Nowadays we see the downplaying of the role of official development assistance (ODA) and public finance systems in general. And instead, we lay witness to the emerging trends of foreign direct investments (FDI), migrant remittances, and domestic resource mobilisation (DRM) as primary sources of sustainable development finance. Indeed, mobilising resources to finance sustainable development is essential but we should not simply swallow this mantra.
In identifying sources of sustainable development finance, we should not forget the historical and ecological debt incurred by developed countries through decades of high-volume carbon emissions and the exploitation of resources in the Global South. It is in this spirit that we must continue to seek alternative sources of financing that is rooted in the responsibility for redistributive justice.
Trade and the Financial Structure
Financing requirements for sustainable development is enormous. But we all know that the resources are out there. For instance, just 5% of the 45 trillion dollar wealth of the world’s high net worth individuals is enough to cover the annual cost of universal social protection, climate change adaptation and mitigation combined.
And yet only a small and declining portion of available finance is being invested in the real economy, let alone in poverty eradication and environmental protection. Instead, a growing proportion is being invested in speculative and ultimately destabilising trading of financial assets.
In addition, neoliberal globalisation and the maturation of its crisis present financial challenges for the global economy and for the agenda of sustainable development.
In light of these challenges, financial regulation needs to be strengthened including the use of capital controls to regulate cross-border capital movements. This may include, for instance, financial transactions taxes which has the potential to raise as much as $650bn a year for governments to tackle poverty, reverse austerity measures and address climate change. It could also help regulate markets by disincentivising the most destabilising trading practices. Phasing out and re-channeling subsidies to the fossil fuel industry (which worsens the climate crisis) can raise resources of up to $531 billion.
Taxing pollution and carbon emissions (not consumers but corporations) could potentially raise over $100bn each year in additional government revenues. The tax would also provide an incentive to use natural resources more efficiently, help encourage the transition towards low-carbon energy technology, and raise significant funding for international climate finance.
Furthermore, phasing out and re-channeling subsidies to agribusiness that reinforce environmentally destructive and socially unjust models of agriculture and trade, can raise another $187 billion.
Reforming the Climate Finance Architecture
A clear emerging priority in sustainable development is the issue of effective climate finance. As it is, climate finance is inadequate, and lumping it together with ODA further diminishes its already meager amount. It is thus imperative to clearly differentiate climate finance from development finance.
Furthermore, existing models for calculating climate finance need to be re-calibrated. Existing models have no comprehensive view of the potential for non-linear and spiraling climate impacts. Impacts of climate change is not limited to direct effects such as losses and damages from extreme weather events, but includes permanent economic and social costs (e.g.: loss of GDP, loss of areas suitable for economic development, etc.). Recognising this fact implies that effective climate finance must focus on maintaining the stability of local life support systems.
DRM as Means of Implementation for Sustainable Development?
Ideally, DRM is important and should be primary source of Means of Implementation (MOI) for Sustainable Development. But how can that happen if the North continues to bleed the South?
More resources have been flowing out of developing countries towards the advanced economies in terms of illicit and non-illicit capital flows, debt payments, profit remittances, and so on, compared to the so-called official development assistance (ODA) from the North to the South. Clearly there is a need for fundamental changes in the international economic and financial system if we are to ensure the means for pursuing a sustainable future for all.
For example, developing countries can impose an export tax for trade in extractives. Illegitimate and onerous debts – which now saddle developing and developed economies alike – should be cancelled and an independent and fair public debt workout mechanism under the UN should be established to preside over a just and orderly insolvency or debt restructuring process.
Partnerships and the catalytic role of ODA
The mantra for ODA is now emphasising the use of official aid to leverage private investments or Public-Private Partnerships especially in infrastructure.
But instead of infrastructure development which can be the role of export-import banks, the catalytic role of ODA should be harnessed in investing in people. We should focus on enterprise development, learning from the experience of Asia on cooperative building—and expanding towards developing peoples enterprises and peoples’ corporations where peoples’ green development can effectively address the three pillars of sustainable development.
There are many options available for raising and strengthening public financing for sustainable development, particularly through progressive redistributive measures, and many of us in civil society believe this should be the priority rather than the over-reliance on private sector investments or leveraging private finance.
To summarise, achieving development justice and realising means of implementation requires governments to:
- Reform trade
- Reform the financial and monetary structure
- Address the problem of external debt
- Reform the climate finance architecture
- Implement effective and binding regulations for corporations across borders
The world’s existing resources are more than enough to cover all the financing needs of a sustainable future. All we have to do is to look for alternatives that strengthen the role of public financing and where democratic ownership, national sovereignty, and human rights can be ensured and adequately protected.
About the Author:
Antonio A. Tujan Jr is the international director of IBON International (@iboninternatl). He is one of the founding Co-Chairs of the CSO Partnership for Development Effectiveness (CPDE) and was the first civil society representative in the Global Partnership for Effective Development Cooperation (GPEDC) Steering Committee.