|Part 1: Resolving policy-based conflicts within Agenda 2030 Sustainable Development Goals|
George Boole Foundation
It is often not fully appreciated how complex it is to take into account all factors in project design in the context of Agenda 2030's Sustainable Development Goals. Our OQSI division noted the difficulties facing project teams with the launch of Agenda 2030 in 2015. People seem to have overlooked the fact that 65% of the indicators relating to sustainable production and consumption and climatic impacts have not yet been specified. So how can project teams with experience in the conventional project cycle guidelines be expected to introduce these concepts into their designs with no practical guidance?
We identified this gap early on and have been working to develop procedures of a very practical nature supported by appropriate analytical tools. Because of the rudimentary state of defined design procedures in these areas, OQSI is committed to the identification and specification of procedures that can guarantee impacts in critical areas. Some of this work was reported under a proposed series title CBA. However, this has since changed and we will report on the new system soon. However, is worth illustrating some of the complexity which conventional project cycle management guidelines and evaluation criteria fail to address. For example, the diagram below contains most of the natural systems and human conditions that are identified under Agenda 2030 SDGs.
In the diagram, the natural system conditions group the following SDGs together: SDG 14, SDG 15, SDG 6, SDG 7, SDG 13 and the human conditions group the following SDGs together: SDG 1, SDG 2, SDG 3, SDG 4 and SDG 5. These 10 SDGs all fall into the objective SDG 12, sustainable consumption and production. Therefore 11, or 65% of the number of SDGs all contribute to one SDG's broad objective.
No matter how detailed individual projects are designed to address specific aspects of numerous goals, as listed under natural system and human conditions, there will be numerous trade-offs between them. In order to facilitate the realization of national attainment of Agenda 2030 objectives, the macroeconomic policy frameworks need to contain incentives to help drive matters in the right direction. At the moment this is not what is happening. The 2019 Sustainable Development Report made it very clear that sustainable consumption and production and climate action are negatively correlated to economic development.
Economic development is taken up in the singular SDG 8 with the general title, "Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all." The message from the Sustainable Development Report is loud and clear. Current macroeconomic policies are not bringing about the required change to meet Agenda 2030 objectives. Agenda 2030 does contain Goals that cross-relate to SDG 8 such as SDG 9, "Build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation" and SDG 10 "Reduce inequality within and among countries". The policy targets under these are grouped under the policy targets column in the diagram.
Many of the human conditions will be resolved if the listed policy targets are addressed effectively. However, the processes that come into play to satisfy the human conditions still need to uphold the conditions required in the natural systems.
Why economic policy is not up to the task
SEEL is the world's leading development centre for the Real Incomes Approach to Economics, also referred to as RIO-Real Incomes Objective. RIO was developed as a result of 45 years professional effort over the period 1975-2020. In terms of advancing theoretical economic analysis and policy propositions, RIO has disproven a considerable amount of existing aggregate demand management theory and development economic theory linked to this approach. For example, although the targets under Agenda 2030 include reduced income disparity, enhanced real incomes, raising employment and investment to support productivity, conventional policies have struggled to achieve any of these targets.
Two important exposures of conventional economic theory and practice were made by RIO. One is that inflation in goods and services consumption markets has no connection to "money volumes" but is directly determined by price fixing by individual economic units. More importantly, RIO has also explained why the so-called Quantity Theory of Money identity is incorrect. The QTM has stood for around a century as the standard reference used by policy makers to justify monetary decisions. Post-2008, central banks introduced so-called quantitative easing (QE) which combined a massive release of money (debt) at close-to zero interest rates. The QTM predicts that QE should substantially increase "demand", investment, productivity and real incomes. However, quite the reverse happened. Most funds taken up were transferred into assets such as land, real estate, repurchase of corporate shares and precious metals. This resulted in less money circulating through the supply side activities leading to falling investment, declining productivity and falling real incomes. QE simply exaggerated the rate of this negative development but by reviewing the last 30 years, it can be seen that this trend has been continuing for all of this period.
In May, 2020, RIO proposed a substitution for the QTM in the form of "A Real Money Theory"
It is therefore not surprising that the 2019 Sustainable Development Report flagged up this negative correlation by so-called economic growth and sustainable development and climate change and even income disparity. In other words even on the basis of assessing a direct economic consequence of conventional policies they have proven to have failed on the primary policy target of reducing income disparity.
The release of additional money by central banks is what under RIO is defined as "exogenous money", it is in excess to that already circulating. What is already circulating is "endogenous money". To increase real incomes with endogenous money, savings are invested in more productive methods leading real growth and the ability to increase output at marginally lower unit prices to penetrate the market so that the purchasing power of the currency increases, leading to higher general growth in real incomes. Under exogenous money policies (demand management) growth is based on debt against collateral. On the other hand banks issue money out of thin air as explained in a Bank of England, Quarterly Bulletin Q1, issued in 2014: "Money creation in the modern economy"; under such circumstances the risk is on the lenders side. Banks favour land and real estate as collateral because monetary policy tends to drive these prices upwards as a result of leakage from money volumes into asset markets. On the other hand inflation and variable interest rates steadily reduce real incomes. A constant cause of inflation is the leakage of inflation from the asset markets in the form of prices and rents of land, housing, industrial and office premises while nominal wages, for example, remain the same, so that real incomes - what can be purchased - decline. Also the policy target of a 2% inflation rate devalues the currency by 18% each decade in the form of a constant currency and real incomes devaluation treadmill. No matter what other economists might claim, this system is extremely ineffective and inefficient.
Policy has not prevented inflation
Monetary policy is often cited as operating to control inflation. RIO analysis of the QTM showed that this is untrue. QE for, example, has generated a massive inflation in asset markets. Almost wholly based on exogneous money transactions whose diversion from the productive economy had depressed goods and service markets as a result of lost investment. However, in the case of asset markets,the real incomes of asset holders do not decline. This is because the rate of increase in prices can compensate for marginal sales in holdings to generate income. The inflation in prices exceeds the general level of inflation of goods and services to such an extent, that the holding value represents an exaggerated increase. As a result liquidating small increments still maintains the "income" thus received far above average incomes of the majority. This ratchet effect explains how asset holder's incomes and wealth continue to outstrip the wealth and incomes of the majority giving rise to a constant increase in income and wealth disparity. Many asset holders receive rent on their assets such as land and/or real estate. One consequence of this is that asset holders and politicians, as individuals, tend not to have personal experience of prejudice of stress resulting from falling real incomes and, as a result, lack any sense of urgency in substituting what is a failing system for the majority, because personally they benefit from the existing system.
Towards a solution?
As can be appreciated, macroeconomic theory and practice is almost completely divorced from the types of analysis required to address Agenda 2030 issues. However, Covid-19 has made more obvious the precarious state of affairs of the majority of populations in high and low income countries. Most constituents have suffered under a period of 50 years during which financial regulations, which came in after the Great Depression in the 1930s, were disposed of during the 1970s and 1980s. This laid the foundation of the 2008 financial crisis. The circumstances for the majority have deteriorated during the last decade under quantitative easing while asset markets have boomed, that is, they have experienced excessive inflation and have intensified income disparity.
For SDG projects designed to secure successful implementations there is a need for macroeconomic policy frameworks that provide positive supportive incentives; currently none exist. Incentives need to be geared towards the promotion of higher productivity and real income streams derived from increased sustainable productivity; at the moment macroeconomic policies do quite the reverse. If this is not coordinated in a more effective manner, the conflicts between macroeconomic policies and Agenda 2030 objectives will continue. In working towards a solution, we are ensuring that project design procedures identify and quantify the negative consequences of policy options as a basis for assisting policy makers adjust macroeconomic frameworks to make Agenda 2030 a success.
|Posted: 20200802||We welcome questions and feedback:|
To submit questions or comments on the contents of this article please contact the author or main reference source by email.
The relevant emails are provided below:
Author: Hector McNeill: email@example.com Source: DIO: firstname.lastname@example.org