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RIP-Real Incomes Policy
Thematic note

Filling in Gaps in COP 26

Hector McNeill1

This note is part of a series as a sequel to the article, From nominal growth to stable real incomes. To place this note in context readers are encouraged to read this article before reading this note.

Current macroeconomic policies and poor project design and oversight exacerbate the achievement of project objectives; failure rates are high. Conventional macroeconomic policy and weak financial regulations are a cause of such failures. This is a topic of vital importance to COP 26 outcomes. RIP has a significant role to play in reducing waste and achieving COP goals.

Some gaps in COP

Most global initiatives have not worked out well.

The most notable was the Bretton Woods Agreement (BWA) in terms of international finance and the provision of economic development loans. After 55 years working on technology, natural resources, agriculture and economic development projects I am aware of most of the reasons why private and international development organizations finance, even in the case of urgent need, has failed to perform at required standards. It is both inefficient and ineffective.
Price Performance Policy

RIP has two macroeconomic policy instruments: The PPR is a measure of progress of each economic unit in lowering the ratio between changes in output prices against variations in input costs. The PPL is a rebate on a basic levy according to the PPR values achieved. Economic units can manage their affairs to minimize the levy even to zero. In this way the macroeconomic policy is coordinated by the participatory development of companies and their work forces and not by largely arbitrary interest and debt targets.

RIP bases policy impact and success on the knowledge and calculations made by the economic actors thereby solving the calculation and knowledge problem in an operational structure that more closely approximates participatory constitutional economics.

An internal evaluation report on thousands of projects in the World Bank project portfolio was produced by Willi Wappenhans in 1992. He criticised the linking of staff status and promotion to project approvals and size of loans. His report stated that around 35% of projects failed and in the case of agriculture this figure approached 45%. This dreadful performance was confirmed in a re-evaluation review of this data by the Independent Evaluation Group (IEG) at the World Bank in 2010. An even more remarkable statistic revealed by the IEG was that by 2010 the percentage of funded projects that had been subjected to analyses of economic rates of return (ERR), or Cost-Benefit Analysis (CBA), had fallen to around 20% in direct contravention of the internal regulations of the Bank.

After many years working on the management of established projects and their evaluation, funded by a large range of private and international organizations, I have found similar gaps in performance.

One of the critically important observations by Jean-Paul Moatti, Director-General, IRD, and a member of the SDG Evaluation Committee, reported in SciDev.Net on 29 March, 2019, was that our form of economic growth was causing several Sustainable Development Goals (SDGs) to be going backwards. The SDGs most impacted were the most important ones including reduction of inequalities (SDG10), limitation and adaptation to climate change (SDG13) and reduction of the environmental and ecological footprint of our modes of production and consumption (SDG 12). The UN Sustainable Development Report in 2019 did not emphasize the direct correlation between our form of economic growth and SDG performance but rather emphasized "science". It essentially ignored project design or economic policy questions.

In 2010 through to 2020, largely as a result of experience and the unacceptable levels of project performance, I embarked on a review of project cycle management methods heading the small OQSI team (Open Quality Standards Initiative) tasked with identifying the main reasons of project failures and recommending due diligence procedures for project design and portfolio management. This included a considerable amount of analysis and development work linked to climate change linked to the UN Sustainable Development Goals, launched in 2015.

Since 1975 I have also been involved in policy analysis and it has become increasingly apparent that macroeconomic policies have not provided adequate incentives or support for producers in general or projects in particular. In many cases, policy has worked against them as confirmed in 2019 by Jean-Paul Moatti. The situation is so bad that around 20% of new international organization loans are advanced to pay off old loans while in the private sector loans, such failures are compensated through loss of collateral. This is the current state of affairs into which "financial service industries" are promising to dedicate over $100 trillion to "climate action". On current performance this is likely to incur $35 trillion lost funds or loss of low income nation collateral assets. Of course we will see the fund diversion bolstering political party coffers.

Who is accountable for poor performance?

It is notable that the Chancellor Rishi Sunak spoke of the "conditions" against which investments will be made as if the onus is on those managing projects. But if the financial services continue to operate under such light touch regulations, the destructive and wasteful predatory characteristics of these services will remain. Having said that, by applying price performance policy to projects there would be an incentive for implementers not to cut corners, focus of productivity and resist local politicians having their cronies share in project proceeds. By emphasizing productivity on the basis of a direct incentive which has an immediate impact of margins and the competitive state of the project, policy can begin to assist in an evolution which supports sustainability. Clearly overall financial services sector oversight and regulations also need to be tightened to remove its predatory character; even more so given the existential nature of the climate crisis.

1  Hector McNeill is director of SEEL-Systems Engineering Economics Lab

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