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Policy Debate | Financing the SDGs: Global vs Local Public Goods

Inge Kaul, Robin Davies, Robert Glasser, Michael Gerber and Luca Etter

Abstract

Editor’s Note : These papers are contributions to the ‘Policy Debate’ section of International Development Policy. In this section, academics, policy-makers and practitioners engage in a dialogue on global development challenges. Papers are copy-edited but not peer-reviewed. Instead, the initial thematic contribution is followed by critical comments and reactions from scholars and/or policy-makers.

The initial paper takes the form of a structured interview with Inge Kaul, conducted by Graduate Institute Research Fellow Robin Davies, on the topic of Global vs. National Public Goods in the post-2015 international development framework. Kaul argues that for the good of developing countries and the world as whole, support from developed countries for the provision of global public goods (GPGs), such as climate change mitigation and communicable disease surveillance and control, should be conceived as an international extension of their domestic policies. Financing for GPGs constitutes payment for services rendered, not aid. Likewise, primary responsibility for the production of GPGs should rest with issue- and outcome-oriented ‘tsars’ at both the national and global levels, rather than with overstretched treaty- or country-oriented multilateral organisations. It follows from this that the distinction within the SDG framework between global and national goals is not merely one of level, but one of kind. Global goals call for distinctive financing and implementation arrangements.

The initial paper is followed two critical comments, (1) by Robert Glasser, Executive-in-Residence, Geneva Centre for Security Policy, and (2) by Michael Gerber, Ambassador and Special Envoy for Global Sustainable Development, Swiss Federal Department of Foreign Affairs with Luca Etter, Policy Advisor at the Swiss Agency for Development and Cooperation (SDC).

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Initial contribution | Financing the Sustainable Development Goals: A Global Public Goods Perspective by Inge Kaul, in dialogue with Robin Davies

1In this dialogue from 20 April 2015, Inge Kaul provides her current perspective on a range of questions relating to the provision of global public goods, with a particular emphasis on the mobilisation and allocation of finance for such goods—a key topic for discussion during the Third International Conference on Financing for Development, which will take place in Addis Ababa, Ethiopia, in July 2015. Kaul has thought deeply about and published extensively on these questions over a period of more than twenty-five years.

2Global public goods are most readily characterised as the flip side of global risks, whose mitigation or elimination is systemically important and generally calls for that rare commodity, effective international cooperation. Achieving the provision of most major global public goods, such as climate change mitigation, requires substantial investments in and by developing countries, whose governments in many cases have reason to accord higher priority to meeting purely national challenges. Thus the participation of developing countries in the production of such goods depends in large part on their having access to international public finance that either offsets the costs associated with the delivery of global benefits, or brings them down to acceptable levels.

3In recent years, global public goods have received rather less attention than in the period 1999-2007. However, global public goods are coming back into focus with the imminent adoption in the UN context of the post-2015 international development framework. As proposed by the UN Open Working Group on Sustainable Development Goals in mid-2014, that framework will give considerable prominence to global risks and goals. At the same time, bilateral and multilateral development agencies are increasingly revisiting their rationales for international public finance in light of the thinning of the ranks of the low-income countries. In many cases, such agencies are adopting policy frameworks in which the principal objects of their international spending are fragile and conflict-affected states, and global public goods.

Dual strands: ODA and Finance for Global Public Goods

Robin Davies. You have argued strongly for a conceptual and practical separation of Official Development Assistance (ODA) and finance for global public goods. Why?

Inge Kaul. It was quite clearly agreed at the first Rio Summit in 1992 that finance for global public goods like biodiversity preservation, climate change mitigation and related activities should be new and additional, and not taken out of ODA. Such finance constitutes payment for a service, and is not a transfer. It is, I think, most remarkable that international organisations such as the Global Environment Facility, the World Bank, the UN Development Programme (UNDP) and the like take ODA money for such purposes in non-compliance with the international agreements that exist. And the practice is continuing, now, with the Green Climate Fund.

Indeed, some 24 per cent of ODA is reported to have climate change mitigation or adaptation as its primary purpose, and many more ODA-funded activities will have one of these aims as secondary purposes. More generally, we know—thanks to Kunibert Raffer—that even back in 1999, 33 per cent of ODA was spent on global challenges, primarily in the areas of global health issues and climate change. How, then, do we expect to deal with the rising number of failed and failing states? Such countries need a lot of assistance for conventional development purposes. Why not, therefore, turn to our environment ministries and health ministries and say, ‘Top up the available ODA resources so that we can focus those on development and use the additional finance to deal with global challenges’?

Robin Davies. The typical foreign or development minister will talk about the moral or humanitarian case for aid but will often, and often much more strongly, press either the mutual benefit case or the global benefit case. Is there a risk in so firmly separating the moral case for aid and the common interest case for financing global public goods?

Inge Kaul. In my view, the result would be a strengthening of the rationale for, and therefore of public support for, the financing of global public goods. As you can see when you look at how the world reacts to the rise of China, or some of the other emerging economies, our compassion and our feelings of solidarity go only so far. Where there is really abject poverty, some of us feel morally concerned and support aid. But during the last 50-60 years, our compassion has amounted, even in good times, to not more than 0.3 per cent of our collective income. And the extent to which ODA money is being siphoned off for ‘non-conventional’ purposes suggests that our compassion is declining.

If you now try to squeeze global public good expenditure into the ODA envelope, and even get up as a parliamentarian and brag, ‘Our aid has increased from 0.36 to 0.38 per cent of GNI’ people will be upset. If we project this as aid—giving something to others because they are not as well off as we are—people will say: ‘with growing poverty in our own societies, and with inequity, why don’t you spend that money here?’ So, instead, tell people that we are spending this money so that their utility increases. They won’t get skin cancer from the hole in the ozone layer, and the roofs of their houses won’t be blown away owing to climate change. People don’t want to be exposed to these global risks. So I think it is very counterproductive from a political point of view—as well as technically wrong—to conflate aid and finance for global public goods. We are giving the relatively poor people in our societies the feeling that we give money away while we can’t afford kindergartens at home.

Robin Davies. It seems difficult in practice always to draw a sharp distinction between financing development and the production of global public goods. Certain global public goods require a whole lot of other things that are also important for national development reasons.

Inge Kaul. Yes, the strengthening of health systems is of course very much in the national interest of developing countries and should be supported for moral reasons. But now, in an interdependent world, we also benefit: the more they do, the better for us. So this provides an argument not only for fulfilling long-standing aid promises, but for going further. We should provide additional resources, on top of aid, because—for example—at present we can’t rely on many countries’ disease monitoring and reporting systems. This would be a global public good top-up. The same is true in connection with infrastructure development. If there are incremental costs involved in proofing an investment against climate change, then you can’t expect a country to take a normal infrastructure loan. There should be a subsidy to cover the incremental cost.

Robin Davies. If a government actually has two financing lines, an ODA line and a global public goods line, there is a significant decision to be made about the allocation of available resources between the two lines. The average OECD donor’s ODA/GNI ratio currently stands at 0.29 per cent and in most countries there isn’t the political space to move quickly, if at all, towards higher ratios. So, in the immediate future, how do governments decide how much of their international public finance goes into the ODA line, and how much into the global public goods line?

Inge Kaul. Very simply. You have a budget with budget lines. So whatever you have for aid—0.29 per cent of GNI or whatever it is—goes into the ODA line. And then you have, say, a ministry for the environment. And among the budget lines for that ministry there might be one for allocations to the Green Climate Fund or for other such climate finance mechanisms. In the health budget, you have something similar, and likewise in the transport budget, the judicial budget, and so on.

By means of this dual track budgeting we would tie our own hands a little bit by indicating at the appropriation stage how much money is to be disbursed nationally and how much internationally. And we would depart from the budget rules that apply in many countries, according to which only foreign ministries or ODA agencies can disburse money abroad. One sees that in Canada they already do this to some extent, identifying whether funding is to be used for national purposes or spent internationally.

Robin Davies. So the aggregate finance that you provide for global public goods would be essentially the sum of your agreed or self-assessed burden share in a range of multilateral financing mechanisms?

Inge Kaul. Yes, because you have to determine your own willingness to pay. And your willingness to pay should be based on your consideration of how important you judge a particular problem to be. Take, for example, ocean acidification. New Zealand might be more concerned about that issue than some other countries, and therefore prepared to make a higher contribution in per capita terms or as a share of its GNI.

Robin Davies. It’s hard to be sure how much ODA is currently being spent on global public goods but by some estimates perhaps one-third of ODA is used in this way. Imagine that a government actually decided to create separate financing streams for development and global public goods. Most likely it would leave the total international public financing envelope unchanged, and simply move approximately one-third of what is currently ODA into a different basket. Let’s say that was all that happened. Are there benefits in even that change?

Inge Kaul. I can see that donors might be afraid of a decline in ODA if it were separated out. There is a frightened aid community out there. But donors ask developing countries to be transparent and accountable. They must be so themselves, and set an example. Spending on global public goods should be clearly presented and managed as such.

  • 1 ‘Understanding climate finance for the Paris summit in December 2015 in the context of financing fo (...)

Robin Davies. Nick Stern recently published a paper in which he was quite dismissive of the concept of ‘additionality’ with respect to climate change finance1. He also argued that there can be no practical separation of finance for development and global public goods. You spoke earlier about incremental cost financing but, in practice, that concept has been fairly difficult to work with. For example, the Global Environment Facility has basically abandoned it.

Inge Kaul. Yes, but I disagree with Stern. As Amartya Sen always says, it’s better to be vaguely right than precisely wrong. So even if there are some methodological problems here and there, one has a gut feeling that one probably should pay something.

Robin Davies. Given the current fiscal and policy environment, do you think it matters whether global public good financing is considered as part of ODA? Isn’t the problem simply that it tends to be subtracted from existing levels of ODA?

Inge Kaul. Yes, but global public good financing is nevertheless not intended for development purposes. It doesn’t belong in that category. ODA is a transfer, not a payment for a service. When you do something about climate change mitigation in a developing country you buy a precious service. The ‘thank you’ should come from your side, not from the developing country’s side.

Robin Davies. What are your views about how various scenarios for the redefinition of ODA, or the elaboration of the OECD Development Assistance Committee’s new concept of ‘Total Official Support for Sustainable Development’, might help or hinder the mobilisation of genuinely additional finance for international public goods?

Inge Kaul. I think it’s basically about putting up bigger numbers without asking what the numbers mean and what the financial flows are achieving. In the case of remittances I think we shouldn’t bother about it at all. Whatever the recipients do with remittances is fine. As for private investment, one hopes it goes where there is a return to be made and sometimes where positive social impacts might at the same time be achieved. But I find it confused and confusing to bundle these flows together with ODA in constructing a new reporting category.

Robin Davies. But in principle might this approach not facilitate the kind of distinction you described earlier, according to which one has ODA and then a complementary category of international public finance? In other words, couldn’t one think of the complementary category as creating space for a financing envelope that is specifically for global public goods?

Inge Kaul. No, I want ODA as one strand of international public finance, and funding for global public goods as another strand. If some developing country decides to let some money from ODA flow back to global public goods, so be it; but that should be counted as part of that developing country’s contribution to the production of global public goods. One shouldn’t muddle the two types of finance, including by adding them together in the way proposed. I do believe, however, that it would be important to have a body to which countries report their expenditure on global public goods. It was at one point proposed that the World Bank should play this role, while the OECD would continue to track ODA flows.

Raising it: Mobilising Finance for Global Public Goods

Robin Davies. I am interested in your views on how the necessary quantum of public finance for major international public goods, for a given period of time, might be broadly determined at the global level. I also wonder what rationing considerations you might see as relevant in the likely event that available resources fall far short of meeting requirements.

Inge Kaul. One point that I think is particularly important here is that now, unlike in the past, we seek to mobilise money before we have the projects to spend it on. The private sector would never do that. You first develop what you think is a good project and then you look for the finance. We want USD 100 billion for the Green Climate Fund but where is the project pipeline? It’s one thing to have a rough idea of what funds we need for infrastructure and so on, but quite another to have the projects.

Robin Davies. This is characteristic of the aid system, isn’t it? You start with what you are willing to give and then you say, ‘Bring me the projects that fit within the envelope’.

Inge Kaul. Yes, that was OK for aid people because on the other side you had the recipient governments’ plans and budgets. But with global public goods, we must collectively plan and budget. Given that we don’t hear much about investment plans, it might be assumed that a lot of climate change funds will just be given to the private sector. Otherwise, why would you put a lot of money up? In the case of the World Health Organisation (WHO), by contrast, some efforts have been made to estimate the costs of the R&D efforts that they consider to be necessary. For example, costs related to a new vaccine for malaria, or new drugs for tuberculosis since they cease to be effective every few years.

Robin Davies. What sort of burden sharing arrangements, in your view, should apply in the case of multilateral mechanisms such as the Green Climate Fund? How should countries like China, India and Brazil participate?

Inge Kaul. If those countries wish to contribute to the Green Climate Fund, then of course they can do so, and some are making small contributions. But the developed countries have undertaken to set the climate straight and to make an appropriate contribution to the achievement of that end. In order to be credible, one simply has to live up to such undertakings. And now that China is advancing towards the position of biggest polluter, I think the Chinese will step up their contributions. They are politically savvy.

Spending it: Cost Sharing and Pricing

Robin Davies. You have said that if we want a developing country to do something that it would not otherwise do, we are buying an environmental service for which a payment is due. But, even allowing that there is no formula that can mechanically determine the size of such payments, there remains a fundamental question about prices. How do we get prices broadly right?

Inge Kaul. That’s a very difficult issue. There, I think we need to be pragmatic. I would expect Brazil or India or South Africa—or any other relevant country—would think through for themselves what would be a fair and mutually beneficial arrangement, and we would do the same. If you think about the prices we pay for private goods, it’s the same situation. The deal is done when the parties agree. This is a case of getting it vaguely right, so that everybody goes home and feels the bargain is a good one for them. Of course, on the developing country side, the payments received should do more than simply cover the additional expenditures incurred, or the incentive is not there. There has to be some profit margin.

Robin Davies. The negotiating process you describe has certainly been followed in actual cases. However, if as a government we proceed from the premise that we are going to negotiate a deal with country X, there must be a risk that we will not get good value for money. In a private marketplace, it is my choice whether or not I shop around, because it’s my own money. But here, governments on both sides of the deal are accountable to taxpayers. Does this perhaps argue for some sort of reverse auction process?

Inge Kaul. Certainly in the area of climate change the best thing would be a global carbon market. Then one would have the permits produced where they can be produced for the least cost, and consumed where they are most needed. But even there, climate change negotiators argue against arrangements that would see reductions achieved mainly in developing countries, and therefore against developing countries receiving too large a share of carbon market flows.

Robin Davies. Before the 2009 climate conference in Copenhagen, Mexico and Norway jointly developed a model of a ‘Green Fund’ to which all countries, except the least developed, would have contributed financially. Environmental services would have been purchased in those developing countries able to supply them most cost-effectively, including countries that might have made substantial contributions to the fund. Is this broadly the kind of multilateral financing arrangement that you would prefer?

Inge Kaul. I was quite disappointed when I read successive governing board documents from the Green Climate Fund. At first, they talked about giving money to the best-suited providers. But now they are no longer thinking as an investor would. They have shifted towards a distributional attitude, which is to slip back into aid mode. We want to achieve climate change mitigation. Whoever can most cost-effectively bring about a rapid reduction in emissions should be supported to do so. From this perspective, there’s actually nothing wrong with the current pattern of climate finance allocation. Something like 90 per cent of mitigation finance is going to the major polluters among the developing countries, especially China and India. To the extent that ODA money is involved—which at present is a very large extent—there is, of course, a substantial question mark. But, sources aside, the allocation pattern is broadly appropriate. I do not see the same cost-effectiveness principle at work in the Green Climate Fund.

Global Public Goods in the Post-2015 Development Agenda

Robin Davies. What is your broad appraisal of the strengths and weaknesses of the likely SDG framework, on the assumption that in September 2015 its goals and targets will be adopted approximately as proposed by the Open Working Group in mid-2014?

Inge Kaul. I think we will get the framework that has been proposed, and that there is really nothing new in it. Most of the goals that are there we already have, either at the global level or in national policies. The framework can nevertheless serve as a reminder. When it comes to implementation, I think what will be important is that developing countries, those who still hope to get aid, formulate their own, strong country programmes. In particular, it will be important that developing countries formulate their own global public goods agendas—in which areas do they hope that the world will move, how, and in order to achieve what?

Another important point is that it is past time to introduce a structural reform within both national governments and the multilateral system. We need an organisational layer that is currently missing, or almost so, in order to deal more effectively with global challenges. At present we are organised, nationally and internationally, along the lines of geography and economic sectors. But we don’t just want to strengthen the health sector; we want to control disease. We don’t just want to do agriculture; we want to achieve food security. We don’t just want to have clean air; we want climate stability. This is why we need issue management.

If you look at the problem of climate change, we have the secretariat of the UN Framework Convention on Climate Change in Bonn but they are an issue manager primarily for the international climate negotiations, and that’s a complex enough task. Climate change, as an issue, has no ‘operational manager’ or—if you like—tsar or CEO. We have the beginnings of this type of arrangement in the health sector, following the 2014 Ebola outbreak in West Africa, but as a result of compulsion rather than foresight. Reality is forcing issue management upon us.

I often say to people, ‘Imagine the CEO of Boeing sitting in his or her office and thinking, “Wouldn’t it be nice if we had a Dreamliner”’. And we say, ‘Wouldn’t it be nice to leave nobody behind and rid the world of hunger’. The difference is that the CEO knows where to get the wheels and engines and body constructed, and how to assemble the plane. And the company doesn’t make the wings in one year and the wheels ten years later. They just get the job done; they produce a complex good.

This is not something that can easily be done by agencies like the World Health Organisation (WHO), or the UN Environment Programme. They are at bottom secretariats for international negotiations, or standard-setting bodies, or technical assistance providers. If you had a tsar for malaria, that entity should probably be in a position to hold property rights, which the WHO can’t do. So one needs really operational agencies, and they should be light-footed, equipped to play a facilitating and convening role, and ably led by very clever people.

Robin Davies. One can set up a tsar within the UN system, but that system controls relatively few resources. Isn’t the larger challenge to integrate what happens across the international financial institutions and the UN system, and also the bilateral donor agencies and international non-government actors?

Inge Kaul. I don’t quite know what to do with the World Bank. It’s an organisation that should wonder what its future is. ‘Lumpy’ organisations like the Bank were an interim solution for a time when countries were still lacking a lot of capacity, and when international development agencies still had a strong country focus. So as long as we have country programs, you do need something like UNDP or the World Bank. At the same time, the World Bank now faces growing competition from the regional banks, the Asian Infrastructure Investment Bank and the BRICS’ New Development Bank. So its management must think hard about where the institution’s comparative advantage lies.

One possibility is that it becomes like our budget for global public goods. However, it is probably better to provide money to a global health fund in order to deal with global health problems. You don’t need a lumpy organisation. Perhaps the Bank could offer economies of scale, if it were restructured as a sort of umbrella for all the major issue-specific global funds. But that might prove cumbersome. This touches, in fact, on my original motivation for talking about global public goods: you have to produce them, like Boeing’s Dreamliners, so you had better think about how and with what inputs and partners. It’s not just a matter of improving this and strengthening that, as conventional development agencies do.

Robin Davies. So in terms of organising action, you don’t see the SDGs as a hindrance?

Inge Kaul. No. The SDG framework is like a Fata Morgana on the horizon and the challenge now is how to get there. We need to go to issue managers within countries. When I started with UNDP, we still had country programming. Countries were in charge. Now countries have to take charge again of their own programming.

Robin Davies. The idea that countries—even quite poor countries—would set their own global public goods agendas is not often mooted. How might they articulate those agendas for the purpose of financing?

Inge Kaul. In my view, all the money that went into, say, the Global Fund for AIDS, Tuberculosis, and Malaria should first have gone to the country level, for the developing countries. Then the developing countries should themselves have created, for reasons to do with economies of scale and scope, a global health fund. The developing countries would then have been given to understand that basically the global health fund was theirs. They would have had it in their own budgets. They would in this way have known how much it costs them to fight HIV/AIDS, tuberculosis, and malaria. But they would still have saved money by pooling resources and working together, allowing bulk purchasing and so on.

Robin Davies. So the developing countries would receive a quantity of resources on the understanding that they would create a global fund, but the nature of this fund would be their business?

Inge Kaul. Yes, and perhaps this just a paper transaction, and in that sense a ‘phony’ one. We say, ‘You have so much aid more than you think you have’. I can understand that an actual transfer of funds to developing countries might create difficulties when it comes to ensuring that the funds end up in the global pool in full and on time. However, at least in order to have it all clear in our heads, it would have been good to undertake such a transaction.

Robin Davies. A fundamental feature of the MDGs was their focus on concrete, quantitative targets in connection with each goal. There are also SDG targets, notoriously numerous, but for the most part these are not defined at the global level and therefore will not motivate international cooperation. What is your view of these targets?

Inge Kaul. I recently discussed this in a paper about what I called the ‘missing middle’. Targets are all very well. They give one a sense of direction. But it is quite remarkable to discuss goals and indicators of success, yet keep mum about the means of implementation. How do I get from the goals to the success if I don’t know what is in the middle? I argue that we can have our ultimate goals but that our agenda should have included ‘how’ targets, such as that by a certain date we have this and this enhanced flexibility in TRIPS, or that by a certain date we have USD 100 billion in the Green Climate Fund.

I raised this point in discussions in New York and felt that it was perhaps partially recognised. Initially, means of implementation figured only very briefly at the end of the draft SDG framework, but in the final proposal we see that they fiddled some words on means of implementation into the other goals also, as additional targets. But when I look at what is going to the Addis Ababa conference on financing for development, I’m not very optimistic that this problem of the missing middle is really going to be addressed.

Architecture: Reforming the Multilateral System

Robin Davies. You’ve talked already about the idea of creating issue ‘tsars’ within the multilateral system. I’m interested in your further reflections on how the existing multilateral development architecture, and the governance and operations of some major multilateral development organisations (particularly the World Bank), might be modified over time to improve the contribution of the multilateral system to the supply of global public goods.

Inge Kaul. I always compare public goods and related activities to private goods. I have never seen a production line where a car is followed by a refrigerator on one and the same conveyor belt. But somehow the World Bank is doing this. Given the complexity of some of the problems that the world is facing, I really think we need dedicated mechanisms to deal with each of them.

That is broadly the type of architecture that I would prefer to see. It’s very issue or product focused. The idea is to get some specific jobs done, or problems solved, and this idea is not well served by the lumpy organisations of the past. Of course you do need those too, for certain purposes. For example, the IMF is certainly needed, or regional equivalents.

In order to provide overall coherence, I also favour the creation of some kind of a ‘global stewardship council’. Governments have their particular interests so they will never really take care of the global commons. We should have in the UN a ‘nudging’ body, not with powers that might be considered legislative, containing distinguished people who in a sense represent the oceans and the atmosphere and biodiversity and so on, together with a few country representatives. This body might say, ‘we need to invest more public finance in this or that area’, keeping in mind the balances between the various global challenges.

Robin Davies. Let’s imagine the World Bank were a far more flexible financing source than it is, and that it could blend grants and loans at will. In this way, if it were so minded, it could offer a financing package attractive enough to achieve a deviation from business-as-usual in a given area, such that a public investment would make a significant contribution towards the provision of a global public good. In this scenario, do you think there is a case for having a ‘lumpy’ mechanism in the picture—a mechanism that has a deep country presence and traction with governments and brings significant resources to the table?

Inge Kaul. If that is accepted, then the Bank would first of all need to change its governance arrangements dramatically. It would in fact have to be a totally different bank. It could, I suppose, be something like a budget envelope. But then it would be an additional layer: one would send a pool of finance to the bank, and the bank would act as a fiduciary agent just as it does for the Global Fund, the Green Climate Fund and many other mechanisms. So yes, it might have some function of that kind, but it would be quite a different institution from what it is now.

Robin Davies. Do you think the emergence of the Asian Infrastructure Investment Bank and the BRICS’ New Development Bank creates an opportunity for the World Bank to shift into a different role, with a more central emphasis on global public goods?

Inge Kaul. Yes, but the World Bank would need to begin the adjustment now, and say that it was doing so and set out the implications of the change. In particular, it would be good for the Bank to have a consolidated budget for global public goods. Then it could begin to play the role that Jeffrey Sachs has in mind for it. He sees the Bank as sort of a ‘duct’ for global public good finance, though that is essentially an accountancy role. The Bank’s country presence would certainly help it to function as a sort of multilateral ambassador for global public goods at the country level.

Robin Davies. What global governance, consultative, or advisory structures—in themselves international public goods—might help to ensure that the SDG framework actually plays an operative role in both developed and developing countries’ policy processes, particularly those related to global challenges?

Inge Kaul. My ideas in this area have to be approached as a package. You have the dual strands of public finance—ODA and finance for global public goods. You want systematically to deal with global public goods, so you need an issue focus on the operations side, since where it exists it tends to be more on the negotiations side. Looking now at the operations side, of course you see that the goods to be produced are very complex, and that inputs might come from all sides. For example, hand washing is good for infectious disease control. So we need inputs from households, private firms, national governments and many other sources, which must come together. Therefore you need a CEO or tsar figure, supported by various sub-managers.

So, by having a production path in mind you can create better linkages. You are more likely to see where you might be misallocating resources. For example, investment in education helps reduce maternal mortality and achieves various other outcomes that might also be good for the climate. And if you remember that the goods in question all end up in the global public domain, you also see how some are colliding with others, like TRIPS and global health. So there are synergies to be promoted, gaps to be filled and inconsistencies to be addressed. And all of this should result in cost savings.

Then—and this is by no means the least important step—we have to break out of the status quo orientation we have in our global governance structures. We have to give voice to the global commons, and also in some way to future generations, because many of the issues we face involve stock externalities and will persist over a long period of time. This would be the role of the Global Stewardship Council. And such a body, while having no decision-making authority, would need to have a high level of political credibility and influence. Therefore I thought if you could engage outstanding women and men from the North and the South—people like Mozambique’s Graça Machel or Australia’s Gareth Evans—people who don’t have any self-interested goals to achieve, who are simply themselves, independent but visionary—and they were to come together in such a council, something could be achieved.

Robin Davies. You’ve described quite systematically a coherent set of arrangements for financing and managing the production of global public goods. Yet there is little indication that such arrangements are in prospect. Why do governments not require their multilateral institutions to work more effectively towards delivering major global public goods?

Inge Kaul. In my view, the biggest obstacles to reducing global risks are states. I have seen pension funds and other big investment funds and corporations crying out for standardised environmental regulation because, they say, ‘the search costs for us are too high’—that is, it’s costing them too much to figure out what the environmental conditions and standards are in each country. But governments prefer to maintain their flexibility, whether in financial market or environmental regulation, hoping thereby to achieve a national advantage.

Comments by Robert Glasser

4Inge Kaul, in this interview with Robin Davies, shares her perspectives on a wide range of interesting issues and ideas related to global public goods (GPGs). Among other things, she emphasises the need for ODA funding to be kept separate from financing for GPGs, explains why this is important and recommends some ways to ensure the separation. She also comments on aspects of implementing GPGs projects in developing countries, recommends the establishment of new multilateral organisations designed around specific GPG issues and comments on the changing role of the World Bank and the Bank’s limitations in addressing GPGs.

5In reading over Kaul’s recommendations, I often found myself agreeing in principle, but questioning whether they could be implemented, or would have the intended impact, in practice. An example is Kaul’s view that ODA needs to be kept separate from public finance for GPGs. In principle the rationale for this view seems straightforward: financing GPGs is, in effect, paying a developing country for something it would not otherwise do whereas ODA is about financing the country’s own development priorities. Kaul has this clear delineation in mind when she is critical of the fact that significant amounts of ODA are currently being used for climate change mitigation and adaptation projects to the detriment, she believes, of funding for actual development work: ‘How then do we expect to deal with the rising number of failed and failing states? Such countries need a lot of assistance for conventional development purposes ...’

6But in practice, it can be difficult to distinguish between activities that address GPGs and ‘conventional development’ projects and programs. Shoring up disease surveillance capacity in a developing country is a reasonable GPG investment (e.g. to prevent pandemics) as well as a reasonable ODA investment and in some contexts even a top national development priority. Similarly, initiatives to strengthen a country’s agricultural capacity or bring solar energy to rural areas can be both national development priorities as well as responses to climate change. As the planet continues to warm and the transition to a non-fossil fuel based economy accelerates in developed and developing countries, this distinction between funding ‘conventional development’ and funding GPGs will become increasingly artificial.

7Kaul cites as an example of a GPG activity the provision of a subsidy to meet the incremental costs of climate-proofing an infrastructure investment in a developing country. While in principle this seems reasonable, in practice it can be very challenging. In the case of climate change, the scientific uncertainty at regional and sub-regional scales makes it difficult to quantify these incremental costs and it can be challenging to prove that the climate-proofed project would not be commercially viable without the subsidy. Additional problems arise if, as Kaul also suggests, the payments ‘should do more than simply cover the additional expenditures incurred’ but also allow a ‘profit margin’ for the developing country partner. This is the sort of thing that is like a red rag to a bull for opposition parties scrutinizing public expenditures in developed countries.

8Kaul additionally argues that separating ODA from public finance for GPGs is important because it will make it easier to sell to the public the idea of the need for additional funding and thereby avoid the risk that funding for GPGs will come at the expense of ODA. Implicit in her thinking is the notion that financing GPGs can be sold as a benefit to wealthy country electorates (e.g. ‘They won’t get skin cancer from the ozone hole’), whereas linking it with ODA would make it appear as a handout to foreigners. But it seems to me that Kaul has got things the wrong way around. The key challenge is to convince Governments and the public: first of the urgency of the need to respond to the GPG issue; second that an effective response requires public funds to be spent in other countries, and third that this expenditure should not come at the expense of ODA. Succeeding with this third challenge will in practice depend much more on Government and public attitudes about the relative value of ODA, than it will on establishing mechanisms to keep financing for GPGs separate from ODA.

9It would have been interesting to hear more from Kaul about a number of particularly interesting and provocative ideas she mentions in the interview. A good example is her proposal that new multilateral organisations need to be established to become the operational ‘issue managers’ for each GPG. How does she think these organisations should be governed and how would they exercise authority over the existing sector-based organisations (WHO, WFP, UNEP, etc.) upon which they would presumably rely for expertise and implementation capacity? In the same vein, I feel that Kaul is too quick to dismiss a potential role for the World Bank in addressing GPGs. On the one hand, she feels that single-sector multilateral institutions, such as the WHO, are ill equipped operationally to address the complex, multi-sector nature of GPGs. On the other hand, she is dismissive of the Bank, which does have significant capacity, experience and potential to design and manage integrated, multi-sectoral operations on a global scale. It seems to me that it would be politically more feasible to establish a response to GPGs that involves a role for the Bank integrated with the other MDBs, than it would be to establish new organisations at the global level, each assigned a separate GPG.

10Kaul concludes the interview with a recommendation that highlights both idealism and its limitations. She proposes that a ‘Global Stewardship Council’ be established to help us ‘break out of the status quo orientation we have in our global governance structures’. The Council would have no decision making powers but would rely on the political credibility and influence of its members, ‘outstanding women and men from North and South -- people like Mozambique’s Graca Machel or Australia’s Gareth Evans’, to achieve the result. Kaul seems to recognize that the odds are stacked against such a Council being able to re-orient global governance, but nevertheless concludes hopefully that ‘something could be achieved.’ Actually, it seems to me that little would be achieved in the absence of a greater public sense of urgency about GPGs and acceptance of the view that better global governance is an essential missing piece in the response. In the case of climate change, I am convinced that this sense of urgency, including for global leadership, will build rapidly in the years ahead in response to increasingly extreme weather. In the meantime, however, the trend is in the opposite direction: following the December 2015 UN climate change conference in Paris the focus of attention is more likely to shift away from the multilateral level towards national-level action and planning.

Comments by Ambassador Michael Gerber and Luca Etter

11On the evening of the penultimate day of the Third International Conference for Financing for Development in Addis Ababa, countries finally put down their boxing gloves: they agreed on the Addis Ababa Action Agenda (AAAA)  as the blueprint for how to finance and implement global sustainable development for the next 15 years. There weren’t tears of joy in the eyes of the tired negotiators who had been arguing about the content of the outcome document for months. Many of them had hoped the text would be finalised prior to them making the trip to the Ethiopian capital. But there was certainly a shared sense of relief over the fact that there was broad agreement on what matters most in sustainable development financing for the period covered by the newly entitled 2030 Agenda for Sustainable Development.

The Addis Ababa Action Agenda: A Paradigm Shift in Financing (Sustainable) Development?

12The agreement in itself is quite remarkable, given that solutions to ever increasing global challenges were sought at a time of intense pressures on public budgets in countries of the North and South alike. It shows that there is a determination to embark on multilateral action in such key areas as eliminating extreme poverty, combatting climate change or fostering gender equality. The negotiation process and the outcome document are also reflections of the increased complexity of the challenges the world faces and the global response that is required to master them. Just throwing (development) money at the issue is no longer an option. Rather, the Addis Ababa Action Agenda calls for a paradigm shift in the way all sources of finance—public and private, domestic and international—are used.

13The debate about global public goods, which Inge Kaul and Robert Glasser eloquently summarise in their contributions, is but one, albeit very important, cornerstone of the landmark agreement reached in Addis.

14From the beginning of the intergovernmental negotiations it was clear that an ambitious agreement in the Ethiopian capital would only be possible if it covered the broad range of financial and non-financial means of implementation that are all required to provide a conducive national and global enabling environment for sustainable development. Given that only a small share of the financing needs of the SDGs will be covered by public funds, let alone international public funds, Switzerland and other countries sought throughout the process to also discuss measures to address the need for an alignment of private investment with sustainable development goals. At the same time, Switzerland also stressed the importance of effective policies at the national and international levels, which often have a much bigger impact on sustainable development than just creating new funds or financing mechanisms for specific development challenges. This is particularly relevant for policies at the national level, which lay at the core of generating domestic resources for sustainable development.

The Three Pillars of the Addis Ababa Action Agenda: Taxes, Investment, Aid

15It comes as no surprise that the AAAA highlights the fact that each country will bear the main responsibility for its own sustainable development. This emphasis is no different from that of earlier agreements, made in Monterrey (2002) and Doha (2008). However, the Addis Ababa outcome document is much more specific in its integration of the many important policy areas that constitute important pillars of domestic resource mobilisation. Moreover, it highlights in particular those areas where international support and coordination will play a key complementary role to the efforts of national governments. This is first and foremost true for the most contested topic of the negotiation process: taxes.

16In the AAAA, countries commit to ‘enhancing revenue administration through modernized, progressive tax systems, improved tax policy and more efficient tax collection’ and to ‘work[ing] to improve the fairness, transparency, efficiency and effectiveness of our tax systems, including by broadening the tax base and continuing efforts to integrate the informal sector into the formal economy in line with country circumstances’. Supporting developing countries in strengthening their capacities for effectively mobilising and efficiently spending their domestic resources was identified as a key area for official development assistance (ODA), which was also amplified by the Addis Ababa Tax Initiative, signed at the margins of the conference by many OECD countries, including Switzerland, as a pledge to increase ODA in this area.

17However, in the spirit of the universality of the agenda, the AAAA also highlights the fact that international cooperation matters for a country’s capacity to attract and mobilise domestic resources. This is particularly pertinent in the area of illicit financial flows (IFFs), which in international discussions go far beyond funds from illegal activities. According to some estimates, the money leaving developing countries due to mostly legal tax optimisation strategies of multinational corporations by far surpasses the funds that enter the developing world in the form of ODA. Substantially reducing IFFs by 2030 is therefore a key ask in the AAAA, including domestic and international measures aimed at limiting tax evasion and corruption. The agreement to strengthen the UN committee of experts in tax matters may have fallen short of many developing countries’ expectations of creating a new international tax body. However, it is a clear sign that the tax agenda pushed by organisations such as the OECD or the G7/G20 matters not only for rich countries with dire public budgets but also for developing countries trying to ensure that they profit from increased investments, in particular those countries with large extractive sectors.

An Enabling Environment: Key to Investment in Sustainable Development

18Countries’ efforts to provide an environment conducive to domestic resource mobilisation must not be limited to purely financial policies, something the AAAA is very clear about. There are two policy areas that are particularly important for Switzerland and for which we fought hard in order to ensure that the final outcome document was strongly worded: First, the strong link between policies that enhance opportunities for women and girls and sustainable development outcomes is a progressive element of the AAAA. The outcome document states that “gender equality, women’s empowerment and women’s full and equal participation and leadership in the economy are vital to achieve sustainable development and significantly enhance economic growth and productivity”. This is an important element of the AAAA since it is truly universal, applying to developed and developing economies alike. In many saturated economies of the North characterised by an ageing population with slow population growth and stagnant productivity—and such a description includes Switzerland—fully integrating women into the economy is one of the few resources (other than migration) left to tap into to foster sustainable growth. For many developing countries, policies promoting gender equality can boost productivity and help them leapfrog barriers to their integration into the knowledge and service economy. Second, good governance and particularly the provision of a climate conducive to business and the control of corruption are key prerequisites to enabling economies to thrive and making possible sustainable and sustained growth. One area Switzerland highlighted in particular is the importance of an enabling environment to ensure that stolen assets—once returned—are used to promote sustainable development and are not lost again in the same corrupt system via which they were stolen in the first place.

Private Money to Foster Sustainable Development

19Maybe less contentious than some would have expected, especially representatives of civil society, is the agreement on the prominent role private business and finance will have to play in implementing the SDGs—the second pillar of the AAAA. It seems that most countries have replaced ideological battles with a pragmatic approach to account for the fact that the vast investment needs in areas such as infrastructure or energy can only be met by increased private finance. Incentivising long-term private investment in areas that are key to sustainable development is therefore the main thrust of the second chapter of the AAAA, which highlights the importance of aligning private sector incentives with public goals, including by incentivising the private sector to adopt sustainable practices. This includes measures for increased transparency in investment decisions that will allow consumer pressure to push investments in sustainable sectors and businesses in the same way it has increased the supply of sustainable products over the past decade. There is also a lot of language about blended finance in the AAAA and about the potential for well-designed publicprivate partnerships to help unlock necessary private finance in key areas, particularly infrastructure.

20But private finance for sustainable development not only means mega investments in dams and railways (even though those are most certainly needed). Switzerland has particularly pushed for progressive language on some of the smaller transfers that, combined, can make a big difference—notably migrant remittances. These private funds surpass the total ODA disbursements in developing countries by a factor of almost four and are already contributing to sustainable development in migrants’ countries of origin. However, transferring remittances is still a very expensive endeavour, especially in low-volume corridors. It is therefore important that the AAAA puts pressure on the international community to follow through with its commitment to lowering average transfer prices to 3 percent of the transferred amount and ensuring that no corridor charges more than 5 percent. Increased competition and innovation in the money transfer industry will likely mean that these goals are achieved way before the target, set in the AAAA, of 2030. However, policymakers have to ensure that laws intended to limit funding for terrorist activities or money laundering are not completely cutting off countries from money transfer providers where migrant remittances provide a lifeline to vast proportions of the population.

Global Public Goods and the System of International Public Finance

21The AAAA is very clear that, as a third pillar of financing for sustainable development—alongside domestic resources and private finance—there is a unique role that only international public finance can play. Least developed countries (LDCs) and countries emerging from conflict still very much depend on ODA, and their ability to mobilise private investment or domestic resources remains limited. Despite initial success with the Millennium Development Goals (MDGs), getting to zero with absolute poverty will still require substantive international public resources. In fact, the task today is more challenging than it was at the beginning of the millennium when the MDGs were launched and when initial success came to a large extent from strong growth in developing countries and emerging economies, notably China or India, which were able to reduce poverty mostly with their own domestic resources and efforts. On the contrary, today the world is faced with a range of weak, conflict-and-crisis-affected countries and regions. The cost of the humanitarian response to disasters and conflicts alone has risen by 660 percent since 2000 and the UN has declared an unprecedented number of large and severe international crises of the most urgent level (L3).  

  • 2  OECD DAC, March 2014. Towards more inclusive measurement and monitoring of development finance: To (...)

22There are two parts of the discussion with Inge Kaul that were central in the treatment of international public finance in the negotiations that led to the AAAA: First, there is—of course—the global public goods (GPGs) agenda, most prominently climate change. As Kaul explains, the discussion about financing GPGs has been around for many years and has not yet resulted in a political decision or practical financing system. However, the pressure from the new and enlarged 2030 agenda with its sustainable development goals (SDGs) has led to a reflection within the OECD DAC on a new and complementary measure to ODA, currently being discussed under the working title of “Total Official Support for Sustainable Development” (TOSSD) and reflected in the AAAA. TOSSD should increase transparency and rigour in reporting on development finance beyond ODA. The proposed measure could ‘incorporate international finance from official sources and mechanism that cover activities promoting and enabling sustainable development, including contributions to global public goods, when they are deemed relevant for development’.2

23We are more optimistic than Inge Kaul about the fact that this new measure will indeed have an effect on the ground. Just as the reporting requirements for ODA have made official public aid flows more transparent than almost any other source of public finance, including domestic spending in many countries, TOSSD can help policymakers and citizens understand the quantity of financial flows that are available to a country to finance sustainable development. More transparency will lead to more informed debates about which flows are contributing to sustainable development, and which are not. Moreover, this will occur in a manner that takes into account the specific composition of each country’s support to sustainable development. In so doing, it renders the proposed dismantling of ODA into a ‘development’ and a GPGs part less relevant as GPGs can indeed be supported by many different categories of the new TOSSD measure, often at the same time.

24Second, the language in the international public finance chapter of the AAAA is the result of a discussion about whether or not the system of international public finance institutions is ‘fit for purpose’ to help support the implementation of the SDGs, and by extension the global public goods agenda. Here, the AAAA seems to support Kaul’s suggestion that the current multilateral finance system needs to be looked at, encouraging the multilateral development finance institutions to establish a process to examine their own role, scale and functioning to enable them to adapt and be fully responsive to the sustainable development agenda’. There are specific references in the AAAA to the role of international finance institutions (IFIs) in complementing national resources on GPGs such as natural disasters and pandemics. Moreover, specific providers of GPGs, including the Green Climate Fund, are mentioned and countries are encouraged to support these institutions and fulfil their pledges.

Reform of the Multilateral System in Favour of Global Public Goods?

25The discussions in Addis Ababa on the suitability of the current system of international financial institutions did not enter the level of detail Inge Kaul goes into in her remarks. However, there are a few important issues she raises that we would herewith like to address: First, the world is currently witnessing one of the most profound changes ever in the international public financial system with two large multilateral banks having emerged in the past 12 months. This means a dramatic increase in capital available to finance sustainable, accessible, and resilient quality infrastructure in developing countries and in enhanced financial and technical support. Both, the Asian Infrastructure Investment Bank and the New Development Bank (formerly known as the BRICS Bank) are mentioned in the outcome document, something Switzerland has welcomed, particularly the reference to ensuring that they will uphold social and environmental safeguards. If designed well, these banks can make a profound contribution to financing and delivering GPGs.

26Second, existing institutions themselves, most notably the World Bank, are undergoing reforms to ensure they can contribute to the GPG agenda. The creation of global practices at the World Bank that can deploy the best global knowledge and talent for many SDG sectors is certainly a step in the direction of a multilateral effort to provide GPGs. The most recent replenishment of the International Development Association (IDA) also showed countries’ clear intention to move the Bank, and especially the IDA, in the direction of using scarce concessional funds where they can have the biggest impact at a global level. But true, in order to fully finance the GPG agenda, shareholders would have to go much further. And recipient countries would have to seriously engage in a discussion that goes beyond a purely ‘loans to country’ model and convinces them that investing in GPGs can be aligned with national interests.

27In this sense, the AAAA certainly does not constitute a document that reforms the international public finance system. But this was never the aim. Rather, the AAAA is an ambitious roadmap to transform the way finance is currently allocated, to put the world on a more sustainable path. The fact that the document was agreed on by all UN member states means that the international community has understood what the ingredients for such a paradigm shift are. Now it’s our common duty to follow through and put these measures in place.

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Notes

1 ‘Understanding climate finance for the Paris summit in December 2015 in the context of financing for sustainable development for the Addis Ababa conference in July 2015’, Policy Paper, ESRC Centre for Climate Change Economics and Policy, Grantham Research Institute on Climate Change and the Environment, March 2015.

2  OECD DAC, March 2014. Towards more inclusive measurement and monitoring of development finance: Total Official support for Sustainable Development (TOSSD).

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Cite this article

Electronic reference

Inge Kaul, Robin Davies, Robert Glasser, Michael Gerber and Luca Etter, « Policy Debate | Financing the SDGs: Global vs Local Public Goods », International Development Policy | Revue internationale de politique de développement [Online], 6.2 | 2015, Online since 01 September 2015, connection on 20 October 2017. URL : http://poldev.revues.org/2068 ; DOI : 10.4000/poldev.2068

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About the authors

Inge Kaul

Inge Kaul is adjunct professor at the Hertie School of Governance, Berlin, Germany. She specializes in global public goods, with a focus on the financing of international cooperation, public-private partnerships, and global governance including UN reform. She was the first director of UNDP's Human Development Report Office from 1989 to 1994 and subsequently director of UNDP's Office of Development Studies from 1995 to 2005. She is the author of numerous publications on international public economics and finance and was lead editor of the books Global Public Goods: International Cooperation in the 21st Century (1999), Providing Global Public Goods: Managing Globalization (2003) and The New Public Finance: Responding to Global Challenges (2006).

Robin Davies

Robin Davies is a Research Fellow at the Graduate School of International and Development Studies and concurrently Associate Director of the Development Policy Centre at the Crawford School of Public Policy, Australian National University. He is co-editor, with J. Warren Evans, of the book Too Global to Fail: The World Bank at the Intersection of National and Global Public Policy in 2025 (2015). He worked at the Australian Agency for International Development (AusAID) for almost 20 years, including postings in Paris and Jakarta. Most recently, he headed a division with responsibility for global development policy and for multilateral programs and partnerships. He has represented Australia on the G20 Development Working Group, the governing bodies of the Climate Investment Funds, and the OECD Development Assistance Committee. He managed Australia’s program of development co-operation with Indonesia from 2003 to 2006.

Robert Glasser

Robert Glasser is an Executive-in-Residence at the Geneva Centre for Security Policy. From 2007 to March 2015 he was Secretary General of CARE International, one of the world’s largest humanitarian relief and development organisations. He was previously Chief Executive of CARE Australia and an Assistant Director General of Australia’s official aid agency, the Australian Agency for International Development (AusAID). Earlier in his career he worked on international energy and environmental policy at the US Department of Energy, and on peace and conflict issues at Cornell University and the University of California. Dr Glasser serves on the boards of a number of organisations, including the Global Call for Climate Action (GCCA), a diverse network of more than 450 non-profit organizations in more than 70 countries focused on advocacy to prevent climate change.

Michael Gerber

Ambassador, Swiss Special Envoy for Global Sustainable Development

Luca Etter

Policy Advisor, Swiss Agency for Development and Cooperation (SDC)

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Creative Commons Attribution-NonCommercial 3.0 Unported License.

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