Michael Bohnet

The Federal Ministry of Economic Cooperation (BMZ), which has been supporting us financially for many years, celebrated its fortieth anni­versary last year. We wished to mark that occasion. Prof. Dr Michael Bohnet, Head of Department at BMZ, describes the challenges facing future development policy in the 21st century, in the age of globalization. The text that follows is an extract from the speech which he gave at the “BMZ 40th Anniversary Specialist Conference” on 23 October 2001 in Bonn. His remarks are an expression of his personal opinion. The paper is reprinted from the journal “Kommunikation Global”, Volume II, No. 23, November 2001.

Development Policy in the 21st Century:
Potential and Options for Action

I.

Every area of applied policy, including development policy in the 21st century, needs a vision. The vision is to extend human rights worldwide, to preserve peace, to reduce poverty and inequality, to prevent famine, to solve the population problem, to combat the causes of refugee migration, and to maintain the natural bases of life. Development policy in the 21st century is an area of strategic policy which cannot be divorced from world domestic policy. It serves the interest of Germany, which pursues peace and security as well as economic, social and environmental goals. The underlying principle is the notion of sustainable development. Development policy implies a collaborative approach to developing countries, involving public development cooperation, trade policy, finance and debt relief policies, and social and environmental policies.

II.

The term “globalization” refers to a process of growing economic and non-economic worldwide interconnectedness. This process is happening at an ever increasing rate. I should like to draw a distinction between five types of globalization: economic globalization, social globalization, ecological globalization, political globalization and cultural globalization. All five elements are closely interwoven, but it is useful to separate them for the purposes of clear-cut analysis.

III.

Since problems are becoming globalized, policies must also become globalized, that is, they must accept global responsibility and adopt global structures which make it possible to act globally. The attempt to meet global challenges is called “global governance”. Its role is to devise policies that will minimize the dangers of globalization and maximize its chances of success. Global governance can only make an effective contribution to solving global problems, however, if it works in two areas:

  1. measures to strengthen the voice of developing countries within the international system, and
  2. support for developing countries at national level to improve living conditions, institutions and the general infrastructure.

These are the major challenges of the future for development policy, which must be realistic and aware of its limitations.

Some of the principal tools of global governance are:

  1. developing international norms and sets of values such as social standards, environmental standards, the right to family planning, women’s rights, good governance, etc. These have been developed at world conferences, which have acted as a global governance ­laboratory or learning workshop.
  2. helping to frame international accords, such as the WTO and the conventions on the environment.

International norms and accords have become significant building blocks in the architecture of global governance. This architecture sometimes incorporates regional governance, building on key regional players, which already exist at least in outline in all world regions.

The task of global governance is to protect global public goods, including not only the global climate and biodiversity, but also peace, the prevention of severe poverty and economic crises, economic, social and financial stability, and various aspects of human security.

IV.

As a result of globalization, processes and institutions spill over outside the national context, so that there is a lack of democracy at international level. In a democratic vacuum, non-governmental organizations can help to make decision-making more open and transparent, but they cannot guarantee legitimacy on their own. NGOs will only play a role for a limited time, until international legislative and democratic institutions have caught up. This process will take decades. Parliaments will also be better able to monitor the creation of internationally agreed policies if interparliamentary networks are set up and expanded. Global policy networks are also being established, there being between 60 and 70 of these at the present time. Their purpose is to bring together different actors and to build bridges between the public sector, the civil society and the private economy, often in collaboration with international organizations (a classic example is the “World Commission on Dams”).

V.

The Relationship of Development Policy to World Economic ­Policy andInternational Finance.

International Funds

  1. Economic internationalization calls for international taxation. This purpose might be served by the Tobin tax on currency dealings, which would make capital transfers for short-term investment more expensive in both absolute and relative terms (in comparison with long-term investments). Tax havens and major players in the capital markets are bringing increasing pressure to bear on the OECD countries to reduce the taxation of capital, business and high earners. The resultant international fiscal competition, the beginnings of which were already felt in the 1980s, took a disastrous turn in the ’90s according to OECD reports. While the tax burden on businesses and higher-income earners fell, the rates of value added tax and the local levies paid by all citizens tended in the opposite direction. The rate of taxation of wages and salaries grew, while the rate of taxation of profits and capital assets declined. There was a fiscal redistribution of wealth from bottom to top. The Tobin tax could therefore be introduced without impairing the fairness of tax regimes, since the national tax base of each state is continually shrinking, with the result that the least mobile production factor (labour) is bearing an ever increasing proportion of the tax burden (in Europe, the proportion of taxation receipts derived from taxes on capital has declined from 50% in the early 1980s to 35% today).
  2. As the financial markets become liberalized, particular attention will have to be paid to the stability of national financial systems, especially in developing countries: to effective fiscal control, a minimum of transparency, and good governance, which includes the ability to regulate undesirable movements of capital. Development cooperation should do more to strengthen the creation and stability of local financial markets and micro funding initiatives.
  3. Offshore financial centres (OFCs) are market places which have no quality criteria for the approval of financial businesses, and low or non-existent taxes. The 50 and more OFCs have grown in importance as the movement of capital has become freer. The absence of appropriate regulatory provisions and the disregard for international standards and effective supervision in the OFCs is a constant potential threat to the international financial system. The very scale of the capital invested in and passing through OFCs increases the danger of trouble spreading in case of crisis. Support should therefore be given to the recommendations of the Financial Stability Forum, which include the proposal that OFCs should be subject to checks by a body headed by the IMF so that international regulatory standards can be introduced and an effective supervisory structure created. The OFCs should also be required to report their financial activities to the Bank for Inter­national Settlements (BIS). In order to make the proposed sanctions effective, pressure should also be exerted on the so-called non-cooperating OFCs. These include Dominica, Guatemala, Lebanon, the Marshall Islands, Myanmar, Nauru, Nigeria and Niue.
  4. Poverty, and especially inequality, can lead to endemic violence. Public development cooperation will therefore concentrate on implementing the Poverty Action Plan 2015. The areas of future German economic cooperation are set out in this Plan and therefore need not be repeated here (they include basic social services: basic education, basic health, family planning including combating AIDS, food and water). The specific emphases for each region are contained in the BMZ regional plans for Asia, Latin America and Africa which have recently been drawn up and published. In the case of Africa, the support given by the G8 to its New African Initiative will be of particular relevance. At its summit meeting in Genoa on 27.07.2001, the G8 agreed to draw up an Action Plan specifying the details of this support before its next meeting in June 2002.
    We shall pay greater attention to the Islamic world in our development cooperation (especially the Maghreb, the Middle East, Nigeria, Afghanistan, Pakistan, Bangladesh, Indonesia and the Philippines). We shall need to bear in mind the difficult situation of India (which has around 150 million Muslims, the second largest Muslim population in the world after Indonesia).
    In revising our country plans and drawing up our strategy papers in consultation with our partners, we shall pay greater attention to the cultural particularities and sensibilities of the Islamic world. In the past three years, these countries received around 30% of our bilateral development cooperation funds, but some selective increases using ­special funds will be required in 2002.
    Following on from our experiences with the Stability Pact in South-Eastern Europe and the Caucasus, we shall be considering new initiatives in the countries of Central Asia (Uzbekistan, Kazakhstan, Kyrgyzstan, Tajikistan and Turkmenistan), because of the extensive structural problems in those countries (lack of democracy and of willingness to institute reforms). In any event, the strengthening of the rule of law and regional cooperation will remain our main aim.
    In essence, our concern is to support viable and democratically legitimate state institutions, and to expand the civil society (by strengthening development policy dialogue via churches, foundations and NGOs).
    The emphasis in development policy will shift increasingly from project to programme support. Combined funding and interest support schemes will be expanded, especially for threshold countries. Public-private partnerships (PPPs) will be a strategic tool of development ­cooperation.
  5. Debt relief is linked to so-called poverty reduction strategies, which countries devise for themselves with the involvement of the civil society. As a result of the beneficial effects of these in HIPC countries (debt relief amounting to US $ 70 billion), the gap between the potential for debt relief of this group of countries and that of other heavily indebted developing countries has widened. The total indebtedness of middle-income countries has also risen steadily in recent years. The belief that these would escape from debt by their own efforts has not proved well-founded. Even these countries need further measures to mitigate the problem of debt. The key task will therefore be to develop ways of reducing the indebtedness of middle-income countries too.
  6. Because of the protectionist actions taken by the industrialized countries, developing countries are losing about as much in exports as they are gaining in public development cooperation (US $ 50 billion). In the next round of WTO negotiations (the Development Round), the interests of developing countries in all fields must therefore be taken into account, and they will need to play a greater part in WTO institutions. Since the EU agreed in May 2001 at the Brussels LDC Conference to remove duty and quotas from imports of all goods from LDCs into the European market (the “everything but arms” initiative), other industrialized countries - notably Japan, Canada and the United States - have stated their willingness to follow the EU’s lead by opening their markets similarly wide. This should raise the income from exports of the poorest developing countries by US $ 3 billion a year.