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Trade and Development Report 2019 UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT TRADE AND DEVELOPMENT REPORT 2019 FINANCING A GLOBAL GREEN NEW DEAL ISSUES AT STAKE II A. Introduction The global financial crisis left deep and lasting on an unprecedented scale across the entire global scars on the societies it touched. Those scars have commons. The numbers are daunting. Cost estimates only been deepened by a decade of austerity, have gone from “billions to trillions” according to sluggish productivity growth, stagnant real wages, the World Bank (2015), to an additional $3 trillion rising levels of household and corporate debt, and a year for developing countries alone, according to increasing inequality. Disparities of wealth and UNCTAD estimates. income have grown, and local communities are fragmenting under the dynamic and destructive Mobilizing investment on this scale will be challenging forces of hyperglobalization. Thousands of lives for many national policymakers. This is certainly true are being lost to “deaths of despair” each year in most developing countries where there have been (The Economist, 2019), and trust in political long-standing resource constraints on development institutions has evaporated. Growth has slowed in ambitions; but in recent years, sluggish investment, most developing countries, albeit with considerable particularly in the public sector, has also been a variation across regions. The struggle to create concern for policymakers in advanced economies, good jobs has intensified, with rapid urbanization, with many acknowledging serious deficits in their premature deindustrialization and rural stagnation infrastructure provision (McKinsey Global Institute, widening the gap between the “haves” and the 2017). Moreover, the macroeconomic and financial “have nots”. pressures that are likely to accompany any big investment push require policy coordination that goes All over the world, anxiety over the prospect well beyond countries simply putting their own house of economic breakdown is compounded by the in order to include revitalized international support impending threat of environmental collapse. and cooperation. The IPCC (2018) has raised the stakes by giving the world just 10 years to avert climate meltdown; A decade ago at the G20 gathering in London, but this is just part of a growing recognition of a the world’s major economies came together to wider and deeper ecological crisis. Thousands of stem the global financial panic triggered by the species are going extinct every year, soils are collapse of the sub-prime mortgage market in the being degraded, oceans acidified and entire regions United States and to establish a more stable growth desertified. path going forward. Their talk of a fresh start – “a new international order” for President Sarkozy, “a The international community has agreed upon a new Bretton Woods” for Prime Minister Brown – was series of goals in an attempt to ensure an inclusive an acknowledgement that the existing multilateral and sustainable future for people and the planet. But system had failed to provide both the resources and with little more than a decade left to meet the 2030 the coordination needed to underpin stable markets Agenda for Sustainable Goals, these efforts have and a healthy investment climate. fallen drastically short of their proponents’ ambitions. Today, there is widespread agreement that there is just A decade on, that effort has stalled, leaving those one option left: a coordinated investment programme tasked with meeting the Sustainable Development 25 TRADE AND DEVELOPMENT REPORT 2019: FINANCING A GLOBAL GREEN NEW DEAL Goals (SDGs) wondering whether the multilateral have consistently failed to deliver desired outcomes system is fit for purpose. These concerns are for the productive economy, whether in the private compounded by the dizzying rise in debt levels to or the public sector. a scale similar to those seen before the financial crisis (see chapter IV). If the routine warnings from This TDR will examine some of the proposals financial analysts and at international gatherings behind the private financing agenda. It will suggest are to be believed, the global addiction to debt is no that the bias towards private financing is based longer sustainable. on limited empirical support and pays insufficient attention to the dangers of a world dominated by Rising indebtedness presents a challenge to those private credit creation and unregulated capital flows. attempting to deliver on the 2030 Agenda. A Such an approach therefore runs the very serious consensus is emerging that with public finances under danger of, as Angel Gurria, head of the OECD has stress, the required resources must be provided by the put it, wanting “to change things on the surface so private sector. Whether by appealing to their “better that in practice nothing changes at all” (cited in angels” through narratives of social responsibility Giridharadas, 2018: 9). Doing so will not only fail or to their economic self-interest through the use of to generate the resources required for the investment impact investment, champions of the SDGs are now push needed to deliver the 2030 Agenda but, in all focused on finding ways to entice high-net-worth likelihood, will further exacerbate the inequalities individuals and corporations to provide the financial and imbalances that the Agenda is designed to resources necessary to meet these goals. eradicate. At the same time, the scale of the economic, social Instead, the Report suggests that meeting the and environmental challenges requires us to go financing demands of the 2030 Agenda requires beyond simply redeploying existing resources to rebuilding multilateralism around the idea of a mobilize new ones as well. This means taking up the Global Green New Deal, and by implication forging call to reform the multilateral system and to find new a collective financial future very different from that ways to finance public goods at both national and of the recent past. The first step towards building global levels. The preferred solution is, once again, to such a future is to seriously consider a range of appeal to the private sector to provide these resources public financing options, as part of a wider process – often by creating innovative financial products that of repairing the social contract on which inclusive can reduce the risks associated with big investment and sustainable outcomes should be based, and out projects. The bias towards private financing has of which can emerge a more socially productive continued to go unchallenged, even as such schemes approach to private financing. B. Revving up the private financing engine The question of how to make the global financial negative spill overs” in this context presents many system work for all has been taken up by the challenges. Policymakers must be careful to ensure G20 Eminent Persons Report on Global Financial that national and international policies “aimed at Governance (EPR-GFG), released in October growth and financial stability” reinforce one another, 2018. The report makes the bold claim that, in light rather than deepening divides, conflict and economic of the overlapping and pressing challenges identified stagnation. This requires “a framework […] to in the 2030 Agenda, serious reform of the global mitigate such spill overs and their effects as much as financial architecture is overdue. It recognizes, possible” not least to avoid reducing national “policy moreover, that the anachronistic structure of the space” (EPG-GFG, 2018: 12). international system – premised on the dominance of the United States and Western-led multilateralism In light of these challenges, the argument of the report – could compromise efforts to respond to these is that we should reject calls to return to the “old challenges. multilateralism”, and instead create a “cooperative international order” in line with today’s multipolar As the report emphasizes, promoting “mutually world. Such a new multilateralism should be tasked reinforcing policies between countries and minimize with establishing a resilient and healthy investment 26 ISSUES AT STAKE climate to unlock the private capital needed to finance The focus on de-risking will, it is suggested, give the big challenges of the twenty-first century (EPG- IFIs greater scope to adopt a variety of mitigation GFG, 2018: 4). instruments that make it more attractive for private finance to invest in public goods and the global To do so, the report proposes a three-pronged commons – for example, public guarantees, insurance strategy which, it is argued, offers a new model for programmes and co-investments. But while this development finance. First, strengthen national suggests a new approach for the IFIs, it draws on the capacities by deepening domestic capital same arguments about the role of financial markets markets, improving tax administration, promoting in boosting competition and innovation that came “development standards” around debt sustainability, to prominence in the 1990s, which supported a new adopting coherent pricing policies and, more generation of instruments of risk-management. These generally, creating a low-risk national investment instruments supposedly allowed investors to manage climate through transparent economic governance complex risks in ways that enhanced trade and and robust “country platforms”. Second, “de-risk” portfolio flows and promoted real capital formation, private investment and maximize the contribution boosting living standards worldwide (Shiller,
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