Here’s my op-ed linked to today’s launch of a new Oxfam paper prior to the summit. See the end for some other good sources of policy ideas ahead of the meeting.
‘“When elephants fight, the grass gets trampled,” runs the African proverb. This Saturday, the world’s economic elephants will lock tusks in Washington DC for an emergency G20 summit to seek a global response to the financial crisis. Meanwhile, the grass – 172 uninvited countries which include the poorest people of the world – are at risk of paying the highest price for the collapse of casino capitalism.
When asked during the US Vice Presidential TV debate what spending a recession-hit administration might have to cut, the first thing the Vice President Elect, Joe Biden, said was, ‘Well, the one thing we might have to slow down is a commitment we made to double foreign assistance.’ When money is tight, cutting aid is an easy option for rich country governments. Even before this crisis broke, the majority of rich countries were reneging on their previous commitments to increase aid. Italy and France led the way in September, agreeing tiny budget increases (France) or significant decreases (Italy). Yet for the rich countries, the savings involved are minor: the multiple EU and US bank bailouts of recent weeks come to some 30 times the total value of global aid.
In a crisis, poor countries need more aid, not less. Other sources of money are drying up. In rich economies, big investors are frantically clawing back money wherever they can, including from developing countries. In South Africa, the outflow of capital together with falling commodity prices has knocked a third off the Rand’s value against the dollar since the beginning of September. Emerging markets such as Indonesia, India and Russia are rapidly becoming ‘submerging markets’, littered with the wreckage of stock market crashes and bank bailouts. Adapting to deepening climate change adds an estimated extra $50bn a year to the aid needs of poor countries.
A slowdown in developed economies will also hit remittances. Migrant workers sent an estimated $251bn back home to developing countries in 2007, more than double the value of aid. In a recession, that is bound to fall.
Such knock-on effects will put heavy pressures on developing country spending on hospitals, schools, pensions or child benefits – the very support that people living in poverty need during times of crisis.
On 15th November, the G20 leaders need to do three things: increase aid to the poorest countries immediately; rewrite global financial rules to make the market work for all and not just for the few, and start building new global institutions to manage the global economy and to tackle the climate, food and energy crises.
The credit crisis has exposed systemic failures of financial markets. Global leaders should take immediate action to develop a new international regulatory institution. This should be counter-cyclical, ensuring money is put aside during good times, and released during slowdowns in order to minimise boom and bust. It should also be comprehensive: new rules should cover not just banks but also the parallel financial system, including hedge funds and private equity funds.
Rich countries can also stem capital flight from poor countries by acting on tax havens. By one calculation, such havens account for an estimated annual tax loss due from individuals of US$255 billion, and that doesn’t even include corporate tax evasion. President-elect Obama has already said he wants to action on tax havens, as have the French and German governments. Given the UK government’s close relations with the City, this will be a stern test of Gordon Brown’s development credentials.
Creaking global financial institutions such as the World Bank and IMF, along with the G8, need to be thoroughly reengineered, or put out of their misery altogether. The era when the leaders of China, South Africa, Brazil and other developing nations could simply be summoned to the G8 for that year’s photo opportunity are long gone. The US must give up its veto on the boards of both the World Bank and the IMF. The Europeans must make way for a far greater voice for developing countries. The current situation, where Belgium has more votes on the board of the IMF than China, is indefensible. China and other developing nations should settle for nothing less in return for granting access to their huge reserves, as Gordon Brown has urged.
Stimulus packages to respond to the crisis need to be good both for development and for the environment. The renewables sector generates 3-5 times more jobs per dollar of investment compared to fossil fuels and already employs more people than the fossil-fuel sector.
None of this will be easy. In particular it will require far-sighted steps by President-elect Obama and European leaders to share some power now in the interests of building a stable world for future generations. The arguments for such enlightened leadership are identical to those that saw the New Deal emerge from the Great Depression, but this time the response must be both global and green.’
Other places to go:
Institute for Policy Dialogue: thinktank of finance gurus based at Columbia University, including Joseph Stiglitz, Stephany Griffith Jones and José Antonio Ocampo. There’s a particularly useful summary of the principles that should guide the reform process.
South Centre: Inter-governmental policy thinktank for developing countries has an excellent overview paper on financial architecture reform from some political and economic heavyweights – good alternative to a debate largely dominated by northern voices.