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Global poverty is decreasing, but billions of people still do not have the resources they need to survive and thrive. Economic growth can reduce poverty, but it can also drive inequality that generates social and economic problems. And efforts at domestic resource mobilization through taxation, though critical to funding the SDGs, can negatively impact the poor. In this work, CGD experts offer suggestions to improve how the world tracks and tackles poverty and the inequities the international global system creates.
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Attention UK political parties: we know you are pretty busy right now, what with Prime Minister Theresa May calling a snap general election in a few weeks. So, we wrote an election manifesto on development for you. Feel free to plagiarize it; in fact, we’ve written it so you can just copy/paste parts of it if you want. To M Macron and Mme Le Pen, your manifestos are written (and here's what we think), but you will find some good ideas here too. Needless to say, not all our CGD colleagues will agree with all our ideas, nor will many readers. So please let us know what we have missed or got wrong, in the comments below.
This piece was written with significant input from Owen Barder, Hauke Hillebrandt, Anita Kappeli, Joanna Macrae, Maya Forstater, Lee Crawfurd, and Caitlin McKee, our colleagues at CGD Europe, based in London.
Britain’s unique role in the world
We will ensure that everyone in the UK can be proud of our role in the world, taking steps that will benefit UK citizens for generations to come.
Britain is a small country with global influence. We are the sixth largest economy in the world. We are among the world’s leaders on the environment, international development, and ending modern slavery. We are the only advanced country which meets both the international commitment to spend 2 percent of national income on defence and 0.7 percent of national income on development, and our armed forces and development programmes are admired the world over.
We are leaving the European Union because we want to control our own future, not because we want to retreat from the rest of the world. Britain is at its best when we trade freely, cooperate voluntarily with others to solve international problems. We will continue to lead the world in finding fair solutions to issues like extreme poverty, financial stability, international taxation, human rights, human trafficking and modern slavery, the environment, migration and refugees, drug resistance and pandemic disease. These actions will benefit UK citizens today, and for generations to come, by helping to shape a safer, fairer, more prosperous and sustainable world.
Britain’s international development policies are aimed at meeting the Global Goals for Sustainable Development agreed in 2015. As well as our effective aid programme, we will implement policies across all of government to help achieve these goals.
Aid policies for the 21st century
In every year of the next parliament we will spend at least 0.7 percent of gross national income (GNI) on overseas development assistance (ODA), according to the internationally-recognised definition agreed by the OECD; and we will spend 2 percent of gross domestic product (GDP) on defence.
We will maintain our aid spending because the UK lives up to it promises, but more importantly because foreign aid saves lives and helps the world’s poorest people.
This aid must be spent in the most effective way. We owe that to the people who need the aid as well as to the British people who pay for it.
We will take risks, and some aid programmes will fail. That is the price of trying to succeed, and the good that is done by successful projects far outweighs the costs of failures. But we will ensure that we learn lessons from every aid programme, whether it succeeds or fails, so that we can do better the next time. We will continue to have zero tolerance of corruption and waste.
The primary goal of British aid is to put itself out of business: we all want a world in which foreign aid is no longer needed. This requires investments in education, jobs and growth, reducing conflict, and promoting the rights of women and girls and good government. In the shorter term, aid provides a vital lifeline to the poorest and most disadvantaged people, providing health care, food, water, sanitation, and other vital services.
We will take a new approach to aid spending, fit for the 21st century—first, transforming the system and second, refocusing aid for maximum impact.
Part 1 - Six reforms to transform the aid system
To transform the system that allocates aid, we will undertake six reforms which add independent scrutiny to ensure our aid is effective and give taxpayers and Parliament a greater say in how and where our money is spent. The six reforms are:
1. A National Institute for Development Effectiveness to assess what works
We will be guided by what works. We will establish a National Institute for Development Effectiveness (NIDE), modelled on Britain’s world-leading National Institute for Health and Care Excellence (NICE), which will issue public guidance about which interventions have been proven cost-effective in rigorous, transparent, impact evaluations such as randomised controlled trials, supported by open data. Additionally, NIDE will provide a summary of the effects on women and girls of each programme that it analyses. NIDE will also assess all aid programmes against the benchmark of direct cash transfers. From 2019 onwards, we will not invest more than £10m of bilateral aid in any programme that has not been assessed by NIDE, and we will only invest in programmes that have been demonstrated to benefit women and girls at least as much as men and boys.
2. A stronger Independent Commission on Aid Impact
To enable it to provide independent advice to parliament on the results being achieved by UK ODA, we will double the resources of the Independent Commission on Aid Impact, and to ensure its independence we will transfer responsibility for budget and appointments to Parliament's International Development Committee.
3. Coherence and accountability for development across all of Government
The Department for International Development (DFID) will remain a separate government department, headed by a Secretary of State for International Development. They will chair a new Cabinet Committee, supported by the secretariat of the National Security Council, to coordinate aid spending and other policies across government, and will be accountable to the Prime Minister and to Parliament for overall value for money, transparency and coherence of Britain’s aid spending and policies affecting international development. The Committee will develop, publish and oversee the implementation of whole-of-government strategies for each priority developing country, replacing country strategies developed separately by individual government departments.
4. Tough love for the multilateral system
Britain will continue to champion a rules-based, legitimate, efficient multilateral system. But some of the world’s most important institutions are not fit for purpose and we will be uncompromising in driving reform, working with others. Multilateral institutions will benefit from earned autonomy: we will give more money and freedom to organisations that have earned the trust and resources of British taxpayers. Where agencies are completely transparent, so that money can be followed from top to bottom, and their programmes are demonstrated to be good value for money by independent, transparent, rigorous impact evaluations, we will provide more core funding. For organisations that have not yet demonstrated their impact and value for money, we will enter into tightly-specified results agreements as a condition of core UK funding, with a substantial part of the funding provided only when results have been demonstrated. For the least effective institutions, British contributions will be earmarked, not core, and closely linked to an agreed programme of organisational improvements and results. Organisations in this last group that do not improve within three years will cease to receive money from the UK government. We aim to increase multilateral aid, i.e. core funding to demonstrably effective multilateral institutions to at least 50 percent of ODA (from 42 percent now), as and when their performance merits it, while reducing the proliferation of so-called “multi-bi” earmarked programmes such as trust funds to less than 5 percent of ODA (from 20 percent now). This will be a significant improvement in the effectiveness of British aid, 64 percent of which is currently provided as bilateral aid, much of which is going to multilateral institutions anyway, leading to unnecessary bureaucracy, duplication and burdens on developing countries.
5. Using technology to make aid spending more transparent and accountable
We will make aid more transparent, using new technology to enable citizens to “follow the money” to see where their aid has been spent and what impact it has had. By 2019 all government departments administering UK ODA will be required to meet the good or very good standard the independent Aid Transparency Index. By 2020, the public will be able to “follow the money” for at least 90 percent of bilateral UK aid whether it is spent through NGOs, international organisations or private contractors. This will be achieved through a programme of geo-coding, traceability and standardised quantitative results. By 2020 we will move all grants and contracts to transparent reporting of expenditure and results through the open data standard of the International Aid Transparency Initiative, which implementing partners may choose to use instead of separate reporting to the government, so reducing the bureaucratic burden on implementers while increasing transparency.
6. Letting taxpayers choose
If taxpayers want to choose for themselves where their aid goes, they will be able to take the decision into their own hands using our new AidChoice initiative. Income tax payers will each be able to allocate up to £100 a year each UK ODA to UK-registered charities working in the field of international development.
Part 2 - Six ways to re-focus aid for maximum impact
To refocus our current aid to significantly increase its impact, we will draw on evidence on the effectiveness of aid spending, and change our approach in six ways:
1. Use cash transfers wherever appropriate
We will distribute at least a quarter of our bilateral aid as cash transfers, directly to the very poorest people and those affected by humanitarian emergencies. We will use technology to minimise waste and corruption so ensuring our aid goes into the hands of those that need it to be used for what they most need. We will not invest in other aid programmes exceeding £10m unless they have been assessed by NIDE and shown to be more cost-effective than direct cash transfers.
2. Lead global reform on humanitarian aid
We will work with the other donors to reform humanitarian aid to help end the duplication, lack of planning, overlap and ineffectiveness that characterizes the international response to crises, as agreed at the World Humanitarian Summit in 2016. We will bridge the humanitarian and development divide; work with countries hosting refugees to create more jobs, for example by providing access to our markets; give cash transfers rather than aid-in-kind by default; help countries to take out new concessional insurance policies that incentivise risk reduction and pay out in case of disasters like drought or hurricanes; and use innovative finance to increase refugee resettlement. We will open humanitarian aid to innovation and new technologies by working with the private sector and other new actors.
3. Resource the UK’s development finance institution, CDC, to increase investment, growth and jobs so that countries graduate from aid
We will use aid to support private investment, jobs and growth in the developing world. This is essential to provide countries with a path to graduate from aid and to meet the Global Goals. We will implement a planned programme of sustained expansion of CDC group (the UK’s development finance institution), increasing the British government’s investment to £6 billion over the next 15 years, to scale up investment and development impact of the company. Though our contributions to CDC count as ODA, they do not add to the government deficit or public spending so they will be additional to the 0.7 percent target for ODA. As part of its new strategy CDC will be increase its transparency, including full compliance with the International Aid Transparency Initiative.
4. Bilateral aid to focus on British innovation and values
Our bilateral aid will concentrate on programmes that are innovative, which draw on specialist British expertise, are neglected by others, or which help to promote our values such as human rights and the rule of law. We will increase our support to the Global Innovation Fund, research and development, think-tanks in the UK and internationally which generate knowledge and policy ideas [self serving suggestion klaxon!], and civil society groups around the world which promote rights and accountability. We will link payment to results wherever possible. This ensures that everyone is focused on what our aid achieves, rather than on spending the money, enables flexibility for risk-taking and adaptive programming, and draws in a wider range of delivery organisations.
5. Improving outcomes in fragile and conflict states
We will continue to increase the proportion of aid targeted to the most fragile and conflict-affected states, where people are most vulnerable and security threats most significant. In line with the Global Goals, Britain will ensure it leaves “no one behind” by reversing recent trends of decreased aid spending to sub-Saharan Africa, where the majority of fragile states are located. We will review the way in which we use aid in these contexts to ensure that DFID has the right policy frameworks, partnerships, human resources and finance to deliver development outcomes in these most difficult contexts, and to improve coordination between the Ministry of Defence, Foreign Office, Department of International Trade, Department of Health, Department for Business, Energy & Industrial Strategy and DFID.
6. Increasing impact investment from the private sector
We will establish a £1 billion outcomes fund for Development Impact Bonds, to enable social impact investment in key services in developing countries. We will expand the successful model of Trade Mark East Africa to support economic growth across the continent.
Many of the other policies that make Britain an outward facing, successful global, trading nation are good for Britain and good for the developing world. These include:
We will make a British Trade Promise that our post-Brexit trade policies will be better for developing countries than they are within the EU. We will use the control given to us by Brexit to strike deep and comprehensive trade deals with the EU and the US that show the benefits of free and open trade. We will take the Four Steps that would achieve lower prices for rich and poor UK consumers alike, driving up business productivity, and establish the UK as a leader on trade for development.
2. Investment and Finance
We will further develop the The City of London as a world-leading hub for enabling capital to be invested efficiently, responsibly, with integrity and in alignment with the opportunities for green economic growth globally. We will implement the Financial Stability Board’s Task Force on Climate-related Financial Disclosure and collaborating to develop financial instruments such as green bonds and catastrophe insurance.
The UK will promote leading standards in tax and transparency. We will convene the UK’s leading businesses, tax professionals, NGOs and think tanks to establish common principles for how they can work together to scrutinise and improve the UK’s impact on tax revenues in developing countries.
British courts will not uphold future contracts or agreements entered into by companies whose beneficial owners are not publicly known. Any company or organisation wishing to take advantage of the fair and efficient British legal system must be publicly transparent about the true identities of its beneficial owners.
We will support an effective UN body working on international tax systems. We will continue with our commitment to double annual aid for tax systems to £40 million annually by 2020, including seconding UK tax inspectors to work with revenue authorities in developing countries. We remain a leading member of the Extractive Industry Transparency Initiative and the Inclusive Framework on Base Erosion and Profit Shifting (BEPS) and will work with our Overseas Territories and Crown Dependencies to ensure that they offer well-regulated financial services and demonstrate the highest standards of integrity.
3. Climate and energy
Within the UK we will introduce a carbon tax, on a revenue neutral basis, recycling the revenues to households in the UK. This will increase incentives to invest in clean energy, and reduce demand for the most polluting forms of energy, production and consumption.
Climate change and energy scarcity hits developing countries the hardest. To address both issues we will increase spending on energy innovation research and development. Focusing on energy innovation policy is a global public good that is vital to create the next generation of affordable, carbon-free energy creation and storage capabilities. Investment in this research will not only benefit the world, but also our economy in particular. We will stay committed to the Mission Innovation initiative and our pledge to double energy innovation spending by 2021 to over £400m per year.
Britain will remain at the cutting edge of innovation, research and development. We will simplify our intellectual property rights to support rather than stifle innovation, tackle patent thickets and trolls, and spread British ideas through technology transfer. We will invest at least £1 billion a year of ODA in research and development for challenges that affect the world’s poorest people, including neglected diseases, clean energy and new forms of agriculture.
6. Peace and security
A major driver of conflict is the exploitation and sale of natural resources. Under international law, these resources are owned by the citizens of the country where they occur, and they may not be appropriated or sold without the consent of those citizens. The UK will in future not recognise or enforce transactions involving oil, minerals or other natural resources sold or licensed by governments that did not demonstrably have legitimate ownership of them at the time of extraction. The standard used will be based on ratings for civil liberties and political rights from Freedom House. Anyone trading in resources from such countries will be regarded as dealing in stolen property, for which the usual sanctions will apply.
Britain will no longer grant arms export licences for exports to low income countries, nor to countries that have not been designated electoral democracies by Freedom House. Instead we will invite democratically elected governments in low income countries to apply ex ante for a Security Guarantee - a time-limited insurance contract guaranteeing that British - and potentially other - armed forces will step in to defend that government from any attempt at the violent seizure of power, from either internal or external armed groups.
Once we have taken back full control of migration after Brexit, our approach will be to ensure that migration is managed, fair, and benefits the country. Migrants make a huge contribution to our public services and our economy, and we will continue to welcome people who want to come here to flee persecution, to join family members, to make a better life for themselves and their family, or to participate in our vibrant economy.
Overall migration will be paced to be below 1 migrant for every 200 British citizens per year. Migrants will be welcomed from all parts of the world, rather than just high-skilled or already-wealthy migrants. As well as being good for the British economy, migration from developing countries can provide life-changing opportunities for the people who move, increases remittances and investment in developing countries, and accelerates the spread of ideas and values which underpin development. We will introduce the equivalent of the US Green Card lottery system for developing partner countries with sound security.
We will introduce Global Skills Partnerships which will enable talented people from developing countries to be trained and accredited to fill key roles in the British economy without contributing to a brain drain from the poorest countries in the world, so benefiting Britain, the migrant, and their country of origin.
Demonetization is yesterday’s news. The India of today is going full steam ahead towards a digital economy powered by financial inclusion, the mobile revolution, and Aadhaar—the biometric ID system that now covers 90 percent of its 1.3 billion population. And the social compact of the future will restructure subsidies and provide a basic income for the poor.
This is development with Indian characteristics, according to India’s Chief Economic Advisor Arvind Subramanian, who visited CGD for a wide-ranging conversation on the emerging big ideas that he has been instrumental in shaping during his two and a half years in his current role. The discussion was fascinating to say the least, giving us a window into the minds of India’s policymakers as they grapple with the challenges of building a modern infrastructure, implementing the Goods and Service Tax reform, and creating jobs for a million young people entering the workforce every month: all with the objective of reducing poverty and improving the delivery of basic services and subsidies.
The ultimate message is a hopeful one. With strong political will, better cooperation with states, and by harnessing the power of digital revolution, poverty can be substantially reduced—if not eliminated entirely—within a generation. As India moves towards a more effective governance model based on digital id and payment systems, it expects its citizens to be active participants in the effort. And finally, the new compact also demands greater honesty and compliance in payment of taxes, without which India will not be able to make the transition to a modern economy. Demonetization was a signal that the government has the will and the capacity to disrupt entrenched vested interests, whatever the short-term political economy cost may be.
Some of these changes are already visible. On a recent visit to India, I came across a sugarcane juice vendor on the side of a highway near Delhi who accepted payments through a digital wallet company. His motivation is clearly economic—most of the people who stopped by his shop are car owning city dwellers who have migrated to mobile wallets following demonetization.
Sugarcane juice vendor in Delhi that accepts digital payments
But aside from the technicalities of the UBI debate, the key takeaway is this: getting out of poverty is a cognitive challenge, as Abhijit Banerji and Esther Duflo point out in “The Economic Lives of the Poor.” According to Dr. Subramanian, UBI can lead to the “liberation of the cognitive bandwidth” by providing the basic minimum level of support to people who really need it. And this bandwidth is no less important than its digital counterpart in shaping India’s new social compact.
The Indian Ministry of Finance’s 2017 Economic Survey considers—though does not commit to—the idea of a large-scale experiment in UBI, or universal basic income. How would it work? What effects would it have? Arvind Subramanian—lead author of the Survey, chief economic adviser to the government of India, and a CGD senior fellow on leave—joins me to discuss the big ideas currently shaping India’s economy.
Could a universal basic income (UBI) fundamentally change the picture of poverty, health, and well-being in a country? How would it work? What effects would it have?
Those are some of the questions raised by the Indian Ministry of Finance’s 2017 Economic Survey, which considers—but does not commit to—the idea of a large-scale experiment in UBI.
The Survey’s lead author is Arvind Subramanian, chief economic adviser to the government of India and a CGD senior fellow on leave. Subramanian spoke at a recent CGD event on the big ideas currently shaping India’s economy, and he joined me on the podcast to continue the discussion.
One of the big benefits of a UBI, he tells me on the podcast, is that it provides people with a “minimum wherewithal” they can use to access credit, invest, or respond to emergencies. The main challenge, on the other hand, is that the money obviously has to come from somewhere: “you can’t pay for it unless you get rid of something else.”
Hear more of the pros and cons below, and listen to the full podcast at the top of this page or on iTunes.
The architect of India’s annual Economic Survey, Chief Economic Adviser Arvind Subramanian - a CGD senior fellow currently on leave – returns to the Center to discuss the big policy ideas making a dramatic mark on India’s economy, and what they could mean for the world.
Established in 2004, the Millennium Challenge Corporation (MCC) was designed with a singular mission: toreduce poverty through economic growth. The agency’s approach reflects key principles of aid effectiveness, in particular, country selectivity, focus on results, and emphasis on local ownership.
According to The Economist, India's proposal to give every citizen a cash transfer using the digital platform Aadhar could reduce absolute poverty from 22 percent to 0.5 percent. For a country that is home to a third of the world's poor, could Universal Basic Income (UBI) fundamentally change the picture of poverty, health and well-being in India and the world?
A rise in protectionism and increased external uncertainty may compound already existing domestic weaknesses. Latin America cannot run the risk of being unprepared for the significant potential direct and indirect effects of such a menace to its exports, capital inflows and growth.