Five things we would do if we were really serious about finance for development
16 Apr 2015 by Ben Slay, Senior Advisor for UNDP Regional Hub for Europe and the CIS
In this blog series, our experts share their thoughts and lessons learned on key financing for development issues, in the run-up to the UN’s Financing for Development conference in July.
It is now widely agreed that finance for development discussions should not only be about more money for official development assistance or climate finance. They should be about aligning international and domestic trade and financial systems with the logic of sustainable development.
This raises the question: What would financial systems look like if we were really serious about sustainable development?
Here are five things we would do:
1) Triple bottom line accounting. Governments would ensure that Wall Street and other leading capital markets could not trade companies that do not report transparently on the social and environmental (as well as financial) consequences of their activities.
2) Crackdown on tax havens. The world’s leading governments would crack down on off-shore tax havens. At issue is not enforcing high tax regimes, or even preventing tax competition. It is about preventing tax evasion and tax avoidance by multinational corporations and the wealthy who can best afford to make use of tax havens.
3) Financial transactions tax. We would admit that global financial markets work imperfectly, and that many global financial transactions carry with them external costs. Economics 101 teaches us that taxing activities with external costs increases efficiency and welfare. James Tobin and Joseph Stiglitz won Noble prizes for extending this logic to financial markets. All governments tax the sale of cigarettes, alcohol, and petrol, in part to correct for market distortions caused by underpricing their external costs. Why can’t we do this with such financial transactions as derivatives trading?
4) Cutting fossil fuel subsidies. Governments in both developed and developing countries would be moving like gangbusters during this moment of low energy prices to remove—or at least reduce—fossil fuel subsidies.
5) Budgeting for sustainable development. Governments would be ambitiously promoting gender budgeting, green procurement systems, and other measures to better align “business as usual” fiscal practices with the logic of sustainable development.
Inadequate fiscal space is often presented as a constraint on national transitions to sustainable development. But of these five measures, three of them would actually increase fiscal space, either by increasing budget revenues (2 and 3), or by reducing subsidies for activities that are often environmentally unsustainable, as well as fiscally regressive (4). Measures 1 and 5 are fiscally neutral for the public sector. Measure 1 would impose costs on the private sector—at least initially.
On the other hand, if we are unwilling to impose some costs on the wealthy and on multinational corporations in order to move to world closer to sustainable development, then perhaps finance for development discussions truly are a dialog of the deaf.
The post-2015 sustainable development agenda will be adopted by the world’s governments at the UN in New York in September. World leaders will pledge to eradicate poverty, end hunger, take action to combat climate change, protect the environment and build peaceful societies (among many other things) all within the next 15 years. That these are goals worth pursuing is not in doubt. But it is also clear they will be extremely expensive to fulfil.
The UN’s Financing for Development conference taking place in July in Addis Ababa will develop a plan for financing our ambitious new development vision. In the run-up to this conference, our experts share their thoughts and lessons learned on key financing for development issues, such as the role of migration and remittances in funding development, the role of philanthropists and the private sector, the role of development aid and South-South Cooperation, innovative finance, illicit financial flows and more.