March 9, 2005
by Jeremiah Norris
The authors are outspoken proponents of having the G8 nations contribute 0.7% of their Gross National Incomes (GNIs) for development assistance, yet they are silent on the macroeconomic implications of such large resource transfers. Although they begin the article with the G8 nations, by the time a conclusion is reached, one has been excused: "the cost to G7 nations of these policy reforms is trivial."
It would be worthwhile to define 'trivial' and to base that on commonly accepted definitions established by the Development Assistance Committee (DAC) of the Organization for Economic Co-operation and Development (OECD. The G8s/G7s are the pace setters in DAC. In 2003, the DAC nations contributed $69 billion through their Official Development Assistance (ODA) accounts to poor countries.
If the DAC nations had met the 0.7% assessment rate on their GNIs for 2003, that would have amounted to $195 billion. Holding $195 billion constant in 2003 dollars through the attainment of Millennium Development Goals in 2015, total ODA in these years would amount to $2.3 trillion if the 0.7% target was met.
Other official DAC resource flows would have to be added in, such as grants by private voluntary agencies; export credits; contributions to multilateral institutions; and direct foreign investments. These totals came to over $40 billion in 2003. Over a period of twelve years, then, this would add $456 billion, for a grand total of $2.8 trillion.
This 'trivial' amount excludes private forms of assistance including foundations, corporations and congregational giving, scholarships and other forms of educational assistance from the university community, remittances. Moreover, it also omits contributions by non-DAC countries, such as the Gulf States. It is safe to say that the grand total would exceed $3 trillion.
This $3 trillion figure is significant when considering that the International Monetary Fund (IMF) Survey expressed concerns about providing $5 billion for global HIV/AIDS for 2003 and $8 billion for 2004. The IMF thought that rapid increase in grant flows could induce the following negative macroeconomic consequences: 1) high inflation, retarding growth and acting like a tax on the poor; and 2) high domestic interest rates, hindering the poor from exporting commodities vital to their livelihoods.
When poor countries scale-up to manage a $3 trillion resource flow, there will be increased pressure on these economies to provide an extraordinary amount of goods and services from local suppliers. Production possibilities, both for human and physical resources, are finite. It is likely that this demand will compete with supply among the current providers of socio-economic services. Something will have to give.
The authors present data showing that $8.1 billion was spent on health development aid in 2002, commenting that this is "a fraction of the estimated minimum need of $27 billion by 2007 and $38 billion by 2015." They might have had a compelling case for the latter two amounts if they presented some evidence of positive outcomes for the $8.1 billion and for at least the same amounts in 2003 and 2004. Others have completed studies covering this issue and have shown that factors other than economic aid account for improvements in public health.
The Development Research Group at the World Bank published Child Mortality and Public Spending on Health: How Much Does Money Matter. Authors D. Filmer and L. Pritchett found that the major drivers on reductions in infant mortality are economic and educational: public health investments account for 5% of this decline.
In the Elusive Quest for Growth, World Bank economist William Easterly quotes Larry Summers and Lane Pritchett of Harvard University as saying: "the rise in income was causing the fall in infant mortality rates, not the other way around."
If the authors believe their proposal is a global health equity agenda, then let them offer an objective accounting to the G7 for the $25+ billion spent since 2002 before asking for a trivial share of $3 trillion by 2015. Such an accounting should include future projections on the positive and negative macroeconomic consequences of additional billions. The authors are entitled to their own opinions, and the donors to facts.
Jeremiah Norris is a Senior Fellow and Director of Hudson Institute's Center for Science in Public Policy. He specializes in public-private partnerships in development assistance, trade and development, and global AIDS, tuberculosis, and malaria policies.
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