Memorandum from nef (the new economics
foundation)
SUMMARY
We believe that DFID could be contributing to
an unnecessary conflict between dealing with climate change and
eradicating poverty, by promoting a paradigm of development which
increases the dependency of developing countries on unsustainable
growth in developed countries. The period since 1981, which marks
the shift to the current paradigm of development, has been characterised
by a dramatic and accelerating slowdown in the rate of poverty
reduction, as social objectives have been sacrificed to achieve
faster growth, which has failed to materialise.
Just 60 cents of each $100 of per capita growth
went to the poor in 1990-2001, 73% less than in 1981-90. This
means that $166 of additional production and consumption, with
all the associated greenhouse gas emissions, are required to achieve
each $1 of poverty reduction. As a result, current global growth
rates which, to tackle climate change, will require at least a
tripling of the rate of reduction in the carbon intensity of production,
are set to leave 550 million people below the "$1-a-day"
line even in 2050.
nef believes that the only way to reconcile
poverty eradication with our carbon constraints is to shift from
reliance on the "trickle-down" from global growth to
a greater emphasis on the distribution of income at the global
level. This will mean focusing policies directly on social and
environmental objectives, and redesigning the global economic
architecture to permit, foster and support such policies.
DFID, CLIMATE CHANGE
AND DEVELOPMENT
DFID's response to environmental concerns appears
to be limited to national-level environmental policies and programmes
in developing countries (DFID, 2006). This implicitly assumes
that environmental problems arise within countries, as a result
of domestic policy and institutional failures. Climate change,
however, differs fundamentally from this paradigm. While it impacts
primarily on the poorest people and the poorest countries, it
arises globally, primarily from economic activity in developed
countries, and has its roots in the global economic system.
While DFID's potential role in direct
action to limit climate change is thus limited, it plays a critical
indirect role through its influence on development policies.
Here, DFID's role is seriously counterproductive, not only defending
but actively promoting the current growth-focused, outward-oriented
model of development. In his recent article "Growth Is Good"
(Benn, 2006), for example, Hilary Benn wrote that "Economic
growth is needed to achieve the goal of making poverty history
. . . . Without growth we will have little if any long-term development",
and asserted that "poor countries must trade more and receive
more foreign investment"—reflecting the view embodied
in DFID's 2000 White Paper (DFID, 2000).
In reality, however, the growth-focused model
of development creates an artificial and unnecessary tension between
poverty reduction and dealing with climate change, and actually
makes the eradication of poverty—by any reasonable
definition and in any reasonable timeframe—impossible, because
the scale of growth required to eradicate poverty is incompatible
with constraints on carbon emissions in any realistic scenario
for the reduction of the carbon intensity of global production;
and breaching these constraints will have a serious adverse effect
on poverty reduction.
GLOBAL GROWTH:
THE SOLUTION
OR THE
PROBLEM?
The rate of poverty reduction, based on the
"$1-a-day" line, has slowed down dramatically over the
last 25 years, from 1.4% pa in 1981-90 to 0.9% pa in 1990-96 and
0.3% pa in 1996-2001. (See Figure 1; based on Chen and Ravallion,
2004, Table 3). This compares with an annual reduction required
to meet MDG1 of 0.6% pa. At the same time, the narrowing of the
average income shortfall of households below the "$1-a-day"
line slowed from 1.9% pa in 1981-90, to 0.5% pa in 1990-96, and
to zero in 1996-2001. (See Figure 2; based on Chen and Ravallion,
2004, Table 5).
That poverty reduction in 1996-2001 should be
only one-quarter of what it was in the 1980s—the "lost
decade for development"—is a major danger signal, indicating
that the current economic model is failing to reduce poverty significantly.
More than two-thirds (nearly 450 million) more people were below
the "$1-a-day" line in 2001 than if the 1980s rate of
poverty reduction had been sustained. (See Figure 3; based on
Chen and Ravallion, 2004, Table 3.)
This dramatic deterioration in progress in poverty
reduction even since the 1980s can be seen as a product of two
factors. First, even before the post-2001 slowdown, the growth
rate of the global economy fell between the 1980s and 1990s (having
already fallen dramatically in the 1970s, and further in the 1980s).
(See Figure 5, based on data from World Bank, 2006.) Second, and
more importantly, the share of the "$1-a-day" poor in
the proceeds of growth also fell dramatically between the 1980s
and the 1990s, both absolutely (by three-quarters) and relative
to their share in income (by three-fifths). (See Figure 6, based
on Woodward and Simms, 2006, Table 4.)
In other words, global growth has both slowed
and become strongly anti-poor, resulting in a dramatic slowdown
in poverty reduction to barely half the rate required to achieve
MDG1. We have sacrificed measures aimed directly at social objectives
such as distributional equity, poverty reduction, social provision,
health and education, in order to achieve faster global growth;
but that growth has not materialised, leaving the poor with the
worst of both worlds—a rapidly declining share of an ever
slower rate of growth.
Despite slowing, however, global growth has
still pushed economic activity beyond the Earth's environmental
carrying capacity. This issue is reaching critical dimensions
in terms of carbon emissions and climate change. Despite technological
optimism bordering on the Panglossian, there is no sign of the
fossil fuel intensity of production and consumption declining
fast enough to off-set our current growth rate, let alone to achieve
the minimum 60% reduction in global carbon emissions required
by 2050 to avoid irreversible climate change.
If global growth and the share of the poor in
the proceeds of growth (relative to their share in income were
to continue indefinitely at their post-1990 rates, MDG1 would
be missed by a substantial margin, 20% (177 million) more people
remaining below the "$1-a-day" line than if the target
were achieved.
Even in 2050, more than 550 million people[1]
(including nearly a quarter of Africans) would remain below the
"$1-a-day" line. And, if the post-1990 rate of change
of the carbon-intensity of production were also to continue, global
carbon emissions would not fall by 60% by 2050, as required, but
would increase by 60% over the same period. Achieving the
60% reduction in carbon emissions necessary to avert irreversible
climate change would require us to triple the rate of reduction
in carbon use per $1 of GDP, from 1.5% pa[2]
to 4.5% pa.
In other words, our present (post-1990) trajectory,
if maintained, will result in a simultaneous failure to meet MDG1,
to eradicate poverty even by 2050, or to avoid catastrophic and
irreversible climate change.
This problem would become considerably more
acute if one were to consider a poverty line consistent with a
tenable interpretation of human rights standards, such as the
right to child survival established under the UN Convention on
the Rights of the Child. Households living at the "$1-a-day"
line are estimated to have a typical child mortality rate in the
order of one in six to one in 12, compared with one in 140 for
the population of developed countries, and in at least one case
(Niger) more than one in three, while a third to half of surviving
children at this income level are stunted (Woodward and Simms,
2006, based on Wagstaff, 2003, Table 2). Edward (2006), for example,
proposes an "ethical poverty line", based on life expectancy,
between $2.70 and $3.90 per day at purchasing power parity.
WHAT NEEDS
TO BE
DONE?
This is a fundamental problem, and simply throwing
the global economy into reverse gear is not a solution. Through
their dominant role in international economic organisations—not
merely the IMF and World Bank, where they have a majority of the
votes, but also the GATT (Watkins, 1992) and WTO (Jawara and Kwa,
2004)—the governments of the developed countries have for
the last quarter century increasingly used their overwhelming
political and economic dominance to create an ever greater dependency
of developing countries on economic growth in the North. To end
this growth without relieving this dependency would therefore
be little short of disastrous in terms of its human impact.
Rectifying the situation therefore needs to
be a phased process, beginning with a deliberate process of rolling
back the dependency which has thus been created. This will, of
course, limit the acceleration of progress which can be made towards
tackling climate change, which in turn means both that the end-point
of this process will need to be more ambitious, and that the roll-back
of dependency needs to be begun and to proceed as quickly as possible.
The first step is to stop pressure on developing
countries to open their economies further ("no forced liberalisation",
a key demand of the make Poverty History campaign), whether through
PRSPs, WTO Agreements or bilateral trade and investment agreements.
This would require, inter alia, changes in the advice given by
IMF and World Bank staff in relation to PRSPs; a major revision
of the PRSP "Sourcebook" (Klugman (ed), 2002); suspension
of developing countries' obligations under the WTO Agreements
(restoring their discretion over their trade and other policies),
further negotiations on trade in services under the GATS Agreement,
and negotiations on bilateral trade and investment agreements;
and replacing the Doha Round WTO negotiations with a process directed
to the reorientation of trade rules and policies in line with
the moral imperative of poverty eradication and the urgent practical
necessity of tackling climate change.
Beyond this, there is a need for a fundamental
review of the current outward-oriented model of development, which
depends disproportionately on foreign capital for investment and
the global market for demand. After 25 years, it is apparent that
this has failed the great majority of developing countries, particularly
in terms of poverty reduction—still more clearly
than the import-substituting industrialisation of the 1960s and
1970s, whose failure was the rationale for the present model.
The imposition of a global economic model driven
by neo-liberal ideology and commercial interests, and its continuation
long after it has clearly failed to serve the interests of the
majority of the world's population, is largely a result of an
abject failure in the system of global economic governance. The
decision-making structures of the IMF and the World Bank give
the majority of votes (and the de facto right to appoint
the heads of both institutions) to the developed country governments
on matters whose impact is felt overwhelmingly by the five-sixths
of the world's population who live in developing countries. These
structures date back to the foundation of these institutions during
the colonial era, when their role was also directed primarily
to the developed countries.
While the WTO's constitution is, in principle,
more democratic, the real locus of decision-making lies place
outside this process, in unofficial "green room" and
"Mini-Ministerial" meetings, which are consistently
used by developed country governments to abuse their political
and economic power, and in "confessional" processes
which contravene basic principles of democracy, transparency and
accountability.
An alternative model should learn from the failings
both of the current neo-liberal/outward-oriented model and the
interventionist/import-substituting industrialisation model. It
should focus on:
— measures aimed directly at increasing
the real incomes of poor households (eg, income generation, agricultural
extension, employment generation, "self-targeting" subsidies)—rather
than reliance on "trickle-down", either at the national
level, as in the ISI model, or at the global level, as in the
neo-liberal model;
— expanding supply and demand in parallel,
at the local, national and regional levels, encouraging production
of the goods whose demand will be increased by poverty reduction,
and fostering forward and backward linkages in production—rather
than relying on the global market as a bottomless pit into which
unlimited supplies of a relatively narrow range of commodities
can be supplied, or developing industries which depend critically
on imported inputs, and on increasing incomes at the top of distribution
for demand;
— strengthening the government revenue
base and harnessing and retaining local resources for investment—rather
than removing constraints on capital flight, tolerating tax avoidance,
promoting tax competition, and relying on untenably high rates
of return to attract and retain private capital in the face of
economic and political instability, and on an inadequate, vulnerable
and insecure supply of official capital;
— supporting and promoting the provision
of universal public health services and education, free at the
point of delivery, rather than encouraging "cost recovery"
and parallel commercial markets;
— developing a collaborative model
of the global economy, rather than a competitive model in which
the success of some economies comes at the expense of, and arguably
depends on, the failure of others;
— increasing North-South transfers
financed by a system of global taxation, with greater pooling
and automaticity, rather than dependence on a discretionary system
which results in chronic shortfalls (eg, from the 0.7% commitment
made in 1970) while perpetuating neocolonial control of developing
countries through direct and indirect policy conditionality and
the entrenchment of dependency and clientelistic North-South relations;
and
— fundamental reform of the anachronistic
institutional framework of the system of global economic governance,
to allow collective decision-making in the collective long-term
interest, through mechanisms consistent with standards of democracy,
accountability and transparency which would be considered appropriate
at the national level.
WHAT SHOULD
DFID DO?
DFID should
— stop promoting the current outward-oriented
neo-liberal approach to development;
— actively investigate possible changes
its existing aid programme and its procedures to promote the country-level
approaches proposed above, for example:
— increasing local and regional procurement;
— using local economy multipliers in
project design and appraisal;
— designing income generation programmes
to meet the additional demand they create by increasing incomes;
and
— shifting support from exports to
the production of basic goods for local consumption);
— seek an urgent and objective review
of the Doha Round WTO negotiations in terms of their consistency
with global needs for poverty reduction and the reduction of carbon
emissions, and a suspension of developing countries' obligations
under existing WTO Agreements and of negotiations offers and requests
under the GATS Agreements;
— investigate the consistency of policies
promulgated by other UK government departments (eg on immigration
and domestic energy policies) with the needs of developing countries
and the global environment, and press for changes where necessary;
— develop a strategy, in collaboration
with civil society organisations, to promote a shift of the global
economic system in the directions outlined above;
— use its disproportionate power and
influence within the international system to push strongly and
proactively for:
— a fundamental reform of the system
of global economic governance;
— changes in the policies, programmes
and operations of the international financial institutions; and
— a comprehensive renegotiation of
the existing WTO Agreements, through genuinely democratic processes,
to prioritise social and environmental objectives.
March 2006
REFERENCES
Benn (2006) "Growth Is Good". http://www.guardian.co.uk/comment/story/0,,1705954,00.html
Chen. Shaohua and Martin Ravallion (2004) "How
have the World's Poorest Fared since the Early 1980s?" World
Bank Research Observer 19(2):141-169.
DFID (2000) "Eliminating World Poverty:
Making Globalisation Work for the Poor—White Paper on International
Development". Department for International Development, London,
December.
http://www.dfid.gov.uk/pubs/files/whitepaper2000.pdf
DFID (2006) "DFID's Approach to the Environment".
Department for International Development, London, February. http://www.dfid.gov.uk/pubs/files/approach-environment.pdf
Edward, Peter (2006) "The Ethical Poverty
Line: a Moral Quantification of Absolute Poverty". Third
World Quarterly 27(2):377-393.
Jawara, Fatoumata and Aileen Kwa (2004) Behind
the Scenes at the WTO: the Real World of International Trade Negotiations—Lessons
from Cancun. London: Zed Books.
Klugman, Jeni (ed) (2002) A Sourcebook for
Poverty Reduction Strategies. Washington DC: World Bank.
Marland, Gregg and Tom Boden (2005) Global CO2
Emissions from Fossil-Fuel Burning, Cement Manufacture, and Gas
Flaring: 1751-2002. Carbon Dioxide Information Analysis Center
(CDIAC), Oak Ridge, Tennessee. http://cdiac.esd.ornl.gov/ftp/ndp030/global.1751_2002.ems
Wagstaff, Adam (2003) "Child Health on
a Dollar a Day: Some Tentative Cross-Country Comparisons".
Social Science and Medicine 57:1529-1538.
Watkins, Kevin (1992) Fixing the Rules: North-South
Issues in International Trade and the GATT Uruguay Round.
London: Catholic Institute for International Relations.
Woodward, David and Andrew Simms (2006) Growth
Isn't Working: the Unequal Distribution of benefits and Costs
from Economic Growth. Rethinking Poverty, No 1, nef (the New
Economics Foundation), London. http://www.neweconomics.org/gen/z_sys_publicationdetail.aspx?pid=219
World Bank (2006) World Development Indicators
Online. www.worldbank.org
1 Based on extrapolation of the World Bank's forecast
population growth rate for developing countries (1.2% pa). Back
2
Estimated from World Bank (2006) and Marland and Boden (2005). Back
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