The world's problems and how to solve them

SWITZERLAND - The most potent threats to life on Earth - global warming, health pandemics, mass poverty and armed conflict - could be ended by moves to unlock US$7.24 trillion ($10.6 trillion) of previously untapped wealth, the United Nations claims.

The price? An admission that the nation-state is an old-fashioned concept that has no role to play in a modern globalised world, where financial markets have to be harnessed rather than simply condemned.

In a groundbreaking move, the UN Development Programme has drawn up a proposal which says an unprecedented outbreak of co-operation between countries, applied through six specific financial tools, would slice through problems that have bedevilled the world for most of the last century.

If the plan is accepted - and the authors acknowledge this could take decades - it could finally force countries to face up to the fact that their public finance and growth figures conceal the vast damage their economies do to the environment.

At the heart of the proposal, unveiled at a gathering of world business leaders at the Swiss ski resort of Davos, is a push to get countries to account for the cost of failed policies, and use cash saved "up front" to avert crises before they hit.

Top of the list is a call to the US to join a pollution permit trading system which, the UN says, could deliver US$3.64 trillion of global wealth.

Inge Kaul, a special adviser at the UNDP, said: "The way we run our economies today is vastly expensive and inefficient - we don't manage risk well and don't prevent crises.

"Money is wasted because we dribble aid, and the costs of not solving the problems are much higher than what we would pay for getting the financial markets to lend the money."

The UNDP is determined to ensure that globalisation benefits the poorest in society as well as big companies.

It urges politicians to embrace some groundbreaking schemes put in place in the past 12 months to tackle global warning, poverty and disease, based on working with the global markets to share out the risk.

These include a international finance facility (IFF) to "front load" US$4 billion for vaccines by borrowing cash against pledges of future aid.

The scheme - backed by the UK, France, Italy, Spain, Sweden and the Bill and Melinda Gates Foundation - arose from a proposal by British Chancellor of the Exchequer Gordon Brown for a larger scheme to double the total aid budget to $100 billion a year.

In an endorsement of the report, Brown said: "This shows how we can equip people and countries for a new global economy that combined greater prosperity and fairness both within and across nations."

The UNDP says rich countries should build on this and go further. It proposes six schemes to harness the power of the markets:

* Reducing greenhouse gas emissions through pollution permit trading; net gain US$3.64 trillion.

* Cutting poor countries' borrowing costs by securing debts against income from stable parts of their economies; net gain US$2.9 trillion.

* Reducing Government debt costs by linking payments to economic output; net gain US$600 billion.

* An enlarged version of the vaccine scheme; net gain (including benefits of lower mortality) US$47 billion.

* Using the vast flow of money from migrants back to their home country to guarantee; net gain US$31 billion.

* Aid agencies underwriting loans to market investors to lower interest rates; net gain US$22 billion.

Former World Bank chief economist Joseph Stiglitz said: "Globalisation has meant the closer integration of countries, and that has meant a greater need for collective action.

"One of the most important areas of failure is the environment. Without Government intervention, firms and households have no incentive to limit their pollution."

He said a global public finance system would force countries to acknowledge their policies' external damage, "the most important being global climate change".

Solving the environmental crisis tops the UN's wish-list. It calls for an international market to trade pollution permits that would encourage rich nations to cut pollution and achieve Kyoto Protocol targets.

But - and the UN admits it is a big "but" - the US would have to sign up to Kyoto and carbon trading to achieve the $3.64 trillion that it believes the system would deliver over time.

"We are dealing with a global problem as pollution can only be dealt with internationally," Kaul said.

Richard Sandor, the head of the Chicago Climate Exchange, added: "Many encouraging signs are emerging. When the business case is clear, private entrepreneurs step forward."

But the proposal is unlikely to get support from some green groups who believe that action to curb consumption is the way to cut emissions.

Andrew Simms, director of the New Economics Foundation, said the UN plan of action left unanswered questions over how these markets would be managed.

"We have nothing against markets, so it would be missing the point to get into a pro or anti stance. The point is how you distribute the benefits."

Simms said a pollution trading regime could deliver "enormous" benefits to poor countries, but said the UN did not have a detailed plan.

He said a system set up now to trade in pollution permits could end up permanently depriving poor countries that joined the system further down the road.

PANDEMIC DISEASES

* Problem: Millions of people across the developing world have died from malaria, TB and HIV/Aids, as well as from other pandemics. Vaccines require much-needed investment.

* Solution: An advance commitment by rich countries to buy $3bn ($1.7bn) of vaccines would be enough to encourage drugs giants to invest in medicines to stave off the pandemics.

* Saving: US$47 billion.

* Alternative solution: Vaccines are needed but more should be done in the meantime. Extra aid is needed for simple tools such as mosquito nets that would curb spread of malaria.

PARIAH STATES

* Problem: Big business and global companies ignore countries where they see the risk of conflict outweighing potential profits.

* Solution: Guarantees by international organisations such as the International Monetary Fund to lower the cost of borrowing for poor nations, by underwriting investors' loans to conflict-torn states.

* Saving: US$22 billion.

* Alternative solution: Sometimes large volumes of cash are needed. Live8 showed there was huge support among taxpayers for higher aid to countries in distress. Hitting a commitment made in the 1960s of 0.7 per cent of GDP would unlock US$140bn a year.

NATIONAL BANKRUPTCY

* Problem: Once-great nations such as Brazil and Argentina were reduced to the status of beggars after poor economic policy exacerbated debts with national and international lenders.

* Solution: A system to enable countries to take loans linked to their average economic growth. These will ensure public spending does not have to be cut to raise capital to finance loans.

* Saving: US$600 billion.Alternative solution: Allow countries to seek protection from creditors, along the lines of Chapter 11 bankruptcy in the US.

SPECULATIVE INVESTORS

* Problem: Poor countries are hit most when global investment tastes change, meaning money can leave as soon as it arrives.

* Solution: Enable countries to buy "insurance" against downturns to ensure they do not have to cut public spending. This was what caused havoc in Southeast Asia in 1997.

* Saving: US$2.9 trillion.

* Alternative solution: Curb speculative investment by imposing a tax on foreign exchange transactions which destabilise a currency. This could directly raise funds for development while preventing the worst excesses of the markets.

GLOBAL WARMING

* Problem: Scientists believe human activity has led to climate change and disappearing Arctic ice. The world's poor also have to live with lethal storms and floods.

* UN solution: Permits to encourage countries to cut emissions of greenhouse gases so they can sell their "right" to pollute to other states. The UN says this is more effective than targets.

* Saving: US$3.64 trillion

*Alternative solution: An international approach is needed but one that sets pollution targets rather than trying to bribe them not to. A global system of air travel tax should also be agreed.

BRAIN DRAIN

* Problem: Millions of skilled workers leave their home countries every year in search of a better life in the West. In some states nine out of 10 professionals have left.

* Solution: Enable countries to borrow against the money workers send home. The capital would be used to invest in the country to build infrastructure that would discourage people from leaving.

* Saving: US$31 billion.

* Alternative solution: A code of ethical guidelines overseen by bodies such as the World Health Organisation (for doctors and nurses) to monitor the harm that migration of professionals causes.

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