New analysis suggests that developing countries are losing a trillion dollars or more each year to tax evasion and corruption facilitated by lax laws in Western countries, raising pressure on global leaders to agree to broad new reforms at an international summit later this year.

These massive losses could be leading to as many as 3.6 million deaths a year, according to the ONE Campaign, an advocacy group that focuses on poverty alleviation in Africa. Recovering just part of this money in Sub-Saharan Africa, the organisation says, could allow for the education of 10 million more children“Whenever corruption is allowed to thrive, it inhibits private investment, reduces economic growth, increases the cost of doing business, and can lead to political instability. But in developing countries, corruption is a killer” – ONE Campaign
 a year, or provide some 165 million additional vaccines.

“Whenever corruption is allowed to thrive, it inhibits private investment, reduces economic growth, increases the cost of doing business, and can lead to political instability. But in developing countries, corruption is a killer,” a report on the findings, released Wednesday, states.

“When governments are deprived of their own resources to invest in health care, food security or essential infrastructure, it costs lives, and the biggest toll is on children.”

The new analysis focuses on a spectrum of money laundering, bribery and tax evasion by criminals as well as government officials. The lost money is not development aid but rather undeclared or siphoned-off business earnings – immense tax avoidance resulting in a decreased base from which governments can fund essential services.

International trade offers a key point of manipulation, the report says, with the extractive industries particularly vulnerable. In Africa alone, exports of natural resources grew by a factor of five in the decade leading up to 2012, offering clear prospects for growth alongside lucrative opportunities for corruption on a mass scale.

“Between 2002 and 2011 we saw an exponential increase in illicit financial flows across the globe,” Joseph Kraus, a transparency expert at the ONE Campaign, told IPS.

“Yet while we’re all familiar with corruption in developing countries, it takes two to tango – that money often ends up in the financial centres of the Global North. Those banks, lawyers and accountants are all essentially facilitators of that corruption, so in order to get at the root of this issue we need to go after the problems there.”

Real opportunity

Advocates including the ONE Campaign are currently stepping up pressure on industrialised countries to institute a series of across-the-board transparency measures. Some are aimed at corruption in developing countries, such as strengthening disclosure laws impacting on the extractives industry and bolstering “open data” standards to allow citizens increased oversight over their governments’ dealings.

Several other reforms would need to be carried out by developed countries, particularly those housing major financial centres such as the United States and United Kingdom. These would include new standards requiring governments to automatically exchange tax information, to mandate the publication of full information on corporate ownership, and to force multinational corporations to report on their earnings on a country-by-country basis.

In certain circles, such demands have been percolating for years. But current circumstances could offer unusual opportunity for such changes.

“In the last two years we’ve seen an acceleration of this agenda,” Kraus says. “Eighteen months ago, no one was talking about phantom firms or anonymous shell companies. But these issues have gained a lot of momentum in a short period of time, and there is real opportunity coming up.”

This new energy has been motivated particularly by concerns in advanced economies over shrinking government budgets in the aftermath of the global economic downturn. Yet developing countries arguably stand to benefit the most from substantive reforms, provided they’re structured accordingly.

Advocates of such changes are now looking ahead to a summit, on Nov 15 and 16 in Australia, of the members of the Group of 20 (G20) world’s largest advanced and emerging economies as well as two major meetings of finance ministers in the run-up to that event.

The G20 represent about two-thirds of the world’s population, 85 percent of global gross domestic product and over 75 percent of global trade.

The members of the G20 are Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Republic of Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the United Kingdom, the United States and the European Union.

The G20 has taken on a primary role in issues of global financial stability and, more recently, in pushing the automatic exchange of tax information between governments. A new global standard on such exchange could be approved by the G20 ministers in November, among other actions.

“For too long, G20 countries have turned a blind eye to massive financial outflows from developing countries which are channelled through offshore bank accounts and secret companies,” according to John Githongo, an anti-corruption campaigner in Kenya.

“Introducing smart policies could help end this trillion dollar scandal and reap massive benefits for our people at virtually no cost. The G20 should make those changes now.”

Coordinated response

In fact, many G20 countries have instituted some of these reforms on their own. The U.K. government, for instance, has taken unilateral action on publicising information on corporate ownership, while the United States was the first to pass strong transparency requirements for multinational extractives companies.

While such piecemeal national legislation can spur other countries to action, many feel only a comprehensive approach would have a chance at having a substantial impact. Further, many governments have pledged to act on these issues, but have yet to actually follow through.

“Illicit financial flows are a perfect example of a transnational problem, in that you have two legal regimes in which loopholes are being exploited,” Josh Simmons, a policy counsel at Global Financial Integrity, a Washington watchdog group that supplied data for the new ONE Campaign report, told IPS.

“So when an international cooperative body is able to identify these loopholes, they can get member countries to move in sync to address the situation. But if only one country tries to do so, businesses would probably just move elsewhere.”

Others are looking even more broadly than the G20. A paper released last month by researchers with the Center for Global Development, a think tank here, calls for the inclusion of anti-tax-evasion aims in the new global development goals currently being negotiated under the United Nations.

Indeed, even while there could be real movement at the G20 on several of these issues this year, the work on the other end of this equation – in developing countries – remains onerous.

“We need to get developing countries’ tax systems up to speed, strengthen their financial intelligence units and get their anti-laundering laws up to code. And that is proceeding, but much more under the radar given its complexity,” Simmons says.

“Still, that’s where people are actually bearing the brunt of this problem. Tax avoidance in the United States contributes to the national debt, but in developing countries it’s literally causing people to go hungry.”

Edited by Ronald Joshua

LM Glasfiber workers hoist a wind turbine blade in Grand Forks, North Dakota. Credit: Tu/cc by 2.0

By Carey L. Biron
WASHINGTON, Jul 11 2014 (IPS)

Formal negotiations began this week around the increasingly significant global trade in “environmental goods”, those technologies seen as environmentally beneficial, including in combating climate change.

Attempts have been made to liberalise this market for years. But on Tuesday, 13 countries, constituting nearly 90 percent of the current trade in green goods such as solar panels, wind turbines and wastewater treatment filters, came together in Geneva to try again to reach agreement."There is no definition yet of what actually constitutes an ‘environmental good’, and many of the goods being considered are actually harmful to the environment.” -- Ilana Solomon

Yet there remains significant confusion around the actual potential – or even broader aim – of the talks, towards what’s being called the Environmental Goods Agreement. Green groups are expressing open scepticism of the process, taking place under the World Trade Organisation (WTO).

“From our perspective, we think increasing trade in and use of environmentally beneficial products is incredibly important. But we have really serious concerns about the approach the WTO is taking,” Ilana Solomon, the director of the Responsible Trade Program at the Sierra Club, a conservation and advocacy group, told IPS.

“This approach is about removing tariffs on a list of products that are supposedly beneficial to the environment. But there is no definition yet of what actually constitutes an ‘environmental good’, and many of the goods being considered are actually harmful to the environment.”

The WTO talks are taking place between the United States, the European Union, China, Australia, Japan and others. Representatives are starting from a list of 54 product categories, agreed upon in 2012 among the Asia-Pacific Economic Cooperation (APEC) grouping.

The APEC countries are now working to reduce tariffs on these products to below five percent by 2015.

Yet the list includes many items that can be used in ways that could be either environmentally positive or negative. This includes, for instance, waste incinerators, centrifuges, gas turbines, sludge compactors and a variety of technical machinery.

The list would also seem to largely exclude poor countries. Currently, only Costa Rica has joined what are otherwise industrialised and middle-income economies in the talks.

“Poor countries are probably not producing these items,” Kim Elliott, a senior researcher on trade at the Center for Global Development, a think tank here, told IPS. “If they don’t participate in these talks they’ll likely lose out around high tariffs, but they’re probably not going to be doing much exporting.”

While proponents tend to characterise the negotiations in terms of lowering overall prices for green goods, little is said of the potential impact on nascent domestic industries.

“There might well be reasons a developing country would want to develop its own industry in, say, solar panels or wind turbines,” the Sierra Club’s Solomon says. “But having low or no tariffs could impede the ability of these countries to develop their own domestic renewable energy industries.”

Knock-on effects?

The World Trade Organisation does not include climate change in its purview. Yet since the mid-1990s the multilateral organisation says it has worked to establish “a clear link between sustainable development and disciplined trade liberalization – in order to ensure that market opening goes hand in hand with environmental and social objectives.”

Momentum behind the new talks is in part due to a push from President Barack Obama. Last year, as part of a major new focus on climate, the president announced that U.S. officials would engage in the negotiations in order “to help more countries skip past the dirty phase of development and join a global low-carbon economy.”

The administration’s interest in the issue will also be shared by other proponents of expanded free trade. Multilateral trade talks have seen little to no progress over the past two decades, after all, so proponents hope that linking these issues could give a fillip to the multilateral system.

“Everybody, at least on paper, wants to do something on climate change, so this is seen as an issue that might be able to move,” the Center for Global Development’s Elliott says. “The idea is regarded as something of a win-win, as useful for the trading system and also for the planet.”

Of course, the U.S. government’s interest is also around strengthening U.S. exports, and as political pressures have risen around the world around climate change, the trade in green goods has quickly become a major force. According to official estimates, this market’s value doubled between 2011 and 2007, and stood at around a trillion dollars last year.

The U.S. share has been growing by eight percent per year since 2009, amounting to some 106 billion dollars last year.

Certainly business interests, in the United States and industrialised countries around the world, are showing significant interest in the new talks. On Tuesday, nearly 50 major business groups and trade associations wrote to the WTO negotiators to “strongly endorse” their efforts.

The industry groups also expressed hope that an accord around environmental goods could act as a catalyst for broader liberalisation.

“An ambitious [agreement] will further increase global trade in environmental goods, lowering the cost of addressing environmental and climate challenges by removing tariffs that can be as high as 35 percent,” the groups stated.

“In addition to its intrinsic commercial importance and desirability, a well-designed [agreement] can act as a stepping stone to lowering tariffs and other trade barriers in other sectors and associated value chains.”

Backdoor liberalisation

The U.S. administration may share this view. The Sierra Club’s Solomon points to a recent letter from Michael Froman, the United States’ top trade official, requesting the U.S. International Trade Commission to research the potential impact of trade liberalisation around environmental goods.

“In the absence of a universally accepted definition of an ‘environmental good,’” Froman wrote, “I request that, for the purpose of its analysis, the Commission refer to the items contained in the list attached to this letter.”

That list, which extends to 34 pages, contains hundreds of items not currently on the APEC list. These range from natural products (honey, palm oil, urea, coconut fibres, bamboo) to the technical (pipes and casings “of a kind used in drilling for oil and gas”) to the seemingly random (vacuum cleaners, cameras).

“This appears to suggest that this exercise isn’t about protecting the environment but rather about expanding the current model of free trade – a backdoor attempt to achieve liberalisation on a broad range of goods,” Solomon says.

“As this process moves forward, we’ll need a full environmental impact assessment of everything on the list under consideration. And it can’t just be the end uses that are examined, but rather the whole lifecycle of a product’s impact that is taken into account.”

Workers arrive early in the morning at the One World Apparel factory in Port-au-Prince to assemble garments for export from Haiti. The current preferences list excludes several major sectors, including clothing. Credit: Ansel Herz/IPS

By Carey L. Biron
WASHINGTON, Jul 18 2013 (IPS)

A broad spectrum of interests are urging U.S. lawmakers to extend a law offering trade preferences to developing countries, slated to expire at the end of the month.

U.S. business lobbyists as well as development experts are stepping up calls to re-authorise the agreement, known as the Generalised System of Preferences (GSP), ahead of a Jul. 31 deadline. Failure to do so, advocates warn, would cost U.S. companies some two million dollars per day and likely lead businesses to shift contracts away from some of the least-developed countries covered by the GSP agreement.“If you raise tariff levels for products coming from these countries, you will see business agreements shifting to other countries where the economics are more stable.” -- Daniel Anthony of the Coalition for GSP

While a bill to extend this system was finally introduced on Wednesday in a House of Representatives committee, those pushing for an extension are warning that these consequences will still come to pass if Congress chooses to act after the deadline, as lawmakers have done repeatedly in the past.

“We are so happy that the renewal process has taken this very important step,” Laura Baughman, executive director of the Coalition for GSP, a Washington advocacy group representing U.S. businesses, told IPS in a statement.

“[But] the clock is ticking more loudly as the days advance toward July 31. Not only will expiration adversely affect more than a hundred developing countries who use GSP, but it will hurt their U.S. customers and workers who use products imported under GSP to make other products in the United States.”

In the United States (other developed countries have similar agreements), GSP has been in effect since the mid-1970s, aimed in part at strengthening developing economies. Today, it eliminates tariffs on goods imported to the United States from some 127 developing countries, with additional coverage for 43 countries dubbed “least developed”.

The set-up provides for lower prices for imported products used by U.S.-based manufacturers or retailers. Foreign-made car parts, for instance, are an important item under GSP, which last year impacted on around 20 billion dollars’ worth of U.S.-imported products.

“Through GSP, some of the poorest countries in the world get a shot at sharing in the benefits of international trade,” Charles Rangel, a member of the House of Representatives and a co-sponsor of the re-authorisation bill, said Wednesday.

“It is vital to our commitment to promote economic development, democracy, worker rights, rule of law, and other fundamental values in the world. This is a programme that has received broad, bipartisan support virtually every time it has come up for renewal. We need to move on it now.”

Advocates worry that if Congress fails to re-authorise GSP by the Jul. 31 deadline, the resulting price hikes for imported products will severely impact on small and medium-sized businesses in the United States. In turn, this lack of pricing stability could lead companies to find more stable sourcing contracts elsewhere.

“If you raise tariff levels for products coming from these countries, you will see business agreements shifting to other countries where the economics are more stable,” Daniel Anthony, director of research and government relations at the Coalition for GSP, told IPS at a briefing last week.

“But unfortunately there’s no way to know the full effects of those decisions, given the vast number of factors involved.”

During each previous period after which GSP expired and awaited retroactive re-authorisation by Congress, the value of GSP imports fell precipitously. In 2010, for instance, the re-authorisation process took nearly a full year, and the value of those contracts fell by nearly five billion dollars.

Unlike the vast majority of legislation moving sluggishly through the U.S. Congress today, GSP has historically enjoyed broad bipartisan support. Yet despite this support, the Congress has repeatedly re-authorised the system for just a few years at a time, thus leading to the current situation in which an already dysfunctional Congress is overloaded with work.

In terms of trade discussions alone, the U.S. is currently engaged in massive negotiations towards two huge free trade agreements, while several other trade bills are pending. On Wednesday, one of the primary authors of the re-authorisation bill, Congressman Dave Camp, stated that he hoped to get the GSP legislation done by the end of the year.

Least-developed focus

It is difficult to gauge the impact of the U.S. GSP on developing countries, partly because the United States has several other trade preference programmes. According to a report released in January by the official Congressional Research Service, total U.S. imports from all GSP countries has grown substantially in recent years, a trend that the report cautiously suggests could have helped create “some export-driven growth in developing countries”.

Yet the report also concludes: “for individual industries in developing countries, the positive impact of the GSP could be seen as quite significant.”

Very few are currently calling for GSP to be ended outright. But development advocates and some economists have been pushing for alternative trade preference schemes that could potentially have a far greater impact on the world’s least-developed economies.

The top five countries exporting goods to the United States under GSP, after all, are India, Thailand, Brazil, Indonesia and South Africa, nearly all currently considered “middle income”. Indeed, this is a fact that some members of Congress have increasingly pointed out amidst calls for reforms.

In addition, the current preferences list excludes several major sectors, including clothing, where relatively cheap labour in developing economies could offer a major advantage.

Indeed, the recent high-profile decision by the United States to rescind GSP preferences to Bangladesh in the wake of a series of incidents highlighting poor – even lethal – working conditions in that country’s massive garments sector was undermined by the fact that garments, which constitute some 90 percent of Bangladesh’s exports to the United States, were not actually covered under GSP.

“The administration should seek congressional approval for duty-free, quota-free market access for all least developed countries, with a safeguard for existing African clothing exports,” Kimberly Elliott, a trade and globalisation scholar at the Center for Global Development, a Washington think tank, wrote in a June letter to the new U.S. trade representative (USTR), Michael Froman.

“The aim should be to limit the benefits for already competitive exporters only as much as necessary to shield African exports.”

Thus far, there has reportedly been no substantive response to this suggestion from Froman’s office.

Elliott notes in a follow-up blog: “Since U.S. movement on duty-free, quota-free market access would also be a big contribution to making the meeting of trade ministers in Bali in December a success, I’m puzzled by USTR’s resistance to this.”

An external review panel is calling on the World Bank to institute sweeping reforms to its widely cited annual “Doing Business” report, including doing away with a controversial ranking of countries on a variety of business-friendliness metrics.

Doing Business is put out jointly by the World Bank and its private sector arm, the International Finance Corporation (IFC), both based here in Washington, and has become one of the bank’s most high-profile publications.

“Over the decade that it has been published, Doing Business has achieved a great deal of influence,” Trevor Manuel, South Africa’s planning minister and chair of the review panel, said Monday at the audit’s London unveiling.

“It is the leading tool to judge the business environments of developing countries, generating huge global media coverage every year. Several countries – such as Rwanda – have used it as a guide to design reform programmes.”

Indeed, reportedly used by some 85 percent of global policymakers, the report has built up particularly outsized influence in the developing world, as government officials have competed to raise their index ranking.

Yet for this reason, critics have for years warned that the report was pushing countries to lower taxes and wages and weaken overall industry regulation, thus potentially endangering the poor.

On Monday, the 11-member panel, appointed in October by World Bank President Jim Yong Kim, offered strong backing for several of these criticisms, even while it stated that the report should continue to be published. Most prominent among these is the recommendation to do away with the aggregated Ease of Doing Business Index, introduced in 2006.

“The decision to retain or drop the aggregate rankings table is the most important decision the Bank faces with regard to the Doing Business report,” the review states.

“Removing it would defuse many of the criticisms levelled against the report, but would diminish the report’s influence on policy and public discussion in the short term. In the long term, however, doing so may improve focus on underlying substantive issues and enhance the report’s value.”

The report also calls for greater transparency within the reporting and evaluation processes, and urges the bank to move the report’s “home” from the IFC to the research department within the bank proper. This latter recommendation could be particularly important given past criticisms that the Doing Business team has been reticent to implementing any major changes.

In an unusual public statement ahead of the review’s publication, President Kim suggested that plans were afoot to make just such a change. Yet he also sketched out a clear stance on the overall importance of both the report and its rankings.

“It is indisputable that Doing Business has been an important catalyst in driving reforms around the world,” Kim said on Jun. 7. (The bank declined IPS’s request for further comment Monday.) “I am committed to the Doing Business report, and rankings have been part of its success.”

Pure knowledge

The Ease of Doing Business Index rankings are based on metrics drawn from 10 regulations and other factors impacting on a country’s business environment. These include permitting and registering, ease of getting credit and electricity, the legal framework for enforcing contracts and protecting investors, how much tax a company must pay and how a government regulates cross-border trade.

These data points are then distilled down to a single score, allowing World Bank researchers to rank all 185 countries the report covers. The 2013 rankings awarded top scores to Singapore and Hong Kong and bottom scores to Chad and the Central African Republic.

Yet the review panel is now warning that such aggregation tends to cloud crucial country-level variations.

“It is important to remember that the report is intended to be a pure knowledge project,” the review states. “As such, its role is to inform policy, not to prescribe it or outline a normative position, which the rankings to some extent do.”

The past year has seen significant pushback against such criticism of the rankings, from prominent voices within the business community as well as certain development scholars.

“I think these rankings really do have fundamental value, as without the rankings the Doing Business report is just one more research exercise among many the World Bank does,” Scott Morris, a visiting policy fellow at the Center for Global Development, a Washington think tank, told IPS.

“It is because of the ranking that this report has unique value to those countries that have a long way to go on economic reform. Think of a small sub-Saharan African country with a reformist government in place – how does it get international leverage for reform or gain global attention for what it has accomplished? The rankings exercise, with its very high profile, is tremendously valuable in this regard.”

Regulatory opportunity

While the Doing Business report has received regular low-level criticism since its introduction, much of this was technical.

Over the past year, however, the issue has become far more politicised, with certain countries – led by China – complaining that the report was biased in favour of capitalist systems. Beijing has wanted the World Bank to halt publication of the report outright.

Meanwhile, humanitarian, labour and other progressive groups have also stepped up calls to reform the report. On Monday, many of these groups found the panel review to be surprisingly in line with their own worries about Doing Business leading to a weakening of regulation.

“After years of working with small and micro enterprises in developing countries, (we) know that helping people to set up and run a business is only half the job,” Christina Chang, lead economist for CAFOD, the Catholic aid agency for Britain and Wales, said in an e-mail to IPS. “Without a conducive regulatory environment, the odds are stacked against their success and many may never even get off the ground.”

CAFOD has actively pointed to problems with scoring on the report.

“Some indicators are linked with a drive to lower labour standards and corporate taxation rates,” the agency states. “These are not ideas that other publications of the Bank endorse, and they should not be in their most influential publication.”

Yet the panel’s recommendations, some groups contend, now offer a potent opportunity.

“The panel’s report is a defining moment for World Bank policy to reflect the needs of working people, and a balanced approach to labour market regulation,” Sharan Burrow, general-secretary of the International Trade Union Confederation, said Monday in a statement. “If adopted, the World Bank has the opportunity to reshape the relationship between working people, business and governments.”

The United States’ main foreign assistance agency is getting widespread plaudits for new data on a series of internal reforms aimed at aid improvement, but some development experts are pointing to a persistent opaqueness from the agency.

In a first-of-its-kind report released this week, the U.S. Agency for International Development (USAID) has laid out the progress it has made under a key reform initiative undertaken over the past three years.

“This report does provide a nice, concise summary with policy descriptions and challenges, but it could go further in its attempt to be transparent,” Sarah Rose, a senior policy analyst on the Rethinking Foreign Assistance team at the Center for Global Development (CGD), told IPS.

The report focuses heavily on new evaluation policies aimed at increasing accountability and country ownership, incorporating new technologies (“from improved seeds to mobile phones”) and leveraging “high impact” partnerships, specifically with the private sector.

In the past, USAID has been widely criticised for a lack of transparency. While the agency is currently in the midst of a massive overhaul of related policies, just this past October an advocacy group called Publish What You Fund ranked USAID just 27th out of 43 foreign aid agencies, in terms of transparency.

To address such criticisms, in 2010 President Barack Obama unveiled a policy directive that spurred the new round of reforms. At the forefront of its objectives were the development of “robust … budget and evaluation capabilities”, progress toward which the new report outlines.

For instance, a new policy has been introduced that requires every major U.S. aid project to undergo a rigorous evaluation conducted by an independent third party. The report touts that this new policy has already been called “a model for other federal agencies” by the American Evaluation Association, a professional association for evaluators, and that it has led to budgetary changes in a third of the cases examined.

Some aid organisations have also expressed enthusiasm about increasingly collaborative partnerships between the United States and recipient countries, a break from the old structure in which the host countries were seen as less active participants in project design.

“The progress demonstrated in the report, especially on promoting sustainable development through high-impact partnerships, demonstrates a commitment to ensuring that people are the leaders of their own development,” Gregory Adams, Oxfam America’s director of aid effectiveness, said in a release.

They point particularly to the development of Country Development Cooperation Strategies (CDCS), five-year plans drafted collaboratively by the United States and recipient countries that identify the needs of partner countries and detail specific paths forward. CDCSs ostensibly give host countries more of a stake in USAID development projects.

The new report finds that the percentage of USAID funds allotted to local institutions grew from 9.7 in 2010 to 14.3 in 2013. That puts the agency at the halfway mark of a five-year goal of 30 percent by 2015.

Transparency concerns

Still, many see room for improvement in USAID’s partnership strategies.

“USAID has done a good job refurbishing its human capacity and bringing on additional people,” George Ingram, the co-chair of the Modernizing Foreign Aid Assistance Network (MFAN), an advocacy group, told IPS.

“But it needs to do a better job providing its employees with training and advanced managerial skills to help them keep abreast of new developments.”

Transparency and accountability concerns are also central. Although the report outlines a 50-percent increase in local partnerships by USAID, it lacks detail about what local institutions were partnering with USAID.

“There are a number of stakeholders who want to know exactly what those local partnerships are,” CGD’s Rose told IPS. “Doing so would allow stakeholders to do their own analyses.”

Similarly, although the paper reported that USAID had increased its public-private partnerships by 40 percent over the past three years and leveraged an additional 383 million dollars of non-U.S. government money toward development goals, the report made little mention of the companies or projects involved in those partnerships.

For some, the greatest threat to increased transparency could be a greater reliance on private-sector funds in development assistance. This has been at the core of a decade-long shift in USAID projects, and now looks set to continue to increase.

“In a world where foreign direct investment flows vastly outpace development assistance,” the report states, “we have to enable global investment and local private sector entrepreneurs to serve as engines of sustainable growth for even the most vulnerable communities.”

MFAN’s Ingram says that public-private sector initiatives can indeed be complementary in supporting economic growth in host countries.

“To some extent, government organisations are good at formulating plans about what needs to be done,” he says. “But the private sector knows how to get those things done – on the ground, in the marketplace, for their clients.”

But Ingram also notes looming barriers to public-private cooperation, highlighting the possible obstacles to transparency that a strengthened public-private partnership would imply. There is a degree of “public trust”, he says, to which government agencies are beholden by virtue of operating on taxpayer funds.

“In honouring and respecting that public trust, [government agencies] end up developing a lot of rules and regulations to make sure that the way they conduct business is open to public scrutiny,” he says. “In the end, there has to be some balance between the rules and responsibilities that come with public funds, and the private sector that isn’t used to that.”

Indeed, the private sector’s inclination toward efficiency and profit at the expense of oversight and accountability is precisely what concerns many development advocacy groups here in Washington.

In a conversation with IPS earlier this month, Janet Redman, director of the Sustainable Energy and Economy Network at the Institute for Policy Studies, a Washington think tank, expressed concern about public-private aid collaboration blurring the line between two very different measures of progress.

“The danger lies in pretending gross domestic product and foreign direct investment are the same thing as making economies more sustainable and enabling them to meet the needs of their citizens,” she said.

Twelve-year-old Maruf lives in a shanty in Nayanagar, close to a Dhaka suburb. He works at a nearby car workshop, fixing luxury car engines for about six dollars a month. He shares this meagre income with his family of four. Credit: Naimul Haq/IPS

By Carey L. Biron
WASHINGTON, Mar 21 2013 (IPS)

A leaked copy of a major World Bank strategy paper, outlining a new institutional approach to tackling poverty through 2030, has worried some humanitarian groups and anti-poverty advocates, who say the bank has failed to suggest mechanisms that would allow it to adequately track or deal with growing levels of income inequality around the world.

Critics are claiming that the Washington-based World Bank, the world’s largest international development lender, appears to be including an inordinate focus on economic growth for all segments of society, without addressing any redistribution of upper-level incomes.

Global income inequalities are currently said to be at 20-year highs, figures that have worried policymakers and economists at all levels. A November report by Save the Children, an aid agency, found that the gap between the richest and poorest children had grown by 35 percent since the 1990s – the timeframe used to monitor progress towards the Millennium Development Goals (MDGs), which are supposed to be achieved by 2015.

“The global consultations on post-2015 delivered a strong consensus around the importance of inequality,” Alex Cobham, a research fellow with the Europe office of the Center for Global Development (CGD), a Washington think tank, told IPS.

“That process also highlighted that this was not about simply identifying those at the bottom to target them better, but about recognising the damage that inequality does to societies, including people at the top as well as the bottom; and that, as such, the response must be to tackle inequalities directly, not to pursue targeting alone.”

The content of the World Bank documents, draft copies of which can be found here and here, were slated to be discussed by the institution’s executive directors on Thursday. The strategy lays out two broad new goals.

First, in line with the bank’s broad aim of ending poverty, the approach paper proposes bringing those living under “extreme poverty” (defined as subsisting on less than 1.25 dollars per day) down to three percent globally by 2030. This ambitious goal, the bank notes, would require a roughly one percent reduction in poverty each year.

Second, the bank proposes a new focus on “shared prosperity … to promote the income growth of the bottom 40 percent of the population in every country”. It is this broad aim that is generating particular concern.

David Woodward, a former advisor at the International Monetary Fund (IMF) now at the New Economics Foundation, a London think tank, told IPS in an e-mailed analysis that the current global context, particularly in dealing with the threat of climate change, calls for a “major shift in development strategy”. But, he notes, the new strategy offers essentially a “business-as-usual” approach.

“The focus on the incomes of the poorest 40 percent in each country would be welcome if it were given primacy over overall economic growth as an objective; but the reverse seems to be the case,” Woodward says.

“If the Bank were serious in wanting to promote ‘shared prosperity’ (particularly within global carbon constraints), this logic would be reversed.”

In that case, he says, the objective should be to maximise income growth – alongside public services – for the bottom 40 percent, while the remainder of the population would be a “secondary consideration”.

Although the World Bank generally does not comment on leaked documents, a bank spokesperson told IPS: “This paper is an early draft, which we expect will be further revised before being finalised. It tracks with the vision the World Bank president outlined in a speech in Tokyo in the fall of 2012, where he looked to end poverty and build shared prosperity. We expect President [Jim] Kim to expand on this ambitious vision in the coming weeks.”

Prosperity, inequality incompatible

The new draft strategy documents do discuss the issue of inequality, and indeed make some strong fundamental statements on the issue.

In introducing its goal of a reduction in extreme poverty to three percent internationally by 2030, the bank warns that such an aim “implies a future faster, more sustained decline in poverty in many developing countries, at a pace not observed in the past, and in the context of increasing inequality in many countries.”

Later, it states specifically, “Sustained progress in achieving shared prosperity is incompatible with a steady increase in inequality … Growth of the bottom 40 percent that is consistently lower than the average income growth of a country should be a cause for concern, as rising inequality may eventually abate the growth process itself by causing political instability, distorting incentives, and reducing the dynamism and mobility in society.”

No country with high levels of inequality, the paper notes, has ever progressed beyond “middle income” status.

Beyond such strong rhetoric, however, critics are suggesting that the lack of solid focus on directly addressing inequality is ominous.

“The World Bank has recognised that inequality is the enemy of shared prosperity, a very welcome move, and we applaud Jim Kim’s vision for reforming the bank to ensure it does a better job of fighting poverty and inequality,” Didier Jacobs, acting head of the Washington office of Oxfam International, an aid group, told IPS.

“But the bank’s shared prosperity agenda should be clearer, more categorical, and go further. Fostering income growth of the bottom 40 percent of the population in every country is an activity, not a goal. The World Bank must commit to growing the bottom 40 percent faster than the average, and reducing disparities between the top and bottom of society.”

As the international development conversation has placed increasing focus on the centrality of inequality, some have suggested a major shake-up needs to take place with how this indicator is generally measured. The current method, known as the Gini index, has been in use for the past century, but some say it doesn’t offer important details for policymakers attempting to ease issues of inequality.

This week, CGD’s Cobham co-published a paper that suggests looking, instead, at the ratio of incomes of the top 10 percent of a country’s earners to the bottom 40 percent. Doing so, the paper notes, could be useful for policymakers and citizens alike, in that it clearly and directly ties inequality to both top and bottom earners.

“I was disappointed to see the World Bank use the language of inequality but then shy away from tackling it, preferring instead to broaden the idea of targeting to cover the bottom 40 percent,” Cobham told IPS.

“It would be great to see the World Bank give this new approach serious consideration.”