By Francine Mestrum
Poverty reduction and redistribution
Let me start by giving a very simple outline.
Formally, poverty reduction still is the first priority of development and of development cooperation. And what some of us knew already before 1990 - the year in which the World Bank put poverty on the international political agenda - and what all of us should have learned since then, is that you cannot fight poverty without tackling inequality.
Tackling inequality, in turn, implies on the one hand a fair tax system and on the other hand a universal social protection system. Now, in order to pay for such a social protection system, you need financial resources. And these financial resources can be domestic or international. Which means, in the end, that if one takes poverty reduction seriously, one has to organize a solidarity system or, in the old terminology a national and a global redistributive system.
Failed Poverty Reduction Strategies
Globally, the Millennium Development Goals (MDGs) may be reached by 2015, but at a regional or national level, we already know they will not be met. In numbers of people, extreme poverty in Subsaharan Africa has not been reduced by half but, according to World Bank statistics, has almost doubled between 1981 and 2005 (from 202 million to 385 million of people)i. In South-Asia and Latin America, the number of extremely poor people is stable or has risen slightly. The same goes for the number and the percentage of people suffering from hunger. As for the other objectives and indicators, surely, there have been some improvements but all in all, we badly lack statistical data on most of the indicators, and there is no reason to think we are heading towards a more equitable world.
As for the Poverty Reduction Strategy Papers (PRSPs), the World Bank and IMF strategy, they hardly had more success. The reason is very simple: they never were really focused on poverty. They were, as has been stated in many reports since,ii a continuation of the Washington Consensus. Their ‘social dimension’, education and health policies should be seen as ‘social investments’ which implies a return in terms of productive labor market participants. According to the World Bank, the income of the poor is not the objective of these policies; this remains a responsibility of the poor themselves. It is essentially a policy for macro-economic and state reforms and for an environment in which people can and should ‘seize the opportunities’.
These failures are the reason why different UN institutions did start to look beyond the poverty paradigm. The UN and the ILO proposed a ‘social protection floor’, which is a brilliant initiative but which does not necessarily go beyond poverty. It also remains a policy of targeting. In the report written by Ms Bachelet for the G20,iii it is clearly stated that this social protection floor cannot be a substitute for social insurance programs, though it is not clear how the link with them should be made. Nevertheless, the major merit of this report is that it shows how even the poorest or most impoverished countries can afford to introduce this social protection floor. The whole package of a basic minimum income and financially affordable access to social services like health, water and sanitation, education and food security, should not cost more than 4 % of national income.
Another interesting initiative at the level of new social policies is the report of the UN Economic Commission for Latin America (CEPAL) proposing to focus on social citizenship. Citizenship indeed implies a basic equality of rights and allows for fighting poverty and fighting inequality while focusing on human rights.
As the UNRISD report on ‘Combating Poverty and Inequality’ of 2010 clearly states: ‘A narrow preoccupation with poverty may actually work against the broad and long term efforts that are required to eradicate poverty’.iv
That is the main reason why we should look at the introduction of universal social protection systems, not as investment at the service of the economy but clearly embedded in the context of universal human rights and seen as part of a common good of humanity.
Indeed, human beings always need protection, one way or another, irrespective of the political, economic and social systems they live in. To-day, security has become a very important element in development thinking, rightly so, but this has also to include social security, or even better: human security, as defined by UNDP in 1994.v
I am not going to go into detail of what this universal social protection will be about, the speakers in the next panel are going to do it. But I want to say that I think we have to start with terminological clarity. Social assistance is part of social protection, but cannot be coterminous with it. Social protection, in a broad sense, includes social assistance, such as the social protection floor, social security or social insurances, social services (health services, education, water and sanitation, electricity, housing, environmental services, public transport …) and ideally also labor law. It is clear that all of these elements and services will not be delivered immediately, but the objective must be there and the legal framework should be prepared in order to introduce them.
The financing of social protection
Traditionally, social protection is funded out of three types of resources:
· Contributions from workers and employers
A ‘social insurance system’ or ‘social security’ is mainly limited to the formal sector and, consequently, mainly valid for rich countries. In impoverished countries, these systems often are limited to the military, civil servants and workers in a small formal sector. With the structural adjustment programs introduced in the 1980s, many of these programs have been dismantled. In western European countries, social security includes an insurance against labor accidents, against sickness and unemployment, family allowances and pensions. To-day, even in Europe, these systems are threatened because of the high labor costs they involve. The contributions paid by workers and employers are not taxes but part of wages which impacts labor costs. In a globalised economy with global competition the bargaining power of trade unions is weakened, the informal sector is growing and large corporations can threaten to move to countries with lower labor costs.
Western welfare states clearly need to be modernized, though the collective defense of labor rights remains a very important element that all workers all over the world badly need.
· Domestic resources
National tax money is used for paying social assistance to those who do not participate in the formal labor market. Social services include health care and education, child benefits, conditional cash transfers, non-contributive pensions for the elderly … There is a clear overlap with the social security systems since health services, e.g., will be partly paid by contributions and partly by tax money. Equally, some people may have been formally employed without have sufficiently contributed in order to benefit from a contributive pension fund. This is the first and main reason why there should be no clear separation between the two systems.
The second reason is that social security systems can also be funded out of domestic tax revenues, as is often the case in Scandinavian countries. Here, the most important element to take into account is the link with labor law and rules for collective bargaining.
It should be stressed that it is irrelevant to oppose social assistance to social security. Both are necessary and the best way to avoid and/or eradicate poverty is a well developed social security. Poverty can only be significantly reduced or eradicated if impoverishment processes are stopped with social insurances, decent wages, respect for fundamental rights at work and good social services.
Finally, and obviously, social protection systems can only be funded with domestic resources if the tax revenues are important enough and if the tax administration is well organized. This point requires some important qualifications to which I will come back in a minute.
· International resources
Up till now, most solidarity payments have been limited to national social protection systems. Development aid, especially the aid coming from some multinational agencies and NGOs, has been focused on social policies, but has been very limited and cannot be compared to the national systems. Recently, more attention has been going to health services, more particularly in the context of so-called ‘global problems’ such as HIV/Aids, TBC and malaria. A proposal made at the World Social Summit of 1995 in Copenhagen in order to have 20 % of Official Development Aid (ODA) spent on social development whereas impoverished countries were to commit themselves to spent 20 % of their budget to social development, has had no future.
The main problem with development aid is that it is very fragmented, often very patronizing and does not qualify for a system of global redistribution of income.
However, some global systems of redistribution have already been introduced, based on international taxes, such as an airline ticket tax (see below).
· This oversight cannot be complete without mentioning the mutual benefit societies and self-organization. These systems are potentially very empowering and democratic, though they are almost exclusively limited to local initiatives and cannot deliver a very broad package of social services. The currently promoted systems of micro-insurances are their commercial counterparts. Finally, there are alternative or complementary monetary systems, based on solidarity and reciprocity. Again, these systems will never be able to offer the whole range of services to with citizens are entitled, but they can be a complement for sick, disabled or old people, as well as for child care.
Global solutions for universal social protection
In a globalized economy where global players are able to avoid national solidarity mechanisms, and where national solidarity is mainly paid by workers, more attention should be given to global redistributive systems.
However, before starting to reflect on international or global taxes, many reforms are possible to strengthen the domestic capacity for collecting funds and for improving the fiscal margins, especially in impoverished countries.
Again, I will not go into detail, since other speakers will do, let me just mention the many possibilities there are:
Improve the domestic tax system
The ‘tax consensus’ proposed by the IMF and the World Bank to impoverished countries implies a shift to indirect taxes (mainly VAT) and has little attention for personal income tax. IFI’s pursue redistributive goals mainly via expenditures, not via taxation.vi However, domestic taxes are very low in many countries. Currently, the average ‘tax take’ in high income countries is around 37 % of GDP, whereas for low-income countries, it is only 14 %.vii Tackling this problem also requires a solution for the large informal sector.
At the Seoul Summit of November 2010, the G20 endorsed a Multi-Year Action Plan of which ‘pillar 8’ focuses on Domestic Resource Mobilization in order to strengthen tax regimes and fiscal policies. In 2009 an ‘African Tax Administration Forum’ was founded with the same purpose.
More and more development aid is now going towards supporting national administrations to better organize their tax collection. According to a recent Oxfam report, a possible improvement in tax collection by raising the tax to GDP ratio in 52 countries, a revenue increase of around 134 to 269 billion $ would be possible.viii
Solving the debt problem
As has been shown in a recent study, there is a direct link between foreign loans and capital flight.ix The authors propose to repudiate the odious debt, which is, according to international law, debt which is incurred without the consent of the people, borrowed funds which were not used for the public benefit and debt with creditor awareness, which means that creditors were aware or should have been aware of both of the above conditions. More than half of African debt is estimated to be odious. Many African countries have net transfers: they pay more in debt servicing than they receive in new money. This had direct negative consequences for their social policies.
Corruption is a very serious concern, touching both the domestic and international resources. Initiatives like the Publish What You Pay campaign has been supported by the G8 and around 30 countries are willing to participate. They will be asked, as well as corporations involved, to make public, on a voluntary basis, the money they have received or have paid. International investments are more than welcome, though they are very volatile and highly dependent on the domestic tax and regulation environment. The lack of transparency in the extractive industries cannot be sustained.x
Combat capital flight
Global Financial Integrity (GFI) estimates the illicit financial flows for all developing countries in 2002-2006 at between 612 and 716 billion US$. For Africa, the amount is estimated at 854 billion $ for the period 1970 to 2008.xi However, this is only the result of one form of trade mispricing. With estimates for mispricing in the trade of services and for smuggling, the authors think it is not unreasonable to estimate the amount at 1,8 trillion US$. Illicit capital flows concern illegally earned, transferred or utilized money. It is a two-way street with responsibilities for poor as well as for rich countries. Most if not all of the money – and invoices – go indeed to tax havens or secrecy jurisdictions and these are very detrimental to domestic tax systems and public financesxii.
In the fight against capital flight and tax havens, poor countries depend on the willingness of the rich to change anything. But they can support initiatives aiming at more transparency, such as the ‘country-by-country’ reporting system which is proposed for transnational corporations. If companies work internationally, they should be obliged to publish detailed balance sheets per country in which they work, so that it can be seen where profits are made and where taxes are (not) paid.
Royalties are the amounts paid by companies for mining activities. They are usually very low because of the investment risks, and in many African countries they hardly reach 3 %. Nevertheless, higher benefits for national governments are possible, as has been proved by the Bolivian and Ecuadorean governments who re-negotiated contracts with mining and oil companies.
International trade can be an engine for growth, though the costs it involves are often ignored. The liberalization of trade involves a sharp reduction in public revenues from tariffs which is not always compensated. The Economic Partnership Agreements the European Union is offering to African countries can cost around 1,9 billion Dollarsxiii. Compensating measures include ‘Aid for Trade’ and VAT, though according to the IMF this is far from being sufficientxiv. Christian Aid estimates that African countries have lost around 272 billion Dollars due to free trade in the past 20 yearsxv.
Strict rules for the repatriation of profits are also a potential resource for national governments. In the past, international rules asked for part of the profits of transnational corporations to be re-invested in the host countries, or they limited the repatriation to a percentage of the initial investment. These rules have disappeared but could be re-introduced.
The Dollar reserves of poor countries – without China - amounted to 4.900 billion $ in 2007xvi. This may have helped them to cope with the financial crisis of 2008-2009, but it certainly is expensive. According to Eurodad, the interest rate on these amounts - invested in US Treasury Bills -may have cost poor countries around 300 billion $.
All these points are perfectly feasible but do require the cooperation with and consequently the political will of Northern countries.
New Financial architecture
This political will is all the more important for the introduction of a New Financial Architecture. Here initiatives have to be taken in the first place by the rich countries of the North. And it is in this context that the ‘innovative sources of finance’ can be discussed. They are a direct consequence of the UN Monterrey Consensus around the Financing of Development (2002), confirmed with the Doha Declaration of 2008.xvii
Three different types of ‘innovative resources’ can be mentioned here.
- Special Drawing Rights (SDRs)
The SDR is an international reserve asset, created by the IMF in 1969 in order to supplement its member countries’ official reserves. Its value is based on four key international currencies, which today are the US Dollar, the Euro, the Japanese Yen and the UK Pound Sterling. SDRs can be exchanged for freely usable currencies. The SDR is neither a currency, nor a claim on the IMF. It is a potential claim and it serves as the unit of account of the IMF and some other international organizations. The IMF may allocate SDRs to members in proportion to their IMF quotas. A general allocation was approved in August 2009 for an amount of 161,2 billion. In 2009, a special allocation which was already decided on in 1997 finally was ratified by enough member-states and allowed for a cumulative rise by 21,5 billion. It means that the SDRs now amount to 204 billion, or around 308 billion US$xviii. It has to be noted however that the huge majority of these SDRs are in the hands of the rich countries which have the largest quotas. They are perfectly free however to relinquish their rights to poor countries in order to be used for development purposes.
- Public/Private capital flows
Several initiatives have been taken these last years.
After the G8 summit in Gleneagles in 2005, an ‘International Finance Facility for Immunization’ (IFFI) was created, a system working on the basis of ‘frontloading’ of development assistance which is borrowed in advance in order to buy vaccines. Bonds are issued in order to collect the necessary money. The loans are reimbursed through the annual budgets of development assistance. In this way, long term donor government pledges are transformed into immediately available cash resources. This money goes to the ‘Global Alliance for Vaccines and Immunization’(GAVI).xix
Next to IFFI, an Advanced Market Commitment has been created which allows for donors to commit money to guarantee the price of vaccines once they have been developed. This mechanism is thus creating the potential for a viable future market, which is especially important for poor countries with health risks that are not covered by normal activities of the pharmaceutical industry, or when vaccines are too expensive.xx
The Global Fund is a public/private partnership created in 2002 in order to fight AIDS, tuberculosis and malaria. Is has become the dominant financier in this field and is also funded with private money, such as the Bill & Melinda Gates Foundation or RED. RED is an initiative taken by some private global philanthropists. It collects money from business by taking up to 50 % of gross profits from sales of their products.xxi
Socially Responsible Investments is a French initiative in partnership with a French bank. Business partners can invest in projects of the French Development Assistance Agency.
Most of these initiatives are concerned with global health, a sector which easily attracts private funds from major philanthropic foundations.
- International taxes
Many other proposals for innovative resources for development have been made. After the Monterrey Consensus, an official French Commission – Commission Landau – examined different international tax proposals and concluded that most of them were perfectly feasiblexxii. It discussed a currency transaction tax, a windfall profit tax for multinational corporations, taxes on the trade in weapons and even a global lottery. The UN, the IMF, the OECD and the EU, academia and global civil society also started to examine the questionxxiii. After the Monterrey Conference, the UN has put into place a ‘High Level Dialogue on Financing for Development’, though it is only concerned with the Millennium Development Goals.
Three types of international taxes have to be looked at today.
· Ecological taxes
While many types of ecological taxes are possible at the national level, discussions on global taxes mainly concern two different types in order to achieve a significant reduction of the emission of greenhouse gases.
On the one hand, countries, like those of the European Union who work with a ‘cap and trade’ system and an Emission Trading Scheme, based on allowances which can be bought and sold, can possibly tax these allowances. The EU-ETS system will be changed in 2013 in order to progressively evolve towards an auctioning system. The possibility of taxing the allowances is not excluded.
On the other hand, there is a possibility of directly taxing the emissions in order to curb them. This system has the advantage of being less burdensome with less transaction costs. According to UNDP a similar tax of 20 $ per ton of CO2 in OECD countries would yield up to 265 billion $ a yearxxiv.
However, it seems obvious that these revenues would also be used in the very first instance to finance the ecological costs linked to preserving the planet. According to the Copenhagen Accord of December 2009, developed countries committed themselves to raise additional funding of up to 30 billion $ a year for the period 2010-2012, and to mobilize jointly 100 billion $ a year by 2020 for mitigation efforts.xxv This money would thus not be available for other development efforts.
· Proposals of the ‘Leading Group’ and the IMF
In 2006, France, Chile, Brazil and Spain took the initiative to create a ‘Leading Group on solidarity levies to fund development’. This group now counts 63 members and changed its name into ‘Leading Group on Innovative Financing for development’. Some countries, like France and Brazil, introduced a ticket tax, this is a small levy on international airline tickets to be paid on all tickets for flights leaving from their airports. The money – around 220 million Euros a year - goes to Unitaid in order to fight Aids, malaria and tuberculosis. Unitaid is a public/private initiative founded by France, Brazil, Chile, Norway and the UK in order to support the existing efforts to achieve the MDGs, more particularly the health related goals. It is funded for up to 70 % through this tax.xxvi
This ‘Leading Group’ also created a task force to study an ‘International Financial Transaction Tax for Development’. The group looked at different possibilities for solidarity levies from the viewpoint of sufficiency, market impact, feasibility, sustainability and suitability. It looked at five options, a Financial Activities Tax (FAT), VAT on financial services, an FTT, a national CTT and a global CTT. It finally opted for a global collection mechanism of CTT and rejected the FTT on grounds of the ‘geographical asymmetry’ in the revenue collection. Financial transactions are not purely international and a tax would draw on financial activity on the national level significantly. At a rate of 0,005 %, the proposed CTT would yield between 26,0 and 34,3 billion US$.xxvii
The IMF was asked by the G20 in April 2009 to study the concrete possibility of taxing the financial sector, though this had nothing to do with development but with the burdens associated with government intervention to repair the banking system. From this point of view, the IMF rejects the FTT, since it is not focused on the core sources of financial instability. Interesting though is the fact that the IMF stresses that the FTT should not be dismissed on grounds of administrative practicality. Most of the G20 countries, already tax financial transactions, and the UK Stamp Duty even amounts to 0, 5 %. For the purpose of its mandate, the IMF chooses a ‘Financial Stability Contribution’ or a kind of bank tax, a levy to provision for the net fiscal cost of direct support to the financial sector, and a FAT, Financial Activity Tax, which can be compared to a kind of VAT on bank transactions. This, according to the IMF, could mitigate excessive risk-taking.xxviii
· Financial Transaction Tax
The idea of a Financial Transaction Tax (FTT) is based on the old idea of the Currency Transaction Tax (CTT), an idea launched by Nobel Prize Winner James Tobin in the 1970s, in order to throw ‘sand in the wheels’ of the financial system which began to grow very fast. The CTT is a small tax on currency transactions and was meant to curb financial speculation and short term capital movements. These transactions are indeed very numerous, they involve huge amounts and yield excessively high profits. The citizen’s movement Attac (Association for the Taxation of Financial Transactions and Aid to Citizens) campaigned for several years to introduce such a tax, but only Belgium adopted a piece of legislation, mentioning though it will only come into force when other EU countries adopt a similar law.
Discussions took a new turn with the current financial and economic crisis. The objectives are very broad ranging, but it is interesting to note that the idea of global taxes has ceased to be considered as being utopian. Today, there is a real possibility of introducing them, though how and what is still very unsure. But the point is on the international agenda, even at the IMF and the G20. The European Commission has recently proposed a draft directive to be adopted by the European Parliament and the Council of Ministers. It proposes to introduce a Financial Transaction Tax by January 2014 and expects it to yield about 57 billion $.xxix
Even the US Congress and several think tanks have started to research the topic. The federal US government is against any form of international taxation, though Wall Street remains immensely unpopular in the US. Canada remains opposed, though Brazil, South Africa and Japan remain open.
A financial Transaction tax goes beyond the original proposal on a Currency Transaction Tax. It is not only meant to tax currency speculation but all transactions of financial assets such as equity, bonds, treasury bills and so on, and even derivatives and OTCs. The objective is to curb short term speculation and to stabilize financial markets. At the same time, such a tax can raise important revenues, even at the national levelxxx. The volume of financial transactions in the global economy in the past decade amounted to 73,5 times the nominal world GDPxxxi.
IDS published in May of 2011 a study on the impact and of the incidence of what it still calls a ‘Tobin Tax’.xxxii The impact is very divergent, so it states, with many methodological problems. However, the tax is technically feasible and has a high potential revenue ranging between 482 and 1631 billion Dollars, depending on the tax rate. As to the incidence, the authors claim there is no evidence that only end consumers will pay the tax, and even if they did, it would not lower welfare. Their overall conclusion is ‘moderately positive’, ‘the FTT is not a bad idea’.
It has to be stressed that the idea of global taxes is far from new. It was mentioned by Nobel Prize winner and development expert Jan Tinbergen in the 1970s. What he had in mind was a kind of World Treasury and taxes on the extraction industry. Global taxes were also mentioned in the first report of the ‘Brandt’ Commission on development and cooperation in 1980xxxiii. Today, taxes on financial transactions already exist in around 40 countries, including the New York Stock Exchange and the City of London. They consist of very different types with different rates in countries like China, Brasil, Japan, Argentina, India, Peru, Chile, Colombia, etc. What all these cases show however is that the lower the rate and the simpler the design, the more revenue is collectedxxxiv. There is no reason why a global FTT would have to be rejected a priori.xxxv
Many solutions are possible for impoverished countries to have substantially more revenues for social policies. It should be clear that universal social protection is perfectly possible.
Taxes and Democracy
The advantages of global taxes are obvious.
First and foremost, if the idea of globalization is to be understood as progressing towards ‘one common world’ of states and people, instilling some solidarity into the global system is only a confirmation of our common destiny. It is concrete evidence of our universal human rights for which international cooperation is needed, as is confirmed by article 2, paragraph 1 of the International Covenant on Economic, Social and Cultural Rights. A global redistribution of incomes is only one possibility for achieving this goal. Furthermore, taxes have always been at the heart of any democracy and all ideas of accountability. To-day, globalization is not perceived as being transparent and democratic. The political dimension is scattered over many global institutions. Solidarity and redistribution can help to strengthen this political dimension as well as the belief in our common future.
Secondly, the growth of the global economy has not been matched until now with effective means to levy global taxes in order to pay for global public goods. On the contrary, globalization has led to new inequalities, new risks and new wealth, whereas global public goods remain under-provided for. According to the Leading Group, this leads to a solidarity dilemma which could undermine globalization itself. Current inequality levels are unsustainable and the huge and growing gap will have to be bridged in order to maintain stability.xxxvi
Thirdly, global taxes and redistribution can help to strengthen national governments who can develop their policy autonomy and become less dependent on volatile aid. With national development plans, as asked for by the UN, governments will be accountable to their citizens as well as to the global fund where the resources will be collected. A predictable flow of resources can help developmental states to plan and justify their policies.
Fourthly, the fast growing financial sector has globalized rapidly since it is particularly apt to ignore borders, but it remains largely untaxed. Even if a small levy will probably curb its growth, it can also curb short term financial speculation which is often harmful to the economy and in doing so it can reduce volatility and contribute to financial stability.
Fifthly, as becomes clear in all studies on an FTT, this is a high revenue tax and even at a minimal rate of 0,01 %, it is the only tax which is able to bridge the funding gap, estimated by the Leading Group at 324-326 US$ a year from 2012 to 2017. The FTT is the only mechanism able to provide these funds.
Sixthly, as stressed by the IMF, an FTT is technically feasible, especially when there is a central clearing system which allows for taxing automatically and immediately. The avoidance problem is totally discarded if the FTT can be introduced at the global level. If not, it remains to be seen whether a low rate of 0,01 % will really lead to delocalization. It will lead to a reduction of activities, which, according to Schulmeister can be up to 65 %xxxvii. Divergence on this rate, as well as the possible ‘cannibalizing’ of existing tax revenue explain the different estimates of the expected yields.
Finally, the real problem concerns the political feasibility of a global tax. Not only does it require a global agreement, but it also implies some kind of global governance and management. The much discussed Global Solidarity Fund, created at the UN in 2005 remains to be operationalized, though it is unclear if the UN will be allowed to play this role. Political rules will have to be adopted for the utilization of the funds, though here again the example of the Global Fund can be inspiring, with a democratic, transparent mechanism of monitoring at the global and at the national level. If one takes the UN ideas on national development as the basis for development planning and funding, one could work with a system of drawing rights for countries, based on criteria such as national income, population, human development index, poverty and inequality rates. This would allow countries and governments to know what amount they can count on, whereas their own degree of good governance will decide on their effective right to the funds.
It should be clear however that global taxes are not sufficient to solve all remaining political, economic and financial problems. In order to achieve the expected results, an FTT will only work in a clever combination of measures, including domestic taxes, macroeconomic stability and a restructuring of the financial architecture, discarding tax havens and thus capital flight. In other words, it demands most and foremost a new financial architecture.
Globalization could be the first historical process that gives a real and meaningful content to the concept of global community and of one universal humankind. In order to achieve this, we need redistributive justice, we need global taxes and universal social protection, beyond poverty reduction. In our global world, we cannot consider finances from the exclusive vantage point of national states. The economy has deterritorialized, the sovereignty of national states is slowly eroded by increasing transborder activities not covered by democratic rules at the international level.
If that is true, the responsibility of protecting people also has to be partially deterritorialized. Global actors, be they international organizations, transnational companies or States themselves cannot escape their global responsibility.
At the heart of this debate are democracy and citizenship. Both are delicate and sensitive concepts that refer to the relationship between people and their States. Even if States can be defined in many divergent ways, one of their major tasks remains the responsibility for the external and domestic protection and well-being of their populations. This is even recognized by the World Bank. It means that states have to provide public goods, such as defense and a legal system, but also macro-economic stability, a stable price system, a healthy environment, education, health services and other public services. It does not mean that governments have to produce these goods themselves, but they are responsible for their organization, their regulation and their provision. It is clear that in order to do this, they need resources, and these resources come from taxes. In any democratic system, citizens, who pay these taxes, can also demand their governments to efficiently provide all these public goods and they can demand accountability. Now, if states, because of an international aid system or because of commodity exports that create royalties, do not need to levy taxes, the accountability chain is broken, the reciprocity between states and people is interrupted, and democracy cannot emerge. This is precisely what is happening today in poor countries and it is even worsened by the deterritorialization and the transnationalization of capital. Demanding ‘good governance’ and ‘accountability’ in Africa is incoherent with a simultaneous demand for the reduction of public services, the free movement of capital, free trade and what is called an ‘enabling environment’ for business.
Finally, we have to refer to social citizenship and the redistribution of incomes. Social citizenship is at the heart of the European social model. It implies that civil and political rights cannot meaningfully be respected if the economic inequality between citizens is too important. People who cannot read or write cannot use their right to vote. People who are hungry cannot defend their right to life. This is why, in the 20th century, all our European countries have developed systems of social protection and social citizenship based on the legal equality and the equal value of individuals, protection against markets and the decommodification of certain goods, such as those mentioned in my former point.
The myth of development aid
What does development aid mean in this context? It is easy to answer this question: nothing. What does 128,7 billion $ in official development aid in 2010 mean compared to the more than one thousand billion Dollars of missed revenues and the more than 500 billion Dollars coming from a FTT? Nothing. In the best of hypotheses, it is a signal of our good intentions, it is a means to avoid that too many people are dying of hunger and preventable diseases. In the worst of hypotheses, it is one more instrument for undermining democracy and accountability, undermining good governance and turning Africans into beggars.
Moreover, development and development assistance are becoming controversial, in the North as well as in the South. More and more, aid is perceived as money from the poor in rich countries going to the rich in poor countries. The aid system is very fragmented, highly volatile and more predictable aid flows would be more than welcome. A global system of redistribution can bring transparent and equitable solidarity into the system, helping to improve social spending. This implies a broad development strategy and a broad vision on the financing for development.
This kind of solidarity can be justified on the basis of a common interest. Members of the same club have to respect the same rules. Members of the international community want to defend the stability of their community, want to avoid distortion of competition due to low wages or child labor, want political equality and thus economic and social equality. These are the principles used by the ILO in its proposal for a ‘social protection floor’, a minimal universal social protection for all, and they can be applied to all global public goods, from water to biodiversity and health care.
Globalization has shown its limits. Large transnational corporations have gained enormous power, protected by the IMF, the World Bank and the WTO, and have made this globalization into a caricature of itself. They did not build one world but their world. In another type of globalization, regional entities will be able to cooperate. A regional ‘de-linking’ can have more ecological and economic advantages than the current system of a borderless world that only leaves some crumbs for the poorest. Furthermore, it is obvious that in a democratic world governance system – as this is being discussed for many years – Africa, Asia and Latin America will need to have a voice. It is the only way to make globalization coterminous with development, the building of one world with one common humanity and free movement of people instead of free movement of goods, services and capital.
Concretely, this means that African countries will have to design their development plans in full ownership. With these plans, they can work towards regional, South-South or North-South cooperation. This policy autonomy is crucial in order to start a real development process.
Conclusion
At a recent conference of the Task Force for Financial Integrity in Paris, a representative of business said: ‘How strange. For years we have been talking on social corporate responsibility. Never has it occurred to me we should also talk about taxes’. Let us hope that very soon they will be saying: ‘Never before did it occur to me we should be talking about social rights’.
It should be clear that without social rights and universal social protection, poverty cannot be eradicated. As it should be clear that without taxes and public resources, there can be no universal social protection.
At that same conference, Branco Milanovic, one of the world’s best experts on income inequality, explained that the global Gini coefficient is around 70, which is higher than any country has. 9 % of the world population has about half of the income, whereas the bottom half of the population has no more than 7 % of global income. Inequality to-day is for three quarters of it due to the inequality between countries, and this is probably the most important reason why global solidarity and global redistribution is urgently needed.
When development cooperation efforts were started after the second world war and after the decolonization process of the 1960s, the objective was to bridge the gap between the North and the South. To-day, some emerging countries like China and Brazil are on the way to becoming middle income or high income countries. Subsaharan African countries, on the contrary, are lagging behind. Development aid has not been able to bridge the gap. The time has come to look for better systems not of aid, but of solidarity. In the North, we need to decolonize our minds and truly listen to the voice of our ‘partners’.
As the representative of the French government said at the Task Force Conference in Paris: ‘le moment est venu pour sortir du carcan de la pensée unique’.
References:
1. Chen, S. and Ravallion, M., The Developing World is Poorer Than We Thought, But No Less Successful in the Fight Against Poverty,
2. UNRISD, Combating Poverty and Inequality, Geneva, Unrisd, 2010, p. 3. For a full analysis of the World Bank poverty discourse: Mestrum, F., Mondialisation et Pauvreté. De l’utilité de la pauvreeté dans le nouvel ordre mondial, Paris, L’Harmattan, 2002.
3. Bachelet, M., Le socle de protection sociale pour une mondialisation juste et inclusive, Rapport du groupe consultatif présidé par Michelle Bachelet, mis en place par le BIT avec la collaboration de l’OMS.
4. UNRISD, 2010, op. cit., p. 16
5. UNDP, Human Development Report 1994, New York, United Nations, 1994.
6. Eurodad and Action Aid, IFI tax policy in Developing Countries, 2011.
7. Fjeldstad, O.-H. & Moore, M., ‘Tax reform and State Building in a Globalised World’ in Bräutigam, D. et al., Taxation and State-Building in Developing Countries, Cambridge, Cambridge University Press, 2008, p. 242.
8. Oxfam International, Progressive Taxation. Towards fair tax policies, Oxfam Research Report, 2011.
9. Ndikumana, L. and Boyce, J., Africa’s Odious Debt. How foreign loans and capital flight bled a continent, Londoin, Zed Books, 2011.
10. Lieshout, P., Went, R., & Kremer, M., Less Pretention, More Ambition. Development Policy in Times of Globalization, Scientific Council for Government Policy, Amsterdam, Amsterdam University Press, 2010.
11. Global Financial Integrity, Illicit Financial Flows from Developing Countries: 2002-2006, Washington, s.d.; Global Financial Integrity, Illicit Financial Flows from Africa: Hidden, Resource for Development, Washington, s.d.
12. Tax Havens and Development, Report from the (Norwegian) Commission on Capital Flight from Developing Countries, 2009.
13. Tandon, Y., En finir avec la dépendance de l’aide, Genève, Cetim, 2009, p. 79.
, September 2005; United Nations, National Development Strategies, http://esa.un.org/techcoop/policyNotes.asp.
15. Christian Aid, quoted in Keune, L., ‘Development Cooperation: A Hindrance for Self-Sustainable Development’, Tailoring Biotechnologies, Vol. 1, issue 2, winter 2005-2006.
16. Eurodad, The costs of reserves: developing countries pay the price of global financial instability, January 2010; Lieshout, P. et al., p.156 in full Dutch version; IMF, The IMF and Aid to Subsaharan Africa, Evaluation report IEO, Washington, IMF, 2007.
17. United Nations, Monterrey Consensus, International Conference on the Financing of Development, Monterrey, 18-22 March 2002, Doc. A/CONF.198/11; United Nations, Report of the Follow-up Conference on the Financing of Developmenbt to Review the Implementation of the Monterrey Consensus, Doha, Qatar, 20 Nov-2 Dec 2008, Doc. A/CONF.212/L.1/Rev.1, 2008.
18. http://www.imf.org/external/no/exr/fgacts/sdr.htm
19. United Nations, Innovative Financing for Development, The I-8 Group Leading Innovative Financing for Equity (LIFE), New York, 2009.
20. United Nations, 2009, op. cit.
21. www.Theglobalfund.org
22. Les nouvelles contributions financières internationales, Rapport officiel du Groupe de Travail présidé par J.-P. Landau, La Documentation Française, 2004.
23. At the level of the UN, innovative sources of financing and global taxes are mentioned, e.g. in Keeping the Promise: united to achieve the Millennium Development Goals, General Assembly Doc. A/65/L.1 of 17 September 2010 (§ 78i), or in the Report of the Commission of Experts of the President of the UN General Assembly on the Reform of the International Monetary and Financial System, 21 September 2009 (chapter 5, § 91 and 95).
24. UNDP, Human Development Report 2007/2008. Fighting Climate Change, New York, Palgrave Macmillan, 2007, p. 126.
25. United Nations, UNFCCC, Copenhagen Accord, Doc. FCCC/CP/2009/L.7, 18 December 2009.
26. www.unitaid.eu
27. Leading Group, Globalizing Solidarity: The Case for Financial Levies, Report 2010 of the Committee of Experts to the Taskforce on International Financial Taxes and Development.
28. IMF, A Fair and Substantial Contribution by the Financial Sector, Final Report to the G20, June 2010.
29. European Commission, Proposal for a Council Directive on a common system of financial transaction tax, document COM(2011)594final, 28 September 2011.
30. For the US, see Baker, D. et al., The Potential Revenue from Financial Transaction Taxes, CEPR, Issue Brief, December 2009.
31. Schulmeister, S., A General Financial Transaction Tax: A Short Cut of the Pros, the Cons and a Proposal, WIFO, Working Papers, 344/2009.
32. IDS, The Tobin Tax: A Review of the Evidence, IDS Research Report 68, May 2011.
33. Mentioned in Nauwelaerts, P., ‘Economie, vrede en ontwikkeling’, in Wereldbeeld. Tijdschrift voor de Verenigde Naties, jg. 33, nr 151, 2009/4, p. 39; Brandt, W., Nord-Sud. Un programme de survie, Rapport de la Commission indépendante sur les problèmes de développement, Paris, Gallimard, 1980.
34. Health Poverty Action et al., Raising Revenue. A review of Financial Transaction Taxes throughout the world, September 2010.
35. For an overview of also technical arguments, see Baker, D., Responses to Criticismls of Taxes on Financial Speculation, CEPR, January 2010.
36. See Kohonen, M. & Mestrum, F., Tax Justice. Putting Global Inequality on the Agenda, London, Pluto Press, 2008.
37. Schulmeister, S., 2009, op. cit.
