[Excerpts only. Full text of overview and of full report available at http://hdr.undp.org/reports/global/2005 ]
Five years ago, at the start of the new millennium, the world’s governments united to make a remarkable promise to the victims of global poverty. Meeting at the United Nations, they signed the Millennium Declaration a solemn pledge “to free our fellow men, women and children from the abject and dehumanizing conditions of extreme poverty”. The declaration provides a bold vision rooted in a shared commitment to universal human rights and social justice and backed by clear time-bound targets. These targets the Millennium Development Goals (MDGs) include halving extreme poverty, cutting child deaths, providing all of the world’s children with an education, rolling back infectious disease and forging a new global partnership to deliver results. The deadline for delivery is 2015.
There is more to human development than the MDGs. But the goals provide a crucial benchmark for measuring progress towards the creation of a new, more just, less impoverished and less insecure world order. …
… Some important human development advances have been registered since the Millennium Declaration was signed. Poverty has fallen and social indicators have improved. The MDGs have provided a focal point for international concern. … Yet as governments prepare for the 2005 UN summit, the overall report card on progress makes for depressing reading. Most countries are off track for most of the MDGs. Human development is faltering in some key areas, and already deep inequalities are widening. Various diplomatic formulations and polite terminology can be found to describe the divergence between progress on human development and the ambition set out in the Millennium Declaration. None of them should be allowed to obscure a simple truth: the promise to the world’s poor is being broken.
This year, 2005, marks a crossroads. The world’s governments face a choice. One option is to seize the moment and make 2005 the start of a “decade for development”. If the investments and the policies needed to achieve the MDGs are put in place today, there is still time to deliver on the promise of the Millennium Declaration. But time is running out. …The other option is to continue on a business as usual basis and make 2005 the year in which the pledge of the Millennium Declaration is broken. … Instead of delivering action, the UN summit could deliver another round of high-sounding declarations, with rich countries offering more words and no action.
Global integration is forging deeper interconnections between countries. In economic terms the space between people and countries is shrinking rapidly, as trade, technology and investment link all countries in a web of interdependence. In human development terms the space between countries is marked by deep and, in some cases, widening inequalities in income and life chances. One-fifth of humanity live in countries where many people think nothing of spending $2 a day on a cappuccino. Another fifth of humanity survive on less than $1 a day and live in countries where children die for want of a simple anti-mosquito bednet.
At the start of the twenty-first century we live in a divided world. The size of the divide poses a fundamental challenge to the global human community. Part of that challenge is ethical and moral. As Nelson Mandela put it in 2005: “Massive poverty and obscene inequality are such terrible scourges of our times—times in which the world boasts breathtaking advances in science, technology, industry and wealth accumulation—that they have to rank alongside slavery and apartheid as social evils.”
Rich countries as well as poor have an interest in changing this picture. … Extending opportunities for people in poor countries to lead long and healthy lives, to get their children a decent education and to escape poverty will not diminish the well-being of people in rich countries. On the contrary, it will help build shared prosperity and strengthen our collective security. In our interconnected world a future built on the foundations of mass poverty in the midst of plenty is economically inefficient, politically unsustainable and morally indefensible.
Debates about trends in global income distribution continue to rage. Less open to debate is the sheer scale of inequality. The world’s richest 500 individuals have a combined income greater than that of the poorest 416 million. Beyond these extremes, the 2.5 billion people living on less than $2 a day 40% of the world’s population account for 5% of global income. The richest 10%, almost all of whom live in high-income countries, account for 54%.
Why inequality matters
Human development gaps within countries are as stark as the gaps between countries. These gaps reflect unequal opportunity people held back because of their gender, group identity, wealth or location. Such inequalities are unjust. They are also economically wasteful and socially destabilizing. Overcoming the structural forces that create and perpetuate extreme inequality is one of the most efficient routes for overcoming extreme poverty, enhancing the welfare of society and accelerating progress towards the MDGs.
The MDGs themselves are a vital statement of international purpose rooted in a commitment to basic human rights. These rights to education, to gender equality, to survival in childhood and to a decent standard of living are universal in nature. That is why progress towards the MDGs should be for all people, regardless of their household income, their gender or their location. However, governments measure progress by reference to national averages. These averages can obscure deep inequalities in progress rooted in disparities based on wealth, gender, group identity and other factors.
Income inequalities interact with other life chance inequalities. Being born into a poor household diminishes life chances, in some cases in a literal sense. Children born into the poorest 20% of households in Ghana or Senegal are two to three times more likely to die before age 5 than children born into the richest 20% of households. Disadvantage tracks people through their lives. Poor women are less likely to be educated and less likely to receive antenatal care when they are pregnant. Their children are less likely to survive and less likely to complete school, perpetuating a cycle of deprivation that is transmitted across generations. Basic life chance inequalities are not restricted to poor countries. Health outcomes in the United States, the world’s richest country, reflect deep inequalities based on wealth and race. Regional disparities are another source of inequality. Human development fault lines separate rural from urban and poor from rich regions of the same country. …
More equitable income distribution would act as a strong catalyst for accelerated poverty reduction. … When it comes to income poverty reduction, distribution matters as well as growth. That conclusion holds as much for low-income countries as for middle-income countries. Without improved income distribution Sub-Saharan Africa would require implausibly high growth rates to halve poverty by 2015. …
International aid increasing the quantity, improving the quality
International aid is one of the most effective weapons in the war against poverty. Today, that weapon is underused, inefficiently targeted and in need of repair. Reforming the international aid system is a fundamental requirement for getting back on track for the MDGs.
Aid is sometimes thought of in rich countries as a one-way act of charity. That view is misplaced. In a world of interconnected threats and opportunities aid is an investment as well as a moral imperative an investment in shared prosperity, collective security and a common future. Failure to invest on a sufficient scale today will generate costs tomorrow.
… There are three conditions for effective aid. First, it has to be delivered in sufficient quantity to support human development take-off. Aid provides governments with a resource for making the multiple investments in health, education and economic infrastructure needed to break cycles of deprivation and support economic recovery and the resource needs to be commensurate with the scale of the financing gap. Second, aid has to be delivered on a predictable, low transaction cost, value for money basis. Third, effective aid requires “country ownership”. Developing countries have primary responsibility for creating the conditions under which aid can yield optimal results. While there has been progress in increasing the quantity and improving the quality of aid, none of these conditions has yet been met.
When the Millennium Declaration was signed, the development assistance glass was three-quarters empty and leaking. During the 1990s aid budgets were subject to deep cuts, with per capita assistance to Sub-Saharan Africa falling by one-third. Today, the aid financing glass is approaching half full. The Monterrey Conference on Financing for Development in 2001 marked the beginning of a recovery in aid. Since Monterrey, aid has increased by 4% a year in real terms, or $12 billion (in constant 2003 dollars). Rich countries collectively now spend 0.25% of their gross national income (GNI) on aid lower than in 1990 but on an upward trend since 1997. The European Union’s commitment to reach a 0.51% threshold by 2010 is especially encouraging.
However, even if projected increases are delivered in full, there remains a large aid shortfall for financing the MDGs. That shortfall will increase from $46 billion in 2006 to $52 billion in 2010. The financing gap is especially large for Sub-Saharan Africa, where aid flows need to double over five years to meet the estimated costs of achieving the MDGs.
While rich countries publicly acknowledge the importance of aid, their actions so far have not matched their words. The G-8 includes three countries Italy, the United States and Japan with the lowest shares of aid in GNI among the 22 countries on the Organisation for Economic Co-operation and Development’s Development Assistance Committee. On a more positive note the United States, the world’s largest aid donor, has increased aid by $8 billion since 2000 and is now the world’s largest donor to Sub-Saharan Africa. The setting of more ambitious targets is another welcome development. However, donors do not have a good record in acting on aid targets … Since 1990 increased prosperity in rich countries has done little to enhance generosity: per capita income has increased by $6,070, while per capita aid has fallen by $1.
Just the increase in military spending since 2000, if devoted to aid instead, would be sufficient to reach the long- standing UN target of spending 0.7% of GNI on aid. …Current spending on HIV/AIDS, a disease that claims 3 million lives a year, represents three day’s worth of military spending.
Questions are sometimes raised about whether the MDGs are affordable. Ultimately, what is affordable is a matter of political priorities. But the investments needed are modest by the scale of wealth in rich countries. The $7 billion needed annually over the next decade to provide 2.6 billion people with access to clean water is less than Europeans spend on perfume and less than Americans spend on elective corrective surgery. This is for an investment that would save an estimated 4,000 lives each day.
Tied aid remains one of the most egregious abuses of poverty-focused development assistance. By linking development assistance to the provision of supplies and services provided by the donor country, instead of allowing aid recipients to use the open market, aid tying reduces value for money. Many donors have been reducing tied aid, but the practice remains widely prevalent and underreported. We conservatively estimate the costs of tied aid for lowincome countries at $5 $7 billion. Sub-Saharan Africa pays a “tied aid tax” of $1.6 billion.
In some areas the “new partnership” in aid established at the Monterrey conference still looks suspiciously like a repackaged version of the old partnership. There is a continuing imbalance in responsibilities and obligations. Aid recipients are required to set targets for achieving the MDGs, to meet budget targets that are monitored quarterly by the International Monetary Fund (IMF), to comply with a bewildering array of conditions set by donors and to deal with donor practices that raise transaction costs and reduce the value of aid. Donors, for their part, do not set targets for themselves. Instead, they offer broad, non-binding commitments on aid quantity (most of which are subsequently ignored) and even broader and vaguer commitments to improve aid quality. Unlike aid recipients, donors can break commitments with impunity. In practice, the new partnership has been a one-way street.
Donor countries need first to honour and then to build on the commitments made at Monterrey. Among the key requirements:
Set a schedule for achieving the aid to GNI ratio of 0.7% by 2015 (and keep to it). Donors should set budget commitments at a minimum level of 0.5% for 2010 to bring the 2015 target within reach.
Tackle unsustainable debt. The G-8 summit in 2005 produced a major breakthrough on debt owed by the heavily indebted poor countries (HIPCs). However, some problems remain, with a large number of low-income countries still facing acute problems in meeting debt service obligations. Final closure of the debt crisis will require action to extend country coverage and to ensure that debt repayments are held to levels consistent with MDG financing.
Provide predictable, multiyear financing through government programmes. Building on the principles set out in the Paris Declaration on Aid Effectiveness, donors should set more ambitious targets for providing stable aid flows, working through national systems and building capacity. By 2010 at least 90% of aid should be disbursed according to agreed schedules through annual or multiyear frameworks.
Streamline conditionality. Aid conditionality should focus on fiduciary responsibility and the transparency of reporting through national systems, with less emphasis on wide-ranging macroeconomic targets and a stronger commitment to building institutions and national capacity.
End tied aid. There is a simple method for tackling the waste of money associated with tied aid: stop it in 2006.
Trade and human development strengthening the links
Like aid, trade has the potential to be a powerful catalyst for human development. … The problem is that the human development potential inherent in trade is diminished by a combination of unfair rules and structural inequalities within and between countries.
International trade has been one of the most powerful motors driving globalization. Trade patterns have changed. There has been a sustained increase in the share of developing countries in world manufacturing exports and some countries are closing the technology gap. However, structural inequalities have persisted and in some cases widened. Sub-Saharan Africa has become increasingly marginalized. Today, the region, with 689 million people, accounts for a smaller share of world exports than Belgium, with 10 million people. If Sub-Saharan Africa enjoyed the same share of world exports as in 1980, the foreign exchange gain would represent about eight times the aid it received in 2003. …
Fairer trade rules would help, especially when it comes to market access. In most forms of taxation a simple principle of graduation applies: the more you earn, the more you pay. Rich country trade policies flip this principle on its head. The world’s highest trade barriers are erected against some of its poorest countries: on average the trade barriers faced by developing countries exporting to rich countries are three to four times higher than those faced by rich countries when they trade with each other. …
Agriculture is a special concern. … In the last round of world trade negotiations rich countries promised to cut agricultural subsidies. Since then, they have increased them. They now spend just over $1 billion a year on aid for agriculture in poor countries, and just under $1 billion a day subsidizing agricultural overproduction at home – a less appropriate ordering of priorities is difficult to imagine. … Cotton farmers in Burkina Faso are competing against US cotton producers who receive more than $4 billion a year in subsidies a sum that exceeds the total national income of Burkina Faso. Meanwhile, the European Union’s extravagant Common Agricultural Policy (CAP) wreaks havoc in global sugar markets, while denying developing countries access to European markets. …
In some areas WTO rules threaten to systematically reinforce the disadvantages faced by developing countries and to further skew the benefits of global integration towards developed countries. An example is the set of rules limiting the scope for poor countries to develop the active industrial and technology policies needed to raise productivity and succeed in world markets. The current WTO regime outlaws many of the policies that helped East Asian countries make rapid advances. WTO rules on intellectual property present a twin threat: they raise the cost of technology transfer and, potentially, increase the prices of medicines, posing risks for the public health of the poor. In the WTO negotiations on services rich countries have sought to create investment opportunities for companies in banking and insurance while limiting opportunities for poor countries to export in an area of obvious advantage: temporary transfers of labour. It is estimated that a small increase in flows of skilled and unskilled labour could generate more than $150 billion annually a far greater gain than from liberalization in other areas.
The Doha Round of WTO negotiations provides an opportunity to start aligning multilateral trade rules with a commitment to human development and the MDGs. That opportunity has so far been wasted. Four years into the talks and nothing of substance has been achieved. …
The WTO ministerial meeting planned for December 2005 provides an opportunity to address some of the most pressing challenges. While many of the issues are technical, the practical requirement is for a framework under which WTO rules do more good and less harm for human development. …Among the key benchmarks for assessing the outcome of the Doha Round:
Deep cuts in rich country government support for agriculture and a prohibition on export subsidies. Agricultural support, as measured by the producer support estimates of the OECD, should be cut to no more than 5% 10% of the value of production, with an immediate prohibition on direct and indirect export subsidies.
Deep cuts in barriers to developing country exports. Rich countries should set their maximum tariffs on imports from developing countries at no more than twice the level of their average tariffs, or 5% 6%.
Compensation for countries losing preferences. While rich country preferences for some developing country imports deliver limited benefits in the aggregate, their withdrawal has the potential to cause high levels of unemployment and balance of payments shocks in particular cases. A fund should be created to reduce the adjustment costs facing vulnerable countries.
Protection of the policy space for human development. Multilateral rules should not impose obligations that are inconsistent with national poverty reduction strategies. These strategies should incorporate best international practices adapted for local conditions and shaped though democratic and participative political processes. In particular, the right of developing countries to protect agricultural producers against unfair competition from exports that are subsidized in rich countries should be respected in WTO rules.
A commitment to avoid “WTO plus” arrangements in regional trade agreements. Some regional trade agreements impose obligations that go beyond WTO rules, especially in areas such as investment and intellectual property. It is important that these agreements not override national policies developed in the context of poverty reduction strategies.
Refocusing of services negotiations on temporary movements of labour. In the context of a development round less emphasis should be placed on rapidly liberalizing financial sectors and more on creating rules allowing workers from developing countries improved access to labour markets in rich countries.