The Crises of Finance, Food & Climate: Implications for Social Protection & Human Development Tony Addison www.wider.unu.edu CASS Forum 2010, Institute of Economics, Chinese Academy of Social Sciences, Beijing 22-23 October 2010

Introduction Immediate concern: fallout from financial crisis But there are – in reality – at least three global crises at work: finance, food & climate At present the three crises sit in their separate ”policy silos” (global governance problem) Key argument: the three crises interact – a ”triple crisis” – which requires rethinking development

CRISIS 1: Finance Unsteady Recovery from Global Economic Downturn

CRISIS 2: Food Underlying Structural Drivers Behind 2007-2008 Spike in Food Prices Remain in Place

Food Crisis If recovery is sustained: food and energy prices will climb and hit energy and food importers and intensify shift towards bio-fuels Global food supply under pressure – but global food architecture not geared to deal with supply shortages At the same time long-term national food policy needs to respond to the dangers of climate change & rising demand Yet fiscal space is severely limited in poor countries – for investments & social protection

CRISIS 3: Climate Adds Uncertainty to Development Policy, Africa & South Asia Highly Vulnerable

Challenge for Development Heightened climate uncertainty makes designing development policies more difficult This is especially true for large-scale, long-term investments (e.g., infrastructure, health, agricultural technology) These kinds of investments are the cornerstones of low-income countries’ development strategies Climate change will raise need for social protection, but climate change itself could cut revenue base of state

Climate Change Costs Climate costs far exceed current level of aid: Per annum mitigation in developing countries by 2030: USD 140-175 billion Per annum adaptation costs by 2050: USD 30-109 billion Aid presently around USD 100 billion in total COP15 demonstrated – climate change finance fragmented as traditional aid, unclear funding will be additional, and who takes control of supply (how much voice for the developing world?) Climate change financing seen as compensation – but aid processes remain conditional

Social Protection: Financing Domestic v External Finance, Role of Aid

Social Protection: Crisis Response Scaling up of social protection in response to the food & financial crises over ‘07-09 in Asia More fiscal space for Asia’s social protection than in 1998 Asian financial crisis Smaller & poorer economies, inc. Africa, limited social protection Delay between shock & action. Result: ad hoc, expensive, liable to miss chronically poor

Social Protection: Financing Construct robust social protection systems to respond to Three crises & accelerate investment in human development Problem: how to finance? Mobilize more domestic revenue: resource rich countries have more possibility than resource poor countries Mobilize external borrowing – opportune time, IF poorer countries can become ‘investment grade’

Despite some improvements in other flows ODA continues to dominate total capital flows to SSA

Need to reduce aid dependence. OECD-DAC aid likely to stall GDP of OECD-DAC countries has taken a big hit The average banking crisis reduces output per capita by 10% – and the loss is not restored within 7 years of the crisis onset The target for aid often expressed as a percentage of economic size To maintain the past VOLUME of aid, OECD-DAC aid will have to rise faster as a % of total spending Is this likely? No

Third: Netting out debt relief ODA to Africa has not risen in real terms since the late 1980s

The Challenge The Priorities of Social Protection and Human Development Investment Growth & Globalization (Trade)

Social Protection: Pro-Poor Growth Growth reduces poverty overall, but new poor (e.g. land grabbing), spatial inequality Social protection helps build growth around the poor e.g. Conditional Cash Transfers (CCTs) linked to schooling, especially for rural girls Reduces state fragility post-conflict e.g. El Salvador (poverty down) Strengthens the Internal Engine of growth

Social Protection: Globalization World trade liberalization promises to raise global growth via increased efficiency Global revenue base rises as growth rises BUT gains & losses are distributed unevenly e.g. between producers & consumers; urban & rural areas; regions (spatial inequality) Use increased revenues from higher growth to spread benefits more broadly Including Social Protection for chronically poor

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Chronic Poverty Report 2008/09 Chronic Poverty Research Centre www.chronicpoverty.org