Gordon Brown: Striking a New Deal between rich and poor

As Britain takes up the presidencies of the G8 and the European Union, Gordon Brown calls on the rich world to step up efforts to meet the Millennium Development Goals

In the post-war era visionaries created the World Bank and the International Monetary Fund (IMF), and seized a powerful and unprecedented moment of opportunity. Then the Marshall Plan transferred resources from America to the war-ravaged economies of Europe.

These leaders created not only a new military and political settlement, but a new economic and social order that tackled, in their words, “hunger, poverty, desperation and chaos”. And the Marshall Plan transferred 1% of America’s national income every year, for four years, to poverty-stricken countries not as an act of charity, but in recognition that, like peace, prosperity was indivisible and to be sustained it had to be shared.

As investment and trade grew, the post-war economic success was built. And what they did for their day and generation was so dramatic that Dean Acheson, a US secretary of state under president Harry Truman, spoke of that period as akin to being “present at the creation”.

Today’s task
In a quite new, more interdependent world – with global, not local, capital flows; open, not protected, economies; international, not national, competition – we face a task of similar scale:
to build economies that thrive on investment, trade and economic development – and can offer their citizens health and education;
to save the 30,000 children dying unnecessarily each year, as well as the 40 million people suffering from HIV/AIDS;
to educate the 105 million children who don’t go to school;
to ensure social justice on a global scale.

Five years ago, almost every country and every international organization agreed to Millennium Development Goals for 2015 – including halving world poverty, cutting child mortality by two-thirds and guaranteeing every child primary education.

But we already know how far away we are from meeting these goals. For on present progress, in sub-Saharan Africa primary education for all will not be delivered until 2130, poverty won’t be halved until 2150 and avoidable infant deaths eliminated until 2165 – 150 years too late.

Technology, science and medicines are there to make the difference. And it is not that we don’t know enough, it’s that we have not done enough. What is lacking is the will to act.

So with 2005 the year of Britain’s presidencies of the G8 and of the European Union, our plan is this: that we forge a new covenant between rich and poor countries. And that – as developing countries devise their own poverty reduction plans to expand their own investment, trade and economic development, and agree to eliminate corruption – the richest countries agree to:
write off not just more of the debt owed by the poorest countries to the richest, but also more of the debt they owe to international organizations;
open our markets and curb protectionism;
and offer the investment that is needed to meet the Millennium Goals so that no country undergoing the necessary reforms is denied resources for its health and education programmes.

Debt relief, trade and aid
First, many countries are still being forced to choose between servicing their debts and making investments in health, education and infrastructure. So the richest countries must complete the process of debt relief and match bilateral debt relief of up to 100% with multilateral debt relief of up to 100%. The cancellation of debts owed to the IMF should be financed by making better use of IMF gold. Britain has announced that we will relieve those countries still under the burden of debt owed to the World Bank and African Development Bank by unilaterally paying our share – 10% – and we urge other countries to do the same. All donor countries should make a similar declaration that they will cover their share of these debts on behalf of eligible developing countries. I also call upon the European Commission, which provided more than €1.5 billion ($1.98 billion) for debt relief so far, to match that generosity with deeper multilateral debt relief.

Second, we know that achieving the pro-poor agreement promised at Doha could boost the world’s yearly income by nearly $400 billion. While developing countries will gain the most, all countries and regions stand to benefit. So 2005 must become the year when we deliver on this agreement and, through the world trade talks, release the poorest countries from unfair trade barriers. In particular, both Europe and America must do more to tackle the scandal and waste of agricultural protectionism. And we must support developing countries as they design and sequence trade reform into their own poverty reduction strategies and help them build the capacity they need to take advantage of trading opportunities.

But we cannot solve the urgent problems of poverty around the world without a third step – a substantial increase in funds for development.

More need, less aid
Ten years ago, aid to Africa was $33 per person. Today it is just $19. All the public spending on education in sub-Saharan Africa taken together is still, per pupil, less than $50 a year – less than $1 per week. And we know that sub-Saharan Africa still devotes just $12 per person per year to public health, compared with $2,000 in the United States. So as the problems of disease – especially HIV/AIDS – and poverty have grown, financial support has reduced. And unless we reverse this trend now, the Millennium Development Goals will remain undelivered.

In recent years progress has been made. At the Monterrey Financing for Development conference, donor countries pledged an additional $16 billion a year from 2006. For Britain’s part, our level of Official Development Assistance will increase to £6.4 billion ($12 billion at today’s exchange rate) by 2008, reaching 0.47% of our national income. On this timetable, if current growth rates are maintained, Britain would reach the UN target of 0.7% by 2013. And, over the next year, we plan to ask other countries to join us and nine others to become countries which have either already reached 0.7% or have set a timetable towards it.

But to meet our Millennium Development Goals we need an additional $50 billion of investment aid, not in 2015, but now. And the truth is that the scale of the resources needed immediately to tackle disease, illiteracy and global poverty is far beyond what traditional funding can offer today.

That is why Britain has proposed an International Finance Facility (IFF). The IFF would be founded on long-term, binding donor commitments from the richest countries and it would borrow against these commitments on the international capital markets to leverage in further funding – raising the overall amount of development aid from $60 billion a year to more than $100 billion a year between now and 2015.

A new covenant
During the past 50 years, the Marshall Plan’s European model could not be applied wholesale to developing countries because neither the economic foundations nor the necessary open and accountable systems for managing the public sector were in place to prevent corruption and waste. And too often we treated development funding as short-term aid to compensate for poverty instead of long-term investment tied to tackling the causes of poverty and building the capacity to compete.

So this new covenant between rich and poor countries must mean not just new opportunities for developing countries, but new responsibilities too. No country genuinely committed to open, corruption-free, pro-stability and pro-investment policies should be denied the chance to progress because of the lack of basic investment in education, health and poverty reduction. And the additional funding provided through the IFF would not be aid in the traditional sense, but investment in the future – attacking the root causes of poverty, not just the symptoms.

In this year’s G8 discussions we will ask all countries to support the IFF and implement it. As of December 2004, 40 countries – including France, Italy and Sweden – had supported our plan.

The IFF offers us three advantages:

it can provide the resources that are so urgently needed immediately;

it works through existing channels for delivering aid and would not establish a new aid bureaucracy – current US commitments to the Millennium Challenge Account, for example, could be scaled up by the IFF structure before being disbursed by the Millennium Challenge Corporation;

and finally, it is designed to be a fiscally neutral means of scaling up development aid between now and 2015, bringing forward in time the value of the commitments already made at the Monterrey Conference.

In short, the IFF could provide a critical mass of predictable, stable and coordinated aid as investment over the next few years when it will have the most impact in achieving the Millennium Development Goals – saving lives today that would otherwise be lost.

The theme of this year’s conference in Davos is “Taking Responsibility for Tough Choices”. In 2000 the international community came together to make a tough choice – that in the new millennium the world would rid itself of poverty and that precise new 2015 targets would guide our actions. Today we are in danger of being remembered as a global community not for what we promised but for what we failed to deliver.

We need nothing less than a global alliance for prosperity. Now is the time to take responsibility for our shared pledge.

Gordon Brown
Gordon Brown is Britain’s finance minister.