Financing for Sustainable Development

The sustainable development goals, in order to be achieved, are going to require a lot of investment. A lot of new infrastructure is going to have to be built. A lot of new kinds of power plants are going to have to be constructed. A lot of healthcare outlays will be required. A lot of education outlays will be required. Like anything in building for the future, investing is at the core of achieving the Sustainable Development Goals. And When investment is required that means mobilizing resources in order to be able to finance those investments. Who’s going to pay for the Sustainable Development Goals? How will they be achieved through effective financing? Well in the end we’re all going to pay in some sense because we have to pay for the goods and services that are part of our lives. We pay for them through our incomes, but we do it in one of two fundamentally different ways. One is we participate in markets as consumers and suppliers. Suppliers out to make profit. Consumers out to purchase goods and services. And in a market sector of our economy, of course it, it is the interaction of supply and demand, which both generates the economic activity and provides the motivation for financing. Businesses build factories because they anticipate that they’ll make profits from them. Those profits, to an important extent, will come by being able to sell goods and services to the public. The other way that we buy the things that we need is as citizens. Paying taxes so that governments can provide public services, whether it’s building roads or providing health care or public education or fire and police services or funding the national science foundations of our countries and the scientific research which underpins technological change. In this sense, one can say that sustainable development will be paid for by all of us one way or another. But tremendous fights, and sometimes very bitter fights ensue as to the proper balancing of financing between the market oriented profit-seeking investments of business driven by their sales of, of goods to consumers, and the financing that comes through the public sector. The free market philosophy says, let the markets do it. Government will waste the money or lose it or squander it in some way. Whereas advocates of public leadership say markets aren’t, taking on the investments in clean energy, and they don’t build the infrastructure, and they’re not providing health care for the poor. So we need a public approach. Of course, the truth is that these different kids of financing, public and private, and sometimes public-private partnerships are complimentary mechanisms to finance sustainable development objectives. Some things work very well through the private sector. Other things do not. At the core of our analytical understanding of these issues, it needs to be an analysis of where the right boundaries are. What are the most effective ways to allocate responsibility for financing between market-based, private sector financing and public financing? Well, we know that there are cases where the market has done brilliantly almost on its own. And I think the greatest example of this is the massive expansion of mobile telephony to all parts of the world. Here’s a great technological breakthrough. We all love our mobile phones. And in a short period of time, of, roughly 25 years, the number of mobile subscribers has increased from some tens of millions around 1990 to more than six billion subscribers today, including many of the world’s poorest people. This was not on the basis of a government program. This was on the basis of private providers looking for profit, making investments in base stations and other aspects of connectivity like fiber optic lines, and the consumers buying their phones and, and buying access to connectivity. So this is an example where markets have done it. Even though, of course, we should keep in mind that the underlying technologies that made this possible started with basic science, solid state physics, quantum mechanics, and then applied engineering, much of it of which was financed by the public sector originally and then taken up by the private sector. Now other kinds of activities in no way had the kind of dynamics of mobile phones. When it came to malaria control, when even markets plus subsidies were the preferred mode of organization for financing malaria control back more than a decade ago, the uptake was very, very small. When companies producing insecticide-treated bed nets were trying to market those bed nets to the public, they found that the poorest people absolutely were not consumers, were not customers for them, even though they needed those nets to stay alive. The fact of the matter is, they were so impoverished that they couldn’t afford them. And when it came to organizing the delivery of malaria control systems, community health workers, links to clinics, diagnostic services, outreach, availability and access to the right kinds of medicines, the private sector approach simply wasn’t delivering. Very, very poor people sick and dying of malaria were not customers. They were simply very poor people, and the systems did not emerge. Then came the global fund to fight AIDS, TB, and malaria. The President’s Malaria Initiative stepped up public financing. Through budgets, tax revenues being collected, either in the US and then used as international assistance, or in the malarious countries themselves where domestic budgets albeit limited because of the poverty of those countries, contributed to the fight against malaria. Then much more comprehensive measures could be introduced, but not as a profit-based activity, but as a provision of social services. Well, economics teaches us a lot about where the right boundaries are, and let me mention some of the reasons why the private approach which we’d love to be the universal one if it actually solved problems, doesn’t solve problems in particular and very important cases. First, for the poor. Markets, one can say, are designed to ignore the poor. The poor have no money or very little of it. They’re not good customers in many, many cases. And markets in that case when they feel you can’t make a profit from that, pass over the poor and the poor, if it’s a question of access to healthcare for example, can die as a consequence. And that’s why we discuss the concept of merit goods, that there are areas of our economic life: health, education and other areas where government should provide services whether people can pay for them or not because these are meritorious goods that for a number of reasons should be universally accessible. So, that’s one place where public financing is essential. Public financing is essential in areas where, for other reasons, it’s very hard to recoup the returns on an investment in a direct cash sense. Consider investing in basic science. That kind of knowledge is freely available.  Scientists need to publish their papers in, in journals that are read by everybody. The returns to science come in the broad improvement in society, in the uptake of that basic science, maybe by an inventor who then owns a patent. But the scientist doesn’t patent the basic forces of nature which the scientist is discovering or uncovering in her or his research. And so, basic science requires public financing because the profit motive by itself will not be sufficient. Fortunately many countries have recognized this, even for centuries, offering prizes or grants first from the kings and queens and princesses, now from our governments and voted by parliaments and congress, to agencies like the National Science Foundation, which support the basic science. And public finance we know to be very important for social insurance when people are left unemployed by shifts of global markets, when they succumb to other kinds of hardships that can’t be insured effectively in private markets. Government is there as a kind of social safety net. These are all reasons why public financing will be crucial for the Sustainable Development Goals. And, where for poor countries that don’t have a tax base, adequate to meet the SDGs in their own countries, international help from taxpayers from the high income countries will also play a vital role. Now there are many areas where the private sector is the natural way to finance advances. The big power plants that will be built will by and large be built by private companies in the future. But in order to give the right incentives, to have those investments, we know that we will need corrective pricing. For example a carbon tax, which shifts the investments of power generation companies to wind and solar power, as opposed to coal fired power plants for example. So even when the financing is within the private sector a proper regulatory framework and corrective measures, for example to put prices or taxes on social costs like pollution or carbon emissions, is very important to make sure that the private economy providing the financing is investing in the right areas, driven by market signals that are giving accurate indicators of overall social cost and social benefits. Now there’s been an ongoing debate, very emotional, I have to say, and very tense at some points, about one aspect of public finance. And that is when tax payers in one country help to provide public services in another country through official development assistance. Some have said this kind of aid as it’s called, ODA in the technical jargon, and aid in the day to day discussions and debates, is ineffective. There are harsh critics of foreign aid per se. There are others, and I’m among them, who say that that kind of tax payer financed approach where it’s tax payers in one country helping people in poor counties is vital and lifesaving and crucial for organizations like The Global Fund to fight AIDS, TB and Malaria or PEPFAR or other international development efforts aimed at helping very poor people. This debate about ODA or aid has been running pretty strongly during the whole period of the Millennium Development Goals, because MDG 8, the eighth of the Millennium Development Goals calls for increased official development assistance in order to implement the MDGs. Now, how is this debate posed? Let me try to put the sides out there clearly. One part of the debate, I’m in that camp, says aid can be useful, indeed, aid is vital in certain circumstances. Then there are the critics. And the critics come in a variety of areas. One camp says aid is unnecessary, let markets do it. I’ve just discussed why markets might not reach a lot of people, but the market optimists say let the markets do it, what happened with mobile phones can happen with other things as well. A second camp of aid skeptics says aid’s wasted. It passes through too many government bureaucratic hands and that it’s inevitable that it’s going to be wasted. A third argument is that aid is absolutely debilitating, not just wasted, but that it leads to a kind of dependency mentality which is demeaning. It takes away dignity and it takes away motivation. It creates a culture of handouts. And some few say what do we care about poor people. What do we care about what’s happening abroad. Just leave us alone. That’s not the dominant view among the aid skeptics. Most say well, if aid could work we’d be all for it but intrinsically it doesn’t work. Well, these camps have been duking it out, I would say, for quite a while. And I’d like to give, of course a view of why I have been in the camp that says aid’s important in view of these very often legitimate positions taken by the aid skeptics. So let me try as best I can to explain my position vis-à-vis these critical views. First, I want to agree with aid skeptics. Much aid is wasted. No question about it. I can’t stand some of the categories called aid. When cash bills in shoe boxes are given over to local warlords because somehow they’re friends in some conflict in Iraq or Afghanistan or some other place and that that’s categorized as aid. And this is part of our problem in evaluation. What is counted as aid includes many different categories of things, some of which I would agree with the aid skeptics right from the start. No way that that’s going to work. Keep our hands and our taxpayer dollars away from that. My argument is somewhat different. My argument is that aid can work and that it is vital in certain circumstances. It’s especially vital when people are very poor and facing challenges, often life and death, Malaria, AIDS, safe child birth, safe water, sanitation, growing enough food to stay alive, that can not be met by markets. Because these are not consumers that are going to give a profit. Not right now. And they can’t be met by the meager budgets of the poor countries. And so they need help. And then the question is, is it possible to help effectively without the corruption, the stealing, the inefficiencies of the bureaucracies. And my argument is yes if it’s done thoughtfully. We need to design the aid delivery systems in an effective way. Let me refer to my favorite example of this, two organizations. One is The Global Fund to Fight AIDS, TB, and Malaria, which I’ve discussed. The other is The Global Alliance for Vaccines and Immunizations. Both of them pool the aid from the richer countries, have an expert process of evaluating proposals for the use of the aid by recipient countries, and then monitor very closely whether that aid is effective. To my mind, that exemplifies the ways that aid can work. Pool the resources of many donors into a common pot so that the process is simplified, streamlined. Put it under careful scrutiny with expert review and with careful quantitative monitoring and evaluation. Check what’s being done. Don’t hand over that shoe box to a warlord, filled with cash. Rather, have a plan of action that a certain amount of money is going to be used to procure bed nets, anti-malaria medicines, diagnostics, emergency obstetrical equipment, and so forth. And then, monitor what happens afterwards by a close reading. The evidence in my view is quite strong; this kind of aid has worked. So, while there were huge skeptics ten years ago, The Global Fund and GAVI, in the case of the immunizations, have both delivered on their word. We’ve seen the results on the ground. There have been cases of corruption but because the system is closely monitored, because there are quantified targets, because there is follow-up even when there is money stolen, and there will be in any human system, it’s possible to stop, check, correct, and move forward. That kind of feed back system that is so essential. I believe we need more of those pooling mechanisms, more global funds in essence, for health, for education, for safe water and sanitation, for small holder farming, for access for all to low carbon energy sources, and to mechanisms to protect biodiversity. We have a global environment facility like that, that has been established under the Convention on Biological Diversity, a major step forward. Funding those global funds properly, managing them with rigor, professionalism, oversight, and therefore, efficacy is the hallmark of a successful official development assistance effort. The ideologues often say, it just doesn’t work. But all they’re doing, in my opinion, is lumping together the kinds of policies really doomed to fail with those that are compelling and likely to succeed, and blurring these differences, rather than clarifying them and saying let’s go in the direction in which success is very likely. Let me also say we need innovation in financing. We will need a lot more public-private partnerships, where private financing is linked also to public financing in a package, and to the right kinds of regulatory steps. We’ll need this to move to clean energy, to build safe infrastructure. We’ve had that kind of public-private partnership for technology development and for delivery of new technologies like anti-retroviral drugs, to fight AIDS. So the point is, official development assistance, to be effective, and public finance in general, to be effective, requires a serious process. Like anything we do. We need to be thinking, planning ahead, back casting and road mapping, monitoring, evaluating and updating our strategies. If we do this and if we provide an adequate level of public finance the Sustainable Development Goals are in a cost range of one to two percentage points of our national income for the kind of transformations needed. Maybe if the costs are on the high end, maybe two to three percentage points of our national income. They won’t break the bank. But they won’t happen on their own through market forces alone. A clear effective strategy of official financing of national budgets for national needs and of official development assistance for the poorest countries, in particular, will play a vital role in the success of the Sustainable Development Goals.

Pedro Pereira Leite

Researcher and professor. He had his PhD. on museology in 2011, with the title “Muss-amb-ike Homeland: The commitment on musicological process”, that was published in 2011. In 2012 he finishes a Post-PhD Research on "Biographical Glances: The intersubjectivity poetry on museology, at Lusófona University (Lisbon). Presently he is working in his Post PhD. Research about: “Global Heritages" with the aims to build a network on local cognizance and memory manager has a tool to build the will of action in 3 different communities, linked by past communed heritages.” He works at CES. He participates on different Research network, presented papers in national and international conferences, and had published books on research subjects.

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