Presentation

by

Inge KaulSenior Policy Advisor

Office of Development Studies (ODS)

GGööttingen - 5 January 2006 ttingen - 5 January 2006

United Nations Development Programme

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People’s wellbeing depends on private goods and public goods

Public goods are goods that are in the public domain because:

they are non-excludable;

they were made public by design;

they are in the public domain by default, neglect, or lack of knowledge.

Private goods are typically traded in markets:

they tend to be excludable;

they have clearly identified owners;

they tend to be rival in consumption.

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Public goods have undergone important changes

Some goods have been shifted from the private Some goods have been shifted from the private sphere into the public domainsphere into the public domain

Other things have moved the other way round—from Other things have moved the other way round—from the private into the public domain (e.g. “no torture”, the private into the public domain (e.g. “no torture”, “no CFC emissions”, “no corruption”)“no CFC emissions”, “no corruption”)

And more and more public goods have been And more and more public goods have been globalizedglobalized—turned from national into transnational —turned from national into transnational public goodspublic goods

→ → Publicness and privateness are not innate Publicness and privateness are not innate

properties but a policy choice.properties but a policy choice.

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The globalization of public goods has occurred due to a number of factors

Removal of at-the-border barriers (e.g. to trade, Removal of at-the-border barriers (e.g. to trade, capital and labour flows)capital and labour flows)

Enhanced mobility of and connectedness among Enhanced mobility of and connectedness among nonstate actors (business and civil society)nonstate actors (business and civil society)

Increasing (intended) crossborder economic activityIncreasing (intended) crossborder economic activity Increasing crossborder spillovers (externalities)Increasing crossborder spillovers (externalities) Growing Growing external expectations external expectations —formulated by —formulated by

various actor groups various actor groups —concerning “good” national —concerning “good” national public policy, falling into public policy, falling into two main clusterstwo main clusters..

→ Growing political pressures towards policy harmonization behind national borders, or put differently, the globalization of public goods.

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The following graphs demonstrate the globalization of public goods visually

Public goods provision under conditions of the Public goods provision under conditions of the conventional nation stateconventional nation state

Openness Openness and policy alignment occursand policy alignment occurs NonstateNonstate actors actors become more mobile (and hence, become more mobile (and hence,

develop a greater interest in crossborder policy develop a greater interest in crossborder policy harmonization)harmonization)

Due to enhanced openness of the border lines Due to enhanced openness of the border lines between the public and the private sectors as well as between the public and the private sectors as well as enhanced openness of national borders public goods enhanced openness of national borders public goods provision becomes a complex multiactor process, provision becomes a complex multiactor process, nationallynationally and and internationallyinternationally

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Some implications that flow from the globalization of public goods

1.1. The role of the state has changedThe role of the state has changed

2.2. The nature of international cooperation has The nature of international cooperation has changedchanged

3.3. Many public policy issues (e.g. risk Many public policy issues (e.g. risk management and climate stability) are too management and climate stability) are too big for governments to address them alone, big for governments to address them alone, either individually or collectively. Markets either individually or collectively. Markets have recognized these new business have recognized these new business opportunities. New products have come on opportunities. New products have come on stream.stream.

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The role of the state has changed

States are no longer States are no longer the the overarching institutionoverarching institution States (and countries, not only firms and other States (and countries, not only firms and other

individual private actors) are in rivalry with each individual private actors) are in rivalry with each otherother

States no longer enjoy (if ever they did) unique States no longer enjoy (if ever they did) unique powers to coerce (e.g. levy taxes or enforce powers to coerce (e.g. levy taxes or enforce norms); other actors have also strong enforcement norms); other actors have also strong enforcement powers, due to increased exit opportunities (to powers, due to increased exit opportunities (to leave or shy the country) or voice opportunities (to leave or shy the country) or voice opportunities (to network and make their views known).network and make their views known).

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The nature of international cooperation has changed

International policy formulation/norm setting is no International policy formulation/norm setting is no longer merely an intergovernmental process but now longer merely an intergovernmental process but now a multiactor processa multiactor process

The operational arm of international cooperation has The operational arm of international cooperation has now three strands:now three strands: Foreign aidForeign aid The provision of global public goodsThe provision of global public goods Trade in new products such as “pollution permits” Trade in new products such as “pollution permits”

or “biodiversity preservation”.or “biodiversity preservation”.

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Many public policy issues (e.g. risk management and climate stability) are too big for governments to address them alone, either individually or collectively. Markets have recognized these new business opportunities. New products have come on stream, including:

Futures and options (e.g. to manage commodity price Futures and options (e.g. to manage commodity price volatility orvolatility or foreign exchange risks) foreign exchange risks)

Sovereign bond indexationSovereign bond indexation Catastrophe bondsCatastrophe bonds Terrorism insuranceTerrorism insurance Emission allowance/reduction creditsEmission allowance/reduction credits New types of guarantee instruments New types of guarantee instruments Macro securities, and Macro securities, and New forms of health and unemployment insurance.New forms of health and unemployment insurance.

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Some policy issues for further debate 1.1. Globalization appears to be moving into an era of more Globalization appears to be moving into an era of more

stability. But don’t forget: Enhanced stability and benefit-stability. But don’t forget: Enhanced stability and benefit-sharing is to be accompanied by greater openness and sharing is to be accompanied by greater openness and competitiveness, as the previous graph of the competitiveness, as the previous graph of the policy clusters policy clusters has shown. has shown. The The industrial countries, in particular, may now have to get ready industrial countries, in particular, may now have to get ready to meet the growing pressure of the more advanced to meet the growing pressure of the more advanced developing countries. Are they ready?developing countries. Are they ready?

2.2. If there now is besides conventional aid also “global public If there now is besides conventional aid also “global public goods provision” and “trade in new global services/products”, goods provision” and “trade in new global services/products”, are countries like Germany institutionally prepared for these are countries like Germany institutionally prepared for these new types of international cooperation?new types of international cooperation?

3.3. Does there (still) exist a notion of “public domain” and “public Does there (still) exist a notion of “public domain” and “public goods” in the mind of the general public? In the mind of public goods” in the mind of the general public? In the mind of public policy makers?policy makers?

4.4. Preferences for private and public goods vary, for good Preferences for private and public goods vary, for good (economic) reasons, nationally and internationally. Do we (economic) reasons, nationally and internationally. Do we have the right international institutions to discuss the new set have the right international institutions to discuss the new set of policy challenges—global, transnational issues?of policy challenges—global, transnational issues?

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For More Information:

• www.gpgnet.net• www.globalpublicgoods.org• www.undp.org/ods

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Cover design forThe New Public Finance:

Responding to Global Challenges”

(Oxford University Press 2006)

How to define global and regional public goods?

Global public goods are public goods that do not "respect" national borders: their benefits or costs may extend across several groups, countries, people and generations.

Regional public goods are goods whose Regional public goods are goods whose benefits or costs may extend across a benefits or costs may extend across a (geographic or otherwise depicted) group of (geographic or otherwise depicted) group of countries.countries.

3.1Return

The proliferation of indices measuring the performance of governments

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10

20

30

40

50

60

70

Up to 1970 1971-1980 1981-1990 1991-2000 2001-present

new

indi

ces i

n th

e pe

riod

0

20

40

60

80

100

120

140

cum

ulat

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new indices in the period cumulative

Return 4.1

The international public policy domain

> 2000 multilateral treaties

> 2000 bilateral investment treaties

≈ 250 regional trade agreements

≈ 60.000 international CSOs

plus…

4.2Return

Clusters of external expectations about national public policy

Competitiveness

• Opening the borderlines between markets and states• Encouraging competition

between state levels• Fostering competition within the

bureaucracy• Promoting competitiveness

between nations

Development

• Human development, notably poverty reduction

• Respect for human rights•Democracy

•Protecting and insuring individuals against idiosyncratic

risks

Security

• Protecting and insuringthe country againstnatural and political

external shocks• Managing cross border

spillovers

Openness

• Removing at-the-border policy barriers

• Instituting nondiscrimination between foreign and domestic

actors• Harmonizing market-supporting

institutions• Fostering transparency and

accountability

Cluster I

Cluster II

Return to globalizationReturn to policy 4.3

Westphalian Nation State with Closed BordersWestphalian Nation State with Closed Borders

Country A Country B

E.g. legalframework

5.1Return

Westphalian Nation State with Open Borders

Country A Country B

Spill-in

Spill-out

5.2Return

InternationalPublic Domain

NGOs FirmsGovernment

NG

Os

Firm

sG

ove

rnm

en

t

NG

Os

Firm

sG

ove

rnm

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t

NGOsFirms Government

Foreign policy/foreign affairs

5.3

International Interactions of Actors in a World of Open Borders

Return

Public goods are not only public in consumption but also in production:

The production path of national public goods

Return 5.4

The production path of global public goods

Return 5.5

Preferences for global public goods vary

Continued 10.1

Continued…

Summary of results from distribution-sensitive global public good assessments(billions of U.S. dollars in net present value terms unless otherwise stated)

Return 10.2

Mismatch between the circle of decisionmakers and stakeholders

Decisionmakers

Stakeholders

E.g.: Decisionmaking on international financial architecturereform and new codes and standards

Financial Stability Forum: Financial Stability Forum:

40 members.40 members.

Approximately 200 countries. Approximately 200 countries. Private sector. Public at large.Private sector. Public at large.

Return 10.3