Global Public Investment: A Critique

What I like about many discussions about development cooperation (especially official development assistance or ODA) is the reflection on the problems of wrong incentives, the risks of instrumentalizing development cooperation for purposes other than development, and the declining integrity of the reporting system. OP.

In recent years, there has been a debate about the so-called “global public investment” or GPI. This discussion is largely motivated by a critique of ODA (often referred to as “foreign aid” by GPI proponents in this context) and offers a different approach to international cooperation: it is described as a new approach to concessional international public financing for sustainable development – accessible to everyone.

The GPI’s ambition to improve international cooperation seems perfectly fine. However, it is quite difficult to find any reflections on the possible limitations of GPI. Yes, in a political campaign you probably don’t start with what might be wrong with your proposal. However, I have to understand it if I don’t just sympathize with the motivation behind a concept, but think it’s something I should really support.

In that regard, I have some major concerns about GPI. I believe it misrepresents the ODA; high level of ambiguity; and lack of integration of real-world constraints.

GPI paints a misleading picture of ODA. For example, proponents of the GPI argue that ODA has a narrow focus on poverty reduction, whereas the GPI would be aimed at addressing broader challenges of inequality and sustainability. This statement ignores the fact that many ODA actors are not only focused on poverty reduction. This is simply a misconception of what ODA is – at least for the majority of participants in the field. ODA has been tackling inequality and sustainability for many decades. The relationship between ODA and the provision of global public goods (GPG) is long-standing. We know that there has always been a proportion of GPGs funded by ODA – and this proportion is increasing, not least because of climate finance. Unfortunately, the reality is complex and we must increasingly address the question of the extent to which ODA-financed GPGs crowd out non-GPG development goals.

The basics of GPI are somewhere between naive and obscure. Just a few comments on this.

The conceptual relationship between ODA and GPI remains unclear. Even if GPI is not intended to replace ODA (which, by the way, is not very coherent conceptually), it may be difficult to find support for this approach among formal actors in the Global South. Looking at the climate finance debate, it is clear that important and economically powerful countries of the South (from China to Saudi Arabia) are rejecting any requirement that they should be obliged to contribute to global climate finance funds in this regard. Why would they agree to GPI?

One advantage of ODA is that – compared to other soft areas of international cooperation – it is based on a transparent definition, criteria, a well-established reporting system and even an absolute target for the expected contribution of OECD countries (0.7% of their GDP). This approach is far from ideal. Ignoring the option that GPI could lead to reduced pressure on the existence of this system, however, would be risky. Some OECD countries may be grateful to the GPI if they can get rid of existing ODA obligations.

The GPI is supposed to be a “universal effort, with all payments and all benefits.” Benefits are defined in terms of public investment. But what about other modalities of cooperation such as knowledge cooperation (a major modality of South-South cooperation)? Preferred payments are in the form of grants. But what about the advantages of concessional loans that allow more funds to be mobilized for economically viable projects? On paper everyone benefits sounds good, but in reality I don’t find a compelling argument why a GPI mechanism should direct grants to Switzerland, the United Arab Emirates, North Korea or China.

All seemingly technical aspects are unclear. Who should contribute and how much? Who can receive what share of the funds? Who exactly should represent the parties? These are not technical, but principled questions. Assuming we can find a solution later doesn’t sound like a well laid plan.

In summary, the GPI claims to view international cooperation from a broad perspective. In fact, it is largely a critical but simplistic response to the realities of existing models of development cooperation. The experience of international climate finance shows how difficult and confusing it is to create a new burden-sharing system. The GPI asks us to believe that we must somehow strive to create such a system for all global public goods. The concept is hardly useful as a brainstorming exercise and not very suitable as a real-world policy approach to show possible solutions.

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