GLOBAL PUBLIC GOODS AND TRADE: CONFLICTS, COMPATIBILITY AND COMPLEMENTARITIES
Round Table 4 - Collective identification of GPGs and governance issues


Health and Inequality between North and South: how can we define a Global Public Good?


Diana Barrowclough
University of Cambridge / UNCTAD, Geneva (Switzerland)

 Introduction:
The following pages describe two topical issues of economic policy, focusing on the way that the GPG approach may potentially add insights and illumination. It is argued that the GPG approach can offer a useful tool with which to examine the root causes of global collective action problems, and to help identify ways in which to resolve them. However it should be used sparingly and precisely, and be backed up with empirical evidence relating to global effects. This is likely to require the prior establishment of national and regional effects.

A second, and related point, is that both of the cases described below involve both public and private goods, with the private good offering entry to the wider public goods and services. In the example of global trade in culture, one needs to have access to a television or a computer, before one can benefit from the public good effects embodied in the content offered on globally traded television or the internet. Similarly in the case of financial markets, capital is itself a private good, although the establishment of global information pools about micro-finance, and the micro-finance institutions themselves, may create public good effects.

ISSUE 1. FINANCE FOR DEVELOPMENT - MICRO-FINANCE.
Micro-finance is a strategy that is starting to make an impact on poverty world-wide. It is seen as one of the most promising ways to lift millions of the working poor in the informal economy out of misery, in a way that would not be achieved by commercial banks, or by the State. The message is, give the poor credit and they will use it to create modest income-generating opportunities; give them a vehicle through which to save, and they will use it to reduce their vulnerability. MFIs give the poor a voice, a sense of dignity, and the chance for self-organisation. It can also help with other goals such as conflict resolution and market development (eg. Eastern Europe), empowerment, gender equality and so on.

In 1999 around 8000 MFIs gave $ 18b of small loans to 54 million people in 85 countries. The average loan amount was $ 268. MFIs also offer banking facilities for the poor: collecting $ 13b, in very small deposits with an average amount of $ 99. It is estimated that there will be $20b in start-ups over next 10 years. In addition, MFIs reach an impressive number of the poor, especially those that are savings based. Since 1997, MFIs in West Africa tripled their membership, reaching 30% of the population (compared to 8% for banks).

The problem:
But all is not always as it seems and it is time to revisit many of the assumptions. Many MFIs are unprofessionally managed: there are cases of MFIs forcing clients to take on more loans, forcing them to recycle debt so as to get more impressive growth statistics. Above all, most MFIs have not reached their lauded sustainability - they still depend on subsidies from donors and governments. In theory (1995 'Guidelines for the Selection and Promotion of Financial Intermediaries for MSE Finance' and Consultative Group to Assist the Poorest (CGAP), subsidisation should stop after 7-10 years. In practice, less than 5% of all MFIs are financially self-sufficient: even fewer raise resources at real cost. This is a disappointment to donor agencies, many of whom are uncertain about their future commitment to MFIs, despite having supported them for many years, some as long as several decades.

Potential insights from the GPG approach.
1. Poverty alleviation schemes can be seen as GPGs, if by meeting the needs of the local (and regional) population, one can also contribute to conflict prevention and international peace, reduce environmental degradation of potentially international consequences, and improve global health and economic conditions.

2. Part of the problem is lack of knowledge, which can be seen as an impure public good. There is a lack of information about true risk: about the credit history of MFIs and their clients; about the efficacy of different sorts of MFIs, and of different mechanisms for monitoring and control; and about the benefits that MFIs can create, in serving the poor. This impure public good can be a GPG, to the extent that financial benefits spillover to the international community (who may be the providers of capital, either through donor agencies or socially responsible investment): as well as the benefits described in (1) above. Information will be imperfectly provided by the market, to the extent that the costs of extracting it are borne by an individual (MFI or donor), but the benefits of it can be enjoyed by all. In addition, imperfect information imposes costs on all (for example creating private losses to donors, who lend to a poor risk) and creating spillover effects to current and future lenders, by reducing capital availability, or causing higher interest rates.

3. Following the Monterrey Summit, the establishment of a special Global Fund to help finance MFIs is frequently discussed. To the extent that this helps resolve (1) and (2), this would be an example of a useful GPG.

Research gaps with respect to MFIs and GPGs include the following:
National and regional questions:
* To what extent do MFIs create a public good - describe and value.
* How sensitive is this to the specific mechanics of each MFI? (For example, what subsidization mechanisms do they use).
* Why do some policies work in some instances and not in others?
* How do we encourage creation and sharing of credit information in the Developing World, as it exists in the Developed World?
Global questions - the GPG aspect:
* Can we describe and quantify the poverty alleviation effects of MFIs, at local, regional and global level?
* How do we encourage 'socially responsible investment'?

ISSUE 2. CULTURE, ENTERTAINMENT, AND INFORMATION.
There has long been a tradition, in most countries in the world, of subsidising the domestic production of television and or film, using the argument that it is a public good. The argument for publicness in the case of television includes conventional rationale of non-rivalness and non-excludability (including the more recent enhancement that it should be non-excludable, following technological development in scrambling devices and pay-per-user mechanisms). In film, where viewers have to pay an entry ticket, the public goods argument is couched more in terms of the positive externalities and merit goods that are created by having the opportunity, in principle even if not in practice, of seeing ones national identify and culture on screen .

There are also arguments of a network element, in that one additional user not only fails to reduce the benefits available to all, but it actually increases them. (For example, consumption of the news creates a larger mass of politically aware people, hence furthering participation in democracy: consumption of culture creates a larger mass of cultivated people). In additional, these effects can be dynamic, across classes and generations; and can also be experienced at national, regional and - this is the question to explore today - a global level.

Analysis tends to focus on: i) access and participation (the information-rich versus the information-poor); ii) the effects produced by economies of scale (so that small companies cannot compete, nor can isolated public companies); iii) the way the the quality or nature of the public good is sensitive to the way it is financed. Debate focuses both on the national level example, in terms of public versus commercial television, and public funding of film: but also increasingly spills over to the regional and even global context, given liberalisation of trade, and developments in technology that render national boundaries immaterial.

Issue related to GPG approach:
To what extent does the liberalisation of global cultural markets create a potential GPG; and how would benefits be distributed between countries?

COMTRADE data of music, film and television exports shows significant growth in global trade. World exports are valued at $19b in 2000, up 158% since 1990, or 1500% since 1980. The data also gives hints at the potential this offers Developing Countries (for example, comparing the size of these cultural markets to their more traditional markets: coffee $17b, cotton $20b, bananas $27b.) Already there exist signs that they can benefit: Exports of film and music from developing countries were $3 b last year, up 3032% since 1980. (Most sales are to the developed world.)

There may also be potential for small countries (despite the lack of economies of scale that would normally lead one to assume them to be net cultural importers, rather than exporters). For example, New Zealand, a small economy (< 4 million pop), English-speaking, hence vulnerable to low-cost imports from North America, Britain and Australia. However, we see that while developing country exports to NZ increased 180% (from 1989-99), this is dwarfed by the growth of exports from NZ (+ 8652%). Similar trends are experienced with respect to the developing world, whose exports to NZ increased 157%, but whose imports from NZ increased 6800%.

But: Developing Countries and Small countries (or those speaking minority language in global markets) face the fact that their costs of production will always be greater than producers who are able to achieve great EOS. Without some degree of financial or institutional support from domestic governments, it is questionable whether their industries will survive. In addition, it is not clear that they will continue to be able to produce goods and services that reflect the preferences of domestic markets, rather than merging to mass tastes. One could argue that the resultant lack of diversity (in terms of the nations that provide cultural goods and services, or in terms of the types of cultural goods and services provided) would mean a reduction in the GPG.

Research issues include the following.
National and regional issues:
* How countries can most effectively and efficiently promote and protect the diversity and national flavour of their cultural production.
* What aspects of national culture (in particular television and film) are really public goods? For example, does the BBC as an entity produce a public good, or is the public good element housed in the provision of diverse and high quality programmes?
* How sensitive is the production of cultural public goods to the right institutional framework: for example, financial mechanisms such as risk-sharing, or lowering transactions costs. In particular, how dependent is the nature of cultural output upon the mechanism for finance? Secondly, how sensitive are funding mechanisms to the voting procedure used to determine them?
* How do we measure the public good nature of output (eg. Problems with benchmarks and targets, but also problem with measures based on audience ratings).
* Are public service objectives better met by the internet?
Global issues:
* What is the link between the creation of national public goods and spillovers to regional and global level?
* How do global trade norms impact on the domestic promotion of (and then trade in) culture? Does TRIPS (Trade Related Intellectual Property Rights) and GATS (General Agreement on Trade in Services.) recognise that different countries are at different stages of development? For example, will Developing Countries receive as many benefits from TRIPs as costs? (few cultural actors in DVPG world hold property rights on their cultural production).
* In addition, will cultural services be treated like any other service under GATS or will they deserve special treatment and exemption? Developing world countries typically lack adequate institutional structures without some State intervention; but Developed World structures may also be increasingly politically vulnerable, given the challenges posed by the market environment, and the difficulties of proving the benefits of state subsidisation.