Dan Banik and Charles Kenny discuss reasons for optimism about the future of the global economy, the role of global public goods, World Bank reforms, and why Western aid is losing its credibility.
Charles Kenny is a senior fellow at the Center for Global Development in Washington DC. He was previously at the World Bank, where his assignments included coordinating work on governance and anticorruption in infrastructure and natural resources, and managing investment and technical assistance projects covering telecommunications and the Internet. Charles has written several books, two of which we discussed in this conversation: Getting Better: Why Global Development is Succeeding, and Our World, Better: Global Progress and What You Can Do About It. We also discussed a recent report, where Charles and his coauthor Zack Gehan created a set of scenarios for the shape of the global economy in 2050. While their forecast for richer countries is not very optimistic, what they found is largely positive for developing and middle-income nations. For example, the report finds that incomes per capita on the African continent could be 76% higher in 2050 than they were a few years ago, and in India incomes could jump 136%. Twitter: @charlesjkenny
Professor Dan Banik, University of Oslo, Twitter: @danbanik @GlobalDevPod
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Banik Charles, it's lovely to see you again. Welcome to the show.
Kenny Thanks for having me.
Banik I used to live in Washington DC many years ago and I still love to visit the city every time I get a chance. But Charles, whenever I'm in DC, I get this impression that the world looks very different from Washington than it does from Asian, African, Latin American, and European capitals. Given that you are in many ways a Washington insider, you are perhaps one of those “Beltway bandits”, as some people call them, that you live inside that ring road that surrounds the city. What is the talk of the town these days on global development?
Kenny I admit I’m a bit depressed about the talk of the town on global development at the moment. There are positive signs, I think that some of the stuff that Samantha Power is doing at USAID is really quite exciting.
Banik Shifting the power, that kind of talk?
Kenny Yes and so USAID, you mentioned Beltway bandits, most of USAID’s money today is channelled through or just ends up at organisations that are based within 50 miles of Washington DC. Power wants to move a lot more of the finance to organisations that are based in recipient countries, government, civil society, private sector actually in Africa, Asia, and Latin America. I think that's a great thing. She’s also just announced an attempt to rip up a whole load of bureaucracy and red tape in Washington around what USAID staff do, they spend an immense amount of time on internal reporting and her claim is that USAID is going to reduce by an hour a day the amount that USAID bureaucrats spend on that kind of thing. If she manages that, that would be fantastic. There’s one positive thing also we are seeing somewhat positive language around pushing the multilateral development banks to do more, which I think is great, including more on climate. What we're not to see there is any more money, the US has been quite generous when it comes to supporting Ukraine, but with that bright spot aside, US development assistance is still near the bottom of the barrel when it comes to percentage of GDP compared to its OECD colleague countries, if you will. Then there’s the overall tone and the overall tone is increasingly driven by China and the sort of new Cold War talk and that I find really depressing because more and more of the problems we face, including climate and pandemics, we really need global cooperation to solve them, and new Cold War talk really doesn't help with that. This is not just the United States fault, I don’t mean to just blame the folks on Capitol Hill, China is doing some terrible things and there ought to be push back on some of the terrible human rights violations, and there ought to be push back over the sabre rattling over Taiwan. I’m not saying this is one sided, it's definitely two sided, the United States is definitely ratcheting up the rhetoric if you look at any development conversation at the moment in Washington and it’s pretty much from Capitol Hill’s perspective. It’s seen through the prism of relationships with China, and I don't think that's terribly helpful or constructive and I do think it suggests problems down the road for global cooperation.
Banik That is also my impression, and that is what I was trying to allude to, Charles, because on my last trip there were two or three issues where I felt that Washington insiders, at least the politicians, the State Department, looked at global development very differently. One has to do with this whole sustainable development the SDGs, the goals and climate action, how much money can be put into global public goods so that that was one set of issues. The other related to of course China and I could not say anything that was deemed to be somewhat positive about the Belt and Road Initiative or the fact that the US and many other European countries haven't really done much in infrastructure development, which is a fact. China has done stuff that the West should have done more of, and I think we should be celebrating success and so the conversation is often difficult. But I want to go back to this pessimism that you started with, but you ended rather optimistically. This really relates to some of your work, I think a little over a decade ago, you wrote this very optimistic book Getting Better: Why Global Development is Succeeding and How We Can Improve the World Even More. Was it two years ago, you had another optimistic book meant for high school children? I love that because that's the kind of book that my kids must read – Your World, Better: Global Progress and What You Can Do About It. Now the main message of both of these books is that a lot of things have actually got better and that in this world where there's this barrage of doom and gloom reports let's take stock about what we've achieved and I think that kind of argument resonates a lot with me, Charles, because for many years I've been interested in what works in global development. I'm not saying as you also point out in your books, that there are no challenges, but let's be a bit more balanced given that we've just gone through this pandemic, et cetera. And your last book was actually published during the pandemic. Are you as optimistic because you've written this new report, a centre for Global Development report where you predicted that we are actually perhaps on the right track in terms of reducing extreme poverty by 2050? So, is there a new body of evidence that is saying that despite all the reversals in development that we experienced during the pandemic and also maybe post pandemic that there is actually a huge ray of hope ahead.
Kenny Yes, there is a huge ray of hope ahead. You have to think something very strange is going to happen to think that we are going to suddenly fall dramatically off the path we've been on for the last 60 or 70 years, which globally is great. There are things to be depressed about for the United States, not just the United States as a development partner, I actually think the US is probably in for a period of considerably slower growth just because of sort of demographics and so on and probably overall global technology change slowing down somewhat. But the global picture is still, I think really quite positive. In some ways for all of the incredible tragedy of COVID-19 and tragedy, a lot of which did not need to happen, if we'd acted better and faster and smarter and more equally. But all of that tragedy that the fact that it only set us back on poverty by four or five years tells you how much progress we were making. You stopped the global economy for six months pretty much, and yet still that's only a sort of comparatively minor reversal in global terms in poverty and it was terrible, and we should have done more to stop it, but still it is a sign of how much progress we have been making and I think we are going to continue making that progress. The paper you refer to where we do forecasting; basically, what we do is we look at the past and we asked how closely a demographic factors like age distribution and so on, how much education, how much is temperature change, how much is current income, how much can all that help predict future growth rates? The answer is some not a lot, but if you use that as the basis for a forecast going forward to 2050, you see Africa sort of doubling its income, give or take by 2050, India doing a bit better than that. You see richer countries not doing as well sort of 30% maybe, huge error margins on those forecasts. I will not be surprised if the world turns out to be different, but I think if you will, the headwinds are with developing countries, they are in the right moment in their demographic transition. They are seeing larger workforces and so on, they're the most educated they've ever been, and education rates continue to go up. They've got lots of space to converge to use the technologies already developed and used in rich countries to catch up with those countries. There are real reasons for optimism around income growth and that means there are real reasons for optimism around reduced poverty, and I think we will continue to see that. More to the point, perhaps because my one favourite indicator of global development is how many children are dying unnecessarily if you look at under five mortality rates, we've seen massive progress in the last 50-60 years, there's no reason to think that's going to stop. Indeed, there's reason to think it might continue, or even be faster. For example, one of the fantastic things that came out of all of this recent MRNA technology development, which was used for some of the COVID vaccines, is probably a really good malaria vaccine and we've already had some fantastic news around an OK malaria vaccine in the last couple of years. But we could get a really good one and that alone would have a massive impact on mortality rates in the malaria belt over the next 10 to 15 years. So, I think there are lots of reasons for optimism, in particular for developing countries, in particular when it comes to everybody having the basics of quality of life. We will not be there by 2050, optimistically, we suggest that dollar 2.15 a day poverty might be pretty much eradicated by 2050. Dollar 2.16 is not a level of consumption that gives you a good quality of life, we've got a lot further to go, but we will probably continue to make progress and that really excites me. The thing that worries me again is that we do predict slower growth rates for high income countries, there are things they can do about that. One of the reasons we're predicting slower growth for them is because their demographics are getting not so good for growth, large populations of retirees, not very many young people in the workforce, that kind of thing tends to be associated with lower growth. There are responses to that they can let in more migrants, Germany is doing that as part of the response. They can increase the women's employment ratio by providing better childcare, which, by the way migrants can help with. But anyway, there are there are positive responses to this which would be good for the world and good for rich countries. My theory is that the headwinds of slower growth, might push them more into a kind of 1930s model which is withdrawing from the world and that would be really bad for them and it would be really bad for the world as a whole. So, I think we kind of face a choice at the moment, do we embrace globalisation and all it can offer in order to make sure that high income countries do better, but also the world as a whole does better? Or do we hide behind Fortress Europe, Fortress USA which is really bad for us with knock on effects for the rest of the world?
Banik OK, so now that you've been the optimist, let me be a bit more of a pessimist. The first problem I see is, of course, globalisation and geopolitics, the way in which this will unfold. Going back to how we started the conversation, this whole US China rivalry, whether it's going to result in more nationalism, we saw that in relation to vaccine nationalism, right? So that's one aspect, and I think most of us agree that globalisation was good, it was good for growth and for poverty reduction, and China is one of the best examples of how extreme poverty was eradicated. There's a whole set of issues related to climate change that we could also discuss. Some of these projections that you have in that paper, Charles, the extent to which you factor in climate disruption and how that is going to impact some of these emerging economies or emerged economies. Then there’s another set of debates on population, I hear a lot of, not a lot, some natural scientists saying we've exceeded the Earth's carrying capacity, a lot of these debates from the 1970s are being now resurrected and coming into mainstream discourse, whereas a lot of others are pushing back and saying it's really consumption. That if you look at how much the world’s poor consumes, that is the indicator, it’s us in rich countries that is the problem. Then of course you have that ageing population dilemma, immigration and all of that, but one debate I know keeps coming back or is constantly out there, a lot of my students talk about it, a lot of activists talk about it, and that is the role of economic growth in all of this. In your paper, you seem to argue, at least according to your critics, that economic growth is the magic wand for ending poverty, whereas the critics, like the UN Special Rapporteur on extreme Poverty and Human Rights, says that is not the case. We have a lot of others talking about Degrowth and all kinds of other stuff. So, Charles, make the case for economic growth.
Kenny Gosh, that was an hour's worth of discussion points.
Banik Just the last point Charles.
Kenny To the last point, I think economic growth is a really lousy measure of everything that matters or improvements in everything that matters. It misses out a huge lot sort of intentionally. I mean, there are all sorts of non-market transactions that never appear in GDP and they're a heck of a lot of what we do. Anything to do with parents looking after their kids, not in there, so it misses out a lot by intent, but also, it's only meant to be a measure of economic transactions of consumption and production. I've written papers in the past saying, look, this was back when income wasn't converging, I was saying everything else was that we're seeing faster improvements in life expectancy in poorer countries and richer countries, or at least in countries with low life expectancy than in countries with high life expectancy. So, despite the fact that back then income wasn't converging, we were seeing all these other measures we should probably care more about. They were actually doing better and that just points to the fact that there's a lot more going on to life expectancy than income growth. I think one of the greatest achievements of humanity over the last century has been sort of making the cost of life cheaper, if you will, at lower and lower incomes, you can have longer and longer life expectancy and that's fantastic. All that said, there is no low-income country that has got rid of Dollar 2.15 a day poverty, let alone a decent poverty level, like maybe $10 a day there. There is no low middle-income country that's managed that. Equality is an important part of its picture, increasing income equality is a good thing in its own right, it has all sorts of other positive effects beyond that. But it only gets you so far, you also need a certain average level of income in order to achieve the kind of consumption that we want for people worldwide. Now when it comes to Monaco, is economic growth likely to be associated with considerably longer life expectancy and so on? No, probably not.
Banik We see that in the US now, life expectancy is going down.
Kenny Life expectancy is going down in the US. I will say though that I think global growth is a good thing and for at least two reasons. One is richer societies can spend more on education and research and development and all sorts of stuff that lead to new technologies that lead to global outputs we like. They are also a source of demand for purchases from elsewhere, which are an important part of the growth story, China would not have grown as it had, if there hadn't been rich countries to buy a huge amount of manufactures from China. So, global growth has benefits and also to go back to the thing I was mentioning earlier, slow growth historically has not been associated with countries that are outward looking that are receptive to migrants that want to engage with the world. Slow growth has tended to be associated with building walls, retreating behind borders, not so good things in rich countries. So, whatever you think about the level, there is also a change effect, and it is just a lot easier to deal with a lot of political problems and so on when an economy is growing than when it's not. I sort of accept maybe that levels in Monaco don’t matter so much, but growth as a whole globally and in rich countries continues to be associated with positive things. That said, it's also continued to be associated with negative things, some rich countries have now pretty much decoupled, there is no link between their greenhouse gas emissions and their rate of economic growth. Not all countries have, and the world as a whole certainly hasn't and so, we've got to deal with these negative externalities. I think actually if you talk to the degrowth folks, they or at least some of them say, look, we don't really mean you've got to reduce GDP per capita. We really mean you've got to get rid of the link between increases in GDP per capita and bad stuff, bad stuff, including greenhouse gas emissions and I think they're right when it comes to that.
Banik It isn't a mad project that is full of fantasy because Degrowth is often criticised by many of the guests I've had on my show, my friends, it could be Paul Collier, it could be Branco Milanovic, Noah Smith is very critical. One of the things I notice Charles, is that at least I've heard this and I'm not sure from whom is that the Degrowthers are saying that it's the rich countries that should be changing their consumption patterns. They're not necessarily advocating for other countries, poorer middle-income countries to reduce their growth. But where I think there's a lot of uncertainty is that is it possible to say that some are not going to grow and others are growing, what about globalisation, competition, there's so much out there that is just so confusing. So, what is the best thing you can say about the Degrowth argument?
Kenny I wish they stopped using the term Degrowth and used the term decouple because I think the more reasonable, sorry, what I view as more reasonable, Degrowth is really when you ask them it means decouple and I think they are definitely right that that’s something that has to start in rich countries, because rich countries are the ones that are doing most of the completely unsustainable consumption, they're just doing most of the consumption. Those are the countries where if you change consumption patterns and production patterns, the way you will do that without slashing economic growth is by creating new technologies that are more efficient at producing the outputs you want without the externalities you don't, the solar plus battery combination that allows you to produce electricity without producing greenhouse gases, for example. Once those technologies are developed and rolled out at scale, they will become cheaper and cheaper and cheaper, and then it becomes sort of simple to adopt them in in lower middle-income countries because they are the cheapest approach to rolling out more electricity excess for example, and greater electricity provision. I do think this is something that has to be, the rich world largely created this problem, the rich world should largely solve it, and it should solve it by making the big markets where most of the consumption goes on, markets where the cheapest technologies are the ones that deliver zero carbon production. Once they've done that it's going to be easy for low- and middle-income countries to adopt those technologies. That's the way we solve the climate crisis and so I'm sort of with the degrowthers or if I may, the decouplers, I'm with the decouplers that this is a rich world problem that we need to solve in the rich world.
Banik Some of the criticism, of course against GDP growth is that it does not address inequality very efficiently, that you could have rapid economic growth, but the distribution of the benefits of that growth is not fairly distributed. As I see it, some of the criticism is that you should be focusing on social protection, education, health and all of that and strengthen public service delivery. But then the other argument is how are you going to pay for all of this without economic growth? It's fine to talk about building or the importance of building an inclusive economy, but somebody has to pay for some things and where is that money going to come from? How do you view inequality reduction going forward? Because you've had historically countries say, on the African continent, I'm thinking about Tanzania, I think it was also Ethiopia at one time and the fastest growing economies, there was talk about it being a developmental state, right, but it did not achieve the kind of development that the East Asian tiger countries achieved. So, what is it about growth that is fast, is rapid, is upward looking and manages to make sure that the benefits are distributed evenly? Is it the importance of a political settlement among elites? I've had Stephan Dercon talking about the development bargain on the show. How do you see the benefits actually trickling down, so to speak.
Kenny I think you would have got a better answer from Stephan than you'll get from me. I think other economists and political scientists have smarter things to say. What I will say is that the IMF not known for being a socialist worker organisation, it says that lower inequality is associated with faster subsequent economic growth. So, I think we need to be careful about suggesting, that there's necessarily a trade-off here, it depends how you do it, it can actually be a win for all. I think that's partially if you are delivering quality public services and people are actually getting educated and actually getting more healthy and actually have access to better quality roads and electricity that that doesn't brown out every three hours. These are really important things for economic growth and so you can have your cake and eat it in that sense. But the important thing is quality, you turn that expenditure into better outcomes and there's the magic maybe, that's the wrong term, there's what's turned out to be harder, sometimes we have seen that association other times we haven't. But I think it's sort of fairly widely agreed that if you look at many of the East Asian miracle countries, one of the underpinnings of their fantastic performance was reasonable equality to begin with. For example, land reform, for example, quite widespread and quality education. I think we need to learn from those experiences and try and figure out how to replicate them. As you say, it's going to involve some sort of political bargain, at which point I say yes, it's going to involve some sort of political bargain and a little more useful to say.
Banik But Charles, what we don't necessarily want replicated from the East Asian miracle countries is authoritarian forms of government. Many of these countries were authoritarian when they were growing as fast as they would.
Kenny I believe colleagues from Bill Easterly onwards who say look, yes, some of these countries were authoritarian when they grew fast, but they didn't grow fast because they were authoritarian, if you follow me. If you look across countries as pretty much no link, if anything, democracies come out slightly faster. There's been this recent raft of papers suggesting if you actually measure economic growth, better democracies probably grow even faster than autocracies than we thought in that authoritarian regimes have more ability and more incentive to make up GDP per capita numbers. So, I agree we don't want to replicate authoritarianism and I don't think we have to.
Banik I think there has been this persuasive case for the China model of development in some parts of the world, some leaders, some policymakers, do admire how economic growth that is centralised, coordinated results in quite impressive progress. But let's move our conversation to something else that interests us too, and that is the World Bank. You used to work for the bank, you've coordinated many of these projects on governance and anti-corruption and infrastructure, natural resources, telecoms, internet and then you move to the Centre for Global Development and recently you've argued that World Bank investment projects aren't designed for crises. I had Indermit Gill, the chief economist of the World Bank in my basement here a few weeks ago and we had a great conversation and I was asking him about the twin goals that the bank has and the extent to which it is addressing climate issues. And now, of course, there's this huge amount of media coverage on the next nominee, the Biden administration's nominee for the presidentship of the World Bank, and all of that. But let's go back to some of the basics that the bank can do and does not always perhaps do to the best of its ability. Because the bank is an important actor, we have to admit to that, it provides development finance, it has convening power, it has influence and all of that. What is it that then they should be doing more of because one of the things you've identified is that they're slow. Or maybe some of the criteria that they adopt are slow environmental standards. That may be a good thing in the sense that you have strict criteria, so they may be slow, they can be faster I'm sure, this is also something that Indermit said they could be better at. What else do you think the bank should be thinking about going ahead in trying to reduce global poverty before 2050, Charles?
Kenny I'm glad you ended where you did because I think that's what they really need to keep their eye on is ending global poverty, or at least ending dollar 2.15 a day poverty. Some of my worry is that climate change is a huge issue it will over the course of a century undoubtedly cause tens, hundreds of millions of people's misery of some sort or another. I think the bank has a role to play in that, a bigger role than it is playing at the moment. But still it is the International Bank for Reconstruction and Development, it is the International Development Association and I think it really needs to keep its eye on development because we've got a heck of a long way to go before, we can declare victory somehow in the struggle for global development. The first thing I'd be doing is protecting what's good about the institution, and I happen to think that the International Development Association, the concessional arm of the World Bank, is one of the most effective aid organisations out there by some distance. That's partially because rather than spending a lot of money on organisations within 50 miles of Washington, DC or London or Oslo, it's actually spending nearly all of its money in developing countries in the poorest developing countries to support, the money, finance goes to governments and governments then use it to invest in things like health and education and so on. That's the best model of development and they're doing it pretty well in the countries that need development most, the low- and middle-income countries in the world. So, I'm a huge fan of IDA and I think IDA needs to be bigger and better, sure, but definitely bigger. That's still my priority, if you will, for the World Bank Group as a whole. If the World Bank wants to do more on climate, I honestly think the best instrument it has is IBRD loans. IBRD loans tend to go to richer middle-income countries, which is where, to the extent that there's a climate challenge in developing countries it’s in upper middle-income countries, that's the Chinas and Brazils of this world, so IBRD works with the right countries The kind of things we want the Brazils of this world to be doing when it comes to climate are sort of marginal changes. So, making investments, decisions that are fairly marginal in terms of their overall financial rate of return, but one is high emitting, and one is low emitting. We want to push them along the cost curve is the way McKinsey would put it. We want to push them along the cost curve to slightly more expensive technologies, but technologies that are emissions free. Lending that is sort of a bit cheaper than they would get from the market is a perfect tool to move people along the cost curve, it gives them some incentive, not a huge incentive, but some incentive to do something that's a marginal change. So it's the right tool from that point of view, it's also the right tool from the point of view that we're all throwing around numbers in the trillions about how much all of this is going to cost. I wish grant resources from rich countries were going to be in the trillions, they won't be, global ODA as a total which is not all grant resources, not all well directed at all, lots of it doesn't leave rich countries, but global ODA is a total of about 180 billion which is not going to see a lot more grant resources around. If we want trillions, it has to be something cheaper, loans through the IBRD are massively cheaper for rich countries to provide than grants are. For sort of all of these reasons, I think the IBR lending tool is the right one to deal with the global mitigation challenge as it affects IBRD client countries or World Bank client countries as a whole. There are ways to make that money more attractive, at the moment, lots of countries don't borrow very much, they don't borrow as much as they could from the IBRD because it's our massive hassle, it comes with bureaucracy in preparing the loans, it comes with bureaucracy while the loans are being used so procurement rules that go on for hundreds of pages and so on. If you look at what clients say in World Bank client surveys, they say what's the biggest downside of the working world with World Bank? It's the bureaucracy, it's the regulations and stuff. If you look at how long it takes to finish an IBRD investment project in particular, kind of eight years and that's after you've spent maybe two years preparing it, especially if it's an infrastructure project that might have environmental externalities beyond greenhouse gases. So, it's a massively bureaucratic system that has big costs on borrowers and they put up their hands and say I'll pay 2% more and I'll borrow from Goldman Sachs or whatever. So, in order to make this an attractive vehicle for climate finance at scale in middle income countries we have to make it a lot less bureaucratic and a reasonably simple way to do that is to move to policy lending. So rather than investing in an individual power plant in Mexico, use finance to support a policy change that will enable a lot more of Mexico's power to be generated through renewables.
Banik But Charles, some of this is really confusing because when I speak with activists, civil society, they say the bank should be doing much more on climate. That is why it needs a new leader, that is why Ajay Banga should perhaps be or not be the lead. So that is the criticism. Then there are others, including UN agencies saying no, no, no, don't trust the bank with all of this money we are better at it, the bank does not know how to do climate finance. Then you ask the bank and when I speak with them, they say, oh, you know what we really need is a capital increase that we have to get our share shareholders to give us more money so that we can boost our lending power. So, you have all of these things happening, everybody has to do both development and environment, and climate and it is almost like it is not acceptable anymore to just do development. Or is it possible to be a Jack of all trades?
Kenny There's something to that. I have to say I'm hugely in favour of a World Bank capital increase so they can do more in IBRD countries on climate. I take the UN organisations you mentioned who say the bank doesn't know how to do climate I think there's something to that, although I would say the same of UN organisations. We have a global problem, what we in particular have a global problem with is using grant resources to reduce greenhouse gas emissions in an effective way. There's an easy way to get your maximum bang for your buck when it comes to reducing greenhouse gas emissions for a given dollar of grant resources and that is you set up, I say easy, you set up a global carbon market and you buy a dollar worth of greenhouse gas emissions, if the market works you'll get the massive most greenhouse gas emissions reduction you possibly can out of that dollar. You may have noticed we don't have a global carbon market, we're not going to get a global carbon market, so that's sort of off the table. It becomes a really complex, technical, intellectual, whatever else challenge to spend grant resources well and the existing 40-50 billion we have thrown in grants at trying to reduce greenhouse gas emissions in developing countries, I fear most of it has been wasted on projects that would have happened anyway on projects that are really in an inefficient way of reducing greenhouse gas emissions, just not spent well at all. And we haven't got a fix for that, even while everybody's saying we should spend more money on it. I think that really is a big concern. So, I accept all of these concerns, I'm not sure the bank is the best place to do it, that said I don't know where else can do it, which is to say, sorry, I do know where else other multilateral development banks. I think the African Development Bank, the Inter-American Development Bank, maybe should actually be taking the lead over the World Bank on some of these projects. But I think the multilateral development banking model is the right one because it involves very little injection of resources from shareholders in order to create a lot of the kind of financing, we need to support mitigation. So, you want that model even if you don't necessarily want the World Bank.
Banik So the bank, of course, the vision is a world free of poverty, poverty reduction is and should be the main goal of the World Bank and yet, increasingly, Charles, we hear about another buzzword, global public goods, that has now entered the debate. It is not just climate but also preventing pandemics, technology, space security all of these other concerns are now being merged with the global development agenda, and all of these important organisations have to keep up with all of these agendas. Now one thing that I did hear from the UN when we were in New York recently was that some countries, the G77 for example is very sceptical of this global public goods agenda. They believe that rich countries, by funding the global public goods agenda, are going to divert resources away from poverty reduction, that it's going to be much more about all these other things that we care about in our parts of the world, rather than what they care about in their parts of the world. Not that they don't care about the climate, but it's just that their priorities are different. So, what are your thoughts there? Is it possible to adopt a simple, effective mechanism for financing global public goods? Ensuring that the money is well spent, I have to say, Charles, I'm very sceptical to the idea that the United States will ever do anything that will benefit China. It just seems to me that if I'm going to spend money, I want credit for it, and I'm not doing it for the global public, I'm doing it perhaps to get some sort of credit. I don't know, do you subscribe to it, do you like this concept at all?
Kenny Yes, I do like the concept, and I do think that the United States, for example, even though it didn't mean to necessarily, even if it wasn't what was in Donald Trump's mind operation warp speed and the creation of the MRNA vaccines was a global public good is going to lead to more global public goods. Some manufacturing facilities based in the US, some intellectual property owners based in the US will benefit more, will also benefit from the revenues that these things generate. The external benefit to that series of vaccines, I think is really impressive and so I do believe in the concept of global public goods, I do think there is a role for international organisations to finance them, I think we know more about the theory that the role matters than we do about the practise of how to finance well and that's a big issue.
Banik And governance of that financing facility, who's going to actually set it up?
Kenny Right, I mean who's going to set it up well in particular and use the money well I think is a really valid question. I would also say rich countries have made, there are good reasons for G77 scepticism, rich countries have repeatedly said at climate meetings, yeah, yeah, yeah 100 billion additional climate finance they have repeatedly made it pretty much impossible to tell whether the climate finance being delivered is additional. People argue over whether it's 84 billion or less or more than that and fair enough because it's pretty much impossible to tell. But sort of forget that for a minute and we really don't have a clue about whether it's additional or not and I think that's shocking. Here is a problem that was largely created by rich countries that rich countries sort of having accepted, that they largely created it, and that it's going to be a problem where the worst damage is going to be in developing countries who weren't a big part in creating this problem, said yeah, yeah we should provide additional finance in order to do this and then immediately turned around and made it pretty much impossible to figure out. Is this finance additional? Is it meaningful finance at all? And so, if I was in G77, I too would be absolutely furious about this and very worried that what we will see is not additional finance, but finance diverted, and I think there's evidence that finance has been diverted. If you look at the amount of ODA aid that actually reaches developing countries and actually spent in low-income countries, for example, that's pretty much flatlined over the last 10 years after growth. I think you can point to the fact that a lot more ODA seems to suddenly be being spent in middle income countries on climate mitigation. That's not additional that's robbing poorer Peter to pay richer Paul and it's not what rich countries said they were going to do. So, I'm with the G77 on this, and I think that a really important part of the next few years should be figuring out this additionality issue and making sure that climate a problem created by rich countries, that's going to affect countries, climate isn't solved on the backs of the world's poorest people.
Banik A final set of issues, Charles. This is related to foreign aid, particularly aid coming from the OECD countries, the Development Assistance Committee that you've been a bit critical towards. I notice of late that you believe that ODA or official develop assistance from these countries is an inflated measure that has lost its credibility and I do you see that now there is increasingly a lot of talk about what should count as official development assistance, what are all of these exceptions that countries are making? Sometimes giving aid to themselves to fund refugee costs. How should we think about this kind of Western aid, aid from the global North, from these rich countries? We've discussed earlier about how important all of these other countries are, that the world, as you see it going forward is not necessarily going to witness economic growth in the rich parts of the world. It's all the others we've already seen the growing role and influence of Indias and Chinas and all of these other countries, South-South Cooperation has become increasingly important. In this day and age and going forward, the next 20-30 years, what is the role of ODA? How do you see that changing? Should it be done differently? Should it be governed differently? Should we devise different mechanisms to count what is ODA? Should ODA be more directed towards global public goods, what is the future of the DAC, so to speak?
Kenny I think the DAC has a choice to make, this club of donors who decided that they get to decide what counts as aid has a choice to make. It is a club only of OECD donors, it doesn't include China, it doesn't include a lot of the emerging donors. Those donors are the ones that are going to be growing economically over time, much more than the current DAC club and it's quite plausible they will become a really big part of official flows, I mean they are already quite a big part of official flows as we all know from BRI. But in a bigger part of official flows over the next 30 years, DAC could choose to remain relevant by setting good standards for what official finance should look like, or especially official finance with a grant element should look like they could be the model for others to follow or they could continue down the path they're on at the moment, which is basically trying to claim the maximum amount of ODA for the minimum amount of financial effort.
Banik You mean they want more credit than they really deserve?
Kenny Just a little yes. For example, loans that they are making profits on, they're now counting as ODA, vaccines that they hoarded when developing countries really needed vaccines that they hoarded despite the fact they had four or five times the number of vaccines they needed for their own citizens they finally released to developing countries late in the day, when the vaccines are nearly past their expiry date, they want full credit for that. The hotel costs of putting up a refugee in London, by the way, an international legal responsibility, despite the fact that the UK is busy trying to deny that those hotel costs let's stick that in ODA. They are going down the path of making this a completely nonsensical measure of any effort in order to finance investments in developing countries, which is the original point of ODA. So, they can continue down that path, everybody will go well yeah, this is a meaningless measure who cares that they're doing it. They're going to be a smaller and smaller part of overall official finance so everybody's going to go, who cares twice over and they can just completely ruin the bank brand. I think they are already a fair way down that road I'm afraid to say, but I think there is time to reverse and now is the time to do it. So, we really have to sort of take back control if you will.
Banik What does that mean in practise, Charles? Reverse how? Is it in terms of what should count and what shouldn't? Because they already say that it is the gold standard in terms of the quality of aid everybody looks up to the OECD DAC that is how they see themselves.
Kenny I think the only people who look up to the OECD DAC are the OECD DAC and frankly the idea that it's a gold standard is poppycock, a led standard is what it is. There are many things to say about the Belt and Road Initiative and the way that China has dealt with it, debt issues that emerge and all that kind of stuff but I will say there was an initiative that actually delivered infrastructure in developing countries, that the developing countries were crying out for, I don't think you know BRI should count as the gold standard either there's lots wrong with it. But suggesting that one or other of these two completely imperfect measures is the right one, no, neither of them are. And again, I'd say who is it who says that DAC is the gold standard beyond DAC members?
Banik I think there is so much talk about aid effectiveness, there's this pressure to justify aid to the domestic audience, it's just endless. But let's end on an optimistic note, Charles, by asking you the following question, how do we best combat pessimism and short-term thinking? What should we be telling our kids? What should we be teaching at school? Every day, particularly in, say, our parts of the world it is this the end of the world kind of scenario, nothing works, it's just climate, climate, climate, and we end up forgetting all the achievements that we've achieved over the last 5-6 decades. How do we come up with a more realistic picture of the future that young people don't become just anxious, but they have something to look forward to.
Kenny The short answer is that the generation going through school at the moment is the greatest of all time, right? It's the biggest, but also, it's the one that's got by far the highest education rates of any previous generation, it's healthier than any previous generation. If you look at its attitudes, they tend to be more outgoing, they tend to accept the rights of other people more than any other generation in history. This is a generation that can achieve stunning amazing things like we've never seen before. They inherit some problems that we created as well. They will inherit a climate change that we're not going to fix in the next 10-15 years, we've got to be in it for the long haul. They inherit inequality, they still inherit a world where loads of people live a life of just unacceptable deprivation given how rich the world is. But they also have more tools than ever before to fix those problems and again, they are the generation best place to do that. So, I'm hugely optimistic for them and I think it's important that we all tell them that they should be hugely optimistic for themselves. I'm with you, I think we overdo the doom and gloom at our own cost, but perhaps particularly at their cost. Some of the statistics you see around the mental health of children are terrible, those statistics are trending in the wrong direction, and I think it's partially our fault, at least partially our fault, not completely our fault. We've got to sort of turn around a lot of the discussion because more positive is more realistic. It's not about lying to them; it's about telling them the truth about where we are as a planet and where they can take us. I think that's going to win out and I think the next generation is going to continue to be the greatest ever until the generation after that and so I am hugely optimistic, but I think it's really important to tell them they should be too.
Banik Charles, it's always great fun to chat with you. Thank you so much for this wonderful conversation and for coming on my show today.
Kenny Thanks so much for having me, Dan.