Destination: Socially Sustainable Development. Will Addis Lead the Way?

This contribution is published as part of the Think Piece Series The Road To Addis and Beyond, launched to coincide with the third and final drafting session of the outcome document of this summer's Third International Conference on Financing for Development. In this Series, global experts discuss a range of topics complementary to the UNRISD research project on the Politics of Domestic Resource Mobilization on how to fund social development and raise provocative or alternative perspectives that can generate further ideas and debates. Please share your thoughts on this article in the comments space below.

In this concluding think piece of the Road to Addis and Beyond Series, UNRISD Research Coordinator Katja Hujo brings together some of the main strands of argument covered by contributors and situates them in relation to UNRISD research, highlighting the importance of the politics of tax reform over and above the technicalities of reform blueprints. The piece concludes by outlining promising routes to more and better finance at the national level as well as blind spots to be aware of, and provides a concise, compelling view of what direction the road beyond Addis should take if we are to arrive at the destination set out in the sustainable development agenda for people, planet and prosperity.

Katja Hujo is Research Coordinator for the Social Policy and Development Programme at UNRISD

The Road to Addis …

The UN recently accomplished another important step in the process of launching a new global sustainable development agenda: the Third Financing for Development Conference, which took place on 13-16 July in Addis Ababa, produced an Action Agenda meant to pave the way for financing and implementing the Sustainable Development Goals (SDGs). In the run-up to the conference, UNRISD set out on the “Road to Addis and Beyond” together with scholars, UN partners, civil society organizations and NGOs, inviting them to contribute to a Think Piece Series, providing their ideas, expectations and demands for this conference, and reflecting on its outcomes and ways forward. With its global convening power, UNRISD was able to provide a platform for voices from the North and the South, for analysts and activists who are determined to make this future development agenda a success for “people, planet and prosperity”, as current UN parlance has it, by putting it on a sustainable and progressive financial footing.

… and Beyond

The new global financing framework for the 2030 agenda still has to prove that it will really contribute to substantive transformation which eliminates the structural barriers to more inclusive, democratic and sustainable development. Some disappointment about the results of the negotiations has already hit the news and is taken up in our Series, such as the failure to create a UN tax body (Montes) or a Global Social Protection Fund (Cichon), and the inability to agree on more concrete commitments and timelines (Kaul and Blondin). There was also scepticism for example about the proposed increased role of the private sector (Caliari), the instrumentalist take on gender equality (Bidegain, Durano and Rodríguez Enríquez), and the missed opportunity to move aid debates towards a more timely understanding of the roles of global public finance (Hurley). On a more positive note, an important outcome of the Addis Ababa Action Agenda (AAAA) is the up-front commitment to a new social compact and to delivering social protection and essential public services to all. And while this pledge is not entirely new in financing for development documents, what is novel in the AAAA is a more visible emphasis on domestic resource mobilization and taxation as the key instrument to finance this social compact and the 17 objectives of the new SDG agenda.

This is first and foremost good news. UNRISD research has for many years highlighted the need to link debates on social policy with financing (Bastagli). There is also considerable research evidence on the positive aspects of taxation, such as:

• stable and predictable revenues;
• potentially positive impacts on state-citizen relations;
• state accountability;
• more egalitarian redistribution of income and wealth; and
• incentivizing more socially and environmentally sound investment and consumption.

Reckoning with the politics of tax reform

However, for these positive effects to materialize it takes more than a tax reform blueprint and improved tax administration—typical entry points for international advisors and technical cooperation missions, and emphasized in the AAAA as an area of capacity building. In the end, it is the politics of tax reform, at both national and global levels, which will be critical. It is through these political processes that key actors in negotiations are determined, and that crucial policies and institutions are shaped. They influence how rigorously policies are implemented and monitored, and how tax money is spent. Another pitfall of focusing narrowly on domestic resource mobilization is the tendency to neglect the powerful influence of the international context: the global economy, the behaviour of multinational companies and international investors, the international financial architecture, and the quantity and quality of aid. These are all factors which determine policy space and tax revenues at the national level.

Recent UNRISD research on the Politics of Domestic Resource Mobilization for Social Development engages with the complexity of political processes related to taxation and mobilization of domestic resources. It demonstrates the “stickiness” of taxation (Moore), showing that tax performance depends on historical legacies, economic structure, conjunctural factors (such as commodity prices), and the type of citizenship regime, political settlement and socio-political coalitions (Schneider, Arellano and Acosta, Moudud, Perez and Delamonica), in a particular country. Thinking therefore that tax is something that can be easily fixed seems overly optimistic.

Mobilizing more and better finance

The fact is that we live in a world that is still struggling to put an end to widespread practices of illicit financial flows and tax havens, where tax competition, “race to the bottom”-type policies and the unsustainable practices of multinational companies continue to constrain governments’ policy space (Siu), not the least in one of the key high-growth sectors, the extractive industries (Magno). We face a world of crippling inequalities, where elites are unwilling to contribute their fair share despite massively increasing their part of global income and wealth, and where the majority of people living in developing countries have to construct their livelihoods largely outside of formalized social and fiscal contracts in precarious informality and without access to decent work and social protection. It is this disadvantaged majority that often shoulders a disproportionate burden in terms of resource inputs (in both tax, and unpaid or low-paid labour) without receiving enough in return .
There are however, some promising routes towards mobilizing more and better finance at the national level:

• link tax-transfer policies with macroeconomic policies that foster employment intensive growth and structural change;
• improve tax compliance and accountability through universal social services and income guarantees;
• engage in transparent tax bargains by broadening the participation of actors such as parliaments, civil society organizations and communities (Kangave)
• design tax systems to support progressive and gender-equitable redistribution, and to avoid tax biases against women (Grown and Goopta) or incentivizing ecologically harmful practices;
• improve state capacity in tax administration and in negotiation with powerful investors; and
• mobilize a variety of sources and use a variety of instruments in addition to tax, such as sovereign wealth funds (Behrendt), social insurance funds, and contributory pension programmes, while honouring the different rules and legislation governing social funds (Nitsch).

Then there are a number of blind spots that we need to pay more attention to. The future agenda will fall short of expectations unless we have:

• a fairer system of global governance;
• increased international public finance beyond traditional ODA logic;
• fair and sustainable restructuring of sovereign debt or debt relief for countries in crisis (Bohoslavsky);
• support for promising alternatives on the ground (such as social and solidarity economy and finance, Mathei); and
• access to universal social policies that motivate all income groups to join, monitor and fund the social compact.

Domestic and global revenue bargains need to be addressed in tandem (Bangura), and the donor community needs to catalyse its potentially positive role in kicking off and supporting national social compacts (Cherrier). There is also a previous promise to honour (and we are not talking about the reinvigorated goal of providing 0.7 of GNI in aid), in which donors committed to giving stronger support for DRM, but which is not visible in aid allocations thus far (Bhushan and Samy).

Living up to our promises

Probably the most important message we can take away from the Addis conference and our discussions around it is that “Addis is just the start” (Martin). If Addis is a starting point for concrete negotiations and actions to follow in the coming months and years, then indeed all actors are called upon to be innovative, persistent and dedicated in living up to their promises. They need to enter the bargaining space, hold responsible parties to account and scale up commitments wherever possible.

Financing for development is not only about resources and the trillions of dollars countries have to mobilize to eradicate poverty and invest in socially sustainable development. It is also about who pays and who receives; who holds power to negotiate and influence decisions; and the social, economic, political and human rights implications of different financing modalities. The way such questions are tackled in the future will determine whether the new development agenda will inspire trust, hope and commitment, as Eddie Rich put it, beyond “fine words”.