Bolder, faster, together poses the question: How can we all take responsibility for the past, navigate a turbulent present and co-operate to protect future generations? Follow along as this series, co-ordinated by the Transition Innovation Group at Community Foundations of Canada, explores the deep societal transformation already underway and accelerating in Canada and around the world.
In Part 1 of this article, we examined large-scale changes taking place as the world’s economy moves into transition mode. While such a momentous shift is an imperfect work in progress, instruments like the UN Principles of Responsible Investment, the Glasgow Financial Alliance for Net Zero and the International Sustainability Standards Board enable governments, financial institutions and corporations to recalibrate the economy following the Paris Agreement and the UN Sustainable Development Goals.
We concluded by outlining how a socially conscious transition must prioritize adaptation, inclusion and innovation at community and systemic levels.
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On Feb. 28, the Intergovernmental Panel on Climate Change (IPCC) released its latest report. It warns that the window for preventing climate chaos is rapidly closing and defines climate change as a global challenge requiring regional-scale solutions. It also asserts that climate change is as much a social problem as a scientific one, concluding that “climate-resilient development” must focus on decarbonization, adaptation, biodiversity preservation and social equity.
Taking the precepts of urgency, scalability and resilience as our starting point, this second part outlines how Canada’s community sector can help to shape a transition economy by:
funding organizations that produce social and environmental outcomes in addition to profits,
participating in rapid testing to generate evidence-based policy innovation, and
The federal government will shortly name the intermediaries for Canada’s Social Finance Fund (SFF) — a $755-million fund for putting capital to work in the social sector based on the U.K.’s Big Society Capital. Using SFF as a matching fund, intermediaries will attract new capital to make concessionary loans and investments in social-purpose organizations.
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Quebec’s l’économie sociale shows what this kind of transition economy could look like. In a province with a GDP of $365 billion, 11,000 social economy organizations generate $48 billion in revenues. Working in areas ranging from the arts and agriculture to retail, restaurants, manufacturing and IT, all prioritize the common good over private profits.
Next is the question of how social and economic systems can be adapted or replaced to produce better outcomes for people and the planet.
In their 2019 book Good Economics for Hard Times, Nobel Prize-winning economists Abhijit Banerjee and Esther Duflo advocate for policy innovation informed by experiments that test solutions to real problems. This is a principle behind social impact bonds (SIB), where private investments enable community coalitions to test new approaches to complex challenges, with governments, foundations or corporations repaying investors based on results. When SIBs establish goals but not the precise steps for achieving them, they can be a useful form of social research and development.
Quebec’s l’économie sociale is an example of a transition economy, writes Stephen Huddart. In a province with a GDP of $365 billion,11,000 social economy organizations generate $48 billion in revenues. #charities #philanthropy #future #transformation
Notable Canadian examples include Restoring the Sacred Bond — an Indigenous community-led SIB in Manitoba testing whether Indigenous doulas engaging vulnerable mothers in culturally informed peer support groups would create superior outcomes at lower social and financial cost than is incurred when children are apprehended and placed in foster care. With nearly 10,000 Indigenous children now in state care, this question is culturally, socially and economically significant. The chair of the project’s board Diane Roussin, who leads an Indigenous social innovation agency called Winnipeg Boldness, told me, “While a full evaluation is still underway, the model is essentially proven. Moreover, some mothers in the program are recovering children previously taken from them.”
It will soon be up to government and Indigenous leaders to negotiate permanent expansion of the initiative. This SIB’s early results were a factor influencing the Manitoba government to establish a Social Innovation Office, where SIBs are being developed on subjects ranging from smoking cessation to reducing youth involvement in the justice system. Executive director Teresa Dukes explains: “We’re working on issues with socially suboptimal and uneconomic results — where social science, innovation and impact investment can create better outcomes. Working this way empowers communities and reduces risk for the government.”
SIBs need not be limited to social issues. The Deshkan Ziibi Conservation Impact Bond (DZCIB) is a groundbreaking initiative focused on biodiversity protection and investment in a reconciliation economy across a large swath of southwestern Ontario. Michelle Kanter, executive director of co-developer Carolinian Canada Coalition (C3), told me: “Landscape-level initiatives, integrating multiple ecological and human values, take longer to organize and implement, but promise higher levels of transformative change. It’s important to recognize that such processes are iterative — creating space for discussion and exploration.” Partners include C3, the Chippewas of the Thames First Nation, Thames Talbot Land Trust, VERGE Capital and Ivey Business School. 3M Corporation serves as the outcome buyer. The project’s story map and evaluation report document the journey and lessons learned.
Is it feasible to create multiple, investible SIB portfolios focused on regions undergoing economic transformation or around themes like improvements to education or health care?
For a critical perspective, here’s Emily Gustafsson-Wright, senior fellow at the Brookings Institution, which maintains a global social and developmental impact bonds database: “Of 225 impact bonds in 37 countries, most are single-point interventions, with few integrated or multi-faceted initiatives,” she told me. “Tensions can arise when investors insist on sticking to measuring end outcomes, rather than allowing for iterative changes, which SIBs tend to bring in.”
At MaRS Centre for Impact Investing — a Canadian SIB leader — Jason Sukhram, director of impact measurement and management, says there is room for improvement in SIB design and implementation, adding: “SIBs remain an under-utilized tool for public sector innovation. They can also empower social purpose organizations to measurably improve outcomes in areas where there’s room and urgency for progress.”
With their capacity to both grant and invest in tandem, philanthropic foundations are well-positioned to support SIBs in collaboration with governments and community partners.
Another Indigenous SIB illustrates these points. As Raven Capital Partners managing partner Jeff Cyr explains in a recent article, diabetes affects three to five times as many Indigenous as non-Indigenous people. Through Raven’s Indigenous solutions lab, and with support from the Denmark-based World Diabetes Foundation and Indigenous Services Canada, Raven created a Diabetes Impact Bond that is now running in four Manitoba communities and one on Prince Edward Island. With communities as partners, this initiative integrates nutrition and the provision of healthy food, mental health and exercise with traditional Indigenous cultural practices. “Frankly, we’re less interested in what can be most easily measured,” Cyr told me, “and more concerned that the process and learning be valued by communities.” A paper we co-authored describes this approach as “community-driven outcomes contracting” (C-DOC), because it centres community’s priorities.
Finally, there’s anchoring transitions in communities. Consultative collaboration among community stakeholders can serve as both a test bed and bedrock for a transition economy. This is the premise behind initiatives such as Second Muse’s Future Economy Labs, Low Carbon Cities Canada, Future Cities Canada, and the Tamarack Institute’s Community Climate Transitions program — whose director, Laura Schnurr, recently wrote: “With jurisdiction over buildings, transportation, waste and land-use planning, municipalities have influence over approximately 50 per cent of Canada’s emissions. They’re more nimble and closer to the ground than higher levels of government, enabling them to act quickly in a crisis and engage directly with residents. They’re also natural environments for piloting innovative climate solutions that can be scaled elsewhere.”
Working at a micro-macro scale, Salmon Nation’s focus is economic transition in isolated coastal communities from northern California to Alaska. Co-founder Ian Gill explains: “We can’t expect decision-makers in far-off capitals to know what’s needed to create sustainable and resilient economic futures for remote communities. With modest outside support and connections to similar places, they can manage their own transitions.”
In the final analysis, an economy manifests values and relationships between people and the Earth, and these are currently in flux. Globally, the broad goals of a transition economy have been set. It is at the regional and local scale that they will be achieved, or not. The prospect of an equitable, durable carbon-free world, or an irreversible slide into something much worse, is cause for redoubled efforts.
With turmoil in the markets, high inflation and impending interest rate hikes that will make borrowing money more expensive, many Americans are wondering if the economy is heading toward a recession.
Goldman Sachs chairman Lloyd Blankfein said last weekend that “it’s certainly a very, very high risk factor,” and consumers should be “prepared for it.” However, he hedged his comments by saying the Federal Reserve “has very powerful tools” and a recession is “not baked in the cake.”
Although it is impossible to know for sure, the odds of a U.S. recession in the next year have been steadily rising, according to a recent Bloomberg survey of 37 economists. They have the probability pegged at 30%, which is double the odds from three months ago.
To put that number into context, the threat of a recession is typically about 15% in a given year, due to unexpected events and numerous variables.
The bottom line: “The likelihood of recession this year is pretty low,” says Gus Faucher, a chief economist at financial services company PNC Financial Services Group. However, “it gets dicier in 2023 and 2024.”
What determines whether the economy enters a recession
A recession is a significant decline in economic activity that is spread across the economy and lasts more than a few months, according to The National Bureau of Economic Research, which officially declares recessions.
A key indicator of a possible recession is the real gross domestic product (GDP), an inflation-adjusted value of the goods and services produced in the United States. For the first time since early in the pandemic, it decreased at an annual rate of 1.4% in the first quarter of 2022. Since many economists agree that 2% is a healthy annual rate of growth for GDP, a negative quarter to start the year suggests the economy might be shrinking.
Another factor is rising inflation, which has recently shown signs of slowing down. But it’s still well above the Fed’s 2% target benchmark, with a year-over-year rate of 8.3% in April, according to the most recent Consumer Price Index numbers.
With a high rate of inflation, higher prices outpace wage growth, making things like gas and rent more expensive for consumers. For that reason, the Fed imposes interest rate hikes, as they did in March and May, with five more expected to follow this year. These hikes discourage spending by making the cost of borrowing money more expensive for businesses and consumers.
While many economists still expect the GDP to grow in 2022, the rate by which inflation is decreasing is less clear.
Signs of economic strength
However, there are positive economic indicators to consider as well. Job numbers continue to look good, as the U.S. economy in April had its 12th straight month of job gains of 400,000 or more. And employment levels and consumer spending remain strong, for now, despite interest hikes and inflation.
“Ultimately, inflation in terms of rising prices needs to work its way into actual spending behavior,” says Victor Canalog, head of the commercial real estate economics division within Moody’s.
He points out that consumer expenditures in the U.S. rose by 2.7% last quarter: “People are still spending more, but at what point will they start spending less?”
Despite these positives, risks remain. The Federal Reserve is walking a fine line with its monetary policy, says Faucher, as doing either too much or too little to control inflation could further hurt the economy.
“Rising interest rates are designed to cool off growth, hopefully without pushing the economy into recession,” says Faucher. But he says that if the central bank “raises their rates too much, that can push the economy into recession.”
“That’s why I’m more concerned about 2023, or 2024, because we’ll have felt the cumulative impact of all of those interest rate increases that we’re going to be seeing over the next year and a half.”
Phnom Penh, Cambodia – US President Joe Biden’s arrival in Seoul on Friday marks not only the start of his first visit while in office to South Korea and Japan, but the beginnings of an economic initiative aimed at deepening United States ties across Asia.
Though many of the Indo-Pacific Economic Framework’s details have yet to be finalised, the Biden administration has made one point clear – the plan is not a traditional trade agreement that will lower tariffs or otherwise open access to US markets, but a partnership for promoting common economic standards.
While many of China’s regional neighbours share Washington’s concerns about the burgeoning superpower’s ambitions, the IPEF’s lack of clear trade provisions could make it an uninspiring prospect for potential members, especially in Southeast Asia.
“You can sense the frustration for developing, trade-reliant countries,” Calvin Cheng, a senior analyst of economics, trade and regional integration at Malaysia’s Institute of Strategic and International Studies, told Al Jazeera. “There’s always talk about engaging Asia, the idea, but what exactly is it – and what are the incentives for developing countries to take up standards that are being imposed on them by richer, developed countries?”
Since announcing the IPEF in October, the Biden administration has characterised the initiative as a way of promoting common standards under the pillars of fair and resilient trade; supply chain resilience; infrastructure, clean energy, and decarbonisation; and tax and anti-corruption.
A fact sheet distributed by the White House in February describes the framework as part of a wider push to “restore American leadership” in the region by engaging with partners there to “meet urgent challenges, from competition with China to climate change to the pandemic”.
Nevertheless, Biden’s decision not to pursue a major trade deal harks back to the protectionist leanings of former US President Donald Trump, and, in particular, his administration’s abrupt pullout from the landmark Trans-Pacific Partnership (TPP).
Trump, whose antipathy towards traditional alliances sparked anxiety in many Asian countries, scuttled that agreement in 2017 despite sharing the deal’s aims of countering expanding Chinese economic influence.
But even without clear benefits to boost trade, Asian leaders have, for the most part, reacted favourably to the prospect of renewed US engagement in Asia.
From Vietnam, Prime Minister Pham Minh Chinh said at the recent US-ASEAN summit that Vietnam “would like to work with the US to realise the four pillars of that initiative”.
However, he added that Vietnam needed more time to study the framework, as well as to see more “concrete details”.
Thailand has also demonstrated interest, while leaders in Indonesia and India have yet to take a clear position.
Huynh Tam Sang, a lecturer of international relations at the University of Social Sciences and Humanities in Ho Chi Minh City, said Hanoi wished to avoid antagonising either the US or China – a common position for Southeast Asian states attempting to stay clear of great power struggles while avoiding being dominated by their northern neighbour.
“The Vietnamese government has been rather prudent not to showcase any intentions to join the IPEF or not, though I think there are many benefits to joining,” Sang told Al Jazeera, listing clean energy and reliable supply chains as common interests.
Sang said, however, that other standards, such as those related to taxes and anti-corruption efforts, could be a step too far for the Vietnamese government.
“I think Vietnam could be really reluctant to join that pillar for fear of the US intervening in Vietnam’s domestic politics,” he said.
“The anti-corruption campaign is definitely going on, but many Vietnamese are very sceptical of this view of cooperation, especially with the US when the Biden administration has prioritised democratic values when fostering ties with regional countries.”
Such concerns could undercut the renewed US engagement, particularly when China has made a point to engage in trade without such values-based strings attached. The Regional Comprehensive Economic Partnership (RCEP), a free trade deal that went into effect at the start of this year, is a testament to that hands-off approach to some observers.
China played a key role in negotiating the RCEP, which also includes Japan and South Korea, plus all 10 of the ASEAN member-states – Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam – as well as Australia and New Zealand.
In total, the RCEP covers some 2.3 billion people and an estimated 30 percent of the global economy. The partnership is widely seen as being more focused on promoting trade by removing tariffs and red tape, with a less holistic approach to raising economic standards than the TPP or its successor, the reassembled Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
Cheng described the CPTPP, of which the US is not a member, as the “gold standard” for trade deals in the region, noting its commitment to expanded trade access as well as provisions to safeguard labour rights, promote transparency and address environmental issues and climate change.
“So the IPEF is pretty much that, but taking out the trade deal aspect of it, leaving just the standards,” he said.
It remains to be seen how far the standards-only method will go in terms of winning acceptance across Asia.
Already, Malaysian Prime Minister Ismail Sabri Yaakob and international trade minister Azmin Ali have said the US should take a more comprehensive approach.
Ali described the framework proposal in an interview with Reuters as a “good beginning for us to engage on various issues” and said Malaysia would decide which IPEF pillars it would consider joining. At the same time, he made clear the IPEF was not a replacement for the more-comprehensive TPP.
Some of the most straightforward public criticism of the new framework on that front has come from prominent former ministers in Japan, one of the region’s most steadfast US allies.
Earlier this month, former foreign minister Taro Kono and former justice minister Takashi Yamashita spoke at an event in Washington of the new framework’s lack of hard commitments, an aspect they found glaring in the context of the abrupt collapse of the TPP. In their comments, the two maintained the IPEF would only serve to undermine the CPTPP.
“Now the Biden administration is talking about the Indo-Pacific Economic whatever, I would say forget about it,” Kono said.
Hiroaki Watanabe, a professor of international relations at Ritsumeikan University in Kyoto, said the US withdrawal from the TPP had undermined Japanese perceptions of the IPEF’s stability. Though Biden may promote his framework while in power, Watanabe said, there was no guarantee the next president would.
“Right now, it’s the Biden administration, but we don’t know what will come next – it could even be Trump again,” Watanabe told Al Jazeera.
“From a non-American perspective, it’s really difficult to believe what America is saying when it says it wants to commit itself to these plans,” Watanabe added. “There are many challenges to the logistics of this, and then the US may just throw away the kind of commitment as measured by the IPEF in the future. Practically, it’s not meaningless, but it’s not significant either.”
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