Warwick Economics Summit

Dear students,
Ladies and gentlemen:

It is a great pleasure to be part of this year’s Warwick Economics Summit. This is an excellent opportunity to exchange on some of the most pressing issues at such a critical moment in time: the international system faces existential challenges from protracted armed conflicts to climate change and economic and financial crises with substantial effects on livelihoods. At the same time, the international community has launched a set of new policy frameworks on sustainable development and its financing, on disaster risk reduction and on how to combat climate change and its consequences. To master this transition, innovative ideas and new ways of working are urgently needed. Business as usual is no longer an option.

I am not an economist. So I am not going to venture into a debate about economic theories. I would not dare to in the presence of distinguished experts in their field like the ones we have present here today. Instead, I would like to highlight the broader frame within which we should all, including economists, view the world if we are going to be successful at addressing today’s inter-related and integrated challenges. As the diversity of speakers at this conference shows: a conference on economics alone would not provide answers to today’s most pressing challenges.

At the heart of these challenges is a fundamental lack of trust in the integrity of institutions and leadership at the local, national and international levels. This applies to the economy, where the financial and economic crisis has shaken people’s confidence in the system especially here in Europe. But it also applies to many other domains. We need to restore the trust in our leaders and the institutions that govern societies across the world. We have to become better and more effective at fulfilling the expectations that people have in governance. For this to happen, we need to recognize and operationalize the connections across issues. The Sustainable Development Goals adopted in September last year at the General Assembly of the UN set the frame for the interlinkages of all aspects touching upon our lives. The 2030 Agenda for Sustainable Development goes beyond economics and points to other conditions that must be in place for sustainable economic growth to flourish.

The statement that “there is no development without peace, no peace without development and neither peace nor development without human rights” summarizes this very well. In a country like the United Kingdom, where you have come to take relative peacefulness and the protection of your human rights for granted, these connections are less apparent. Yet, when you discuss life-cycle models and other hypotheses in economic theory that depend on people’s expectations, you are required to think about the different factors that determine our economic choices. People who take it for granted that their human rights and physical safety are protected, for example, can invest their resources into more productive sectors. People living in other places under different conditions might not have the same choices after having spent all their income on basic needs such as water and food.

Let me give you a more concrete example that illustrates the connections between peace, rights and economic development in the most disturbing way: after five years of conflict in which some of the gravest human rights violations continue to be committed, the humanitarian situation in Syria is harrowing. According to the World Bank, Syria’s GDP is estimated to have contracted by an average of 15.4 percent per year between 2011 and 2014. Without sustainable peace and the re-establishment of functioning state institutions and the rule of law, we will not see any of the progress that Syria experienced in many areas of human development in the four decades prior to the war.

These numbers and the human tragedies they express underline the fact that non-economic and non-financial factors lay the ground for economic development. The comprehensive 2030 Agenda for Sustainable Development acknowledges this complex reality, not just in Syria but around the globe. By encouraging fact-based, interconnected approaches, this agenda provides a framework through which sustainable, fair and balanced progress can be achieved. To understand what this means, it is useful to look back.

The Millennium Development Goals adopted in 2000, on which the new agenda builds, were straightforward and concise. Agreement on the MDGs was crucial to shape consensus around development that simply had not been there before. Partly as a result of this, Official Development Assistance increased from 80 billion USD in 2000 to 135 billion in 2013 [in constant 2012 USD]. And for various MDGs, progress accelerated sharply. To name but one of the extraordinary advances, the number of people living in extreme poverty declined by more than half, falling from 1.9 billion in 1990 to 836 million in 2015.

Nevertheless, the important advancements that were achieved with the help of the Millennium Development Goals cannot gloss over the fact that some goals were only achieved partially. The world needed to push for more progress. Through inclusive consultations of all relevant stakeholders from Member States to civil society, the private sector, youth and academia, it was decided to tackle the remaining obstacles through a much more comprehensive framework. With 17 goals and 169 targets, the 2030 Agenda for Sustainable Development reflects specific integrated objectives and covers all major areas of social and economic development. Monitoring this large number of goals and targets and coordinating their implementation will be a major challenge. But I am optimistic that we can collectively overcome these hurdles. And if we do, we stand a good chance of eradicating extreme poverty the next one or two decades.

The main reason for this optimism is the fact that the new agenda allows us to operationalize the interconnectedness between different factors of development. I would like to highlight this with two of the 17 goals that hold particular promises to restore integrity at national and international levels. First, the inclusion of Goal 16 to “promote peaceful and inclusive societies for sustainable development, provide access to justice for all and build effective, accountable and inclusive institutions at all levels” is a major step forward. By including this goal, the international community recognizes the need to strengthen just governance across different levels and issues. Let me give you some examples that demonstrate the relationship between peaceful and inclusive societies, justice, institutions and sustainable economic development.

Our colleagues from the Office for the Coordination of Humanitarian Affairs estimated that the economic cost of conflict in 2014 was over 14 trillion USD or 13.4% of global GDP. These costs weigh heavily on the budgets of our Member States. And when choosing between investment into development and investment into the military, we know that a number of Governments today tend to prioritize the latter – especially when faced with increasing tensions in their neighbourhood. The Institute for Economics and Peace, for example, estimated in 2014 that the world’s direct expenditure on the military is more than 12 times the world’s expenditure on Official Development Assistance.

And it is not only development assistance that is struggling when it comes to ensuring adequate financing. Our humanitarian agencies are also faced with severe funding gaps. Despite the fact that governments are actually providing increasing amounts of money for humanitarian aid, the needs have outpaced supply so much that gaps continue to grow. At the end of last year, almost 50% of the global humanitarian appeal for 2015 remained unmet and in 2016, the appeal has reached an unprecedented 20.1 billion USD. The sad reality is that, 80% of the humanitarian work these days is undertaken in man-made conflict zones.

In the face of these numbers, it seems obvious that investment in prevention through targeted development assistance for education, strong institutions and the promotion of equitable economic progress for example could substantially reduce the risk of incurring the much higher costs of conflict. Prevention of conflicts, of natural disasters and of epidemics, will not only save many lives, but also prevent infrastructure and other important facilities crucial for the economy and prosperity of a country from destruction. This must be our priority if we are serious about achieving the ambitious targets that the international community has set. Prevention is the rational choice to make. We now need to move from paying lip service to actually doing it!

If we fail to do so, the decline of mutual trust, and confidence in our institutions at national and international level in the political and security domain, just like in the economy, will continue. When people see rules being broken with impunity by powerful Governments, multinational companies, state institutions or individuals, they find it hard to take talk about “accountability” and “good governance” seriously.

These tendencies are further exacerbated by the increasing economic inequality within societies. Many of you will have read the recent Oxfam report that pointed out that the richest 1% have now accumulated more wealth than the remaining 99% put together. These are impressive, not to say obscene, numbers, and there are many other dimensions through which inequality manifests itself. The promotion of gender equality, for example, has not yet been sufficient to eradicate differences in earnings between men and women. And with changing patterns in aging, distribution of wealth between generations is also becoming a major issue.

Why does inequality matter? It’s an issue of social justice. People want to live in societies that are fair, where hard work is rewarded, and where one’s socioeconomic position can be improved regardless of one’s background. Inequality, leads to a less stable, less efficient economic system that stifles economic growth and the participation of all members of society in the labour market and production chain.

This brings me to Goal 10 of the 2030 Agenda for Sustainable Development calling to “reduce inequality within and among countries.” The issue of redistributing income is of course a controversial one. But the reality is that policymakers are constantly engaged in acts of allocating resources, whether the question is setting the tax-level, establishing global targets for Official Development Assistance or for greenhouse gas emissions. Goal 10, and the wider 2030 Agenda for Sustainable Development incorporate these kinds of decisions into a broader framework that puts fairness and justice at the centre of the collective pursuit of prosperity in developing and developed countries.

To achieve these ambitious goals we need to think differently about the future. We have to start thinking differently not only in places faced with armed conflicts or poverty. Major sources of unrest such as injustice and inequalities, are also on the rise in Western countries, including here in the UK. We have to concentrate our efforts actively and preventively on the challenges and take into account some important trends, which I would like to touch on.

A first prominent trend is migration. Older economic models often treated the labour force as rather static and constant while money was considered much more flexible when moving across borders. However, just between 2000 and 2013, the total number of international migrants has increased from an estimated 150 million to 232 million persons and the numbers keep growing. This is not to say that people move as fast as money. The arduous journeys of more than 60 million refugees highlight this every day. But increasing mobility does affect economies and societies. Depending on the views of our politicians, more negative or positive effects are underlined. In some cases, the integrity of political leaders is lost in this debate, as refugees and migrants are “used” to score political points that often contradict research that shows that in the long run, the positive impact of migration in the host community and country of origin overrides short term costs.

At the same time, we see a trend towards more urbanization. It is expected that by 2050, around 75% of the global population will live in urban areas. This has significant implications for infrastructure, and the way we are going to be dealing with a whole list of issues such as health, education, agriculture, security, etc. It also leads to a shift in power when it comes to decision making. Mayors will play a more important role in the future and their relationship with the central government will be redefined. International Organizations, including the United Nations, need to accommodate such shifts.

A trend that is related to these population movements is climate change, quite simply because it will inevitably contribute to migration. While the Paris Agreement on Climate Change of last December was a historic achievement, its implementation will be a challenge. How to internalize the costs of climate change to save our planet from destruction, will be the central question in the coming years.

Technological advances will be crucial to help us overcome climate change and many of the other challenges. There are now about 7 billion mobile phones worldwide. The poorest households are more likely to have access to mobile phones than to toilets or clean water. This means by definition that governance will need to be significantly more inclusive. As more citizens have direct access to information, they can mobilize and challenge their governments when their most basic needs are not addressed properly.

At the recently concluded Annual Meeting of the World Economic Forum, the concept of the Fourth Industrial Revolution was much discussed, meaning a move towards an economy where digitized procedures replace established market structures. Just as with respect to governance, the relationship between consumers and producers will change significantly. And new market structures will continue to have important consequences for the nature of jobs and employment. It is for example likely that talent, more than capital, will represent the critical factor of production. This highlights the importance of education, but it is also a warning for a potential increase in inequality.

What does all this mean for the world? For one, it means that we have to work much better with what we have. Institutional change takes time but the technological, digital, economic and political transformations that we are witnessing, do not wait. A more horizontal and interdisciplinary approach will therefore be indispensable. Economists, for example, have to go beyond purely profit maximizing business plans and models. Each business has to contribute to a more just, inclusive and fair world. And each company has to place its actions within the Sustainable Development Goals frame.
New partnerships with parliaments, business, academia and NGOs, based on fair and goal-oriented relations must be formed and maintained. A change of working-culture will also have to happen at international, national and local levels. For this to happen, we will require agile, flexible and highly motivated minds. This is where you come into the equation !

If we incorporate these principles into our ways of doing business, I am convinced that the United Nations will become more relevant and needed than ever. The United Nations provides the much needed frame for sustainable development within which business and the economy can evolve for a more just world. To give you some examples from Geneva which is the operational hub of the international system: as the birth-place of the League of Nations, the city has attracted operational expertise and capacity across economics, humanitarian work, human rights, science, sustainable development, environment, mediation, internet governance and peacebuilding for the past 150 years. This network of expertise brings strong ability to generate the synergies needed in the new approach. The 2030 Agenda for Sustainable Development and the other ambitious frameworks can only be achieved if we work together.

Economic development is no longer the implementation of liberal economic policies without addressing other policy dimensions. It needs to be seen as part of a global shared responsibility. We have to see economic development in the wider context of an underlying trust-deficit, injustice and a fragmentation of governance at all levels that must be addressed across economics, politics, social realities and culture. Despite the gloomy news that we read daily at the moment, I remain optimistic that the new frameworks adopted last year, in particular the 2030 Agenda for Sustainable Development, enable such an integrated and coherent approach. Combined, they are our collective roadmap that may pave the way to restore the integrity of governance at all levels, strengthen prevention, address injustice and the trust deficit. Let me end on a positive note: the human race, on average, has never had it so good as it does today. We live longer, we are healthier, and we are better educated than ever before; this highlights what we stand to lose if we don’t get the governance question right. It will be your responsibility to make that happen. And I hope that we can count on all of you to be active partners in these endeavours.

Thank you very much!