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Spurring Private Investment for Development

Summary:
STRASBOURG – Successful economic development has hewed to a well-known pattern. Lifting a country out of poverty and placing it on a path of sustainable growth requires hard work, the creation of a robust system of property rights, and – crucially – private investment. This method is not specific to a particular region or people. As Asia’s spectacular growth has demonstrated, it is transferable across cultures. So it is a shame that development economists and the world’s multilateral institutions are failing to apply it systematically in the developing world. Billions of dollars of aid has been poured into developing countries, but it has not been enough, and the results have been disappointing. The World Bank estimates that one billion people still live on less than .25 a day, while more than 800 million do not have enough to eat. The Millennium Development Goals attempted to apply a comprehensive approach to reducing poverty, but the MDGs failed to address its underlying causes. On paper, at least, the United Nation’s new Sustainable Development Goals, put in place last year, are an improvement. The trouble is that lofty ambitions come with a high price tag, and there remains a funding gap of around .5 trillion if all 17 goals are to be met. A chasm this big cannot be bridged by cash-strapped governments and taxpayers alone.

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STRASBOURG – Successful economic development has hewed to a well-known pattern. Lifting a country out of poverty and placing it on a path of sustainable growth requires hard work, the creation of a robust system of property rights, and – crucially – private investment.

This method is not specific to a particular region or people. As Asia’s spectacular growth has demonstrated, it is transferable across cultures. So it is a shame that development economists and the world’s multilateral institutions are failing to apply it systematically in the developing world.

Billions of dollars of aid has been poured into developing countries, but it has not been enough, and the results have been disappointing. The World Bank estimates that one billion people still live on less than $1.25 a day, while more than 800 million do not have enough to eat. The Millennium Development Goals attempted to apply a comprehensive approach to reducing poverty, but the MDGs failed to address its underlying causes.

On paper, at least, the United Nation’s new Sustainable Development Goals, put in place last year, are an improvement. The trouble is that lofty ambitions come with a high price tag, and there remains a funding gap of around $2.5 trillion if all 17 goals are to be met. A chasm this big cannot be bridged by cash-strapped governments and taxpayers alone.

That is why a recent decision by the European Parliament to back my report calling for the mobilization of private capital in the fight against global poverty is so important. For the first time in the parliament’s history, its members acknowledged the private sector as a key partner in wealth creation in the developing world. Given that the European Union is one of the biggest providers of development aid, the decision could be highly significant.

To be sure, winning a vote, while never straightforward, is the easy part. The challenge will be translating words into action.

The early signs are heartening. Marianne Thyssen, the EU’s employment and labor commissioner, wants work on implementing the report to begin immediately. She has promised that the European Commission will invest more than €2 billion...

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