Historians have divided western history into epochs that represent the cultural, economic and political values of the time. Thus we have the Dark Ages, the Renaissance, the Reformation and the Age of Reason. How will the first half of the 21st century be defined? Will it be an Age of Reversal, as countries retreat into national solutions behind national borders, taking their memories of prosperity with them? Will it be an Age of Intolerance as immigrants and foreigners are blamed for rising unemployment? Or will it be simply The Decline, as stark as it is terse? It could and should be the Age of Responsibility, as President Barack Obama rightly identified. To make it so will require changed attitudes and co-operative policies in the US and around the world.
What might an Age of Responsibility look like? First, it would be an era of responsible globalisation, where inclusivity and sustainability take precedence over the enrichment of a few. That means a focus on creating growth that includes opportunities for the poor, technological development, microfinance and lending to small entrepreneurs, trade accords that benefit both sides and aid levels that are sufficient to meet the Millennium Development Goals. The first steps are completion of the Doha trade round and a renewed commitment to providing the aid that has been promised.
Second, it should be an era of responsible stewardship of the global environment. A climate change agreement at Copenhagen in December that cuts carbon emissions by using new technologies could pave the way.
Third, it would be an era of financial responsibility, both at the personal and systemic levels. This should begin with an agreement at the G20 summit of leading economies in London for governments to co-operate on fiscal expansion within a framework of budget discipline. They should also agree a plan that reopens credit markets, addresses bad loans so that banks can be recapitalised and shuns protectionism.
Fourth, it would be an era of responsible multilateralism where countries and institutions seek practical solutions to interdependent problems. Some examples would be an effort to strike agreements on humanitarian food supplies, energy prices or taxes that encourage investment in cleaner sources and conservation of energy.
Fifth, it would be an age of responsible stakeholders where participation in the international economy brings responsibilities as well as benefits. It would see the old G-clubs giving way to an expanded steering group grounded in the current economic realities. This group would be challenged to act together as well as talk together. Our Age of Responsibility must be a global not just a western one.
How we respond to the crisis over the next few months will set the course. As a first step, developed countries should agree to devote 0.7 per cent of their stimulus packages to a vulnerability fund to support the most needy in developing countries. The World Bank could manage the distribution of the cash with the United Nations and the regional development banks. We could use existing mechanisms to deliver the funds fast and flexibly, backed by monitoring and safeguards so the money is well spent.
Following last year's food and fuel price shock, the financial crisis increases dangers for the poorest countries and people. Tight credit and a global recession are eroding government revenues and cutting their ability to meet education, health and gender goals. Remittances are slowing. Foreign and domestic investment is frozen. Trade is falling. Social unrest is rising. Estimates suggest a 1 per cent drop in developing country growth rates traps 20m more people in poverty. Already 100mhave been driven into poverty as a result of last year's dislocations.
Poor countries need three interventions: safety net programmes to help cushion the impact of the downturn on the poor; investment in infrastructure to build a foundation for productivity and growth while putting people to work; and finance for small and medium-sized enterprises to create jobs. Donors could customise contributions to the vulnerability fund to match their interests. This approach has worked well with recent Japanese and German support for the World Bank's recapitalisation of banks in poor countries and the decision to provide interim financing for viable infrastructure projects that recently lost access to funding.
This plan is achievable. The UN target for aid is 0.7 per cent of an economy. A target of providing 0.7 per cent of each developed country's stimulus package represents only a tiny fraction of the hundreds of billions devoted to bank bail-outs, yet it could make a significant difference to the hundreds of millions who are victims of a crisis not of their making. Most important, it would signal a commitment that the world is choosing to define, rather than be defined by, thecrisis. International action or beggar-thy-neighbour policies? Age of Responsibility or Age of Reversal? The choice is clear.
This piece first appeared in the Financial Times on January 25, 2009
(c) 2009 The Financial Times Limited. All rights reserved.
