UN unveils plan to release untapped wealth of...$7 trillion (and solve
the world's problems at a stroke)
By Philip Thornton, Economics Correspondent
Published: 30 January 2006
The most potent threats to life on earth - global warming, health
pandemics, poverty and armed conflict - could be ended by moves that
would unlock $7 trillion - $7,000,000,000,000 (£3.9trn) - of
previously untapped wealth, the United Nations claims today.
The price? An admission that the nation-state is an old-fashioned
concept that has no role to play in a modern globalised world where
financial markets have to be harnessed rather than simply condemned.
In a groundbreaking move, the UN Development Programme (UNDP) has
drawn up a visionary proposal that has been endorsed by a range of
figures including Gordon Brown, the Chancellor of the Exchequer, and
Joseph Stiglitz, the Nobel Laureate.
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
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
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
* 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."
He said the Nineties, the zenith decade for globalisation, had seen
just 60 cents out of every $100 worth of growth reach the poorest in
society, compared with the $2.20 in the Eighties.
He said a pollution trading regime had the potential to deliver
"enormous" benefits to poor countries, but said the UN report failed
to show a detailed plan.
"Our view is that you have to cap pollution, allocate permits and then
you can trade. But it depends on how it is set up. Because you are
dealing with a global commons of the atmosphere, the danger is that
you could be effectively dealing in stolen goods."
He said a system set up now to trade in pollution permits could end up
permanently depriving poor countries that joined the system further
down the road.
International problems - and solutions
Millions of people across the developing world have died from malaria,
tuberculosis and HIV/Aids, as well as from other pandemics. Vaccines
needed to avert them require much-needed investment.
SOLUTION: An advance commitment by rich countries to buy $3bn (£1.7bn)
worth of vaccines would be enough to encourage pharmaceutical giants
to invest in finding medicines that would eliminate these pandemics.
ALTERNATIVE SOLUTION: Vaccines are needed but more should be done in
the meantime. Extra aid is needed for simple tools such as mosquito
nets that would curb spread of malaria.
Big business and global money ignore countries where they see the risk
of conflict outweighing their potential profit margins.
SOLUTION: Guarantees by international organisations such as the
International Monetary Fund to lower the cost of borrowing for poor
nations by underwriting investors' loans to conflict-torn states.
ALTERNATIVE SOLUTION: Sometimes large volumes of cash are needed and
this is one. Live8 showed there was huge support among taxpayers for
higher aid to countries in distress.
Hitting a commitment made in the 1960s of 0.7 per cent of GDP would
unlock $140bn a year.
Once great nations such as Brazil and Argentina were reduced to the
status of beggars after poor economic policy combined with debts with
national and international lenders.
SOLUTION: A system to enable countries to take loans linked to their
average economic growth rate to ensure that they do not have to cut
public spending to raise the money to borrow needed funds during the
ALTERNATIVE SOLUTION: A system to allow countries to seek protection
from their creditors in the same way that US companies can take
so-called Chapter 11 bankruptcy.
Poor countries suffer most from swings in investment tastes by the big
global investors that means money can leave as soon as it arrives.
SOLUTION: Enable countries to buy "insurance policies" against big
swings in growth that would ensure that they did not have to cut
public spending every time. In 1997 it wreaked havoc across South-east
ALTERNATIVE SOLUTION: Curb speculative investment by imposing a tax on
foreign exchange transactions aimed at destabilising a currency. It
could directly raise funds for development while preventing the worst
excesses of the markets.
Scientists believe human activity has led to climate change and
disappearing Arctic ice. The world's poor also have to live with
lethal storms and floods.
UN SOLUTION: A system of international trading in permits to allow
pollution that would encourage countries to cut their emission of
greenhouse gases so they can sell their "right to pollute" to other
states. UNDP says it is more effective than just setting targets.
ALTERNATIVE SOLUTION: An international approach is needed but one that
prevents people from causing harm by setting pollution targets rather
than trying to bribe them not to. Also agree global airline tax.
Millions of skilled workers leave their home countries every year in
search of a better life in the West. In some states nine out 10
professionals have left.
SOLUTION: Enable countries to borrow on the open markets against the
money workers send home. The capital would be used to invest in the
country to build infrastructure that would discourage people from
ALTERNATIVE SOLUTION: An international code of ethical guidelines
overseen by bodies such as the World Health Organisation (for doctors
and nurses) to monitor the harm that migration of professionals