Tackling world poverty in the postboom years

Larry Elliott, Guardian News Service, London

Tackling global poverty is like protecting the environment: It's something for the good times. There's no reason why we should stop caring about poor people when times are tough, any more than we should stop caring about climate change or the destruction of the rain forest, but that's the political reality. Rich-country governments are much more likely to focus on issues beyond their borders if there's a feelgood factor.

So, looking back, May 1998 was a perfect time for debt campaigners to descend on the G-8 meeting in Birmingham, UK. The Wagnerian stock market-driven boom of the 1990s was still more than a year away from its Gotterdammerung, and the buzz was of new paradigms and dotcom revolutions rather than of bubbles and crashes. In that year, the U.S. economy grew by 4.3 percent and the European Union by 2.9 percent, with only poor old Japan struggling.

Times have changed. Last year, in a post-bubble, post-Sept. 11 world, the U.S. grew by 2.4 percent and the EU by 1 percent. Budgets took the strain as activity slowed, with the big surpluses built up by Bill Clinton turned on their head and some of the bigger European countries falling foul of the 3 percent ceiling on budget deficits set by the stability and growth pact. Governments forced to think about spending cuts are not the easiest touch when it comes to calls for deeper debt relief an increase in aid or concessions on trade.

Nor are the rotten economics the only handicap. The spotlight that was briefly on Africa at the end of the century has swung towards the Middle East. Terrorism has replaced poverty reduction at the top of the international political agenda and deep fissures have opened up between Europe and the U.S. over Iraq.

It also has to be accepted that scepticism remains about whether any financial assistance provided to poor countries will filter down to those who need it, and that in certain prominent cases -- Zimbabwe, particularly -- concerns about governance and corruption are well founded. That, like it or not, is where we are five years on from Birmingham in 1998.

All that said, there are some reasons for optimism. The Jubilee 2000 campaign succeeded in opening the eyes of western leaders to what was happening in Africa and, having become engaged with sorting out the problem, they can never again fully disengage. Moreover, as the paper prepared by three NGOs -- Jubilee Research, Cafod and Jubilee Debt Campaign -- pointed out last week, the signs are that debt relief has worked.

The problem is that there has not been enough of it, and that countries have had to swallow large dollops of counter-productive economic advice to get it. Only eight have so far received a substantial debt write-off under the initiative finally agreed by the G-8 at its 1999 shindig in Cologne, but for the fortunate ones there have been mass immunization programs in Mozambique and free education in Tanzania.

Where do we go from here? An initial step would be to treat the United Nations development goals for poverty reduction, infant mortality and primary education as binding targets for 2015 rather than vague aspirations, and then work out what needs to be done in order to achieve them. This would mean yoking together deeper and speedier debt relief, and increase in aid and fairer trade policies as part of a unified strategy.

The case for revisiting debt relief is compelling. As the International Monetary Fund said in its latest overview of the global economy, Africa has generally shown resilience during the slowdown but has been hobbled by the impact of HIV/Aids on its prime age workers and by the weather-induced famine that has afflicted 38 million people. There is no evidence that the debt relief until now has been siphoned off into military spending, and money saved on repayments to western creditors would be better spent on drugs, hospitals, schools and teachers.

Is this likely? The simple answer is no, in part because creditors think they have "done" debt and all that remains is a bit of tidying up for those countries especially hard hit by falling commodity prices.

In the current context of cash-strapped governments looking for a cut-price way of financing development it is, however, an idea that may have legs. Moreover, even if the Americans decide that they do not want to sign up for something that the French are supporting, it is possible for a group of European countries to adopt a less ambitious go-it-alone approach.

An independent European approach would be far less feasible through the alternative of a Tobin tax on foreign exchange transactions, although that is not to say the idea of a "speculators' tax" should be abandoned, because it too has strengths: A constant flow of resources, a simple concept, a strong element of redistribution. But at present a Tobin tax is a good idea in search of a political champion.

Finally, there is trade, a subject on which the U.S., the EU and Japan beat all comers for cant and hypocrisy. Subsidies to farmers in the industrialized world amount to US$1 billion a day, more than the annual income of the 900 million farmers in developing countries living below the poverty line.

What is more, the idea that these handouts go to the heirs of Tom Joad or the French peasant farmer on his smallholding is absurd. According to Kevin Watkins of Oxfam, there is no fat cat like a fat cat slurping up agricultural subsidies. The five biggest EU agricultural producers get 50 percent of subsidies, while in the U.S. 60 percent of farmers get nothing at all.

While the common agricultural policy has rightly been condemned by development agencies for its deleterious effects on farmers in poor countries, the fact is that the American system of disguised subsidies through income support and export credits is no better. In 2001, America's 25,000 cotton farmers sluiced up $4billion in subsidies, leading to colossal over-production that leaked out into global markets, forcing down prices.

Here, then, is the crux of the problem. Poor countries are undercut by the subsidies offered by rich countries, while simultaneously facing protectionist barriers if they seek to export into North America, Europe or Japan. The falling commodity prices that result drive them deeper into the debt, putting them at the mercy of their creditors.

To the extent that the poor are granted amnesty from their debts, the money is clawed back through diminished flows of aid. Forced into the position of permanent supplicants, they are expected to liberalise while their paymasters protect.

The next three or four months will be crucial in showing whether this broken model of development can be fixed. Jacques Chirac will put a proposal to next month's G-8 summit in Evian for a moratorium on dumping goods to Africa in return for a U.S. agreement to stop using export credits to distort trade.

There seems not the remotest chance of George Bush doing anything that would allow Chirac to claim a summit triumph, but this is perhaps the time for Tony Blair to call in some of the favours owed from the war in Iraq. Blair has his reasons for building bridges with Chirac, but two are even more compelling for Britain to back the French initiative.

First, it is a good idea, as far as it goes. Second, without a breakthrough on agricultural trade, the Doha "development" round of trade talks will be exposed as a cruel sham and end in abject failure.