UN unveils plan to release untapped wealth of…$7 trillion

It says an unprecedented outbreak of co-operation between countries,
applied through six specific financial tools, would slice through the
Gordian knot of problems that have bedevilled the world for most of the
last century.

If its recommendations are accepted – and the authors acknowledge
this could take years or even decades – it could finally force
countries to face up to the fact that their public finance and growth
figures conceal the vast damage their economies do to the environment.

At the heart of the proposal, unveiled at a gathering of world
business leaders at the Swiss ski resort of Davos, is a push to get
countries to account for the cost of failed policies, and use the money
saved “up front” to avert crises before they hit. Top of the list is a
challenge to the United States to join an international pollution
permit trading system which, the UN claims, could deliver $3.64trn of
global wealth.

Inge Kaul, a special adviser at the UNDP, said: “The way we run our
economies today is vastly expensive and inefficient because we don’t
manage risk well and we don’t prevent crises.” She downplayed concerns
over up-front costs and interest payments for the new-fangled financial
devices. “The gains in terms of development would outweigh those costs.
Money is wasted because we dribble aid, and the costs of not solving
the problems are much, much higher than what we would have to pay for
getting the financial markets to lend the money.”

The UNDP is determined to ensure globalisation, which has generated
vast wealth for multinational companies, benefits the poorest in
society.

It urges politicians to embrace some groundbreaking schemes put in
place in the past 12 months to tackle global warning, poverty and
disease, based on working with the global markets to share out the risk.

These include a pilot international finance facility (IFF) to “front
load” $4bn of cash for vaccines by borrowing money against pledges of
future government aid.

The scheme, which is backed by the UK, France, Italy, Spain, Sweden
and the Bill and Melinda Gates Foundation, was born out of a proposal
by Gordon Brown for a larger scheme to double the total aid budget to
$100bn a year.

In an endorsement of the report, Mr Brown said: “This shows how we
can equip people and countries for a new global economy that combined
greater prosperity and fairness both within and across nations.”

The UNDP says rich countries should build on this and go further. It proposes six schemes to harness the power of the markets:

* Reducing greenhouse gas emissions through pollution permit trading; net gain $3.64trn.

* Cutting poor countries’ borrowing costs by securing the debts
against the income from stable parts of their economies; net gain
$2.90trn.

* Reducing government debt costs by linking payments to the country’s economic output; net gain $600bn.

* An enlarged version of the vaccine scheme; net gain (including benefits of lower mortality) $47bn.

* Using the vast flow of money from migrants back to their home country to guarantee; net gain $31bn.

* Aid agencies underwriting loans to market investors to lower interest rates; net gain $22bn.

Professor Stiglitz, the former chief economist of the World Bank and
a staunch critic of the way globalisation harms the poor, said:
“Globalisation has meant the closer integration of countries, and that
in turn has meant a greater need for collective action.

“One of the most important areas of failure is the environment.
Without government intervention, firms and households have no incentive
to limit their pollution.” He said a global public finance system would
force countries to acknowledge the external damage their policies had,
“the most important being global climate change”.

Solving the environmental crisis tops the UN’s $7trn wish-list. It
calls for an international market to trade pollution permits that would
encourage rich countries to cut pollution and hit their targets under
the Kyoto protocol.

But – and the UN admits it is a big “but” – the US would have to
sign up to Kyoto and carbon trading to achieve the $3.64trn that it
believes the system would deliver over time.

“We are dealing with a global problem as pollution can only be dealt
with internationally,” Ms Kaul said. Richard Sandor, the head of the
Chicago Climate Exchange, added: “Many encouraging signs are emerging.
When the business case is clear, private entrepreneurs step forward.”

But, the proposal is unlikely to get support from some green groups
who believe that action to curb consumption, rather than market
incentives, are the way to reduce carbon emissions.

Andrew Simms, director of the New Economics Foundation, said it left
unanswered questions over how these markets would be managed and how
the benefits and costs would be distributed. “We have nothing against
markets so it would be missing the point to get into a pro- or
anti-market stance. The point is how you distribute the benefits.”

 

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