He went so far as to state the sum of money – US$70 trillion from pension funds, insurance companies and sovereign wealth funds – that might be pressed into the service of critical objectives.
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The Indonesian village being swallowed by the sea
The Indonesian village being swallowed by the sea
This figure vastly outstrips the amount usually talked about in the context of government spending, and the plan might be challenged by some on the grounds that private investors would never agree to risk such sums.
The conventional view has been that expenditure on public projects is the liability of taxpayers, while individuals are free to spend or invest where they will, once they have paid their taxes. The idea that the flow of funds within a society is fungible has not really taken hold.
This is where the debate has been stuck until now in market economies, although China and other state-led economies that enjoy control of public and private revenues have been able to channel flows into areas like climate change and infrastructure.
In market economies, by contrast, taxes and government borrowing finance most public spending while private investors have to be cajoled into funding projects at the margin.
This is where Banga had something refreshingly new to say as he unveiled a “new playbook” for the 79-year-old institution now under his stewardship. It envisages multilateral institutions like the World Bank helping to guide private institutions to development projects, beginning with renewable energy projects to replace coal-burning power plants.
Hong Kong is well positioned to meet world’s climate finance needs
Hong Kong is well positioned to meet world’s climate finance needs
This would presumably involve some repackaging of World Bank loans into securitised ones acceptable to investment institutions. The bank envisages funds being directed by governments, financial institutions and others to a “Livable Planet Fund”.
In theory they could, but in practice they are not going to stump up more than a fraction of that amount without guarantees, and who is going to provide that? The task is beyond the reach of individual governments but not of multilateral institutions acting in concert and this is precisely what the World Bank plans now.
I have often commented that if multilateral development banks (including, in Asia, the Asian Development Bank, the Asian Infrastucture Investment Bank and the New Development Bank) did not exist, they would need to be invented.
As the head of the World Bank takes the idea of leveraging the power of multilateral development banks to new levels, the importance of this development cannot be overstated. As Banga said, all generations face challenges, but the challenges facing the current generation are unique and even existential.
In short, it’s pretty obvious to all but the most myopic that global financial resources are going to have to be mobilised “at scale”, as Banga said, to deal with these manifold threats if the world as we know it is to survive.
Why a workable Palestinian state is impossible
Why a workable Palestinian state is impossible
An alternative would be the spread of state capitalism and more authoritarian regimes as crises unfold. But if any kind of liberal economic order is to prevail, it will have to be via more serious public-private economic cooperation and Banga’s ideas are a good starting point.
There will no doubt be those in the financial asset management industry and elsewhere who have a vested interest in preserving the current investment freedoms and who will protest against the “financial socialism” implied by Banga’s plan.
But absent radical new thinking on how to close the yawning savings-investment gap as socio-economic challenges grow, investment freedoms will anyway be eclipsed by survival imperatives.
As Banga put it, “We must find a way to finance a different world where our climate is protected, pandemics are manageable – if not preventable – food is abundant, and fragility and poverty are defeated.” It’s hard, and indeed foolish, to argue with the logic of that.
Anthony Rowley is a veteran journalist specialising in Asian economic and financial affairs