One of our leading development experts has posed an interesting question on his blog - what can development thinking and experience contribute to the solution of Europe’s present crises?
Reading about Greece or Italy or Spain or Ireland today reminds me strongly of reading about and working in African countries in the mid-1980s - similarly crippled by debt crises, and similarly subject to external monitoring and interference. Rigorous monetarist discipline not only stopped growth in its tracks, but also undermined human welfare and, in many cases, destroyed the social contract. Progressive economists in the 1980s coalesced around the idea of Adjustment With a Human Face - accepting the need for macro-economic stabilisation and structural reform, but also insisting on the need to protect the welfare of the poorest and the provision of basic social services. Arguably, the re-evaluation of structural adjustment underpinned both UNDP's work on human development, launched in the Human Development Report of 1990, and the World Bank's re-discovery of poverty, in the World Development Report of 1990. In turn, these contributed to poverty-focused debt relief initiatives in the 1990s, and to the adoption of the Millennium Development Goals.This is an interesting point - but the new member states have difficulty enough absorbing the Structural Funds they have been allocated - and the existence and scale of these funds (relative to those, for example, of the mainline Bulgarian and Romanian budgets) has arguably made an important contribution to the systemic corruption which is endemic in these countries' political and administrative elites. And the basic question is a useful reminder of the need for more European humility......
I don't work on domestic European policy, but it does seem to me that there are some lessons here, at least some general principles. Structural adjustment is a necessary process but has a high human cost. Poor people need to be supported as consumers, but also as producers. A high level of participation is required, to underpin ownership and legitimacy. The international community has to cohere around high-level human development goals. And financing is key, including if appropriate in the form of debt relief. There is, it goes without saying, a great deal of international analysis of how to manage the fall-out from the 2008 financial crisis, making similar points. I've written about this elsewhere, originally for the Commonwealth Secretariat.
On financing, I can't resist making a point which is not exactly taken from development studies, but which draws on my very limited reading in the area of currency unions and fiscal transfers - namely that they don't often work unless there are substantial transfers between regions or jurisdictions, to manage asymmetric shocks, but also to redistribute between rich and poor regions. The German constitution, for example, guarantees equal standards of service provision between the various Lander - and allocates tax revenue accordingly. The euro-zone has no such ambition, or rule.
The OECD also has an interesting paper on fiscal equalisation, reviewing the experience of countries as varied as Australia, Canada and Germany. On average, these countries assign 2% of GNP to transfers, to manage asymmetric shocks and redistribute from rich to poor.
The GDP of the euro area is currently about 9 trn euros, so 2% would amount to about 180 bn euros. By contrast, current stuctural funds amount to about 30bn euros, some of which goes to the poorest regions in the poorest countries, but some of which goes to poor regions in richer countries. Further, structural funds support production, not consumption. Thus, the gap between what is needed and available is at least 150 bn euros per year.
Does it not follow that attempts to save the euro need to focus not just on the need for fiscal discipline and structural reform (= structural adjustment), but also on the essential role of large-scale transfers? An extra 150bn euros a year is not trivial in the context of an EU budget of some 140 bn euro, but that is only because the EU budget is so small in relation to EU GDP (capped at 1%) and to Government spending. Tax-payers in richer euro countries, please take note.
Finally, an interesting new website for me - the Bureau for Investigative Journalism which tries to resurrect that tradition from within a teaching institute.