Myview The rich know how to side­step re­spon­si­bil­i­ties

Mint ST - - VIEWS -

Three de­vel­op­ments over the past few weeks pro­vide point­ers to how the rich, whether in­di­vid­u­als or na­tions, be­have when it comes to meet­ing obli­ga­tions.

The Par­adise Pa­pers have re­vealed how wealthy and pow­er­ful in­di­vid­u­als use tax havens—some do it le­git­i­mately and some for re-rout­ing il­le­gal wealth—to ei­ther avoid or evade tax li­a­bil­i­ties. The ex­am­ples also high­light how this cor­ro­sive af­flic­tion equally in­fects in­dus­tri­al­ists and politi­cians.

The sec­ond ex­am­ple re­lates to the be­hav­iour of rich na­tions, which have un­abashedly de­ployed eva­sive tac­tics at Bonn, host to the 2017 UN Cli­mate Change Con­fer­ence to im­ple­ment the Paris Agree­ment signed in 2015. The rich coun­tries have been try­ing ev­ery trick to avoid meet­ing com­mit­ments on re­duc­ing green­house gas emis­sions, ar­rest­ing cli­mate change and fund­ing de­vel­op­ing and poor coun­tries to help counter the ef­fects of cli­mate change. The US, Euro­pean Union and some other rich coun­tries— in­clud­ing Aus­tralia, Canada and Ja­pan— have blocked ef­forts by de­vel­op­ing na­tions to re­view the de­vel­oped world’s per­for­mance vis-à-vis com­mit­ments.

De­vel­op­ing na­tions have been blam­ing the rich for sidestep­ping com­mit­ments made un­der the Ky­oto Pro­to­col, which placed manda­tory emis­sion re­duc­tion tar­gets to be achieved dur­ing 2012-15. Later, through what is known as the Doha Amend­ments, the tar­get date was ex­tended to 2020. De­vel­op­ing coun­tries have been ar­gu­ing that to fi­nal­ize the rule­book for the Paris Agree­ment, as the suc­ces­sor to the Ky­oto Pro­to­col, it is nec­es­sary to un­der­stand the achieve­ments so far.

For in­stance, as part of the Copen­hagen Ac­cord of 2009, the de­vel­oped coun­tries pledged to pro­vide de­vel­op­ing na­tions with $30 bil­lion dur­ing 2010-12 and $100 bil­lion ev­ery year till 2020 to help mit­i­gate cli­mate change ef­fects. The un­der­stand­ing was that since the in­dus­tri­al­ized na­tions were his­tor­i­cally re­spon­si­ble for green­house gas emis­sions and the con­se­quent global warm­ing, they have a moral obli­ga­tion to help poor coun­tries, es­pe­cially is­land na­tions, off­set the ad­verse ef­fects of cli­mate change. But, as data shows, the rich are not only in breach but have been dis­sem­bling: Apart from reneg­ing on their prom­ise, they have also been pad­ding fund­ing data.

The third ex­am­ple crosses the At­lantic Ocean to Wash­ing­ton, DC, where the an­nual meet­ings of the World Bank and In­ter­na­tional Mone­tary Fund were held a month ago. Among other things, the agenda in­cluded the Bank’s pivot to­wards a new fi­nanc­ing mode, for which it has been lay­ing the ground over the past few months. The new strat­egy is called the “cas­cade ap­proach”, un­der which Bank pres­i­dent Jim Yong Kim pro­poses to con­vert “bil­lions into tril­lions”, es­sen­tially by lever­ag­ing the Bank’s fi­nanc­ing and crowd­ing in pri­vate in­vest­ment.

The Bank re­leased a doc­u­ment in Septem­ber ti­tled “Max­imis­ing Fi­nance For De­vel­op­ment: Lever­ag­ing The Pri­vate Sec­tor For Growth And Sus­tain­able De­vel­op­ment”. This builds on a pre­ced­ing March 2017 doc­u­ment called “For­ward Look—a Vi­sion For The World Bank Group In 2030, Progress And Chal­lenges”. This doc­u­ment de­fines the scope: “...the Cas­cade first seeks to mo­bi­lize com­mer­cial fi­nance, en­abled by up­stream re­forms where nec­es­sary to ad­dress mar­ket fail­ures and other con­straints to pri­vate sec­tor in­vest­ment at the coun­try and sec­tor level. Where risks re­main high, the pri­or­ity will be to ap­ply guar­an­tees and risk-shar­ing in­stru­ments. Only where mar­ket so­lu­tions are not pos­si­ble through sec­tor re­form and risk mit­i­ga­tion would of­fi­cial and pub­lic re­sources be ap­plied.” Cur­rently fo­cused on in­fra­struc­ture, the ap­proach will be later ex­tended to fi­nan­cial ser­vices, health­care, ed­u­ca­tion and agribusi­ness.

On the sur­face, it sounds like a log­i­cal pro­gres­sion of the Bank’s strat­egy and, at a the­o­ret­i­cal level, the right thing to do. The Bank, in some senses, seems to be heed­ing con­ser­va­tive econ­o­mists who have for long con­tended that the Bank crowds out the pri­vate sec­tor and, there­fore, must step back and fa­cil­i­tate pri­vate sec­tor project fund­ing. But there’s no avoid­ing the tricky ques­tions: How do you man­age the po­lit­i­cal econ­omy of re­forms, who will bear the risks, how will risk be elim­i­nated, what will be the role of user charges, what is the pri­vate sec­tor’s ex­act role, and, what hap­pens in coun­tries with min­i­mal pri­vate sec­tor pres­ence? There are also con­cerns about in­volv­ing the pri­vate sec­tor in health­care and ed­u­ca­tion, es­pe­cially be­cause pri­vate and pub­lic in­ter­ests are rarely aligned. Many of these con­cerns have al­ready played out in In­dia.

To be fair, the Bank’s hands are tied be­cause the rich coun­tries, es­pe­cially the US, have re­fused to pro­vide ad­di­tional cap­i­tal. In­dia’s fi­nance min­is­ter Arun Jait­ley was forced to com­ment at the an­nual meet­ing: “The pos­si­bil­ity of gen­er­at­ing suf­fi­cient re­sources through the man­age­ment levers has had only a mar­ginal im­pact given the scale of cap­i­tal re­quire­ment, and hence, early cap­i­tal in­fu­sion into WBG (World Bank Group) is an im­per­a­tive...the ex­ces­sive em­pha­sis on the ‘Cas­cade Ap­proach’ to de­ter­mine suit­abil­ity of the fi­nanc­ing source and mech­a­nism does not have po­ten­tial to make a big dif­fer­ence. Ap­ply­ing cas­cade ap­proach to ev­ery project posed to the World Bank will lead to con­sid­er­able de­lay. We should be care­ful in ap­ply­ing this ap­proach es­pe­cially to so­cial sec­tor projects.”

What is wor­ry­ing is that the lessons of 2007 and ear­lier crises are be­ing for­got­ten as soon as the first signs of eco­nomic growth are vis­i­ble in the Western economies.


Rajrishi Sing­hal is a con­sul­tant and for­mer edi­tor of a lead­ing busi­ness news­pa­per. His Twit­ter han­dle is @ra­jr­ishis­ing­hal.

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