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G20 must end “outsourcing” of multilateralism – Developing Economics

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G20 must end “outsourcing” of multilateralism – Developing Economics

By Charles Abugre and C.P. Chandrasekhar

In multiple ways multilateralism, or the coming together of the international community to further global good, is under challenge today. ‘Conflicts’, not least among them the genocide in Gaza, are an obvious challenge. But there is in the economic sphere a silent subversion of multilateralism underway that also needs to be stalled and reversed. This is the view that the “financing for development challenge” is so huge and the share of the private sector in the holding and disposal of the world’s financial surpluses so large, that it is only private initiative that can successfully implement the programmes needed to realise the SDGs and address damaging climate change.

The corollary of that position is that the role of governments is no more to try and move surpluses from private to public hands (through new forms of international tax cooperation, for example) but to use the available public resources as means to unlock private investments and expenditures. The call is to go beyond the recognition that the tasks of realising the SDGs, ensuring the needed carbon transition, and building resilience the world over, are primarily governmental or ‘public’ responsibilities, and that cooperation among governments (or multilateralism) is the best means to implement those tasks. Pragmatism demands, it is argued, that these tasks and therefore multilateralism, or the conjoint responsibilities of global governments, must be “outsourced”.

Nowhere is this view expressed more clearly than in the realm of the financing of sustainable development. A fundamental requirement of multilateralism in the economic sphere is the need to move money from the wealthy advanced nations to the less developed countries to finance mitigation, adaptation and loss and damage compensation; and to undertake the huge expenditures needed to realise the SDGs as a foundation of the struggle for peace. The dimensions of this ask come through, for example, from the estimates of financing requirements for less developed countries being cited at the COP29 summit in Baku, of around $1.3 trillion a year till 2030, which is to flow from the governments of the advanced countries to the less developed countries in the form largely of grants and concessional finance.

The case for flows from the developed to the less developed nations is now well known and well supported. Given the hugely disproportionate historical contribution of the developed countries to the cumulative total of global carbon emissions, and the principle accepted in the Paris agreement of “common but differentiated responsibilities, and respective capabilities”, the developed countries have to carry most of the responsibility to finance the carbon transition needed to realise the goal of keeping warming below the target ceiling of 1.5°C or 2.0°C range.

Moreover, since these expenditures are in most areas unlikely to yield any or significant monetary returns, while delivering large social benefits, interest-bearing borrowing cannot be a viable form of financing. Hence the need for these to be public flows in the form of grants or concessional loans which are in large measure grant-equivalent. This requirement is true of the financing needs for the SDGs as well. It is also true that in both cases—climate finance and financing for the SDGs—the requirements are so large that less developed countries, many of which are debt-stressed or have defaulted on their external debt payments, cannot be expected to raise the needed resources domestically.

And borrowing is not an option. They cannot borrow abroad because they are already in a position where chronic balance of payments deficits have made it impossible for them to carry the foreign exchange burden, forcing default in many cases. They can borrow at home more freely, but, in the presence of tax forbearance to incentivise private investment, a corollary of that is a large and rising interest payments bill that draws resources away from expenditures needed to provide social protection for and ensure resilience among already socially deprived sections of the population. In fact, the responsibility of the international community is now not restricted to providing new funds to address the crisis afflicting the global majority, but also to write-off part of the funds provided as credit earlier, on which substantial returns have already been garnered, to provide much needed fiscal leeway to less developed-country governments.

As noted earlier, the tasks set by these problems needing urgent responses must be shouldered by governments, especially, in the developed countries. Those countries carry the primary responsibility for this historically shaped crisis. The social benefits from addressing these problems are not just immense, but also global—the developed would also derive those benefits, not just the less developed, global majority countries, as UN Secretary General Guterres has reiterated. The private returns are too low and in some cases the risks too high for the private sector to take on the responsibilities, unless they do so as mere implementers contracted by government to a job in return for a fee. But even that kind of apportioning of responsibilities between the State and the private sector is unlikely to work, because the incentives of the two sets of actors are incompatible. Governments want to realise social benefits for the public good; the private sector wants to realise profits to further the agenda of corporate accumulation.

Fortunately, the moment is conducive for aggressive public action. Enough surpluses have been garnered and accumulated by big capital in the last 25 years (and more), and inequality has increased to such unprecedented post-World War II levels, that mobilising resources by internationally coordinated efforts at taxing the private sector can yield with little effort much of the capital required. Multilateralism has a role to play in mobilising resources, and not just in implementing the agenda.

Unfortunately, it is at this time of challenges and opportunities that the developed countries citing their own “domestic problems” are withdrawing from a much-needed global financing push. Climate finance negotiations bear witness. Instead, they are making a case to outsource what is clearly a responsibility only governments can bear to the private sector. The G20 as a grouping of the most influential of global actors must jettison this effort to “outsource” multilateralism.

Charles Abugre is a Ghanaian Development Economist and Executive Director of IDEAs

C.P. Chandrasekhar is the Global Head of Research and Policy at the International Development Economics Associates (IDEAs)

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