Global Public Investment: 5 paradigm shifts to disrupt aid

The international community needs to break out of its comfort zone and transform financing argues Jonathan Glennie, Principle Associate, Joep Lange Institute. Current aid models, including those that leverage the private sector, will not live up to the needs and promise of the SDGs. The job of the international development community is not, as is sometimes said, to do itself out of a job. This is not the beginning of the end for concessional international public finance; rather it is the end of the beginning. In his new book The Future of AId Jonathan Gennie proposes a new financing approach for the 21st century, Global Public Investment. In this article FIVE paradigm shifts are proposed for the future of concessional international public finance, as we move on from an old-fashioned “aid” mentality.

As the international community seeks to build momentum behind the ambitious Sustainable Development Goals, the question of how to fund them is a priority for everyone. With the current funding gap estimated to be anywhere from $2-4 trillion per year until 2030, it is easy to see why. A new approach is needed to help us meet our ambitions: an approach that is inspiring, yet grounded in pragmatism, an approach reflecting the universality of the SDG agenda, where everyone has a part to play and is motivated to act. Even more recently, the global COVID-19 response has highlighted the international need for an ongoing pool of public money.

Global Public Investment= concessional international public finance intended to promote sustainable development. Includes ODA and South-South Cooperation.

Global Public Investment

This is the idea behind Global Public Investment (GPI): a system of fixed and multi-directional international fiscal allocations. Think of it as a way of funding global public goods, like a COVID-19 vaccine, or of meeting already agreed international commitments like the Sustainable Development Goals. Either way, GPI would fill a modest but important niche by providing a common pool of public money internationally.

The need to fill that niche has been brought home powerfully by the overwhelmingly national and inadequate nature of the response to COVID-19. But unlike recently proposed emergency schemes for COVID-19 relief – including ideas for a $2.5 trillion global solidarity fund or a $1.14 trillion fund for poor countries – GPI would be ongoing. It could then be invested in longer-term public goods like social protection, functioning tax systems and effective regulation.

This idea originates from work by the Joep Lange Institute, supported by the Global Fund Advocates Network and International Civil Society Support — who have organized many consultations over the past years. It is backed by senior figures, including Helen Clark, former prime minister of New Zealand and administrator of the U.N. Development Programme.

5 paradigm shifts

Getting there requires five achievable shifts. Some are underway, while others need greater impetus; all require a new mindset from that of the past. Collectively, these shifts set out a new approach that gives us the best chance of financing the SDGs.

Some of these paradigm shifts are already underway; others need concerted effort to prod them in the right direction. Theory needs to catch up with reality and the development cooperation sector needs to offer a new inspiring discourse if we are to rally the world’s governments and publics to live up to the bold promise of the UN Sustainable Development Goals and build a fairer, safer, healthier, more prosperous world. It is time to write the next chapter in the history of international cooperation for sustainable development, and Global Public Investment must play a pivotal role.

1. From reducing poverty to reducing inequality

Foreign aid has been primarily intended to reduce and eventually end, extreme poverty. The responsibility of the international community is thought to cease when an agreed minimum threshold of development is passed.

Global Public Investment should support attempts to increase equality within and between countries and regions (as well as continue to target extreme poverty). It should also promote sustainability and global public goods. These are long-term ambitions.

A focus on extreme poverty, while important, has led to a stingy approach to international solidarity, as if the job is done when minimum (very low) welfare standards are met. Tackling inequality and enabling all countries to converge with relatively high living standards enjoyed is a bolder aim, in line with the SDGs. Furthermore, global and regional public goods are moving centre-stage, and will require vast sums of money to achieve.

How would this play out in practice?

• Increased allocation of funds to global/regional public goods.

• Re-engagement with so-called middle-income countries (MICs), similar to targeted investments and redistributive support in e.g. EU, India, USA.

• Support for major investment projects.

• Focus on human rights (incl. racial, gender and economic disparities).

2. From quantity to unique characteristics

Foreign aid has been considered necessary only in exceptional circumstances to fill a financial gap, coming to an end when other finances (domestic and/or private) are available.

Global Public Investment has a unique set of characteristics and cannot simply be replaced by other types of finance. It will remain useful (and often essential) for the foreseeable future, despite the welcome availability of other sources of development finance.

According to the conventional logic of “aid”, countries eventually “graduate” from ODA as other types of finance become available to fill spending gaps. But concessional international public finance, or GPI, has a unique set of characteristics and cannot simply be replaced by private or domestic funds. It is the best type of finance for some interventions, not just filling gaps, but overcoming traps and promoting global benefits.

How would this play out in practice?

• GPI to support specific areas, such as catalysing developmental policy and strategy, strengthening local civil society, leveraging private finance, developing capacities.

• As the need to mitigate global inequality and deliver global public goods won’t go away, GPI moves from temporary stop-gap to permanent fixture in toolbox.

• Aid dependency reduced but international support not eliminated entirely; a sustainable level at around 1% of GNI becomes norm.

3. From north-south to universal

Wealthy countries have traditionally offered foreign aidto poorer ones.All countries should contribute to Global Public Investment according to ability, and all can benefit from it according to need.

The arrival of “emerging” donors is shaking up international development for the better. But traditional aid theory has little to say to countries that both contribute and receive cooperation funds, increasingly the new normal. Meanwhile, binary developed/developing characterisations are unhelpful. Today, all countries need support to develop sustainably (financial and otherwise) and all countries, however small, can contribute. Our global challenges require new types of partnerships between new groups of country – from donor/beneficiary to partners.

How will this look like in practice?

• Poorer countries gradually increase contributions, especially to regional initiatives.

• Wealthier countries maintain their redistributive responsibility (building on the Common But Differentiated Responsibilities CBDR model of the climate sector) and exceed their 0.7% ODA commitments

• Flourishing of multilateral organisations and banks with broader membership.

• Countries do not “graduate” when they pass the arbitrary “middle income” threshold; their receipts are “gradated” according to context.

4. From closed to accountable

Contributions to foreign aid have been ad hoc, and key spending decisions have been made by a small group of countries.

Global Public Investmentshould be overseen more democratically, through governance processes that respond better to today’s geopolitics, and include civil society.

Aid governance is stuck in the 20th century, with a handful of countries taking the major decisions, and civil society largely excluded. Contributions fluctuate depending on “donor” circumstances. Recognising a changing geopolitical landscape means allowing governance mechanisms to evolve and improve. A new system would emphasise more democratic decision-making about the size and purpose of contributions.

How will it look like in practice?

• Contribution parameters set and managed by UN members, not OECD.

• Regular contributions would be orderly (like UN membership fees) rather thanad hoc.

• Recipient countries lead spending decisions, making it more effective and coherent.

• Civil society moves from peripheral to central in governance arrangements.

• Mitigation of inevitable politicisation of development cooperation.

5. From charity to investment

Foreign aid has been considered a charitable gift to foreign countries. It is seen as a loss in accounting terms.

Global Public Investment should be an obligation. It expects a return, but not a financial one: social and environmental impact for our global common good.

Words matter. The commonly-used language of the aid sector is outdated, misleading the public and patronising recipients. A new vision for concessional international public finance must be accompanied by a more appropriate narrative.

• Words like “donor” and “aid” replaced by words like “contributor” and “investment”.

• Global benefit replaces foreign support as main rationale for development spending.

• General publics are prepared for continued support for long-term global objectives

From theory to reality

These shifts won’t happen overnight — GPI embraces changes in financing already underway and will help guide them towards universal ambitions for a better world. We know GPI investments can work. At a regional level, it is already working.

The European Union is perhaps the world’s most advanced regional grouping in terms of bureaucratic complexity and shared political-economic ambition. It has been a pioneer in regional public investment and has accomplished most of the shifts outlined above. The EU began with a set of visionary leaders with shared aims of peace and prosperity for all. There is a clear parallel here — the SDGs have been set out by equally visionary leaders across the world with shared noble ambitions. We now need to take the next step.

The international community needs to break out of its comfort zone and transform financing. Current aid models, including those that leverage the private sector, will not live up to the needs and promise of the SDGs. The job of the international development community is not, as is sometimes said, to do itself out of a job. This is not the beginning of the end for concessional international public finance; rather it is the end of the beginning.

To find out more visit; https://www.globalpublicinvestment.org/, contact Jonathan Glennie, senior fellow at the Joep Lange Institute, via info@joeplangeinstitute.org or read the recently launched book of Jonathan: The Future of Aid