Former British Prime Minister still missing the point – this time on ODA

I read an article in the Financial Times earlier this week (September 23, 2023) – How do we raise trillions of dollars to fight the climate crisis? The answer is staring us in the face – which was written by former British Prime Minister and Chancellor Gordon Brown. The article is really just a promotion for a soon to be released book he has co-authored with characters from financial markets and mainstream economics. While purporting to be a solution to the climate challenges facing the world, it falls into the ‘progressive’ mainstream trap of coming up with just another ‘tax the rich’ plan.

Gordon Brown should have disappeared from public life given his disastrous record while in elected office.

Gordon Brown’s record and that of the Blair government of which he was a prominent member, set the scene for the Tories to take over in 2010 and one could surmise has created the destructive conditions in the British Labor Party that has allowed a character like Starmer to take over and seek to purge the remaining progressive elements.

Their approach to financial markets was nothing short of disastrous and that was demonstrated in spades when the British banking system crashed in 2008-09.

People should never forget Brown’s character-defining – Speech – to the Confederation of British Industry (CBI) on November 28, 2005, where he laid out his approach to the financial markets:

The better, and in my opinion the correct, modern model of regulation – the risk based approach – is based on trust in the responsible company, the engaged employee and the educated consumer, leading government to focus its attention where it should: no inspection without justification, no form filling without justification, and no information requirements without justification, not just a light touch but a limited touch.

The new model of regulation can be applied not just to regulation of environment, health and safety and social standards but is being applied to other areas vital to the success of British business: to the regulation of financial services and indeed to the administration of tax. And more than that, we should not only apply the concept of risk to the enforcement of regulation, but also to the design and indeed to the decision as to whether to regulate at all.

Those words – “not just a light touch but a limited touch” – should be etched on his headstone.

History shows that the risk-based approach badly failed and it was always going to fail.

I wrote more about Brown’s attempt to reinvent himself after the disaster leading to the GFC in this blog post – A former UK Chancellor attempts to save face and just becomes confused (October 3, 2017).

In his latest attempt to be relevant, he proposes a solution to the climate crisis – which in a nub amounts to raising taxes.

But, of course, he wants to pretend he is a progressive rather than one of the mainstream economics establishment so he proposes taxing evil corporations who are producing goods that are causing the problems he seeks to address.

He thinks that what is holding the global leaders back from dealing with the climate crisis is that they have:

… failed to deliver the long-promised global plan to finance climate mitigation and adaptation.

Well folks he has the solution – which is “staring the world in the face” – tax the profits of the “oil and gas industry” which has pocketed huge profits on the back of “record energy prices”.

He didn’t seem to mind the big investment banks pocketing massive profits as he reduced the regulative oversight and allowed them to go crazy.

Being forgetful is convenient.

He claims that the “record energy prices … have caused dramatically rising poverty and debt in the global south” and have also:

… stymied decades of progress in extending power into homes, villages and towns that were previously without electricity.

Rising poverty is due to stifled wages growth and lack of fiscal support, all trends that began under his chancellorship.

The rich countries could easily help the ‘global south’ electrify if they wanted to – but most of the advanced countries have reneged on their commitments under the Millennium Development Goals framework with respect to Overseas Direct Assistance (ODA).

Remember back in 1970, when the 25th Session of the General Assembly of the United Nations passed Resolution A/RES/2626(XXV) – and Paragraph 43 stated that:

… Each economically advanced country will progressively increase its official development assistance to the developing countries and will exert its best efforts to reach a minimum net amount of 0.7 percent of its gross national product at market prices by the middle of the decade.

The commitment was not met by many advanced nations, including Australia.

Thirty-two years later the UN reaffirmed the goals – Report of the International Conference on Financing for Development – at the Monterrey meetings (March 18-22, 2002) stating:

… we urge developed countries that have not done so to make concrete efforts towards the target of 0.7 per cent of gross national product (GNP) as ODA to developing countries …

In 2023, we are still waiting for that commitment to be honoured by most advanced nations.

As at 2022, the OECD average for all Development Assistance Countries (DAC) countries that committed to the target was 0.36 per cent of GNI.

That average has never gone beyond 0.4 per cent.

Only 6 countries have ever honoured their commitment.

I wrote about this in this blog post (which contains links to several related posts on the topic) – Myopic meanness – Australia’s ODA cuts to its neighbours in the Pacific (April 5, 2022).

I did a quick calculation.

1. GNI in 2022 of the DAC countries (excluding the European Union) equals $US54,663.70 billion.

2. Extra US dollars available if nations honoured the 0.7 commitment relative to current average equals $US 18,586 billion.

So just reaching the ‘minimum’ that these nations agreed 53 years ago would provide nearly 20,000 billion or 20 trillion US dollars equivalent.

Gordon Brown though tells us that “the oil and gas industry across the world banked about $4tn, and that is a huge sum that can be taxed away.

In economics, there is a concept of ‘economic rent’, which occurs when the return to an asset or function is above that necessary in order to keep the resource in that use.

So if we asked some famous singer if they lost X per cent of their income would they still sing and they said yes then that X per cent is economic rent.

The same goes for the petroleum and gas producers.

Would they still supply if their return was taxed away?

Probably, although given they operate as a cartel and have shown a propensity to withdraw supply in order to manipulate prices, it is not clear.

It is also probably true that the “richest petrostates … can afford to contribute $3bn without any impact on the energy prices paid by its domestic consumers.”

But the same could be said for all the advanced nations.

Think about it like this.

1. While Brown is proposing a massive tax take from a select group of nations (Petrol exporters), he is simultaneously advocating without explicitly saying it, a massive spending increase “to meet the climate and development needs of the global south”.

2. He obviously thinks, without saying it, that there are sufficient real resources available to absorb such a spending increase without triggering a major inflationary episode.

I am not sure about that but let’s go with it.

3. If (2) is correct, then all the advanced nations could simply type some numbers into appropriate bank accounts and remit the necessary funds to ensure the expenditure is made.

There is no shortage of those ‘numbers’ – they are in infinite supply.

The only thing that is finite are the necessary real resources that would be required to decarbonise the world and improve the efficiency of housing and energy use.

Brown seems to miss the point – which is not unusual for him.

He also thinks that multilateral development banks should “borrow on attractive terms from the financial markets” under the umbrella of guarantees from countries with “triple AAA or double AA+ credit ratings”.

Thinking that the financial markets are necessary here and that the credit ratings agencies should be arbiters of what constitutes good and bad finance again misses the point.

The advanced nations have all the machinery necessary to directly fund appropriate financial pools (not private, for-profit banks) to ensure that the poorest nations can meet the climate challenge.

The credit rating agencies have no role to play and should be declared illegal.

The fact that Brown recognises that the advanced nations have failed to meet their commitments tells us that the multilateral machinery that links the nations together in this way – the UN, the IMF, the World Bank etc – have failed and need root-and-branch reform.

Further, what we really should be seeking is to reduce the output from these oil and gas corporations rather than rely on their tainted products for tax revenue.

We should start by funding projects in all nations to eliminate the use of gas.

That would be a good start.

Music – Coleman Hawkins

This is what I have been listening to while working this morning.

This track by – Coleman Hawkins – appeared on his late 1960 album – Night Hawk.

I came across this album in the early 1970s as I entered adulthood and tried to catch up on all the classic jazz albums that I had missed out on as a teenager growing up in a R&B cloud with Jimi Hendrix and Peter Green at the fore.

Featuring on this album were two of the best tenor players – Coleman Hawkins and – Eddie ‘Lockjaw’ Davis – but also indispensable was the piano playing of – Tommy Flanagan.

Coleman Hawkins was a mentor to Eddie Davis.

Rounding off the quintet was:

1. Ron Carter – bass.

2. Gus Johnson – drums.

Mellowness defined.

The track – Don’t Take Your Love from Me – was written by hipster – Henry Nemo – and surfaced in 1941. It became a jazz standard and was recorded often after that.

That is enough for today!

(c) Copyright 2023 William Mitchell. All Rights Reserved.