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The post-2015 agenda must absorb the lessons about the need for a strong national state to effectively regulate the financial sector. It has become clear that states must have the regulatory capacity to avoid another near implosion of the world economy and the new development framework must support the regulation of finance to avoid the dangers posed by unregulated markets, greedy traders, ???too-big-to-fail??? financial companies, opaque credit instruments, and shadow financial institutions. Sadly, little has been done to date to address these dangers and the outsized role of the finance sector in all major economies continues unchecked, drawing needed investment capital away from creating jobs and productive investments and into the global casino.
A post-2015 agenda can only be successful in supporting stable financial systems and economic growth if it goes further than the tepid proposals offered by, for example, the new global accord known as Basel III, which will require banks to hold higher reserves, or those of either Europe???s ???High-level Expert Group on reforming the structure of the banking sector??? or the ???Liikanen Report???, which only calls for a partial separation of regular bank activities from institutional investment activities within the same companies. More fundamental reforms would include meaningful new internationally agreed regulations on speculative activities in financial markets and breaking apart the 29 Globally Systemically Important Financial Institutions (G-SIFIs) (17 European, 8 American and 4 Asian firms), or those financial institutions known as ???too big to fail???. Indeed, as UNCTAD has suggested, a post-2015 global development framework cannot afford developing countries any meaningful protection from further financial crises unless steps are taken to ???close down the big casino???.
Credit markets lie at the heart of many economic crises, shaping policy responses and reinforcing inequities. There are considerable power dynamics at play both in debt relationships - where there is a propensity for credit markets to create conditions of economic fragility - and in the interactions between financial markets and existing social stratifications. Balakrishnan and Hientz have recently explored these power dynamics in case studies of credit markets and crises, such as racialized lending in the subprime mortgage markets in the US, the European sovereign debt crisis, the Latin American debt crisis, and capital flight from sub-Saharan Africa. As others who have called for the post-2015 framework to be based on internationally agreed human rights, Balakrishnan and Hientz propose suggestions for how economic and social rights can provide an alternative framework for financial governance. These insights are further reinforced by a task force of human rights organizations and global networks devoted to highlighting the growing concern about the impact of financial regulation on human rights and sustainable development. On Human Rights Day this year, the initiative ??? ???A bottom-up approach to righting financial regulation??? - launched a new information portal to expose direct and indirect human rights abuses involving the financial sector, and insist on the human rights duties of governments to properly regulate these bodies if sustainable and equitable development is to be achieved.
Similarly, in October 2012 the United Nations independent experts on extreme poverty, external debt, and the promotion of a democratic and equitable international order reminded European Union governments that economic reforms must be crafted in line with the human rights obligations of states, particularly on the issue of economic and social rights set out in the ICESCR. The human rights experts noted that while Europe???s Liikanen Report recommends a set of regulatory measures to shield taxpayers from future bailouts and avoid shocks to the financial system, its proposals do not go far enough to provide real security or financial stability. The human rights experts urged EU authorities to ensure that vital public funds are not used on collapsing financial firms in the future, and a post-2015 framework must follow this advice. Between 2008 and 2011, European countries diverted ???4.5 trillion (equivalent to 37 percent of EU economic output) from public expenditures into rescuing their failing financial institutions, and these levels of extra and unforeseen spending have pushed governments into debt sustainability crises. In response to these sovereign debt crises, governments have adopted harsh budget austerity plans which have created unbearable hardship for citizens, especially people living in poverty, and thereby contradict states??? legal obligations to realize economic, social and cultural rights for their people. The post-2015 development framework must avoid promoting the same old IMF approach to budget austerity that actually undermines economic and social rights, and instead recognize that states must protect budgetary resources from being compromised by future financial bailouts and commit to helping developing countries create a regulatory framework that ensures public resources are not redirected to failing financial firms.
Regarding the issue of food security in a post-2015 development framework, it is likewise necessary that global financial reforms be meaningfully addressed. Over the past several years it has become increasingly clear that global derivatives markets and instruments have played a large role in instigating the global food crisis that has been particularly devastating for the poorest food-importing countries. Those currently crafting a new post-2015 development framework who proclaim their intention to address food security in the poorest countries must integrate the findings of recent studies by Masters and White, Ghosh, Wise and, most recently, a paper co-authored by the World Bank, IMF, UNCTAD, and FAO (among other agencies), which have all pointed to the role of speculative commodity index trading in aggravating the food price crisis in 2007-8 ??? perhaps by as much as 20 percent - as well as in the run-up in global food prices in 2011. Derivatives markets and instruments are thus implicated as levers of inequality, as food price volatility does not affect all people in the same way. Any meaningful post-2015 framework must effectively tackle the need for greater regulation of commodity speculation in derivatives markets.
Again, it is disturbing that many of the biggest countries seeking to influence the post-2015 development agenda are also resisting both calls for greater financial regulation or for breaking apart the G-SIFIs. For example, judging by the recent efforts of the US and other rich countries to quash the global finance reforms advocated by UNCTAD, the prospects for them having a positive influence on a post-2015 framework do not look good. In the run-up to the thirteenth ministerial quadrennial conference in Doha in April 2012, Western states made a concerted effort to stop UNCTAD from working on global macroeconomic and financial issues. Although a last-minute deal was reached that safeguarded UNCTAD???s mandate to keep working on such issues, we must ask what this attitude toward UNCTAD reforms says about the quality of such inputs by these governments to the post-2015 framework.
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The views expressed in this article are those of the author and do not necessarily reflect the institutional position of CESR