[enviro-vlc] Jeffrey Sachs: a blueprint for Bretton Woods II

[Vern Weitzel]

Subject: 	Jeffrey Sachs: a blueprint for Bretton Woods II
Date: 	Tue, 21 Oct 2008 13:57:51 +0700
From: 	nguyen mai <henmoc at gmail.com>



   Amid the rubble of global finance, a blueprint for Bretton Woods II


     A one-off summit limited to market regulation will not cut it.
     Durable reform must also tackle climate change and world poverty

Jeffrey Sachs <http://www.guardian.co.uk/profile/jeffreysachs>

*Jeffrey Sachs* <http://www.guardian.co.uk/profile/jeffreysachs>
The Guardian <http://www.guardian.co.uk/theguardian>,
Tuesday October 21 2008

The international financial system is broken. An integrated set of
reforms will be needed to achieve sustained economic growth and shared
prosperity. The G8 leaders of Europe, Japan and the US have agreed on an
emergency summit this autumn in New York to revamp the international
system - a good idea, provided it initiates a wide-ranging set of
changes rather than being a one-off meeting focused on market regulation.

The G8 leaders are keen to start on regulation and that is
understandable. Wall Street, the City of London and other financial
centres ran wild with undercapitalised borrowing and lending stoked by
over-the-top fees and bonuses. Alan Greenspan's Federal Reserve fed the
financial bubble with rock-bottom interest rates and regulatory
forbearance, when it had the chance to restrain it. And the derivatives
market was allowed to become so vast and unwieldy that there is no
clarity as to who owes what to whom in tens of trillions of dollars of
credit default swaps and other derivatives.

Risk assessments have been made enterprise by enterprise without
consideration of systemic risk. When institutions are "too big to fail",
they must be closely supervised so that indeed they don't bring the
entire system down when they do, from time to time, fail. And we have
learned again that there is no global lender of last resort, only a
hodgepodge of individual central banks and treasuries, whose individual
actions may be sufficient or not to stem a panic.

The G8 leaders must go well beyond the issues of financial regulation,
however. Even before the current crisis, the global economic system was
failing in crucial ways. Many poor countries remain cut off from global
prosperity, often falling into poverty-induced violence and conflict.
These will be still harder hit by the downturn. The global environmental
crisis was also worsening, and climate shocks were wreaking havoc with
world food supplies. Energy systems were in turmoil as the growing world
economy pushed against supply constraints, yet there was no consensus on
how to create an energy system compatible with the environmental and
economic needs of the planet. These challenges are in desperate need of
attention not only on their own merits, but also because global economic
growth cannot be sustained without solutions to these crises.

Financial assistance to the poorest countries - a lifeline for more than
a billion people - is in tatters. Europe and the US have mobilised
around $3 trillion in the past month in guarantees and bail-out funds
for the banks but failed to mobilise even one ten-thousandth of that
this year to help the world's poorest grow more food in the midst of a
massive food-price increase and hunger crisis.

The US has been blind to the millennium development goals (MDGs) on
fighting poverty, hunger, and disease. When George Bush addressed the UN
in September - supposedly the mid-point in achieving the goals - he
mentioned "terror" 31 times while failing to mention the goals even
once. All the big donors except Britain - including the US, Japan,
France, Germany, Italy, and Canada - are failing to live up to
long-standing aid commitments.

The leaders should pause to reflect that there is another
little-mentioned international summit scheduled for December in Doha,
Qatar, to take up the challenge of financing development. It comes six
years after a similar summit in Mexico, at which countries pledged
"concrete efforts" to achieve 0.7% of GNP in development assistance - a
level of aid none of them have yet fulfilled.

A true Bretton Woods II summit would set a financial framework to
achieve urgent global goals in macroeconomic stability, economic
development, environmental sustainability and trade for development. All
these are vital for long-term sustainable growth, but global goals in
all four areas remain unachieved. Summiteers should come with
chequebooks and international commitments in hand.

*Here, then, is an agenda for Bretton Woods II.* First, we need to
restructure global finance, based on an expanded system of capital
adequacy standards, financial reporting, system-wide risk management,
and new lender-of-last-resort capacities. Derivatives traders, hedge
funds, and broker dealers would be brought under regulatory control. The
IMF would be empowered to be a true global lender of last resort (as I
urged a dozen years ago, warning of the threat of self-fulfilling
panics). To make this possible, a small tax on financial transactions -
a Tobin tax - would be implemented to expand the IMF's war chest in case
of crisis and to fund other urgent international needs.

Second, the new global financial structure should help to rescue the
world from human-induced climate change. A straightforward tax on the
carbon content of fossil fuels, levied by all countries, would do the
job, and much better than the enormously cumbersome emission-trading
system concocted and championed by the same financial engineers who
brought us our current banking crisis. Most of the carbon-tax revenues
would stay at home in each country, to help finance low-emission
technologies. Some would be directed to finance three global public
goods: research and development on sustainable energy; transfer of
sustainable-energy technology to low-income countries; and
climate-change adaptation.

Third, the World Bank should be refocused with clear goals, and
accountability for their success. Specifically, the bank should have one
overarching assignment: helping the poorest countries achieve the
millennium development goals to reduce poverty, hunger and disease. The
bank is poorly organised for such leadership today. Like any
bureaucracy, it avoids being held accountable for measurable results.
With a tighter focus on the MDGs, the bank should also be supported with
much larger financial resources from new revenue sources (such as the
Tobin tax), so that the bank can better help the poorest countries
expand vital infrastructure (power, roads, water, sanitation and
broadband networks).

Fourth, the global trade agenda should be integrated with the finance,
and environment objectives. The Doha trade round has failed because the
world could not see any urgent reasons for its success. A trade
agreement worthy of the effort would do two main things. Importantly, it
would help the poorest countries to be more productive so that they can
be full participants in the global trading system. "Aid for trade" would
help these countries to build the skills, roads, bridges and clean power
grids to support increased trade. In addition, global trade would
promote environmental sustainability, to help enforce compliance with
reduced carbon emissions and protection of endangered biodiversity.

*All these reforms are vital for long-term sustainable growth and
development.* If the political leaders focus only on financial-sector
stability, but neglect the long-term problems of energy supplies,
climate change, food production, disease control and extreme poverty,
then global growth might be restored in the short term, only to succumb
quickly to another global bout of rising energy and food prices, and
geopolitical instability.

The shortcomings of the existing Bretton Woods institutions, global
environmental policies and international trading arrangements have been
widely recognised for at least a generation. The current global crisis,
and arrival of a new US president in the midst of this unprecedented
economic meltdown, may finally mark the moment when the world takes
seriously the urgent global economic and environmental agenda that
confronts us in this new millennium. A summit in December will be a
small step but could be the first meaningful action to steer the world
to safety from the dire threats we face.

• Jeffrey Sachs is director of the Earth Institute at Columbia
University and author of Common Wealth earth.columbia.edu
<http://www.earth.columbia.edu/>

_http://www.guardian.co.uk/commentisfree/2008/oct/21/globaleconomy-g8_
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