Mobilizing additional finance to meet the challenges of the Millennium Development Goals (MDGs) is now an urgent priority. Increased inflows of both private and public money are needed in order for the world's poorest countries to invest in the basic services and infrastructure necessary to meet the MDG targets for human development, and to improve livelihoods and employment for poor people. Developing countries themselves are mobilizing resources to meet the MDG targets by 2015, but they will fall short of the targets without additional external flows. The consensus adopted by the United Nations International Conference on Financing for Development conference in Monterrey, Mexico, in March 2002 noted the meagre level of official and private capital flows to most developing countries. Official development assistance, although on the rise since Monterrey, still falls far short of the level necessary to meet the MDGs, and private flows to the poorer countries are small: Africa's share of the flow of global foreign direct investment is only 3 per cent.
As a result of the Five-year Review of the World Summit for Social Development, the United Nations General Assembly in September 2000 called for the mobilization of new and additional resources for social development and for ‘a rigorous analysis of advantages, disadvantages and other implications of proposals for developing new and innovative sources of funding’. The present book contains the results of the study carried out by UNU-WIDER, under the direction of Sir Anthony Atkinson on behalf of the United Nations Department of Economic and Social Affairs.
The book examines a range of innovative sources of finance. The best known of the ideas under consideration is the tax on currency transactions, widely known as the ‘Tobin tax’. Well known also is the proposal for a carbon tax levied on fuel use. Both of these have many advocates, but they are also controversial. Rigorous economic analysis is therefore necessary. In particular, it is important to separate the argument for these taxes as corrective mechanisms (reducing currency speculation and carbon emissions) from the revenue raising function. The concern in this book is with revenue, which may mean that low rates of taxation may be sufficient to make a major new contribution.
Taxes are only one of the possible new sources. The book examines proposals for a development-focused allocation of Special Drawing Rights (SDRs), and the International Finance Facility (IFF) proposed by the UK's Chancellor of the Exchequer. The terms of reference of the UNU-WIDER study asked the authors to consider the potential for private funding. The study therefore considers the financing associated with remittances by emigrants, and private philanthropy. It considers the scope for a global lottery or a global premium bond.
The book brings new thinking to bear on these very important global questions. The intellectual perspective that marks the book from others in the field is that the authors bring to bear the tools of modern public economics, more commonly applied (p.viii) to national problems of finance. The book argues that this can provide new insights. We can learn from the analysis of fiscal federalism within nation states. We can learn from the analysis of the ear-marking of taxes and from the literature on political economy.
The findings of this book will be of considerable interest to the development community, including not only national governments, the UN, and bilateral and multilateral agencies but also civil society. The ultimate aim is to help break the present impasse in external finance for developing countries, and we believe that this study will make an important contribution to the debate.
José Antonio Ocampo
Department for Economic & Social Affairs
World Institute for Development Economics Research
United Nations University
New York and Helsinki, May 2004