When the G-20 met in Cannes last week, protesters naked but for green Robin Hood caps gathered elsewhere on the French Riviera to demand a financial transactions tax -- a payment made on each bond or stock purchase, which in theory would tame the excesses of banks and hedge funds and claw back some of the costs of the mess they have made of the global economy. The protesters might have been surprised to hear that inside the G-20 meeting, a fully clothed Bill Gates was suggesting exactly the same thing.
In a break from their regularly scheduled hand-wringing over the state of global financial markets, world leaders listened to Gates's suggestions for public financing of global development in what Gates admitted was a tough environment for aid funding. He suggested that a financial transactions tax, alongside additional taxes on tobacco and carbon, could be used to help rich countries meet a global target of committing 0.7 percent of GDP to development aid. He suggested that aid "is a small investment that generates a huge return" and that such investments were precisely the ones that should be spared during cuts. Nevertheless, as the G-20 met, the charity group Oxfam was predicting that aid funding was likely to fall by nearly $10 billion in 2012, the biggest decline in 15 years.
The outlook is particularly grim in the United States, where traditional aid is on the congressional chopping block -- 165 House Republicans want to close down the U.S. Agency for International Development altogether -- and the new financing ideas Gates has proposed appear to be non-starters. U.S. representatives at the G-20 meeting balked at the idea of a financial transactions tax, arguing instead for a "financial crisis responsibility fee" that would tax liabilities of the largest financial institutions to repay the costs of the Troubled Assets Relief Program. Meanwhile, the new trade treaty the United States has signed with Colombia zeros out tariffs on U.S. tobacco imports -- not quite the fiscal direction Gates was proposing for tobacco taxes. And of course, the U.S. Environmental Protection Agency has yet to use its authority to regulate greenhouse gas emissions.
The good news is that the United States (and, for that matter, everyone else) could be doing a lot more for development without spending more money -- and in some cases even saving it. Congress could cut the aid cake but make what's left far more appetizing -- and the United States could take baby steps toward trade and immigration reform that would help poor people lift themselves out of poverty. There might even be the votes on Capitol Hill to do it.
As Gates emphasizes, focus and selectivity are key to improving development aid. A lot of aid goes to comparatively rich countries, and a lot of it is still tied to purchasing goods and services in the donor country. And the aid process can be immensely inefficient. Back in 2005, the club of donor countries called the Development Assistance Committee met in Paris to agree on five principles to make aid more effective, along with 13 targets to help meet those principles by 2010 -- things like making sure aid is actually part of the budget process in developing countries, rather than an uncoordinated add-on, and trying to focus donor efforts so that each ministry in a developing country isn't dealing with 40 different aid agencies each giving a sliver of cash. By 2010, donor countries had managed to meet only one of the 13 targets -- the one that involved talking to each other more. In times of strapped resources, one way rich countries could improve aid's bang for the buck would be to work on meeting some of the other 12. For the United States in particular, just two reforms -- ending the requirement that three-quarters of U.S. food aid must travel on U.S.-flagged ships and buying more food in local markets -- would considerably increase the impact of aid while saving around $400 million a year.