An agenda for global fis­cal ac­tivism

Health ed­u­ca­tion cru­cial for de­vel­op­ing world’s long-term prospects

Financial Mirror (Cyprus) - - FRONT PAGE -

Two im­por­tant events loom on the cal­en­dar this month: the United States’ pres­i­den­tial elec­tion this week, and Bri­tish Chan­cel­lor of the Ex­che­quer Philip Ham­mond’s first Au­tumn State­ment on Novem­ber 23. Ob­vi­ously, the lat­ter will not be as sig­nif­i­cant an event as the for­mer, but it nonethe­less will have im­por­tant con­se­quences be­yond the United King­dom.

So far this year, eco­nom­ics has had to com­pete with more emo­tional is­sues, such as per­sonal at­tacks in the US elec­tion, and UK vot­ers’ de­ci­sion to leave the Euro­pean Union. But in both the US and the UK – and not only there – we can ex­pect to hear more about ac­tive fis­cal poli­cies, es­pe­cially with re­spect to in­fra­struc­ture.

In the com­mu­niqué re­leased af­ter Septem­ber’s G20 sum­mit, the group’s lead­ers re­peat­edly men­tioned steps to boost world growth through in­fra­struc­ture in­vest­ment, and ar­gued for more co­or­di­na­tion among mone­tary, fis­cal, and struc­tural poli­cies. Although re­cent data from the US and China – and sur­pris­ingly also from the eu­ro­zone and the UK – sug­gest that GDP growth in the fourth quar­ter could im­prove upon the slug­gish per­for­mance ear­lier in the year, a strong case can still be made for fresh poli­cies to strengthen the world econ­omy.

Af­ter re­cently lead­ing the UK’s Re­view on An­timi­cro­bial Re­sis­tance (AMR), and hav­ing thought long and hard about ed­u­ca­tional ini­tia­tives, I be­lieve that it is time for a more ad­ven­tur­ous re­sponse to both long-term and cycli­cal chal­lenges, es­pe­cially for de­vel­op­ing coun­tries. And read­ing Jef­frey D. Sachs’s re­cent com­men­tary, “The Case for Sus­tain­able In­vest­ment,” only strength­ens my con­vic­tion that pol­i­cy­mak­ers and key devel­op­ment-fi­nance in­sti­tu­tions have a huge op­por­tu­nity.

Fis­cal ac­tivism need not stop at in­fra­struc­ture. In the Re­view on AMR, we showed that global GDP could suf­fer a $100 tril­lion loss over the next 34 years if we do not make cer­tain pub­lic-health in­ter­ven­tions be­tween now and 2050. Those in­ter­ven­tions would cost around $40 bil­lion over a decade, which is to say that the in­vest­ment needed to pre­vent $100 tril­lion in lost growth costs less than 0.1% of cur­rent global GDP. As an as­tute in­vestor friend pointed out to me, this would be the equiv­a­lent of a 2,500% re­turn.

In­vest­ments in health and ed­u­ca­tion are cru­cial for the de­vel­op­ing world’s long-term prospects. As some­one closely as­so­ci­ated with the BRICS coun­tries (Brazil, Rus­sia, In­dia, China, and South Africa), it seems ob­vi­ous to me that the New Devel­op­ment Bank (NDB) – or the BRICS Devel­op­ment Bank, as it was for­merly known – can and should help these and other emerg­ing economies cooperate in both ar­eas.

The Re­view on AMR con­cluded that ten mil­lion an­nual deaths will be at­trib­ut­able to drug-re­sis­tant in­fec­tions by 2050, and that drug-re­sis­tant strains of tu­ber­cu­lo­sis could cause one-quar­ter of them. It seems only rea­son­able that the NDB should an­nounce steps to sup­port phar­ma­ceu­ti­cal re­search into new TB treat­ments and vac­cines, par­tic­u­larly for drug-re­sis­tant strains, given that TB is es­pe­cially preva­lent in the BRICS. And, be­yond the BRICS, the other low­in­come coun­tries that the NDB is try­ing to help will suf­fer even more with­out a proac­tive ap­proach.

Sim­i­larly, many peo­ple in the BRICS and low-in­come coun­tries do not have ac­cess to qual­ity pri­mary ed­u­ca­tion, so the case for a ma­jor spend­ing boost in this area should be clear. Sachs makes the same point, and for­mer Bri­tish Prime Min­is­ter Gor­don Brown, who is now United Na­tions Spe­cial En­voy for Global Ed­u­ca­tion, has called for more cre­ative fi­nanc­ing meth­ods and so­cial en­ter­prise in this sec­tor.

The NDB, the World Bank, the In­ter­na­tional Fi­nance Cor­po­ra­tion, and the Asian In­fra­struc­ture In­vest­ment Bank should all be con­sid­er­ing the ac­tivist fis­cal-pol­icy course de­vel­oped coun­tries are now chart­ing for them­selves. And they should take it fur­ther, be­cause the pol­icy im­per­a­tives they face are ul­ti­mately all in­ter­re­lated.

In the West, the turn to­ward fis­cal ac­tivism re­flects wide­spread recog­ni­tion that mone­tary ac­tivism has out­lived its use­ful­ness, at least at the mar­gin. To be sure, cen­tral banks tech­ni­cally should do what­ever it takes to meet their in­fla­tion tar­gets; but ex­ces­sive quan­ti­ta­tive eas­ing has im­posed high costs, and seems to have fa­vored the few at the ex­pense of the many.

With mone­tary ac­tivism past its sell-by date, an ac­tive fis­cal pol­icy that in­cludes stronger in­fra­struc­ture spend­ing is one of the only re­main­ing op­tions. But it is not a free lunch, as many of its pro­mot­ers of­ten sug­gest, be­cause pol­i­cy­mak­ers can­not ig­nore the high lev­els of govern­ment debt across much of the de­vel­oped world.

It will be in­ter­est­ing to see how Ham­mond nav­i­gates the path to­ward higher in­fra­struc­ture spend­ing, while stick­ing to the Con­ser­va­tive Party’s plat­form of fis­cal re­spon­si­bil­ity. And in the US, if we look be­yond the fog of elec­tion-sea­son op­pro­brium, it ap­pears that both sides are in fa­vor of more in­fra­struc­ture spend­ing.

That be­ing the case, the next US ad­min­is­tra­tion (re­gard­less of who wins), to­gether with a new UK lead­er­ship strug­gling to demon­strate its post-Brexit “open­ness,” should ex­tend fis­cal ac­tivism be­yond do­mes­tic in­fra­struc­ture to global devel­op­ment more gen­er­ally. For ex­am­ple, with proper sup­port, the World Bank could cre­ate new in­vest­ment ve­hi­cles such as AMR or global-ed­u­ca­tion bonds, which would sup­port fu­ture devel­op­ment and sal­vage fu­ture global growth that may oth­er­wise be lost. The US and the UK both need to show that they can move be­yond their highly sen­si­tive – and, frankly, nar­row-minded – do­mes­tic po­lit­i­cal is­sues. And they should re­mem­ber that with­out the ex­port mar­kets that the BRICS and other emerg­ing coun­tries rep­re­sent, all at­tempts to re­bal­ance their economies will be in vain.

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