A new world development architecture

José Antonio Ocampo

The major objective of progressive governance should be to reduce the massive inequalities that characterise the world today, while facilitating sustainable growth. This implies reducing the fairly generalised trends towards increasing inequalities within countries that have characterised the world in recent decades. It also means reducing the massive inequalities in per capita incomes among countries, which explain about 70 per cent of world income inequalities. The new development architecture should focus on this latter dimension of world inequalities and should include at least five elements, some of which serve broader objectives of global governance.

Create a global fund for development assistance
The history of official development assistance is the history of the incapacity to fulfill the UN target of 0.7 per cent of the income of industrial countries. It would be better, therefore, to create a truly global fund managed by the UN and financed by an international tax on carbon emissions, financial transactions or any other source. The distribution of funds would focus on the achievement of globally agreed goals (such as the Millennium Development Goals or a broader subset of goals agreed in the UN summits and conferences), particularly in poor countries. It should be fairly automatic in the way it distributes its resources, in a similar way to how regional solidarity funds are assigned in the European Union.

Design truly development friendly world trading rules
The new rules would include further liberalisation of goods and services of interest to developing countries (agricultural goods and labour-intensive manufactures and services) with no reciprocity. It would also include special preferences of a global character for the least developed countries and more “policy space” for all developing countries (see point 4 below). And it would detach intellectual property rights from the trading system, include exceptions for development purposes (as well as for health and environmental purposes) to whatever global property rights rules are kept, and create strong incentives for technology transfer.

Revamp the IMF
The IMF should become more like a central bank of the world, in charge of macroeconomic policy coordination and issuance of a global reserve currency. The latter could be based on the existing Special Drawing Rights (SDRs) or evolve into a global reserve asset. The issuing of SDRs would be countercyclical, particularly to facilitate financing of developing countries in the face of external trade or capital account shocks. Such financing would be provided by the IMF and/or by multilateral development banks, financed by their own funds or by bonds of these institutions that could be purchased by the IMF with the issue of SDRs. A major objective of the IMF would also be to support developing countries in the counter-cyclical management of their capital accounts – that is, avoiding excessive capital inflows during booms and capital outflows during crises, including through the active use of capital account regulations – and, if necessary, debt reduction or restructuring.

Enshrine “policy space” in WTO and IMF rules and practices
A major objective of international cooperation would be support for national development and social welfare objectives. This would include allowing countries to adopt the trade and industrial policies that they require to accelerate economic diversification, including those that are not possible under current WTO rules (subsidies, domestic contents requirements, exceptions to intellectual property rights), and facilitating tax and other policies aimed at promoting active social welfare policies. It would also actively support developing countries in their efforts to adopt countercyclical and growth-oriented macroeconomic policies.

Create a strong UN Social and Economic Council
A strong UN Council should be in charge of global social and economic (and possibly environmental) policy coordination; identifying and filling gaps in global cooperation (such as the absence of an international debt court or antitrust authority); and increasing the accountability of specialised institutions in fulfilling global goals. This council would meet at heads of state level every year, and would thus constitute a truly representative version of the G20. All countries would be represented on a constituency rather than individual basis, determined by an appropriate measure of the “weight” of countries in the world economy. This council would not replace, however, the governing bodies of specialised agencies in their specific fields of expertise.

José Antonio Ocampo is professor of international and public affairs at Columbia University