During 2023 the impact of climate change, poverty, inequality and conflict has touched most parts of the world.
These impacts have helped to build a growing consensus that the global financial and economic system is broken and that delays in fixing it are creating major risks.
Systemic failures provided the backdrop to and shaped the focus of Summits and high level meetings across the world in 2023. As with ill-health, an accurate diagnosis is fundamental to a successful recovery, therefore we can commend our leaders for recognizing the problem. However, the largely modest and narrow commitments made at these global gatherings suggest that leaders have not yet recognised the cure.
Only limited steps have been taken to make global institutions fit for the 21st century challenges, to fill enormous gaps in funding to achieve the Sustainable Development Goals (SDGs), to promote the required levels of trust and inclusion, and to address giant ‘elephants in the room’ such as how to reform capitalism, the legacy of colonialism and our continued dependence on oil, gas and coal.
More concerning perhaps is failure to follow through with actions to fulfil the commitments made at these Summits and high level meetings, leading to a state of a collective cognitive dissonance.
The UK Government made a range of new commitments inspired by these global moments during 2023. However, its actions have all-too-often failed to reflect these commitments and the urgency to change direction.
The government’s commitment to climate action was followed by new fossil fuel investments. The commitment to protect human rights and leave no one behind is undermined by ongoing resistance to legislate mandatory business human rights and environment due diligence. The commitment to address the growing debt crisis has failed to generate support to reform the debt ecosystem by using legislative powers or creating a multilateral debt workout mechanism.
Commitments to eradicate poverty and help the poorest and most fragile countries to progress have been undermined by an unwillingness to reverse devastating aid cuts. Placing the emphasis of the UK’s new international development strategy around trade and investment as a path to poverty eradication and sustainable development is coupled with a UK-India trade deal negotiated in complete secrecy and narrow interests guiding the process.
Unsurprisingly, one of the key obstacles to more urgent and decisive action to fix the broken system is finance. A lot of conversations this year were about ‘squeezing lemons’– getting more out of MDBs – optimisation of balance-sheets, playing around with SDRs, callable capital, reserves, mobilisation of private finance etc. But – not only do we need more lemons, we also need oranges, apples and pears to deliver the change.
First, regarding the required quantity of finance, whilst the UK Government is reluctant to make any promises on returning to 0.7%, what we really need and should be talking about is 2% of GNI as concessional finance, which is a more appropriate target for closing the funding gap and $3.9 trillion annually (equivalent to 4.5% of global GDP) to deliver the SDGs and fund climate action in developing countries.
If we can spend 2% of GNI for military defence, we must spend the same for defence of human civilisation and planet. Failing to act now may significantly increase the cost reaching the SDGs, potentially up to $10 trillion annually between 2030 to 2050.
Second, contrary to dominant view, there is no lack of resources – global GDP in 2022 was $85 trillion. Each year $480 billion tax payments are lost due to global tax abuse, including $47 billion from low income countries. All we need here is a political will (especially in the UK) to make everyone pay their fair share by ending tax havens and stopping this expensive leakage.
A modest wealth tax in the UK could easily generate an extra 10bn a year. Additionally, a redesigned excess profits tax on fossil fuel companies, redirecting fossil fuel subsidies, a frequent flyer levy and new taxes on the use of private jets and superyachts could easily bring $10-12 billion annually. Public and private creditors in the global north could also make a huge difference by cancelling debt, which amounts to $29 billion, for developing countries and would give the necessary fiscal space to tackle climate change and achieve SDGs.
However, it is not only about new money being earmarked as development and climate finance. We will not make fast enough progress if we focus only on the 2% of global GNI as a dedicated investment for the SDGs and addressing climate change. We need to ensure that all our economic activity, and public and private spending, becomes aligned with the SDGs and the Paris agreement. Taking these steps will require national governments to:
- spend taxpayers’ money more efficiently, including the $13 trillion of global public procurement, and manage the assets of public development banks (owned by taxpayers) worth $23 trillion. We should also shift public subsidies for fossil fuels, totalling about $7 trillion in 2022, to resourcing clean, renewable energy;
- reshape the system and markets through policies, laws and regulations, to change patterns of production and consumption ensuring responsible and sustainable use of limited resources and respecting planetary boundaries, Trade, business models, agroecological agriculture, global financial architecture, keeping fossil fuels in the ground and living wage for all are some of the key issues to be addressed.
However, it was not all doom and gloom on crucial global reforms in 2023. Progress was made on taking forward a UN Tax convention, despite active blocking by rich countries (including the UK), which provides hope that when the emerging paradigm shift, increased collaboration between low and middle income countries, strong evidence and global civil society solidarity come together, change is possible.