by Homi Kharas and John McArthur
1 July 2015
The new “final draft” agreement for the Addis Ababa conference on Financing for Development includes a seminal affirmation of the post-2015 sustainable development goals (SDGs) as “global in nature and universally applicable to all countries,” while taking into account each country’s unique context, policies, and priorities. This builds on the Group of Seven’s recent summit communique, which likewise asserted the universal nature of the goals.
Crucially, the Addis document also includes a major commitment of, “Delivering social protection and essential public services for all.” This links to the following explicit ambition: “To end poverty in all its forms everywhere and finish the unfinished business of the Millennium Development Goals (MDGs), we commit to a new social compact.”
The compact establishes an admirable objective for a policy accord that seeks to enable the elimination of extreme poverty – the first among equals within the SDG framework. On its own, this could lead to a historic step forward by putting people, not governments, at the center of international development efforts.
The key question, still not fully answered, is how to implement this ambition – how to bring the social compact to life? The Addis document points in a general direction. But further specificity on financing strategies will be required if international cooperation is to achieve the stated goal.
A few key points frame important background to thinking about how the social compact could work. First, no country wants anyone else telling them what to do—advice, yes, direction, no. This applies as much to advanced economies as to the least developed economies. Second, the 193 UN member states can be divided in roughly two halves, in terms of those countries that have already eliminated extreme poverty and those that still need to do so by 2030. Third, the latter half still confronting extreme poverty includes a wide range of income levels, from low-income to middle-income and, in at least one case, high-income too. Fourth, all 193 countries face their own challenges of exclusion, with particular people and groups more systematically vulnerable to being left unjustly behind.
The risk is that, blended together, these four factors imply that a social compact could lose meaning if it becomes too watered down at the country level. The best guarantee to end extreme poverty is for all people in the world to have access to a basic education, health care, safe water and proper sanitation. Only then will they have a realistic chance of becoming productive and fulfilled citizens for the long-term.
It is crucial to recognize that status quo trajectories simply will not eliminate extreme poverty in all its forms. For example, income poverty may be going down in many countries, but there is a deep learning crisis that blocks basic economic opportunities for millions of people. This and other dimensions of poverty, such as unnecessarily high levels of mortality, can only be solved through more and better social service delivery.
In most countries, governments already spend at least 10 percent of national income on basic services like health and education, and water and sanitation. Based on our own previous rough estimates, when national income reaches around $3000 per capita, governments can and do deliver a very basic package of services to almost everyone. As income levels go up, governments can afford to spend more on basic services to cover higher costs and an expanded array of services.
For high- and middle-income countries, many of the most sensitive issues therefore focus on equitable targeting and efficient public spending. For the poorest countries, however, there simply is not enough money available to provide a minimum package of essential public services that would give every person – and in particular every child – a fair start in life.
Until now, the poorest developing country governments have been tailoring their service delivery plans to fit with available resources, reducing the level of ambition below full coverage of their population. Developed countries have been unwilling to allocate more funds absent the presence of technically-sound programs where national commitment (demonstrated through provision of domestic resources) is high. This produces the low-level equilibrium: there are inadequate plans to improve services because there is not enough money in the right places, and not enough money in the right places because of inadequate plans or implementation capacity.
A social compact should resolve this dilemma. It sounds simple enough. To end extreme poverty, the poorest countries would develop and implement specific national strategies in areas like education, health, water and sanitation that achieve universal national coverage of a package of minimum basic services, like access to a functioning clinic, school, and safe water point. They would deploy as much domestic resources as they can afford. In exchange rich countries would commit to provide top-up financing.
But some developing countries seem to feel that it is too intrusive to have developed countries tell them they should spend money on essential services. This misunderstands the issue. In much the same way, many developing countries had early concerns that the MDGs would be policy strictures. As it turned out, the MDGs instead became a point of leverage to expand policy space for international cooperation. The same should be true of the social compact proposed in the Addis Accord.
In truth, a commitment to universal access to essential services is agnostic on the “how” questions of local delivery, as long as results are delivered. It thereby allows a broader policy space than exists today. For the poorest countries in particular, it permits upgraded service delivery ambition to meet the scale of the challenge, rather than continuing the shadow dances caused by inadequate current funds.
Low-income countries know there must be a true partnership where taxpayers, in their own countries and in developed countries, can see that money is being well spent in an environment where governments are working to modernize their own tax collections, stem corruption and curb illegal capital flight. The social compact must be based on a willingness to contribute domestic resources to the effort and a determination to spend these resources effectively.
Some developed countries argue they are not prepared to take on added aid responsibilities, or that they do not want to take on new international responsibility for their own domestic spending commitments. This too represents a misunderstanding of the basic issues linked to extreme poverty. Most advanced economies have long ago provided universal access to basic health, education, water and sanitation services. As we have argued elsewhere, the ODA requirements of a new social compact would fit within the bounds of reallocations to LDCs already promised. If anything, a social compact would help offset the excuse that there is limited absorptive capacity for ODA funds in these countries by encouraging countries to produce more ambitious plans. It would also of course allow donors to point to the impact of their ODA in helping end extreme poverty.
Some development agencies don’t like to make specific long-term commitments because they are constrained by their own domestic political and budgetary processes. But some solution must be found to allow them to commit to filling the most important long-term financing gaps to meet the most important part of the SDGs. Otherwise the world will simply continue with business-as-usual. Without addressing basic human needs, it is merely rhetoric to talk about ending extreme poverty or finishing the job of the MDGs.
The ultimate purpose of a new global social compact is to reduce wiggle room around the delivery of essential services—to ensure that coverage is universal and core services are delivered to all. The Addis social compact must be brought to life by translating the ambition into practical financing strategies. In doing so, the world can leapfrog the current situation, where discretion on all sides permits convenient finger-pointing at others when shortcomings arise. There can be no option but to start financing, with great urgency, the necessary steps to ending extreme poverty in all its forms, for all time, by 2030.