems. These systems should use extractive revenues for social spending, as well as for setting the foundations for the diversification of production, job creation, and to mitigate the social and environmental impacts of exploitation.
 
A cornerstone of such policies should be the promotion of transparency throughout the extractive industry supply chain, from the agreement of contracts to the allocation of revenues through public budgets.

If you have a government that wants to make natural resources into a national blessing, there is no shortage of advice. Numerous “best practice” guides have been developed in the last few years showing how to improve management of the extractive “value chain” – from licensing to government expenditures. These include the IMF’s Guide to Resource Revenue Transparency, the Natural Resource Charter developed by Paul Collier and others, a book, “Escaping the Resource Curse” edited by Macartan Humphreys, Jeffrey Sachs and Joe Stiglitz, and innumerable academic and NGO reports (the Oxfam report has over 4 pages of recommendations to be getting on with). African governments can access technical advice c/o the AfDB’s new African Legal Support Facility.

Fine, but what if you don’t have an effective state – if vested interests are skimming off revenues from oil and mining, and will do their best to stop you spending it on schools and hospitals? (This is where I try desperately to avoid using the phrase ‘political will’, banned by a previous blog). This is quite common since part of the curse of wealth is precisely that ‘money coming out of the ground’ often weakens the social contract between state and citizen (eg the state no longer needs to tax its people) and undermines institutional development.

At a national level, Lifting the Resource Curse argues, unsurprisingly, that the active involvement of civil society is essential both to increase the public pressure on governments to make the most of natural resource endowments and to act as watchdogs, tracking both the origins and uses of revenues from extractive exploitation. It is also of crucial importance to have public institutions that can support this process of participation and which are efficient in their control, monitoring, and enforcement of it.

But I think the paper could have gone a bit further with its power analysis on this – what other influential domestic groups have an interest in harnessing extractive industries for the national good? Answer, virtually all of them – business sectors (manufacturing, exporters, agriculture, finance), trade unions, media, national parliaments and local governments. Where and how have these kinds of coalitions formed and had an impact? There’s a lot more to life (and change) than CSOs.

At an international level, apart from the ever-expanding but voluntary Extractive Industries Transparency Initiative, there are moves in the US to introduce legislation that would require extractive industry companies that list on the New York Stock Exchange (basically all the big ones) to disclose payments to governments. Similar moves are under way in Spain. Clamping down on tax havens and international banking secrecy might also curb some of the outflows of stolen money. Export Credit Agencies could insist that any companies they support comply with the highest standards on bribery, corruption and transparency.

With high commodity prices looking set to continue, the ability to make natural resources work for the common good, rather than private evil, will play a big part in determining which countries prosper and which fail.

See also my recent post on a World Bank paper on this issue. Oh, and the black and white pic is apparently a Californian beach in the 1920s. Those were the days, eh?

Natural Resources and Development Strategy after the crisis: useful (but flawed) new World Bank paper

The World Bank’s influential PREM (Poverty Reduction and Economic Management Network) team has a new series of topical notes, pulling together its research on breaking issues (they’ve obviously been reading the literature on using research for influence – rehashing existing research at the right moment for policy makers is one of the most effective forms of influencing). It’s called ‘Economic Premise’ (geddit?). Very welcome idea, but the premises behind the first issue are a bit patchy.

Issue number 1 is entitled ‘Natural Resources and Development Strategy After the Crisis’ and starts with the data.  ‘It is notable that, while commodity prices fell sharply from their peak in 2008 with the onset of the global recession, they generally remained much higher than previous recession lows, often as high as in 2005–07, a period of robust world growth. Furthermore, prices have also rebounded smartly over the course of 2009.’  [see graph]

The paper then addresses four main issues:

1.  How dependent are developing countries on primary commodity exports?  ‘Although declining, commodity or natural resource dependence remains a fact of life for a majority of developing countries. Commodities still comprised a little over 60 percent of the merchandise exports of the average developing country in the middle part of this decade [presumably they mean the last one], although this was down from over 90 percent in the late 1960s.’

2. What is the outlook for primary commodity prices? ‘In the 1950s the famous Prebisch-Singer thesis argued that real primary commodity prices (for example, relative to manufactures prices) displayed a long-run declining trend. [But] based on econometric study of long time series, the present consensus appears to be that real commodity prices do not display any permanent trend or drift over time.’

3. Is there a natural resource “curse” (or blessing)? ‘The short answer is “no” or rather “it depends.” Natural resources are “neither curse nor destiny”… negative long-run growth effects are mostly related to oil and minerals —concentrated “point source” resources that can easily become the object of rent-seeking and redistributive struggles (including armed conflict). On the other hand, there is little evidence of negative growth effects related to high prices for agricultural commodities, which are generally more open to competitive entry. Second, high oil and mineral prices mostly have a negative impact on long-run growth in exporting countries with bad governance. They have a significant positive impact on growth in exporters with good governance. This finding suggests that continued high commodity prices in the next few years could provide valuable resources to accelerate economic and social development in commodity exporting countries with good policies and governance.’

At this point alarm bells started to ring for me. Natural resources and governance are not independent variables – the interesting question is the impact of natural resources on governance itself. Countries are not born with either good or bad governance, they evolve, not least because of the influence of ‘money coming out of the ground’. How will Ugandan governance fare when its new oil finds come on stream this year? The Bank (or at least PREM) seems stronger on the economics and data than on the politics.

But that is nothing compared to this paper’s blind spot on environmental constraints. An entire paper on commodities, including agriculture, in which the only reference to climate is ‘investment climate’ is really quite an achievement. Might climate change not just have a bit of an impact on the future supply of commodities? And nothing on natural resource exhaustion either. Long term investors have largely accepted that oil production will peak, probably this decade, and then fall away. But in this paper the happy world of unlimited natural resource usage lives on. Extraordinary. Other bits of the Bank are doing good work on climate change, but it doesn’t seem to have reached the authors. Deep breath and back to point 4.

4. What policies can help poor countries best manage commodity resources for development? A fairly standard set of policy prescriptions:

a) Deal with governance through transparency, as in the Extractive Industries Transparency Initiative, backed up by citizen watchdogs. Not a bad thing (after all, we NGOs developed the ideas behind the EITI as Publish What You Pay, before Tony Blair nicked and rebranded the idea), but hardly a game changer.

b) Set up Natural Resource Funds to put money aside during booms and smooth out the impact of price swings on government revenues.

c) Don’t spend all the money on consumption and wages. Better in low income countries ‘to devote a larger portion of resource revenues to high-return public domestic investments, leading to higher growth and, ultimately, a higher value of consumption than under the permanent income strategy.’

For natural resource wonks, this last point is more significant than it seems. The authors think the standard advice, known as the ‘permanent income approach’ to natural resource fiscal management, doesn’t go far enough, and want governments to spend more.

Paul Collier on post conflict reconstruction, independent service authorities, how to manage natural resources and the hidden logic of the G20 London Summit

Paul came to give a talk to Oxfam’s big cheeses last week based on his new book War Guns and Votes (see my review here) and they invited me along. Here are some highlights:

Post Conflict Reconstruction: The conventional sequence is ‘build the politics first, then the economics will follow’. Collier thinks the order should be reversed. Conflict is a zero sum game, he says – someone else’s gain is your loss. It takes a decade of steady growth to shift politics to the positive sum game of mature democracies, and to weed out the bad guys who were attracted to politics under the old regime.

The key to cleansing the political system via the economy is to focus on a small number of essential things: jobs (especially for young men) and essential services, with possibly food security as a third component, but no more complicated than that. Post-conflict states are highly uncompetitive so target non-tradables rather than export industries – construction ticks all the boxes (jobs for young men, non tradable etc), but don’t ask the Chinese to do it (they bring their own workforce). Governments should identify bottlenecks that increase prices in the construction sector (skills, land, cement, finance etc) and concentrate on freeing them up.

Independent Service Authorities (ISAs) for Essential Services: State-building in post independence Africa was based on a 1950s European model of a single all-providing state in education, health etc. It didn’t work. The answer is to unbundle that state model into
a) setting policy (stays with government)
b) allocating money to providers (ISAs)
c) service delivery (all welcome – churches, not for profits, private sector etc)

The debates and doubts largely surround the intermediate role of ISAs. Paul sees them as free standing, with boards made up of government, donor and civil society representatives. ISAs can ‘spot winners and scale them up, fire as well as hire and pay people properly’. See here for his latest paper on the ISA proposal.

The discussion on ISAs revolved around what happens to a short term fix as the years go by. There have been lots of questions on an exit strategy – would ISAs eventually pass control back to a strengthened central government, or would they become entrenched as a parallel system? Collier responded ‘there doesn’t have to be an exit strategy. This may be the right way to deliver services in the long term’. i.e. it may not about moving from Liberia (fragile state, ISA created to channel donor funds) to Ghana (effective state, donors hand over money to the government). You create a mechanism that may never graduate, a parallel system that lasts for ever.

And what about power? ISAs will control the money, so the powerful and corrupt will gravitate towards them – what’s to prevent them being captured by vested interests, doling out the goodies to their allies, and becoming even less accountable than governments? Paul puts his hopes on donors to discipline the ISAs and prevent capture. ‘At the heart of this is that the ISA must take good decisions, and donors have to keep it so, at least for the first few years.’ This smacks of the desperate search of the technocrat to somehow magic away messy issues of power and politics that get in the way of good decisions.

Although he thinks civil society organizations should sit on ISAs, there is little sense of countervailing power from below in holding governments (or ISAs) accountable– is this the missing piece – an Independent People’s Authority rather than an ISA? On ISAs I came away from the discussion more sceptical, not less. They sound a bit like food aid – a seductive, short term solution that can easily turn into a long term trap.

Resource Charter: Paul calls his work on this his ‘biggest pride’. Resource transfers are an order of magnitude larger than aid, but receive far less attention. The problems are much greater, as is the dispersion of performance in different countries (from Botswana’s excellent management of diamond wealth to Nigeria’s lamentable performance on oil and gas). He concludes ‘we need to get a range of decisions right over a generation in everything from how to explore to how to spend the revenue.’

The resource charter group has come up with 12 ‘precepts’ that offer guidance on the key decisions that governments face, with different levels of details for decision makers, policy wonks, and civil servants. The Charter has a technical group chaired by the nobel laureate Mike Spence, who also chaired last year’s Growth Commission, and is soon to announce a board of 3 eminent people from natural resource countries (he didn’t divulge names, sorry).

Global Economic Crisis: ‘The G20 deal in April looks bizarre until you recognize that the guiding principle was that anything agreed must not add to the spending figures of G20 governments’. So the deal to increase the IMF’s finances through a new issue of Special Drawing Rights (SDRs) was ‘quantitative easing on a global scale’. To the World Bank, the G20 said ‘take more risk – lend more on same capital base’. i.e. exactly the opposite of their advice to the commercial banks. No new money was agreed for bilateral aid agencies like DFID, because that would count as spending.

Taxation and development: a great new book

Finally finished an illuminating book on the link between taxation and development: (Taxation and state-building in Developing Countries), edited by Deborah Brautigam, Odd-Helge Fjeldstad and Mick Moore). Here are a few highlights – a bit long, but I’m trying to summarize a densely argued 260 page book, so bear with me.

Taxation is the new frontier for those concerned with state building in developing countries. The origins of representative government in Europe are intimately bound up with the evolution of taxation. The oft-told narrative begins with war: the costs of warfare led European monarchs to increase direct taxation, which they were only able to do through bargaining with their societies’ elites. This had two political outcomes: it prompted the rise of parliaments, and it led to larger, more capable, and more professional state bureaucracies. Read More …