Providing global public goods

While expounding the virtues of the market -- the "invisible hand" -- Adam Smith had nevertheless noted that there are certain products that the market will not provide "though they may be in the highest degree advantageous to a great society".

This is because "the profits would never repay the expenses to any individual or small number of individuals" to provide them. This was the genesis of the concept of "public" as distinguished from "private" goods. These are required to be provided collectively, that is by government.

Following Paul Samuelson's celebrated formulation, the two distinguishing characteristics associated with public goods are: one, they are "non-rival" in consumption, that is consumption by one does not diminish their availability to others, and two, "non-excludable", meaning, once provided no one in the community can be excluded from its benefits.

Employing the technique of marginal analysis, Samuelson demonstrated how resources should be allocated between private and public goods to maximise welfare, taking into account the preferences of the people and the costs of production.

The question, however, remained: who will decide which public goods should be produced and in what quantity? In the absence of a market, there was no mechanism for the revelation of the people's preferences in the case of public goods since everyone could "ride free".

In Samuelson's scheme of things, the decisions would be made by a "social planner". Years ago Wicksell had contemplated the political process --"voting"-- as a way out.

In democratic societies, its deficiencies notwithstanding, this, that is voting, has come to be regarded as the most acceptable way of expressing "public choice" and thereby deciding the content and quantum of public goods.

By social choice, certain goods, even when they do not meet the criteria of pure public goods, like primary education, have come to be regarded as fit for public provisioning by virtue of their "merit".

The size of the community or group benefiting from public goods, however, varies, depending on the goods in question. The benefits of public goods like the defence systems and national highways extend over the entire nation while those from others like local roads have a limited coverage.

Since public goods have to be chosen and paid for by those benefiting from them, goods with a narrow benefit span should be voted on and financed locally while those with a nationwide spread provided nationally.

There are also goods whose benefits extend beyond national frontiers across countries and regions, and which need to be provided globally by nations joining together.

These are the global public goods, which call for provision by nations acting together in common interests. Collective action by nations is required also to counter the harmful influence emanating from "public bads", like crime, violence, contagious diseases, and global warming.

Paralleling the extension of the domain of public goods to include merit goods, GPGs have come to include goods that do not meet the tests of pure public goods but are regarded as GPGs by global public choice.

Classic examples of GPGs by choice are the Millennium Development Goals, approved by the UN General Assembly, including eradication of extreme poverty and hunger, universal primary education, combating HIV/AIDS, malaria and other diseases, promoting gender equity and empowerment of women, ensuring environmental sustainability, and global partnership for development.

The need for cooperation among nations to provide GPGs has long been recognised, as is evidenced by the creation of the UN in 1945.

However, the need for concerted action to define and identify GPGs and devise appropriate institutional mechanisms for their provisioning has acquired urgency with globalisation breaking down national borders.

With the integration of financial markets, financial crisis in one country or region can now spread across the world in no time. Similarly, the outbreak of epidemics in one corner of the globe poses a threat worldwide.

Containing the contagion of currency crisis or spread of HIV/AIDS are matters of global concern and so constitute GPGs. Globalisation in turn has been driven by GPGs.

For instance, swift and safe air travel across the globe would not have been possible without efficiently coordinated civil aviation administration and infrastructure in all countries. Providing GPGs is thus critical for managing globalisation.

While there have been several initiatives in recent years to organise collective action among nations to address the challenge of delivering GPGs for managing globalisation, progress has been tardy.

An insightful paper by U Sankar, former director of the Madras School of Economics, shows how the existing institutional arrangements to address multilateral issues lack adaptive (dynamic) efficiency and have fallen behind rapidly changing realities.

There is a great need for a framework, the paper avers, "for defining, identifying, providing and financing GPGs".

Reflecting the recognition that GPGs are a key ingredient of globalisation and that no one nation can secure them on its own, the UNDP had commissioned a study titled "Providing Global Public Goods: Managing Globalization", inviting some of the best scholars of the world drawn from various disciplines besides economics to contribute.

Edited by Inge Kaul and three others, the volume, published in 2003, contains an exhaustive account and incisive analysis of the challenges arising from the task of securing a better provision of GPGs.

Providing GPGs, the volume notes, involves two closely related processes. One is political decision-making, whereby stakeholders concerned decide what to produce, how much, and how to distribute their benefits.

The other is production, involving financing or allocation of resources, private and public, to GPGs, and management to ensure that the goods are delivered efficiently and effectively.

Since GPGs affect all, equity demands that interests of all, particularly the weak and the vulnerable, are duly taken care of. A prerequiste for that is effective representation of those affected most by globalisation in the decision-making process.

Sankar's study examines the functioning of the existing institutional framework in providing selected GPGs through the lens of the GPG framework proposed by Kaul et al.

One is the WTO, the organisation generally hailed as a democratic organisation committed to upholding a fair trading regime.

The other is the Framework Convention and Climate Change, instituted to secure reduction of greenhouse gases to acceptable levels.

The finding in both cases is that the objectives have been in jeopardy because of the failure on the part of developed countries to honour their commitment and their tendency to find excuses for discriminating against developing countries in the matter of trade by invoking stricter environmental and labour-use standards, and so on.

At bottom, the problem lies in the persistent imbalances in decision making in multilateral organisations entrusted with the task of providing GPGs.

This is brought out most starkly in one of the papers in the UNDP volume analysing the allocation of "quotas" among member countries of the IMF.

The quota of even China, the second-largest economy in the world, is smaller than that of the Netherlands and similar to that of Belgium.

Even in multinational arenas where all countries have a seat, decision making is done by an inner circle of countries, leaving others out.

As Sankar says, "We need mechanisms for effective participation by developing countries, both at the rulemaking stage and at the implementation stage, to enable them reap the benefits of multilateral agreements".

Given the power equations, it would be idle to expect in the foreseeable future any dramatic change in the institutional arrangements that are supposed to provide GPGs that a globalised world requires.

And so the protests of civil society, like in Seattle in 1999, will probably continue. Meanwhile, the developing countries would do well to get themselves better prepared to make their presence more forceful in the multilateral arena so that the GPGs designed at their conclaves truly serve the objective of tackling the challenges thrown up by globalisation.