CHAPTER 15
Using the Financial Cement
Reaching a state of sustainable development requires effective governance. Our working group on water says,
To understand this connection, is as simple as remembering that the word “sustainable” means more than just “durable,” but also acceptable, feasible, viable, livable; in short, it implicitly refers to compromise. The philosophy attached to sustainability (in the sense of viability) suggests that only compromise is lasting. It is not the correctness of a policy that makes it endure, but rather the concessions by which each player gives up something in order for everyone to benefit collectively.1
To make it possible for everyone to benefit collectively is the challenge of international cooperation, a cooperation between every level in this world, in which we are all involved; no problem can be solved by acting solo anymore. This is also the whole meaning of a reinvented finance: to learn (or relearn) to work together has never been as vital over the past 70 years as it is today.
There is nothing obvious about this working together in practice. Everyone—in the public, private, or civil sectors—will have a cultural revolution imposed upon them, in which we have to move away from the silo mentality. It’s worth the effort. The tool of finance can help us. It can help deliver some early wins to help different constituents embrace the collective approach that, at the same time and critically, is respectful of individual goals and objectives.
No 100 Percent Public or 100 Percent Private Funding
The momentum of 2015 surrounding the SDGs, development finance, and climate finance demonstrated that the global community has been awakened to the need to collaborate on the most complex and essential projects. Coming from all aspects of society, fed as much by governments as by civil society, financial players, multinational corporations, small and medium-size enterprises, consumers, savers, and multilateral institutions, the momentum demonstrated above all that this union of forces was possible.
We need to keep this momentum going now during the implementation phase, while we make good on these goals for 2030. Nothing is guaranteed from where we stand, especially with the rise of populism and nationalism. But one thing is certain: no SDG, whether it concerns poverty, education, healthcare, infrastructure, or the climate, can be achieved through 100 percent public or 100 percent private funding. None of these problems can be resolved through only public, private, or civil action. To work toward inclusive growth, to allow countries like Mauritania to free themselves from the “curse of iron”—that is, an excessive dependence on one resource—and diversify their economies by developing their fishing resources, for example, requires the engagement of all the players on the same course. This is a multistage course including all of the world’s levels, from the global to the local.
A Primary Responsibility for Governments
But this is a movement in which governments must be the primary players. The From Billions to Trillions report says, “Countries must be in the driver’s seat, leading the development process and the construction of nurturing, supportive environments.” National leadership, as well as regional, continental, and global leadership, is key to putting countries on a viable trajectory toward development.
One example of effective leadership can be seen in the revival that Côte d’Ivoire is currently experiencing, one of the most interesting stories of modern African history. After the “Ivorian miracle” of the 1960s and 1970s under the presidency of Félix Houphouët-Boigny (the “cocoa king”), the country was plunged into a long and painful civil war. The gains of the preceding decades were largely lost. But the election of President Alassane Ouattara in 2011, confirmed by his first-round reelection in 2015, has given birth to new hope. The pairing of President Ouattara and his former prime minister and now vice president, Daniel Kablan Duncan, is one of the most inspiring that I have ever seen. The partners were able to base their policies on a long-term vision of the future (a vision of making Côte d’Ivoire an emerging economy in just a decade), as well as a detailed understanding of both international mechanisms and local realities. This integrated, clear, and confident leadership, simultaneously demanding and dedicated, ambitious and humble, and in touch with the rest of the world, has contributed hugely to the reconstruction of the country. Whether you look at the political plans for national reconciliation (although the process has not yet been implemented), domestic security with army reform, human rights, the fight against corruption, or the economic plan with the reform of the coffee-cocoa subsidiaries or infrastructure rebuilding, the results are palpable: Côte d’Ivoire has registered nearly 9 percent growth every year for five years. Every time I was assigned to Abidjan, I was shocked by the transformations taking place in the Ivorian capital. Although nothing ever seems to get finished and there are still many pending economic and political issues, the progress has nonetheless been impressive.
Another example is Colombia, which owes much of its current emergence to its leadership team (including Mauricio Cárdenas Santamaría, a brilliant minister of finance, and Sandra Bessudo, an environmental activist, both of whom I am proud to have developed a friendly relationship with). Colombia is one of the most sophisticated countries I have had the opportunity to explore, despite my French prejudices associating the country with the Revolutionary Armed Forces of Colombia (FARC), which kidnapped Íngrid Betancourt, and drug trafficking. It came as no surprise that the Nobel Prize was awarded to President Juan Manuel Santos. Colombia also now has one of the most comprehensive plans to implement the SDGs.
Governments Unable to Do It All Alone
But we cannot expect governments to do everything. We cannot make governments that are already heavily in debt take on the entire responsibility for building physical, social, or even financial infrastructures. The future of sustainable development for our planet requires us to also mobilize private capital, whether that means local savings, investments of all kinds, or migrant transfers, and leverage this capital to mobilize supplemental funds in a healthy and sustainable manner.
We cannot expect the markets to do all the work, either. As our water group says,
[The market] risks, guided by the exclusive consideration of profitability, [overlook] ever-essential human needs. There are enormous areas the market will never reach. It is in those . . . that we must seek the best source from which to draw budgetary resources that advanced economies have committed to allocating as official development aid and powerful instruments of cooperation that we have had in place for more than 50 years in the global plan, and more recently within Europe. . . . That said, we cannot limit the use of public funds to the role of a stopgap where the private sector dares not tread. It is better for them to create, as adeptly as possible, powerful leverage that they can use as a potential catalyst: 100 units of private funds plus 50 units of public funds can create much more than 150 units for the beneficiaries.2
But it is important that this public effort “not only not let other actors abstain from or decrease their contributions, but even better, work as a powerful catalyst. Hence the importance of using this aid to facilitate their grants rather than replacing them, by avoiding fully financing these projects or programs through subsidies, which runs the risk of eliminating local initiatives.”3
In short, the SDGs and COP21 objectives require capturing the potential of all sources of finance available to the world, and thereby leading to the cooperation of all types of players.
Painful but Profitable: A New Way to Mobilize Finance
It goes without saying that this whole operation is easier said than done. Getting players with opposing interests and cultures to work together is complicated. So is “[lifting] the unspoken restrictions of joint use of official development assistance and private funding. There is an old fear that such an approach would introduce a sort of contamination of profit to the pure, supposedly immaculate operations led by the public sector.”4 As comical as this prejudice sounds, it is tenacious and cannot be ignored, any more than we can ignore the suspicions that the private sector holds of the public sector being slow and bureaucratic, unreliable and corrupt, or that civil society holds of the two other points on this triangle. The current crisis of confidence has exacerbated this reciprocal and historical mistrust.
If we are to move past that mistrust, we must tackle these difficulties head on and acknowledge that cultural adaptation is necessary. These conflicts of interest can be real—the mission and goals of the public sector and civil society are not the same as those of the private sector. We have to find concrete solutions—such as the price of carbon—to reconcile the parties with one another. We also have to concede that no one point of the triangle is the keeper of the truth, or the keeper of making an effort to see the situation from the other’s point of view in order to better understand expectations. And we must not believe that only developing countries—that are thought to be corrupt by many—are creating the problems. Just look around you: What do you think is the most “honorable” country in the world? Generally, the answer is Norway, Switzerland, or Singapore. Yet Norway recently saw breaches of a public– private partnership (PPP) on a gas transport project (the tariff, for example, had been changed by the government along the way). By contrast, Senegal was able to successfully complete a roadway project between Dakar and the airport, in collaboration with the World Bank using a PPP that is widely considered as exemplary and is now being expanded. The world is not split between PPPs that succeed in the North and those fail in the South. The reality is much more complex. We must all remember this now, at a moment when the United States is considering a big push to fix infrastructure using the PPP technique. In these highly political and sensitive projects, compromise is everything: public-private cooperation can be demanding and labor intensive. In short, it can be painful.
But the many questions that such cooperation raises should not be an excuse to do nothing, as I have heard too often, any more than they can be considered irrelevant. We should also not create a new Washington consensus on public– private partnerships and impose it in every case, when it is often unsuitable. The PPP cannot be just another silver bullet offered to address every problem. But we must be able to recognize the benefits of collaboration in many complex cases in which partnerships can move things forward. Collaboration may be painful, but it will be profitable!
These projects ask that we find the right regulations, the proper tools, and the appropriate places to resolve conflicts. The ability to collaborate should be maintained with cooperation forums (meetings where public, private, and civil society institutions work together to see how they can better cooperate). Above all, the two parties must be trained to use the multidimensional approach I call “P4C” (painful but profitable public-private cooperation), because it is one of the most promising paths for future development. I found it reassuring to see the record number of registrations in the first massive open online course (MOOC; free, web-based educational courses) on PPPs given in 2015 by the World Bank Group (almost 30,000 people from more than 100 countries).5
A Question of Methods
A gap has widened in recent decades, particularly in the aftermath of the financial crisis and whistleblower disclosures, between the Davids and the Goliaths—the common people and the elites, the citizens and the government, consumers and corporations.
Nonetheless, we can patch things up once we emerge from the enlightened dictatorship, in which we put faith in fortuitous men, despise the common man, and divide to conquer. My experiences working with the water group and on international financial innovation to increase solidarity have taught me that even the most different people can have a dialogue, that the most divergent interests can be reconciled, and that the most complex questions can be resolved. What are required are (1) the challenge is great enough or inspiring enough to enrich our intelligence and good will; (2) every person consents in good faith to come together around the table; (3) the respective differences and expectations are stated, acknowledged, and explained to the group; and (4) the timeline can be adjusted and agreed upon.
Breaking the Ice with 20 Experts on Water
I have already described how, after 15 months of discussion, our working group on water came to suggest more than 80 measures to finance access to water for all: these individuals, who at the start were in complete opposition (the first meeting was not just cold—it was glacial), ended up coming to an understanding on the essentials. We have Michel Camdessus’s genius to thank for this result and for knowing how to implement a method for negotiation based on commitment, explanation, honesty, coherence, mutual respect, curiosity, inventiveness, goodwill, and good faith.
Unanimous Support for a Tax That Nobody Liked Initially
The reception to the Landau report was an attempt to test the application of this method. President Chirac, at the height of his popularity (particularly because of his opposition to the war in Iraq), hoped to welcome bosses, unions, and civil society in turn before the G8 summit in Évian, France; April 30 was civil society’s turn; all the major French and international NGOs headed to the Élysée Palace: Amnesty International, Greenpeace, ATTAC, Doctors without Borders, and more. The meeting was organized for the end of the day with the generally understood intent of it not lasting late on the night before a long weekend. The atmosphere was good natured but also hopeful and proud. It was two and a half months after Dominique de Villepin’s speech at the UN.6 Each NGO in turn took the podium to draw the president’s attention to the topic it worked on and that the G8 could help address; these included water, biodiversity, disabilities, human rights, women’s rights, and children’s rights.
The representative from ATTAC (Association for the Taxation of Financial Transactions and Aid to Citizens) was one of the last to speak: “Mr. President, you are aware of our strong beliefs, and we hope that you establish a tax on international financial transactions in order to finance development.”
Jacques Chirac responded, “You know what I think? I am not in favor of that tax. . . . And yet you pose a real question: We must find a way to finance global solidarity. We will do something, and I will include you in it.”
The meeting was ending, or more like dissolving given the great number of people slipping away to start their weekend (an imperative that was manifestly more important than the agenda for the French president, too!). Maurice Gourdault-Montagne, chief diplomatic adviser and sherpa for the G8, asked the president, “But what is it we will do?” The president’s commitment to ATTAC had been totally unexpected.
“Sort it out, Maurice, I kicked off the idea.”
Maurice then turned to Jérôme Bonnafont, the adviser in charge of globalization, and me: “Your turn, kiddos!”
That was how I ended up suggesting to the table of experts from all areas, skill sets, and the most diverse interests, the mission to find a sensible solution to a fundamental question. The working group, led by Jean-Pierre Landau, was composed of managers from ATTAC, Agence française de développement (AFD), Oxfam, the IMF, employer groups, ministries of finance, and large corporations.7 These individuals were not in agreement about the tax idea before-hand—the British, in particular, tended to think it was a truly French idea. And as far as figuring out what to tax—that took more than six months of work. In the end, though, the method paid off: the members of the Landau commission unanimously supported the final report, and all took part in the press conference to present what could become a promising financial invention of the 21st century: a tiny levy—raised in different countries on a product or service—that, thanks to its sheer volume, can help mobilize significant resources to finance a global public good.
Michel Camdessus and I had a similar experience in 2005 when we edited Le sursaut—Vers une nouvelle croissance pour la France (The wake-up call—a new French expansion), a report commissioned by Nicolas Sarkozy, then minister of the economy, finance, and industry.8 The mission given to our working group was to “contribute to the clarification for the French people and their national representatives of the forthcoming economic and budgetary choices to encourage growth.” I gathered around the table with other experts from the academic, NGO, corporate, and union fields. Upfront, consensus was unlikely, but the participants spent time together, tried to bring out the best of all of us, joined forces, and asked one another, “I get where you’re coming from, so how would you manage this issue yourself?” In the end, we got definite results. The discussions I am currently having with Gordon Brown on education, and with Jean Todt on road safety, are continuing in the same spirit. How can we mobilize resources to finance these common goods?
Reforming the World Bank: Joy, Pride, and Frustration
The financial reforms enacted between 2013 and 2015 at the World Bank allowed me to further refine the method, in the sense that the resistance I encountered taught me a few lessons. The first and most important lesson is that when we want to force a change, we first must have a plan—a credible plan with a set deadline. Only with this condition in place (credibility) will people be prepared to grant you credit. You can never lose this group perspective. If one reform is made through compromise, with as many advantages as disadvantages, then you run the risk of losing sight of your goal if you do not keep the overall picture in mind. This does not mean that negotiation is impossible, but it has to maintain a sense of overall balance. The second lesson is that when there is urgency, it is better to abandon points that specific parties find unacceptable and move forward rather than discussing things ad nauseam. The third lesson is that you must ensure that all participants understand the particulars of the reform, and that each side understands the opposite point of view. You need to make an effort to clarify ambiguities and not take for granted that everyone understands you. In the case of the reforms at the World Bank, I probably overestimated the general understanding of the financial model of the World Bank, as well as the financial literacy of participants. We should have spent more time explaining the why, rather than the how—we probably don’t talk enough about these things. Sometimes being chatty is a good thing! Finally, I learned that you have to leave room for dreams and enthusiasm, which is the role of innovation. But you also then have to be able to quickly show results.
I had an equally instructive and surprising conversation in this vein with two cardinals and with Jean-Baptiste de Franssu, director of the Institute for the Works of Religion, commonly known as the Vatican Bank. We found many similarities among our respective institutions’ finances, and beyond that, between the Vatican and the World Bank, which were both going through a time of reform: the same complexity of global organizations, the same problems of communication and goal sharing, and more. I never would have dared make such a parallel before that conversation.
These organizations, particularly the MDBs, are commonly misunderstood to be opaque, secretive groups. The reality is more that they are dogged by bureaucracies, which have received fresh coats of bureaucracy at regular intervals without scraping off the old, defunct policies and processes. They often require a shock to the system and a reenergizing of the resources that drive them. When we get those factors aligned, then the results can be spectacular.