RSS feeds from globalization research centers

Symposium on whether shared working spaces drive inequality in cities

RSS Source: Urban Age - September 6, 2017 - 4:36am

“Urban Incubators, Innovation and Inequality: Sharing and Work in Divided Cities” will explore how innovation and inequality is associated with emerging shared workspace in London. The symposium will investigate possible overlaps across different sectors of urban work, and outline implications for policy. The symposium is organised by Suzanne Hall, Director of LSE’s Cities Programme and Max Nathan, Senior Birmingham Fellow in Regional Economic Development, University of Birmingham. It will take place at LSE on 14 September from 9.30 to 13.30 and is sponsored by the Economic and Social Research Council and hosted by LSE Cities. If you’d like to participate in the symposium, please email LSE.Cities@lse.ac.uk.

 

 

 

Lessons We Learn from Hurricane Harvey

RSS Source: Knowledge at Wharton Podcasts - September 5, 2017 - 3:32pm
Wharton faculty discuss the fallout from Hurricane Harvey and what role the private and public sectors should play when it comes to managing the risks from floods.

Why Dodd-Frank Increased Banking Industry Consolidation

RSS Source: Knowledge at Wharton Podcasts - September 5, 2017 - 10:28am
Wharton research looks at how new regulatory asset thresholds introduced with the Dodd-Frank Act of 2010 led to an increase in acquisitions by large banks.

Philipp Rode hosts exhibition at Seoul Biennale

RSS Source: Urban Age - September 4, 2017 - 11:23am

Philipp Rode, Executive Director of LSE Cities has curated Moving Parts: How the Design of Vehicles Shapes Cities. The exhibition explores the links between vehicle design, operation, urban form, and city life. The exhibition asks if car design, which is now widely accepted to have failed the city on an unimaginable scale, could result in good urbanism in the future. It can be viewed at the 2017 Seoul Biennale of Architecture and Urbanism  from 2 September to 5 November 2017.

LSE students to support Brent Council Growth Strategy

RSS Source: Urban Age - September 4, 2017 - 6:35am

Brent Council has selected seven London School of Economics and Political Science students who recently completed their urban-based degrees to help define their long-term Growth Strategy. The majority of students completed either an MSc City Design in Social Science or MSc Regional and Urban Planning Studies. The strategy will help the local council respond to many of the growth challenges affecting London. The city’s growing population requires 50,000 new homes each year, together with significant physical and social infrastructure, to accommodate and support this growth. Brent’s population alone is due to increase 20% to 380,000 by 2036.

The strategy will examine how growth affects the economy, housing, infrastructure, education, health, environment and culture, and propose evidence-based policy responses. Brent will use the strategy to meet the challenges and seize the opportunities presented by London’s growth. The students are Bridget Ackeifi, León Díaz-Bone, Rosie Havener, Patricia Mijares-Chavez, Macarena Plaza, Oliver Tovatt and Janai Gilmore.

Will Walmart’s Partnership with Google Give It an Online Boost?

Despite the retail giant’s latest move to partner with Google, its e-commerce strategies need more coherence to gain traction, say experts.

How the Father of Arbitrage Pricing Theory Influenced Wall Street

This year's Wharton-Jacobs Levy Prize winner, Stephen A. Ross, is remembered for his ground-breaking arbitrage pricing theory.

Ricky Burdett to deliver keynote to open Seoul Biennale

RSS Source: Urban Age - August 29, 2017 - 6:54am

Professor Ricky Burdett, Director of LSE Cities, will deliver the keynote at the opening of the 2017 Seoul Biennale of Architecture and Urbanism in Seoul on 1 September. “Conflicts of the Urban Age: Lessons from London” will draw on lessons from the Urban Age, a research programme that has investigated the future of cities for over a decade. Registration (English version) is required to attend the keynote. The Seoul Biennale, which runs from 2 September to 5 November 2017 at Dongdaemun Design Plaza (DDP), is introduced by Dynamics of the Urban Age, an exhibition that highlights the spatial and social consequences of dramatic urban growth in cities across the world.

New paper on local government transparency and the web

RSS Source: Urban Age - August 29, 2017 - 5:59am

A new paper entitled “Explaining the transparency of local government websites through a political market framework” by Antonio F. Tavares and Nuno Ferreira da Cruz investigates what drives the differences in local government levels of transparency in Portugal. The main focus is to understand whether transparency is driven by leaders and local government or by community factors.  This is tested by using the results of the Municipal Transparency Index, which is based on the information disclosed in official local government websites.

China Is the De Facto Leader of Globalization

RSS Source: YaleGlobal - January 12, 2017 - 11:53am
Xi Jinping is ready to lead policies on shaping globalization and fighting climate change

We Can’t Undo Globalization, But Can Improve It

RSS Source: YaleGlobal - January 10, 2017 - 2:28pm
Job hunters should relocate, and companies could expand export capability

Globalization Has Done a Lot of Great Things for Americans

RSS Source: YaleGlobal - January 4, 2017 - 12:52pm
Benefits include innovation and low prices

How to Cure the Globalization Backlash

RSS Source: YaleGlobal - December 22, 2016 - 11:15am
The developed world has lost its confidence

Development blog: Call for Papers: 8th International Conference on Migration and Development

I’m delighted to be helping organize again, for 2015, the world’s premier research conference on the economics of migration and development. Full-paper submissions are due January 20, at migdevconference@cgdev.org.

I’ve gushed before about the uncommon rigor and innovation in the papers at this highly selective conference, year after year. The people who come are simply the best in the field. The conference is part of a historic shift in how development researchers think about migration and vice versa. Human mobility shapes, and is shaped by, the development process in ways that scholars are only beginning to understand.

This year we’ll have keynote speeches from two stars, Dani Rodrik of the Institute for Advanced Study and Ran Abramitzky from Stanford University. The papers selected for presentation will be considered for a special issue of the World Bank Economic Review.  As in previous years, the heavy lifting is being done by our collaborators at the Paris School of Economics, the Agence Française de Développement, and the World Bank—to all of whom we’re very grateful.

Click below to enlarge the full conference announcement:

Authors: Michael Clemens View Profile

Development blog: Four Futures for International Tax Rules

Consensus on the reform of international tax rules may be splintering under the combined pressures of post-crisis austerity and revelations about cut-throat tax ‘competition’ (see my discussion on this here). In light of this, I sketch out four possible directions for international rules and one major trend common to all, and then assess the likely implications for developing countries.

1. Staying the BEPS course

The Base Erosion and Profit Shifting initiative (BEPS), led by the OECD at the behest of the G-8 and G-20 countries, aims to create better alignment between multinational profits and the location of their actual economic activity. The OECD’s remit, set out in a detailed action plan, is to deliver progress in a set of largely discrete areas to make the current system function better.

The BEPS approach rests on a commitment to “arm’s length pricing” (ALP) for transactions among members of the same multinational group, which is intended to give rise in turn to the real (market-equivalent) distribution of profit across the group. Setting aside whether this is an economically sensible way of looking at a group of related parties with common control, the approach simply may not be consistent with the aim – there is no evidence to suggest that ALP, if effective, would necessarily align profit with economic activity.

The UK’s proposed ‘diverted profits tax’ embodies the challenge for BEPS. Despite playing an important role in bringing BEPS into being, the UK government’s frustration with the inability of ALP to deliver politically acceptable taxation of major multinationals has led it to take a quite different tack: in effect, to require explicitly some degree of alignment of profits and activity (sales).

Will leading states maintain their commitment to the OECD approach? The answer may depend on a return to stronger economic performance, and the easing of broader fiscal pressure. Continuing anaemic growth may lead to continuing political pressure and proliferation of work-around measures like the Google tax that cut across the ALP by requiring some alignment of profits and activity. 

2. A bigger fix for BEPS

A more consensual future for BEPS can also be envisaged (hat tip to a necessarily anonymous official at a major ministry of finance), involving a rather broader fix but maintaining the fundamental nature of the current system.

This would involve countries signing up to three basic principles, which it has been suggested could eliminate 90 percent of the BEPS problem in one stroke:

  • A common tax base (so there is no incentive for arbitrage on the base)
  • Minimum tax rates (limiting, though not eliminating, the incentive for arbitrage on rates)
  • Elimination of preferential regimes (such as the patent box)

This would require a substantial shift in perceptions of the problem. Since some policymakers see this type of harmonization as a threat to sovereignty, progress seems likely only if such a view is eclipsed by the perception of tax ‘competition’ as the greater threat.

3. Unitary tax revolution

The most dramatic change conceivable would involve broad agreement to adopt the major alternative to the ALP, which is unitary taxation with formulary apportionment. In other words, the new approach would take the multinational group as the unit for taxation purposes, rather than individual companies within it, and apply a formula based on the location of economic activity to apportion the group’s tax base between different jurisdictions, where each may apply whatever level of tax they choose.

Given this approach is explicitly designed to align profits with economic activity, progress towards the agreed aim of the BEPS initiative is highly likely, and would benefit lower-income countries. While pressure for lower rates might build over time, the increase in tax sovereignty – the ability to make policy changes that matter – would remain.

However, political opposition has hindered the prospect of a global agreement to rip up the rules and start afresh. EU attempts to move towards an apportionment basis under the Common Consolidated Corporate Tax Base project appear stalled, and major powers like the US (despite its largely positive experience using unitary taxation among its own states), and the vast bulk of the multinational and accounting sectors continue to oppose, rendering a revolution unlikely in the medium term at least. 

4. Unitary tax evolution

A more likely scenario is one where the current system evolves gradually towards something more consistent with unitary taxation (UT). There are two main, complementary channels through which this could occur.

First, continuing dissatisfaction with the ALP – and the sense that developing countries’ concerns are not well reflected in BEPS – may give rise to a breakaway. Developing countries will soon be able to examine country-by-country reporting from multinationals operating in their jurisdiction, which will highlight the misalignment between the shares of activity hosted and shares of profits declared.

A single developing country or a regional grouping could reach a tipping point and decide to switch unilaterally to taking as tax base some formulary apportionment of the global profit. The demonstration effect could be powerful and drive others to follow suit.

The second channel is even more gradual. It involves the ongoing growth in the diversity of methods allowed under OECD rules and the use of methods that include some profit attribution on the basis of activity, as distinct from any ALP or other pricing decision.

Between the two channels, the world seems likely – ceteris paribus – to move at least a little further in this direction over time. Again, this scenario would offer the possibility of greater tax sovereignty for many developing countries.

Development prospects and a common trend

Lower-income countries obtain, on average, much smaller shares of GDP in corporate tax revenue. In no small part this is due to a combination of limits to states’ technical capacity and negotiating power with large multinationals, and to the incentives that the international system provides for profit-shifting. As such, the four futures can be considered in terms of their likely impact on these two factors. 

Source (columns A and B): McNabb & LeMay-Boucher, 2014; data from ICTD Government Revenue Dataset.

The BEPS course (future 1) address specific weaknesses in the rules, which may reduce profit-shifting incentives somewhat, but at a broader level will do little to diminish the complexity of rules that make technical capacity such a constraint. The ‘bigger fix’ (2) offers the possibility of greatly reduced incentives for multinationals, and so could have an appreciable benefit.

The unitary revolution (3) could change the power dynamic for lower-income countries entirely, both in relation to multinationals but also vis-à-vis higher-income countries – but partly for this reason is an implausible scenario. Evolutionary steps towards UT (4), however, seem likely, and have the potential to sharply reduce the importance of capacity constraints and to change the balance of negotiating power also.

In fact, the common trend in all four futures is in this direction. The presence of country-by-country reporting information, now established as OECD standard, provides a simple risk mechanism by allowing a check on the profit misalignment of each taxpayer. Any tax authority requiring this information from multinationals will be in a position, regardless of the range of possible outcomes under ALP (or directly under UT), to set effective limits on the extent of profit misalignment that they are willing to accept. This has the potential to change the relative negotiating power of even the least well-resourced tax authorities.

Publishing the data would provide a powerful accountability mechanism for both multinationals and tax authorities, in respect of each other and for civil society; but even held privately, this is information that can support substantial change. Not all transparency is equal; in this particular case, information is indeed power.

Authors: Alex Cobham View Profile

Development blog: #Luxleaks: The Reality of Tax ‘Competition’

Aside from lurid revelations about individual companies and the big four accounting firms, the leaks of multinationals’ tax deals with Luxembourg confirm­—and expose to a wider audience­—the true nature of the tax ‘competition’ that prevents the emergence of effective international rules.

#Luxleaks

The International Consortium of Investigative Journalists published the second tranche of leaked files, showing tax agreements the big four accounting firms reached, on behalf of their clients, with Luxembourg. The general pattern is of establishing internal corporate finance companies in Luxembourg and using these to shift in billions of dollars of profits earned elsewhere, after obtaining confidential rulings from officials that ensure a very low effective tax rate — in many cases less than one percent.

The ICIJ’s reporting and detailed analysis of documents on individual companies from Disney to IKEA is outstanding. It clearly shows a systematic pattern of behaviour in Luxembourg, and adds to a range of other evidence suggesting the pattern is systematic across multiple jurisdictions. 

Widespread tax base poaching

Several recent examples show other countries doing deals knowingly to shift in, and not (fully) tax, profits that arose elsewhere. The European Commission has initiated proceedings against Ireland for allegedly providing “State Aid” to Apple since the 1990s through unjustifiably beneficial tax treatment. This had effectively capped the level of profit Ireland would recognize as tax base, leaving untouched the vast majority of profit shifted in. Meanwhile, a more formalized version of this approach dating back 10 years, Belgium’s system of ‘excess profits rulings’, has also come under scrutiny.

In all three cases­—Luxembourg, Ireland, and Belgium—the pattern is consistent. Companies, through their big four accounting firm advisers, have obtained advance agreement not to tax profits that arise, but are not taxed, elsewhere.

A less blatant but increasingly common instrument is the patent box, or knowledge box, which provides a very low tax rate in relation to R&D. There are already generous tax breaks for R&D in most countries. A patent box can, controversially, allow one country to capture the tax base associated with the R&D that was supported by taxpayers in another.  

Such tax incentives for intellectual property exist in Belgium, Cyprus, France, Hungary, Ireland, Luxembourg, Netherlands, and Spain.  In addition, the UK, which had introduced the measure from 2013, recently bowed to German pressure to phase it out (albeit not fully until 2021). The decision came after initially resisting, along with Luxembourg, Netherlands, and Spain, the suggestion that the tax break should only apply to R&D actually carried out in the country offering the patent box.

Google tax

Less than a month after its compromise over the patent box tax break, the UK government proposed a measure designed to protect its own tax base against similar poaching. The ‘diverted profits tax’ (DPT), now subject to public consultation, seeks to ensure profit arising from sales in the UK do not escape taxation by claiming to have no permanent establishment in the UK, nor through ‘certain arrangements which lack economic substance’. Perhaps unsurprisingly, given criticism of the apparent disconnect between Google’s UK profitability and tax payments, media are calling the measure the ‘Google tax’.

The expected revenue impact is small. Despite a marginally penal rate of 25 percent (compared to a standard 21 percent), the forecast is to raise around £1.3 billion over five years. The highest forecast annual take of £350 million implies a base of £1.4 billion of ‘diverted’ profits, which is equivalent to just 1.4 percent of the most recent quarterly UK corporate profits. (The basis for these estimates has not been published.)

The change of direction may nonetheless be important. During his announcement of the DPT, UK Chancellor George Osborne stressed “the government’s commitment to an internationally competitive tax system.” However, the DPT reflects an understanding that, too often, countries are competing not to attract real economic activity but only the taxable profit that arises from activity taking place in another jurisdiction.

The tension between playing this game, while trying to limit the counter-success of others, in large part explains the failure to develop more effective international rules – and hence the tilting of benefits towards multinationals rather than to (especially lower-income) states. Still, pressure is growing, and the eventual direction of travel will have important implications for developing countries. A companion post explores future scenarios for international tax rules, and the implications for developing countries.

Authors: Alex Cobham View Profile

Development blog: 12 Reasons for Climate Optimism This Holiday Season

It’s easy to feel down about climate change.  The annual pace of emissions of greenhouse gas to the atmosphere reached an all-time high in 2014. The concentration of carbon dioxide in the atmosphere spent more than a month above 400 parts per million for the first time in 800,000 years. And global temperature will likely be the hottest in recorded history.  Research published in May shows a slow but unstoppable melting of the Greenland and West Antarctic ice sheets. Business as usual puts the planet on a path to warm by  4 °C (7.6 °F) by the end of the century, with consequences that are awful for the rich and catastrophic for the poor

Furthermore our global response to climate change remains woefully inadequate.  All signs from last week’s United Nations climate conference in Lima indicate that international climate actions fall far short of what’s needed to avoid a dangerous temperature rise of 2 °C (3.8 °F). An already weak international process of “pledge and review” (in which countries’ pledges of climate actions would be formally reviewed by other countries) was watered down even further to effectively just “pledge.”  And the $10B committed by rich countries to the Green Climate Fund so far amounts to less than what rich countries spend on fossil fuel exploration in just six weeks.

So why, in spite of everything, have events in 2014 made me more optimistic than ever about the prospects for a safe and stable climate?  With apologies to the popular Christmas song Twelve Days of Christmas, let me count the ways…

Twelve states-a-pricing

The gold standard for climate policy is a global economy-wide price on carbon pollution.  That is, either a cap-and-trade system, or its twin solution, a carbon tax. Without an economy-wide price on carbon, efforts to reduce emissions will be needlessly low for some countries, industries, companies, and people, and needlessly expensive for others.  While a global carbon price remains in the cocoon, there is now a price on carbon pollution in twelve US states and Canadian provinces:

  • Nine northeastern states in the Regional Greenhouse Gas Initiative (Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont)
  • California, which is deliberating how to include REDD+ offsets in its cap-and-trade program
  • Quebec – which jointly auctioned carbon pollution permits with California earlier this month
  • British Columbia, which has had a revenue-neutral carbon tax since 2008

Governor Jay Inslee is expected to unveil plans this week to make Washington state lucky number 13.  

Carbon pricing is catching on around the world, from Chile to Mexico to Korea.  China has announced plans to have the world’s largest carbon market in 2016, eclipsing the European Union’s Emission Trading Scheme.

Eleven years of slowing (Amazon deforestation)

More than 10 percent of greenhouse gas emissions come from net forest loss, and up to 24-30 percent of potential mitigation can be achieved by halting and reversing tropical deforestation.  One of climate’s biggest success stories in the last decade has taken place in Brazil, which has cut greenhouse gas emissions more than any country on earth by slowing deforestation.  In the nine years from 2004-2012, Brazil slowed the pace of Amazon deforestation by 75 percent while increasing cattle production by 25 percent and soy production by 65 percent.  Brazil-watchers had been worried by an uptick of deforestation in the tenth year, 2013. But deforestation slowed again in the eleventh year, 2014, which may indicate that deforestation rates have stabilized. 

Hopeful signs are emerging from Guyana as well, where the deforestation rate fell by 14 percent in 2014 after several years of growth—a success the government has attributed to the spotlight shined by the monitoring of a pay-for-performance agreement with Norway on the deforestation activities of the informal mining sector.

Ten years-a-waiting

According to a scientific paper by Katherine Ricke and Ken Caldeira published in December, carbon pollution in the atmosphere reaches its peak warming potential after just ten years, as opposed to 40-100 years as previously thought. This means that the damaging effects of climate change will be felt much sooner than previously realized.  That’s bad.  So why do earlier damages make me optimistic?  Because part of what makes climate change such a “wicked problem” is the long lag time between actions and consequences.  This new research dramatically shortens that lag. 70 years is within our children’s or grandchildren’s lifetime; ten years is within our own lifetime. More importantly, ten years is within a single political lifetime.  A senator who votes on climate change today will see the benefits of action in her next term.

Nine-in-ten agreeing

The World Value Survey asked nationally representative samples of people from 44 countries how serious a problem they considered climate change.  Nine in ten (89%) responded “very serious” or “somewhat serious.”  This near-unanimous agreement transcended rich and poor.  Even in the United States, where a well-funded disinformation campaign has worked for years to sow doubts about climate change, the number of Americans who respond that climate change is occurring and is human-caused is on the rise.

Eight religious leaders proclaiming

What would the holiday season be without the Pope?  Pope Francis has exercised inspiring moral leadership on the environment.  He has implored political leaders to “take good care of creation” and is said to be preparing an encyclical on climate change. Last week he urged delegates at Lima to work together to find solutions, and he reportedly plans to convene fellow religious leaders on climate ahead of the 2015 climate meeting in Paris.  Imagine the moral force that could be invoked by a joint climate proclamation by leaders of eight world religions.

Seven pay-for-performance agreements

One of the most promising ways to reduce tropical deforestation is through pay-for-performance agreements, in which rich countries pay tropical forest countries for measured and verified performance, funded by public budgets or carbon market offsets.  Pay-for-performance agreements have been in place in Brazil ($1B) since 2008, in Guyana ($250M) since 2009, and Indonesia ($1B) since 2010. 

The latter months of 2014 have seen the ranks of pay-for-performance agreements expand to seven countries, with the recent addition of Peru ($300M), Liberia ($150M), Colombia ($65M), and Ecuador ($65M).  And the donor pool has expanded as well, to include Germany in addition to Norway.  More pay-for-performance agreements increase the “n” from which we can learn how to successfully reduce emissions from deforestation.   It’s important for these agreements to be diverse as well as numerous, which is why I’m looking forward to programs under the Carbon Fund, BioCarbon Fund, California’s Cap-and-Trade System, and Japan’s Joint Crediting Mechanism.  

Six reference levels

The linchpin of any pay-for-performance agreement is the reference level—the benchmark of emissions relative to which reductions are calculated and payments are made.  A reference level is not just a technical calculation; it has financial, environmental, and political implications.  Six forest countries have now officially put forward reference levels to the United Nations. Brazil in June, joined by Colombia, Guyana, Indonesia, Malaysia, and Mexico in December.  Together these countries comprise 38% of tropical forest area and 53% of tropical deforestation. The gauntlet has now been thrown to rich countries to pay for the resulting emission reductions.  Peter Graham of the World Wildlife Fund notes, “This now represents a challenge to donor nations and financial institutions to take full advantage of this opportunity for significant mitigation in the pre-2020 timeframe.”

Five-cent solar

In March of 2014 the City of Austin signed a 25-year agreement to purchase power from two West Texas solar plants for just 5 cents per kilowatt hour—the lowest solar price ever.  The long-falling cost of solar energy has finally become cheaper than average electric prices in 10 states, according to Deutschebank, and by 2016 will be cheaper in 47 states (and in 36 states without tax credits).  Cheap renewable energy fundamentally changes the economic calculus of climate action, turning fossil fuel divestment and anti-pipeline campaigns from righteous sacrifices to shrewd bets.

2014 was also the year that the Intergovernmental Panel on Climate Change put forward a “carbon budget” of how much fossil carbon can still be burnt while avoiding dangerous climate change  (about one trillion tons, implying that 80% of known fossil fuel reserves would need to be left in the ground).   And in one of the few bright spots of the recent Lima climate negotiations, climate negotiators inserted placeholder language in the draft negotiating text aiming for the first time for a total international phase-out of fossil fuels by 2050. 

Four satellites flying

Forest monitoring technology has enabled advances in many aspects of humanity’s response to global climate change, from science, to international negotiations, to national policies, to performance-based finance partnerships.  The recent quantum leap forward in forest monitoring technology means that capacity to monitor forests is no longer the barrier to international finance for forests and climate that it was in the 1990s when the Kyoto Protocol was negotiated.  Four of the most important technologies for monitoring the world’s forests include

  • Landsat, thanks to which anyone with a computer can freely download a global map showing areas of forest losses and gains the size of a baseball diamond every year from 2000 to 2012.
  • Modis, which enables bi-weekly alerts of where deforestation is happening, allowing authorities to match illegal clearing to specific landholdings and to enforce forest laws
  • The Orbiting Carbon Observatory (OCO), launched in early 2014, which measures greenhouse gas concentrations in the atmosphere and enables independent assessment of terrestrial fluxes of carbon to and from the atmosphere
  • Lidar, which will be mounted on the International Space Station in 2018, letting scientists directly monitor losses and gains in forest carbon stocks at a resolution smaller than a baseball diamond
Three hundred thousand marching

September 2014 saw more than 300,000 people take to the streets of New York City to march for a safe and stable climate ahead of the United Nations General Assembly.  People power fueled many of the great social movements of recent history, from civil rights to peace to the fall of apartheid.  Now it may be doing so for climate.  The same week saw:

  • more than twenty-five countries commit to halve deforestation by 2020 and strive to end it by 2030;
  • dozens of major players in the palm oil, soy, paper, and beef industries commit to deforestation-free supply chains by 2020;
  • hundreds of businesses publicly call for a price on carbon pollution;
  • and an announcement by Norway, Germany, and the UK to provide funding for up to 20 pay-for-performance partnerships to reduce deforestation
Two titans handshaking

The biggest surprise of 2014 came in November when President Obama and Premier Xi shook hands on a US-China climate deal.  Together these countries account for more than a third of annual greenhouse gas emissions.  The US pledged to reduce emissions 26-28% below 2005 levels by 2025, while China pledged for its emissions to peak and decline before 2030, and to obtain 20% of its electricity from renewable sources by 2030. 

Following a commitment by the European Union in October to cut its emissions 40% below 1990 levels by 2030, this accord will put tremendous peer pressure on India, Russia, Australia, and other big polluters.

For a visionary take on how this “G2” alliance could snowball to a safe and stable climate in 20 years, read this “future history” by my former colleagues Lawrence MacDonald and Jing Cao.

One shared sky

September 2014 brought the heartwarming news that, for the first time in decades, the planet’s ozone layer expanded. This is tangible proof that humanity truly can come together to effectively solve global environmental challenges, as it did with the 1989 Montreal Protocol banning ozone-depleting chlorofluorocarbons.  And doing so can cost far less than initially anticipated, once the first steps are taken. 

Decarbonizing our modern economy represents a far greater challenge than eliminating a few refrigerants.  But I’m more optimistic than ever that humanity is equal to the task, thanks to:

Twelve states-a-pricing

Eleven years of slowing

Ten years-a-waiting

Nine-in-ten agreeing

Eight religious leaders proclaiming

Seven pay-for-performance agreements

Six reference levels

Five-cent solar

Four satellites flying

Three hundred thousand marching

Two titans handshaking

One shared sky

 

Authors: Jonah Busch View Profile

Rethinking US Foreign Assistance: CRomnibus Analysis – 8 Takeaways from FY15 SFOPS Appropriations

The Government Didn’t Shut Down

Thanks for keeping the lights on, Congress. We’re also grateful for a full SFOPs bill (even if it took a couple of deadline extensions). Unfortunately, hurried negotiations may be to blame for a longer-than-usual list of reporting requirements and directives. Wherever the final joint explanatory statement is silent, agencies and departments are instructed to comply with language from both House and Senate reports that accompanied the draft bills released this summer.  

OCO Takes Over

At $50.9 billion, the International Affairs programs for FY15 receive a whopping .6 percent more than FY14 appropriations. No decline? Time to celebrate! Not just yet. Base appropriations did fall: 5.6 percent below FY14 and 16 percent below FY10. Overseas Contingency Operations funding made up the rest. This doesn’t bode well for SFOPS funding in future years as OCO’s magic money will dry up as the US presence in Afghanistan draws down.

Who Needs Multilateralism?

No IMF quota reform. Again. And based on the bill summaries, this was a point of pride with more than a few House Republicans. Folks at CGD (and lots of other experts) might sound like a broken record on this, but, seriously, this makes zero sense. Failure to act has and will continue to weaken US legitimacy in international financial policymaking; not to mention undermine growth and financial stability; and limited other US foreign policy goals such as support for Ukraine. Over at PIIE, Ted Truman has a Plan B. Members might just wish they’d gone with the Plan A and enacted the IMF legislation after all.

Dimming Power Africa

Plus-ups to support President Obama’s ambitious Power Africa initiative are nowhere to be found for OPIC, MCC, and other agencies key to driving energy access for hundreds of millions. But, OPIC was reauthorized and we don’t spot anything indicating a real opposition to the initiative. Let’s just hope Energize Africa gets to a vote so that we can be on our way to ensuring the initiative outlasts the current administration.

Forecasting Future Climate Fights

When it comes to the international climate agenda, everyone seems to be bracing for the battles ahead. The bill gave level funding for US contributions to the Climate Investment Funds, as well as the Intergovernmental Panel on Climate Change and UN Framework Convention on Climate Change; but it was domestic emissions policies that received the lion’s share of attention. While the President didn’t request funding for the Green Climate Fund, a multilateral fund to help developing countries transition to clean energy and avoid the worst effects of climate change, the bill’s explicit prohibition on contributions to the new fund portends a tough road ahead for delivering on a $3 billion US pledge.

Same Old Food Aid

While not strictly part of SFOPs (food aid is still funded through agriculture appropriations), the United States’ largest international food assistance program received $1.466 billion. But even as both sides of the aisle boasted funding above the President’s request, the bill failed to include any of the President’s requested changes to improve the program’s notoriously inefficient sourcing and delivery. Also disappointing was the lack of funding for a local and regional procurement program authorized in the farm bill. Meanwhile, reform champions were forced to fend off a lame-duck sneak attack in legislation reauthorizing the Coast Guard. Fingers crossed that next year will bring real reform.

Ebola Really Scares Congress

At $5.4 billion, Congress largely funded President Obama’s $6.18 billion emergency funding request for the Ebola response. State and USAID get $2.5 billion of the request; HHS $2.7 billion. While Congress did not fund the requested contingency fund, just about everything else was funded (or quietly allowed in transfer authorities, like WHO and UNMEER contributions).

#Nicelydone:  A few other items of note

  • Noting growing humanitarian needs in the Middle East, appropriators boosted funding for International Disaster Assistance ($505 million above the President’s request) and Migration and Refugee Assistance ($1.01 billion above the President’s request).
  • Appropriators fixed the silly face value limit at USAID’s Development Credit Authority, which was preventing DCA from bringing other guarantee agencies to the table to unlock larger volumes of much-needed development finance. $1.5 billion available is a vast improvement from $750 million.
  • A new reporting requirement might provide a shot in the arm for USAID’s Local Solutions initiative.  A provision requiring the USAID Administrator to submit a plan for better aligning human resource practices with the agency’s sustainable development goals. This could mean that in the future, USAID Foreign Service Officers would see greater value placed on expertise in local capacity building, additional training where needed, longer overseas assignments, and increased incentives for effectively carrying out sustainable development.
  • And in a semi-win for government transparency, public disclosure of agency reports requested by the Appropriations Committees now encouraged (“upon a determination by the head of such agency that to do so is in the national interest;” heavy redactions sure to ensue).
Authors: Beth Schwanke View Profile Erin Collinson View Profile

Development blog: What We Can Learn from Service Guarantees on the London Tube

A few days ago, my colleague Jenny Kendra was delayed on the London Tube.  Jenny wrote “Major delays on the District Line due to a signal problem at East Putney.  Stuck on Tube at present, not moving.” When Jenny finally got to the office, she mentioned that she would be compensated for the delay.  Given our interest in service guarantees, we went to the TFL (London Underground) website to find out more:

  • Service refunds are provided for delays of 15+ minutes underground, and 30+ minutes overground.
  • Refund is equivalent to the fare paid for the delayed trip.
  • Reasons that qualify for a refund include signal failure, faulty trains, defective tracks, and unplanned engineering works.
  • Refunds are not applicable if service changes and engineering work were planned, the consumer took an alternative route, or the delay was due to causes outside the control of TFL (security alert, customer incident - ill person for example, weather incident).
  • Application for a refund must be made online, must be completed within 14 days of the journey, and requires a TFL account (which does not seem to ask for many personal details).

This type of guarantee might be very relevant for countries that are trying to attract investors. In a recent paper, we proposed the idea of Service Performance Guarantees (SPGs). As we wrote in an earlier blog post:

Foreign or domestic firms investing in the country or in a special economic zone would be offered the opportunity by the relevant government authority to purchase a contract guaranteeing the delivery of specified services up to a minimum standard and for a prescribed period, possibly around 10 years.  These might include, for example, the quality and reliability of power supply, the time needed for customs clearance at ports or airports, the time for port turn-around, and the speed of processing and approvals of duty drawbacks as well as a range of other services and permits.   The guarantees would be contractual legal agreements between the service provider and the firm.  Contracts would be standardized rather than customized, except for the largest anchor firms (to extend the mall analogy).

Service performance guarantees would be covered by a “domestic reserve” funded from paid-in premiums and backed up by a further guarantee issued by an agency like MIGA or by USAID’s Development Credit Authority, which already has the authority to issue guarantees to domestic and foreign investors.  IDA or another donor could issue a backup guarantee.  These guarantees, together comprising the SPG mechanism, would be components of loans provided to the country to create or rehabilitate infrastructure or to help streamline business processes.  An “external reserve” would be set aside out of the loan amounts to cover the back-up guarantee.

Calls on performance contracts that exceeded the domestic reserve of the fund would trigger calls on the external reserve and a payment from the development agency to the firms via the SPG. At the end of the prescribed period, any unused balances in the domestic and external reserve funds would revert to the country as a bonus for providing good services. Countries that have made improvements in their business climate but are yet to attract investors may be good candidates for SPGs.  Special Economic Zones or Export Processing Zones, which typically offer a package of services to investors, might also be good candidates for a pilot.

The experience of service guarantees offered by the London Tube suggests that investors might need to be made aware of such guarantees. In 2010, only about 330,000 Tube passengers claimed compensation for delays, out of a potential 11 million, despite the availability of smartphone apps to make the process easier.

Jenny, however, received a refund of 2.20 pounds today.

Authors: Vijaya Ramachandran View Profile Alan Gelb View Profile Alice Rossignol

Development blog: Time for the BIG Idea in the Developing World

There is growing support in the rich world for a basic-income guarantee (BIG), in which the government would provide a fixed cash transfer to every adult, poor or not. In 2015, for example, the Swiss will vote on a referendum to introduce a BIG. We have not yet seen a national BIG rolled out, although there are policies in place with similar features. (For example, the US earned-income tax credit, while not strictly a BIG, contains some similarities.) Proponents say it’s an easy way to reduce poverty and inequality; if that’s so, it’s time to think BIG in the developing world, too.

Support for the BIG idea (also known as a poll transfer, guaranteed income, citizenship income, or an unmodified social dividend) has spanned the political spectrum. Some supporters see it as a “right of citizenship,” or a foundation for economic freedom to relax the material constraint on peoples’ choices in life. Others have pointed out that a BIG is an administratively easy way to reduce poverty and inequality, with modest distortionary effect on the economy as a whole. There are no substitution effects of a BIG on its own (there’s no action anyone can take to change their transfer receipts). Supporters also note there’s no stigma associated with a BIG, since it’s not targeted only to poor people. And a BIG may well be more politically sustainable than finely targeted options that may have a narrow base of support. 

Opponents, on the other hand, echo longstanding concerns that the welfare state undermines work incentives. There may well be income effects of a BIG on demand, including for leisure. The effect on employment is unclear, however. The BIG could ease constraints on work opportunities, such as those that hinder self-employment or migration. On balance, work may even increase.

As with any social policy, a complete assessment of the implications for efficiency and equity of a BIG must also take all costs and how it is financed into account. The administrative cost would likely be low, though certainly not zero given some form of personal registration system would be needed to avoid “double dipping” and to ensure larger households receive proportionately more. One low-cost way of doing this would be to establish a personal identification system, such as the Aadhaar in India

Further, a BIG could be a feasible budget-neutral way of reforming social policies. There could be ample scope for financing it by cutting poorly targeted transfer schemes and subsidies heavily favoring the non-poor. A BIG scheme would easily replace many policies found in practice today. For example, it would clearly do better in reaching the poor than the subsidies on the consumption of normal goods (such as fuel) that are still found in a number of countries.

The un-targeted nature of a BIG runs against the prevailing view in some circles that finer targeting is always better. But that view is questionable. For example, recent research has shown that once one accounts for all the costs involved in India’s National Rural Employment Guarantee Scheme, including the forgone earnings of participants, a BIG with the same budgetary cost would have greater impact on poverty than the labor earnings from the existing scheme. The work requirements of the employment scheme ensure that it is very well-targeted. Even so, it is likely to be a less cost-effective way to reduce poverty than an untargeted BIG with the same budgetary cost. There may well be other advantages to India’s current scheme; for example, asset creation, risk mitigation, and empowerment. But it is not clear whether these benefits would tilt the balance relative to a far simpler BIG.

The BIG idea should be put on the menu of social policy options for developing countries.  

Authors: Martin Ravallion View Profile
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