Mind Your Own Business: Mark Halle talks tough politics of subsidy reform

Twenty years ago, you and your team launched the Global Subsidies Initiative (GSI) to help governments reform harmful government support measures. What was the vision at the start?

The idea grew out of a 1997 Earth Council study—the first independent attempt to estimate the scale of public subsidies and their impact on sustainable development. Looking at agriculture, energy, water, and transport, the authors concluded—using very conservative calculation methods—that the extent of subsidization was getting close to a trillion dollars and that the impact on sustainable development was overwhelmingly negative. The report, launched at the Rio+5 conference in 1997, drew wide attention.

Our takeaway at IISD was straightforward: we can’t go on trying to do positive things while all this negative influence is undermining everything we try to. If you spend USD 10 doing something good and USD 100 doing the opposite, you’re not likely to succeed. We set up the GSI to shine a light on subsidies, better understand the challenge, and see whether it was possible to have an influence on subsidy policy decisions.

For more research and analysis visit the Global Subsidies Initiative.

Nobody would welcome you poking around in their national budget. Basically, mind your own business and keep out.

 

And how was this idea received?

There was very little interest. Subsidies are far too political. Nobody would welcome you poking around in their national budget process; nobody would want you shining a spotlight on the way public money is used for partisan political purposes. So, basically, mind your own business and keep out. After a few years, we were pretty discouraged. We thought—yes, this is really important, but it’s just not possible to do at this time.

The turning point came at the World Trade Organization (WTO) Public Forum in 2004, when then-president of IISD David Runnalls and I were walking along the lakeshore in Geneva with Sylvia Ostry, the former Head of Statistics Canada and chief economist at the Organisation for Economic Co-operation and Development. We said we were about to give up on subsidies. We knew it was important, but it just seemed too difficult. And Sylvia said: “Tell me one thing—how can an organization devoted to sustainable development not deal with subsidies? How can you walk away from one of the most important challenges in achieving sustainable development and not have the courage to try? Essentially—you have to.” It was a real wake-up call.

The great majority of ministers love subsidies. It’s a political currency that they can play with, reward their constituents, strengthen support.

 

What was your strategy, and where did you first start looking for allies?

In most governments, the great majority of ministers love subsidies. They’re a political currency—a way to reward their constituents and strengthen support. But there’s always one exception: the finance minister. Ministers of finance hate spending money, and they especially hate wasting it. They know subsidies are one of the worst uses of public funds, and they’ll often be the ones pushing back. That’s why, if you want reform, you need the finance minister on your side.

I asked a friend at the Dutch mission to the WTO if he could arrange a meeting with the finance minister. He warned me the minister was busy and said I’d only get 20 minutes. I walked in—and came out an hour and a half later. As expected, he thought subsidies were a terrible idea and was keen to see something done about them. He was fascinated by what we were trying to do.

What were the key elements of this work?

We wanted to put these subsidies in the spotlight, and we understood very quickly that the interest groups benefiting from them would come down hard on us, trying every possible way to undermine our work. We knew that our data needed to be 100% robust. No mistakes, no flawed models, no outdated data.

Before long, we put subsidies firmly on the international policy agenda. The focus we brought to the issue, along with our regular publication of figures and estimates of the negative impacts, helped lead to the G20 fossil fuel subsidy resolution in Pittsburgh in 2009.

And although that resolution was not as strong as it should have been, it was nevertheless the first time governments admitted they had to act, recognizing just how damaging these subsidies are.

What we offered was not just the science, but also the “art” of subsidy reform. The challenge is to work out how to phase out subsidies without creating unintended consequences for the most vulnerable. If these subsidies are removed, who ends up paying the price?

“If subsidies are the answer, what was the question?”

 

And what do you say to those who argue that the social cost is too high?

I ask: If subsidies are the answer, what was the question?

If the goal is to help the poor with transport, is subsidizing fuel really the best way to do it—or are there better options? Take Iran as an example. The government was spending vast sums on fuel subsidies to lower transport costs and ease poverty. But they found that giving poor families direct budget support was far more effective. The money went straight to those who needed it, who could then decide whether to spend it on transport or other essentials. If your purpose is poverty alleviation, subsidizing fossil fuels is rarely an effective public policy tool.

When leaders decide to act, what’s the most compelling reason that drives them?

In times of austerity, or when developing countries are pushed by the International Monetary Fund to cut spending, subsidy reform becomes slightly less difficult to advance. That’s when working with the finance minister is crucial, because it all comes down to how public funds are allocated.

The key is to make people see the real impact. Subsidies are public money that could be spent elsewhere. If you ask the Swiss whether the government should subsidize sugar, most won’t care much. But if you explain that the same money could instead keep a local hospital open, they immediately see the trade-off.

“As with anything in politics, you have to build demand for the alternative—and make sure that demand carries political weight.”

 

Which voices matter most in convincing governments to act on subsidy reform?

As with anything in politics, you have to build demand for the alternative—and make sure that demand carries political weight.  

Take Switzerland again. The country has a serious problem with disappearing biodiversity. Why? Largely because of the overuse of agricultural chemicals. Why are we overusing these chemicals? Because Switzerland is a major producer of these chemicals, and the chemical lobbies are very powerful. If you are a parliamentarian and want to be re-elected, you’d better stay on good terms with them. We’re not going to change that by saying, “These chemicals are killing insects and birds.” That won’t work. The only way to change it is to create a counter-lobby where a politician’s re-election depends not on pleasing the chemical industry, but on delivering results for biodiversity.

What about international commitments, like the G20 commitment on fossil fuel subsidies? Do they matter anymore?  

Whether we talk about the climate, biodiversity, or plastics negotiations, we need to continue trying to create robust frameworks. But those frameworks have to turn into agreements that are legally binding and enforceable. G20 is not binding. It’s a promise with all sorts of loopholes. We need to get to the point where there are economic consequences of not meeting those commitments.

And how do we get there?

We are in an unfavourable political context today. Does it mean that we should give up? No. We have to keep going. But at the moment, we are giving an overwhelming share of political policy attention to those processes—at the expense of exploring alternative approaches. I often ask people: If you had 100 units to invest, and your goal was to bring about systemic change, how many of those units would you put into multilateral frameworks?

And what’s your answer?

I think much more focus should go to public information—on the trade-offs, on the real consequences of particular subsidies. It’s about coalition-building, networking, targeted alliances, and tackling very specific subsidies at the national level.

We also need to get more sophisticated in financial design. We should be linking more and more to action on subsidies, pushing for systems where government bonds and loans are tied directly to performance on climate or biodiversity goals.

We'll see the tipping point reached in sustainable development much faster than we think.

 

It has taken us 20 years, and we’re still not there. What makes you hopeful?

My grounds for hope are that we now know exactly what needs to be done. We know how to do it, the technology is there, and so is the money. The only thing missing is political will. It’s a huge piece, but it’s the only one missing. All the other ingredients are in place.  

Over 20 years, GSI has laid an incredibly solid foundation for subsidy reform. We’ve boosted global understanding of subsidies—their scale, their impacts, their importance, and the negative consequences of current subsidy patterns. We’ve learned a great deal about what works and what doesn’t in subsidy reform, and about how much more difficult it is to reform subsidies than to create them.

Now, we need to be much more cautious about considering subsidies as a response to public policy crises—and we need to give much more attention to the alternatives that exist to reach those same public policy goals.

The last step is to build a real movement—one strong enough to counter the lobbies that have captured political decision making. I’m optimistic it can and will happen, because there’s a whole generation coming who is simply unwilling to accept where we are now.  

We need to remember that massive change often follows the tipping-point theory: nothing happens for a long time—then suddenly everything shifts very fast. We’ve seen this over and over again. I believe we’ll reach that tipping point in sustainable development much sooner than we think.