Finance-led globalization has failed – which is our cue to forget about setting targets and adopt a development-led approach
Many familiar problems were raised at the Liberia meeting of the UN high-level panel tasked with drafting global post-2015 development goals: extreme poverty, lack of productive employment, environmental degradation and growing inequality. But these big questions are still being met with small answers, suggesting that the international community remains in the wrong frame of mind to meet such major challenges.
A recent Guardian editorial noted how "small", "technocratic" and "fragmented" the discussion within the international development community has become. But it missed a major reason for this: the continued but misplaced faith in "market fundamentalism". This adds to the perception that globalisation is an irresistible force beyond the control of governments, a process driven by countless invisible hands, infallible business acumen and continuous technological revolution, and reaching its zenith with the unleashing of finance.
Over the past three decades, open markets and global capital were supposed to raise savings, bolster investment, create jobs and spread new technologies; this would release a tidal wave of economic prosperity, above all in the poorest countries. But finance-led globalisation has not lived up to its billing: debt-riven global growth has trended downward, capital formation has been sluggish, and recurrent crises have destroyed jobs and threatened livelihoods, even as those at the very top enjoyed soaring incomes. Some big emerging economies have enjoyed sustained and even rapid growth, but it is no longer credible to think deregulated markets, financial engineering or shareholder value will deliver inclusive economic growth.
Business as usual simply will not work any more. The UN has recognised this in its call for a new post-2015 development agenda. But to move the agenda forward, some hard truths will need to be recognised. There is a good deal more to development than poverty reduction. Simply adding human rights, peace and security – however important these challenges are – will not necessarily point things in the right direction. However understandable, devoting attention to those at the bottom has resulted in insufficient attention being paid to those at the top with access to the resources needed to drive investment and create jobs.
Development is less about deprivation and more about transformation – structural, institutional and normative – in ways that add to a country's wealth-creating potential, ensuring the gains are widely shared and extending the possibilities of future generations. For most developing countries, that still means building industrial capacity, providing secure livelihoods for rapidly growing urban populations, and guaranteeing food security.
David Cameron's calls for eradicating extreme poverty and more responsible capitalism are well-intentioned. But his call to use aid to strengthen the "golden thread" of open markets misses the point, ignoring the strategies that have actually worked in successful developing countries over the past half century, where the state plays an active role in mobilising resources and disciplining their use.
President Obama's inaugural address, which recognised that a successful economy mixes dynamic entrepreneurial effort with effective collective action and a strong social contract, provides a more reliable compass. Success, he insisted, does not follow "when a shrinking few do very well and a growing many barely make it".
Making inequality part of the development policy agenda has already gained traction. But to make lasting progress, it will be necessary to move beyond MDG-style targets and instead consider a global new deal allowing different economic strategies providing benefits for all.
To start with, rebalancing the global economy should follow an expansionary macroeconomic path based on productive employment generation and shifting labour to higher value-added activities in developing countries. The rising threats posed by food and energy insecurity and environmental degradation require a strong investment response, which must necessarily be led by public action. International institutions should support countercyclical fiscal policy and public investment by making adequate funding available and attaching fewer conditions to their lending.
Second, unruly markets, especially financial markets, must be tamed. Even before the crisis, it was clear that stable and inclusive development is incompatible with speculative market behaviour and boom-and-bust cycles. Finance everywhere needs to get back to the business of providing security for people's savings and mobilising resources for productive investment. At the international level, that means promoting capital controls (something the IMF now seems ready to do), implementing a financial transaction tax (something the EU is now actively pursuing), and designing a sovereign debt workout mechanism that deals fairly with lenders and borrowers alike (a long-standing Unctad proposal).
Finally, growth is unlikely to be inclusive without effective measures for redistribution. Strengthening the position of labour to ensure wages match productivity growth is central, along with asset redistribution to prevent excessive concentration. Policies of universal social protection (including basic income policies) can help repair the social contract. Along with humanitarian aid for the poorest and most vulnerable, the international community needs to guarantee adequate policy space for countries to develop measures relevant to their own contexts.
The challenge in building such development-led globalisation is not so much the shortage of big ideas but their scaling up through international collective action. Current arrangements cannot serve this purpose, and have already lost legitimacy. A small number of economic powers, home to the world's largest corporations and financial institutions, continue to exercise a controlling influence at the IMF and the World Bank, driving negotiations at the World Trade Organisation and on the climate challenge. This dominance is no longer assured, but conditions for stable international economic co-operation remain elusive. Only a global new deal can help build the levels of trust needed to tackle shared problems and broaden the scope for effective development partnerships
Forget post-2015 development goals – a global new deal is what's needed