Inter Press Service » Financial Crisis http://www.ipsnews.net News and Views from the Global South Tue, 30 May 2017 10:56:02 +0000 en-US hourly 1 http://wordpress.org/?v=4.1.18 Why the G7 Must Fund Health & Nutritionhttp://www.ipsnews.net/2017/05/why-the-g7-must-fund-health-nutrition/?utm_source=rss&utm_medium=rss&utm_campaign=why-the-g7-must-fund-health-nutrition http://www.ipsnews.net/2017/05/why-the-g7-must-fund-health-nutrition/#comments Thu, 25 May 2017 21:42:57 +0000 Grace Virtue http://www.ipsnews.net/?p=150593 Grace Virtue, Ph.D., is a social justice advocate and senior communications advisor for ACTION global health partnership. ]]> flags_

By Grace Virtue
TAORMINA, Italy, May 25 2017 (IPS)

The G7 Summit, held annually among the leaders of the world’s most powerful economies (Canada, France, Germany, Italy, Japan, the United Kingdom, the United States, and the EU), plays an important role in shaping responses to global challenges—theoretically at least.

The format of the Summit continues to be modeled off the first one, held in 1975 when French President Valéry Giscard d’Estaing invited his counterparts to an informal meeting in Rambouillet to discuss the economic crisis triggered by the oil shock of 1973–1974. Leaders adopt a relaxed approach, discussing candidly the main issues on the international agenda.

Their aides (the so-called Sherpas) draft a joint declaration which is signed by the leaders and enshrined as high-level political pledges. Before and during, the Sherpas are lobbied fiercely by civil society trying to get their issues of concern in the joint communiqué released by the Summit.

This year’s Summit begins May 26 in Taormina, Italy. It is arguably one of the most charged and uncertain atmosphere for a meeting of traditional western democratic political leaders. The United States, which normally plays a leading role, is hamstrung by its government, led by Republican President Donald Trump, who, among his many challenges, is currently under investigation by his own law enforcement agencies to determine whether his campaign was complicit in Russian interference in the general election of 2016, which landed him a shock victory over former secretary of state Hillary Clinton, the Democratic nominee.

Outside of ethical and perhaps legal challenges, Trump, since his inauguration in January, has unleashed a set of policy proposals deliberately targeted at rolling back social justice gains under Barack Obama, his predecessor and even before. From proposed cuts to signature programs like the Affordable Care Act and food stamps for needy families, and hostile policies toward immigrants, the administration’s programs are causing deep uncertainty and anxiety at home and abroad. Trump’s lack of interest and understanding of the outside world, rounds off a list of flaws that justifies completely questions about his capacity or suitability to lead the free world toward any progressive end.

This year’s summit also comes with the shadow of Brexit—the United Kingdom’s decision to exit the European Union; a French President, the youngest in the country’s history and a mere three weeks in his presidency; looming elections in the UK and Germany; a continued migrant crisis as desperate people flee wars and famines in Africa and the Middle East, and this week’s horrific terrorist attack in Manchester, England. Volatility, uncertainty, complexity and ambiguity like we have not seen since the height of the Cold War, are the watchword of this G7 Summit.

So, when the leaders gather at their hilltop hideaway tomorrow, there is much that is new and worrying to be discussed and great energy will likely be consumed navigating these new and unpredictable dynamics. This does not augur well for those concerns that are so devastating but so old and entrenched, that they are not news anymore—no longer sexy enough grab the headlines, if they ever were. I speak here of diseases of poverty like tuberculosis and chronic starvation and malnutrition in parts of Africa.

In 2015, 10.4 million people were sickened with TB; 1.8 million of them died—more than HIV and malaria combined. Tuberculosis is the world’s only airborne drug-resistant epidemic and is responsible for one-third of the world’s antimicrobial resistance (AMR) deaths. By 2050, estimates show drug-resistant TB (DR-TB) will claim an additional 75 million lives at a global economic cost of US$16.7 trillion.

Since its establishment in 2002 by G7 countries, the Global Fund to Fight AIDS, Tuberculosis and Malaria (Global Fund) has saved more than 20 million lives through its support for AIDS, tuberculosis (TB), and malaria programs in countries and communities most in need. Vulnerable communities, including migrants and refugees, are at increased risk of diseases like TB and HIV/AIDS because of overcrowded living and working conditions, poor nutrition, and lack of access to care. The Sustainable Development Goals (SDGs), which all G7 countries signed on to, called for the eradication of HIV/AIDS, TB, and malaria by 2030.

To achieve this, G7 leaders must continue to invest in the Global Fund. Concerned civil society groups like ACTION global health partnership in Taormina advocating to the end, are hoping they will. Other major ask of G7 leadership include accelerated efforts to eradicate malnutrition and ensure proper nutrients for every child, particularly in the first 1000 days of life. Coupled with the inability to access proper healthcare by the world’s poorest people, malnutrition is one of the greatest barrier to human development and global prosperity

It is obvious that there are many complicated issues facing the G7 leaders, but, investing in health and nutrition should not be controversial—it should be fundamental.

]]>
http://www.ipsnews.net/2017/05/why-the-g7-must-fund-health-nutrition/feed/ 0
Slow Growth Stalls SDGs’ Progresshttp://www.ipsnews.net/2017/05/slow-growth-stalls-sdgs-progress/?utm_source=rss&utm_medium=rss&utm_campaign=slow-growth-stalls-sdgs-progress http://www.ipsnews.net/2017/05/slow-growth-stalls-sdgs-progress/#comments Thu, 25 May 2017 06:49:43 +0000 Tharanga Yakupitiyage http://www.ipsnews.net/?p=150582 By Tharanga Yakupitiyage
UNITED NATIONS, May 25 2017 (IPS)

The world will not be on track to eradicate poverty by 2030 if current growth trends continue, a UN task force found.

Wu Hongbo, Under-Secretary-General for Economic and Social Affairs, briefs journalists on the launch of the 2017 “Progress and Prospects” report of the Inter-Agency Task Force on Financing for Development. Credit: UN Photo/Kim Haughton

Wu Hongbo, Under-Secretary-General for Economic and Social Affairs, briefs journalists on the launch of the 2017 “Progress and Prospects” report of the Inter-Agency Task Force on Financing for Development. Credit: UN Photo/Kim Haughton

The Inter Agency Task Force, comprising over 50 international institutions, launched a report assessing progress on the Addis Ababa Action Agenda, a global framework on development financing to help implement the internationally agreed Sustainable Development Goals (SDGs).

Though there has been some progress in development financing, slow global economic growth and decreased trade and investment growth since the 2008 financial crisis has hampered progress on the SDGs, including the eradication of poverty by 2030.

“Despite expectations of improved growth in 2017 and 2018, the current global environment bodes poorly for the achievement of the SDGs,” said Under Secretary-General for Economic and Social Affairs Wu Hongbo.

In 2016, the world economy grew at its slowest rate since the crisis and the global GDP is projected to grow at less than 3 percent over the next two years. Such rates are likely to leave almost 7 percent of the world’s population extremely poor by 2030. Least developed countries (LDCs) will fall the farthest behind, Hongbo stated.

Though the number of people living on less than 1.25 dollars per day has decreased dramatically in the last few decades, the decline largely relied on strong economic growth in developing countries, the report notes.

Low economic growth is also contributing to rising levels of unemployment. The International Labor Organisation estimates that there will be 3.4 million more unemployed people in 2017 than in 2016, and further increases are expected in 2018.

The UN Conference on Trade and Development’s (UNCTAD) Director of the Division on Globalisation and Development Strategies Richard Kozul-Wright noted that these trends are partly due to the failure to develop sustainable growth strategies.

“A lot of people expected that the post financial crisis that there will be a serious reflection on the kinds of growth strategies forged prior to the crisis which were clearly unsustainable and not inclusive, but that hasn’t really happened,” he said.

Weak investment is another major challenge hindering the achievement of the SDGs and thus growth, he added.

Between 1 and 5 trillion dollars of additional investment is needed for infrastructure alone, a key element to help sustain growth in developing countries. Transportation infrastructure enables trade and economic development, which is particularly important in land-locked developing countries, while energy-related infrastructure is essential for climate change mitigation and adaptation.

However, public and private infrastructure investment has declined globally. Though official development assistance (ODA) increased by almost 9 percent in 2016 from 2015, escalating humanitarian needs have led to significant short-term and long-term financial gaps.

Uncertainty in key policies of major countries only heightens risks in the global economy, including the U.S.’ proposals to cut foreign aid and climate finance.

Hongbo noted that the creation of national policies that align with the SDGs as well as international cooperation to boost sustainable and inclusive growth is crucial.

“Many of the challenges that countries face, including slow economic growth, climate change, and humanitarian crises, have cross-border or global repercussions and it cannot be addressed by any one actor alone,” he stated.

The launch of the report coincided with the second annual forum on financing for development which brought together member states and international organizations to discuss the pressing issues laid out in the report and its potential solutions.

Participants reached an agreement on SDG financing, calling on governments to increase and adhere to their ODA commitments and improve tax policies, including international efforts to fight tax evasion, while urging development banks and private sector actors to help mobilize catalytic resources.

“We will have our voice heard whenever we can, we will speak loudly for the LDCs and the vulnerable countries and its people,” Hongbo concluded.

]]>
http://www.ipsnews.net/2017/05/slow-growth-stalls-sdgs-progress/feed/ 1
International Finance Governance Undemocratichttp://www.ipsnews.net/2017/05/international-finance-governance-undemocratic/?utm_source=rss&utm_medium=rss&utm_campaign=international-finance-governance-undemocratic http://www.ipsnews.net/2017/05/international-finance-governance-undemocratic/#comments Tue, 23 May 2017 17:01:51 +0000 Jomo Kwame Sundaram http://www.ipsnews.net/?p=150548 Jomo Kwame Sundaram, a former economics professor and United Nations Assistant Secretary-General for Economic Development, received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007. ]]> Current international coordination leaves a lot to be desired. Credit: IPS

Current international coordination leaves a lot to be desired. Credit: IPS

By Jomo Kwame Sundaram
KUALA LUMPUR, May 23 2017 (IPS)

Why is it so difficult to achieve meaningful coordination when everybody agrees that it is desirable, if not necessary? President Richard Nixon’s withdrawal of the US from and hence termination of the Bretton Woods system in 1971 confirmed the end of the post-war Golden Age. This led to slower growth, greater volatility, more instability, and reduced progress in raising economic welfare, among other consequences.

Multilateral governance compromised
The Bretton Woods institutions (BWIs) — World Bank and International Monetary Fund (IMF) — were initially conceived as part of a post-war system of multilateral governance to ensure the conditions for peace, growth, development, employment and prosperity. Today, however, their governance arrangements are very different from those of rest of the UN system, despite all its variety, and this is part of the problem. In New York, the UN is governed by ‘one country, one vote’, at least at the General Assembly.

The role of the BWIs and their relationship with the rest of the UN system have also changed significantly over time. Europe is over-weighted in the BWIs while developing countries are under-weighted by the formula for determining voting weights. These governance arrangements have created a sense of exclusion as developing countries feel they have not been fairly represented, especially after decades of dilution of the weight of the ‘basic vote’.

For example, in the mid-1940s, there were 44 members, with the weight of their collective ‘basic votes’ totaling 11.4 per cent. Today, there are 189 members, so if the weight of the basic vote remained the same, the total weight of the members would be just under half (189/44 x 11.4%). A few years ago, total basic votes only accounted for 2.2 per cent, or less than 5% of what they should have been!

Governance vacuum

While the IMF is undoubtedly influential in various matters under its jurisdiction, there is no overall governance mechanism for finance comparable to the World Trade Organization (WTO) for trade. Through the General Agreement on Trade in Services (GATS), it has been the WTO which has been facilitating, without supervising, financial services liberalization.

Besides the WTO, the Bank of International Settlements, the Basel Committee on Banking Supervision, the Financial Stability Board and other international organizations have limited jurisdiction in other cross-border financial matters. Meanwhile, important UN initiatives, e.g., the Financing for Development (FfD) conferences, have been largely stymied and ignored in various discussions on international financial reform as the governments of OECD economies prefer the grossly undemocratic decision making arrangements in the Bretton Woods institutions to those of the rest of the UN system.

North Atlantic divide

Such governance issues inevitably undermine legitimacy, and thus constrain more effective global coordination, but of course, there are other problems as well. For many years, there have been some important differences across the Atlantic, arguably since the 1960s.

During the recent crisis, the European approach initially relied on long-standing ‘automatic stabilizers’, arguing that Europe did not need the big fiscal stimuli which the US and the UK – untypically — advocated in 2009. Later, the European Central Bank warned incessantly of the threat of inflation, while the IMF inconsistently shared the view of the rest of the UN system, that the bigger threat was that of deflation and stagnation.

Instead of providing a desperately needed, coordinated, counter-cyclical fiscal stimulus to the world economy, under the leadership of the then UK Prime Minister Gordon Brown, the G-20 committed to a huge capital infusion for the IMF. It would have been better if the G-20 had provided this capital boost on condition that the IMF reforms itself to pro-actively revive and sustain global economic growth and to better serve developing countries. Without sufficiently reforming itself, the IMF has continued to suffer from legitimacy and credibility problems, undermining its ability to provide more effective leadership.

From G-7 to G-20
Although current international coordination leaves a lot to be desired, there have been some modest and generally unsuccessful efforts to improve the situation. For instance, there were some efforts to improve coordination by the G-7 as well as in Europe at the annual IMF-World Bank meetings in October 2008 and soon afterwards as well, but these efforts did not achieve much.

Meanwhile, then President Sarkozy of France initiated an unprecedented G-20 summit to be held at the UN with Secretary-General Ban. US President George W Bush later insisted on hosting the summit in mid-November 2008 in Washington DC. (The G-20 group of Finance Ministers had been meeting for a decade after it was created by then US Treasury Secretary Larry Summers and Canadian Finance Minister Paul Martin after the 1997-1998 Asian crisis.) In the following month, the G-20 heads of government met for the very first time, and have continued to meet since with limited consequence after 2009.

]]>
http://www.ipsnews.net/2017/05/international-finance-governance-undemocratic/feed/ 0
Ecuador Focuses on New UN Tax Body to Fight Illicit Financial Flowshttp://www.ipsnews.net/2017/05/ecuador-focuses-on-new-un-tax-body-to-fight-illicit-financial-flows/?utm_source=rss&utm_medium=rss&utm_campaign=ecuador-focuses-on-new-un-tax-body-to-fight-illicit-financial-flows http://www.ipsnews.net/2017/05/ecuador-focuses-on-new-un-tax-body-to-fight-illicit-financial-flows/#comments Mon, 22 May 2017 19:29:49 +0000 Tharanga Yakupitiyage http://www.ipsnews.net/?p=150523 By Tharanga Yakupitiyage
UNITED NATIONS, May 22 2017 (IPS)

The time is now to work together to fight illicit financial flows, according to Ecuador’s Foreign Minister Guillaume Long.

Guillaume Long

Guillaume Long

Ecuador, having long advocated for tax justice, has shed light on the issue at the United Nations. As Chairman of the Group of 77, Long highlighted the need to end the financial secrecy of tax havens that often harm developing countries and to create an intergovernmental body to help regulate taxation and financial flows.

In an interview with IPS, Long explains the issues, challenges, and goals in achieving tax justice.

Q: The President of the General Assembly said that SDG financing is going to take 6$ trillion annually and $30 trillion through 2030. Do you think much-needed finances will be made available if the current rate of illicit financial flows is curbed?

A: I think it’s huge what you can get from curbing illicit flows and basically from tax dodging or tax evasion. In the case of Ecuador, we calculated that an approximate amount of $30 billion is held in tax havens. Just so you get a general idea of what that means, Ecuador’s gross domestic product (GDP) is roughly around $100 billion so $30 billion means almost 1/3rd of our GDP. Most countries struggle to grow, but here you’ve got 30 percent of GDP literally being robbed from us in tax havens.

That means less investment, less dynamism in the economy, less creation of jobs and also less taxes—it’s those taxes that are used for public policies to reduce poverty, reduce inequality, and create much needed infrastructure.

There are have been estimates that public infrastructure that is needed right now in the developing world is roughly $1.5 trillion. This includes hospitals, schools—the kind of infrastructure that the developing world needs to reduce huge rates of inequality, poverty, and some of the things we are trying to amend through, for example, the SDGs. And that’s only probably about 15% of illegal assets held abroad in tax havens and various offshore accounts.

[Curbing illicit financial flows] could revolutionize and dramatically transform the story and history of development. And it would certainly be one of the best sources of financing for development which is the big thing. Now that we have come to an agreement on the 2030 Goals and what it is that we want to do, the next question is how do we do this? And we have to do this with resources. Some resources are available to us, but many others aren’t and this is basically through tax dodging.

This is also fundamentally a practice that is carried out by elites and therefore it also means that you get greater rates of inequality. In a continent or a region like Latin America—if you do a per capita average then it is the middle class but we know that averages hide huge disparities and Latin America is actually the most unequal region in the world and a lot of that has to do with elites not being a willing part of the social contract. And a major aspect of the social contract is taxation and not participating in tax dodging.

Q: How much does the developing world, particularly Africa, Asia, and Latin America, lose to illicit financial flows?

A: There are huge numbers that are being reported. Oxfam talks of $7.6 trillion in tax dodging—I’m not even talking about illicit financial flows, not even talking about offshore accounts, I’m talking about $7.6 trillion in tax dodging.

This is why Ecuador has taken this issue so seriously. We’ve been talking about tax havens and tax avoidance for years, particularly in this government in the last ten years with the Presidency of Rafael Correa. But after the Panama Papers scandal last year, President Correa really launched this as his priority and as a major crusade. He even launched what he called an “Ethical Pact” which included a referendum in Ecuador to ban civil servants and elected officials from holding assets in tax havens. If you are found to hold assets in tax havens, you can be removed from office automatically.

I really think Ecuador is one of the countries, if not the country in the world, that’s done the most. This referendum, which was successful in terms of its results, is an example to the world. And I think Ecuador has been the most proactive country in the year that’s transpired since the revelations of the Panama Papers in taking concrete and bold steps.

Another major thing that we have been doing on the international front is from our presidency of the G77 which we currently chair. We have pushed for the creation of an intergovernmental body on tax justice. We had a workshop this morning which was co-chaired by Ecuador, India, and South Africa with huge participation exactly on this issue.

There is an opportunity—now that the issue is back at the forefront of the media, it means that we have to maximize that opportunity to try and create mechanisms, particularly inside the United Nations, that fight tax dodging. [This issue] we can deal with if we have the right tools and institutions to fight that.

Q: What are your thoughts on public disclosures on tax havens like the Panama Papers? Is that something that is needed more in order to increase transparency and action on tax havens?

A: Whistleblowing plays an important role. When information is public and people find out about these things, if their politicians have been hiding money and fog them—most politicians have a very patriotic discourse saying they’re going to create jobs and economic activity and bring foreign investment. But surely there is a paradox and a contradiction if you are saying ‘vote for me because I’ll bring loads of foreign investment into the country’ and then on the other hand you’ve got all your personal assets hidden away somewhere without paying taxes. I think when those contradictions and lies, and I would use the world ‘robbery’ especially if you are dodging taxes, are exposed then that’s a good thing. It creates greater consciousness.

I think this is a time of great opportunity because since the Panama Papers scandal, a lot of countries that could be considered to be tax havens are starting to take measures because they are under increasing pressure by people and by countries like Ecuador and other countries to do something about it. The fact that we are having this debate today and the fact that I am talking to you is not necessarily in the tax havens’ interest because it brings the spotlight onto their activities so generally speaking, those kinds of public disclosures are very important part of creating a general awareness that this must stop.

There are a lot of double standards too. On the one hand, developing countries are under pressure for all sorts of things. They’ve got to grow, they’ve got to be good economically, they’ve got to guarantee human rights—all of these things which we absolutely abide by and are very committed to—but surely there is a contradiction with having to do that and then on the other hand, all of these countries that are kind of sermonizing the rest of the world from their civilizational pedestal are reaping the benefits of all the crony and corrupt elites of the developing countries depositing their money in these bank accounts without paying taxes.

So there’s a hypocrisy there that has to be exposed. And if these public disclosures can help to do that, then so be it.

Q: Has there been any progress since the Economic and Social Council’s (ECOSOC) adoption of the ‘UN Code of Conduct on Cooperation in Combating International Tax Evasion’?

A: That was a very important step. It was the first piece of important legislation and regulatory result that came out of the Committee of Experts in a long time. So we are seeing progress, though still not enough, but still progress. And that has to do with [it being] back on the agenda.

Now there is a new step, which I think is very important, that the Secretary-General from June onwards is going to be naming the members of the Committee of Experts. So that’s also a positive development because it obviously raises the stakes and gives it more political clout.

Ecuador’s position is that we celebrate that the Committee of Experts was created with largely the fruit of debate that goes back to Monterrey in 2002. But now we think that the Committee of Experts is insufficient and that we need something else. We need something with more clout, with more accountability, with more relation with the United Nations system itself and the governmental nature of this organization.

You have it in other spheres—if you look at trade, the World Trade Organization is a regulatory body at the highest level for trade while the Intellectual Property Organization is a regulatory body for intellectual property at the highest level.

Those institutions exist because it is in the interest of big capital that they should exist. Big capital is in favor of free trade and if a country stands in the way of free trade, then you get reprimanded. But it’s not necessarily in the interest of big capital to have the equivalent in the field of taxation. This is an important concept that we should bear in mind. A lot of the institutions of global governance that we have inherited respond to specific interests and not always to the interests of the most powerless in society. They respond to the interests of the most powerful in society.

And why should trade be more important than taxation? Probably in terms of redistribution, taxation is more important than trade. Although, nobody is saying that trade isn’t important for the overall accumulation of wealth of different countries, but in terms of redistribution and in terms of capacity of the state to work towards the 2030 Agenda, then surely [taxation] plays a huge role.

It is great that we are getting closer but it is frustrating that we are still talking about a fight in order to create an institution that will then dedicate itself to fighting for a greater outcome which is tax justice. We are not even fighting for tax justice, we are fighting for the right to have the corresponding institutions just like you have them in the fields of trade and intellectual property and others.

Q: Are you proposing for a new UN tax body or are you hoping to transform the Committee of Experts into an intergovernmental body that you have proposed?

A: We are looking to transform the Committee of Experts but we are very open to different kinds of formats. We are trying to create consensus and if you are trying to create consensus—I mean, we preside over the G77 which is 134 nations so creating consensus between 134 nations is already a tall order—but at the end of the day, we are actually trying to create consensus between 193 nations of the United Nations and that includes tax havens, countries that have been a little pro-status quo particularly in the OECD, and a lot of countries that are not in the G77.

So we are open to all sorts of different outcomes. We just want to raise the hierarchy, the political clout, the visibility, the strength of the body. There are a number of initiatives. Some people have talked about keeping it within the ECOSOC while others want to elevate it to the General Assembly—there’s a huge debate within the G77 about it. But there is consensus between 134 nations of the G77 that it should be an intergovernmental body. And that’s something that we are trying to, through our presidency, express the will of the nations that are members of our group.

Q: How feasible is the proposal for an intergovernmental body for approval by the General Assembly?

A: I think multilateralism is a slow process always. I think we are getting closer. And I think that the big conference on financing for development in the next few weeks should make significant progress. I think we will find that there is much more consensus than there was in Addis Ababa in 2015.

Most countries from the Global South have these discussions about tax justice and the right to development. But a number of countries from the G20 or OECD or more industrialized countries have also started to be flexible in their position. We are seeing changes. In the workshop we had today, which would have been unthinkable a few years ago, we had loads of tax havens present. Not just tax havens that are blacklisted in the Global South by the Global North but tax havens from Europe and from other parts of the world. And they were there because they want to listen in on the debate which shows that at least they are concerned or interested and some of them actually spoke out and said they are making changes and showing a greater commitment.

There is another major thing which is the securitization of the issue. For some countries, issues of terrorism is a big thing. Where do terrorists hide their money? Well, increasingly in constituencies that enjoy banking secrecy and those tend to be tax havens. If we can all at least agree on the outcome which is greater accountability and greater regulations on that matter, even if it is for different reasons, it’s about consensus building and that’s what multilateralism is about.

Q: So would this proposed UN tax body help bring such international cooperation in tackling illicit financial flows?

A: That’s exactly right. It’s not just about naming and shaming tax havens. If suddenly you have two neighboring countries in a European setting, even if they are developed countries, and they start this kind of taxation war by lowering their taxes in order to try to suck capital and investment out of each other in this kind of race to the bottom, then a [UN tax] body like that should be able to intervene and make at least the right recommendations. Whether those recommendations become compulsory then that’s another debate, but it should be a body like you have in other fields that has the capacity to make clear recommendations.

Q: Have you faced or expect to face opposition for this proposal, especially from the Global North?

A: For sure. The G77 has been facing—basically with the same position I am presenting to you is not a new position, the position has been going on for decades and there has been clear language on behalf of the G77.

It is interesting because within the G77, you actually have tax havens as well. But even those tax havens have accepted that an intergovernmental body, which doesn’t exclude them, is quite a good measure if you want to have a serious debate and discussion between member States on this issue. This has been the position of the G77 which has been resisted for decades. There has been loads of opposition. We saw it in Addis Ababa, particularly members of the G7 or the G20 and lots of opposition from the OECD countries and oppositions from countries that are not always considered to be tax havens in the kind of stereotypical manner.

Countries like the United Kingdom has been opposed to this very much, not only because of its own policies but also because of what is euphemistically called non-autonomous territories. The five biggest tax havens in relative terms of the offshore assets per GDP index are non-autonomous territories and four of the five are British while one is the U.S. They are not sovereign nations and they are not members of the United Nations. That’s an important issue and it’s not surprising that there is opposition when we are trying to move away from this.

The Panama Papers singled out Panama and actually Panama is making quite significant efforts to move away from that image. We are very happy to see them move away from such practices but actually, Panama is not necessarily in the top five in terms of the GDP index. The very people who even write up the black lists are not free of tax malpractice themselves.

]]>
http://www.ipsnews.net/2017/05/ecuador-focuses-on-new-un-tax-body-to-fight-illicit-financial-flows/feed/ 0
World Bank fudges on inequalityhttp://www.ipsnews.net/2017/05/world-bank-fudges-on-inequality/?utm_source=rss&utm_medium=rss&utm_campaign=world-bank-fudges-on-inequality http://www.ipsnews.net/2017/05/world-bank-fudges-on-inequality/#comments Tue, 09 May 2017 14:24:31 +0000 Jomo Kwame Sundaram and Anis Chowdhury http://www.ipsnews.net/?p=150363 Jomo Kwame Sundaram, a former economics professor, was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007. Anis Chowdhury, a former professor of economics at the University of Western Sydney, held senior United Nations positions during 2008–2015 in New York and Bangkok. ]]> Demonstrations against austerity measures in Athens. The World Bank's Doing Business Report 2017 finds that the greatest increase of inequality during 2008-2013 occurred in Greece. Credit : IPS

Demonstrations against austerity measures in Athens. The World Bank's Doing Business Report 2017 finds that the greatest increase of inequality during 2008-2013 occurred in Greece. Credit : IPS

By Jomo Kwame Sundaram and Anis Chowdhury
KUALA LUMPUR and SYDNEY, May 9 2017 (IPS)

The 17 Sustainable Development Goals (SDGs) – collectively drafted and then officially agreed to, at the highest level, by all Member States of the United Nations in September 2015 – involves specific targets to be achieved mainly by 2030. The Agenda seeks to “leave no-one behind” and claims roots in universal human rights. Thus, addressing inequalities and discrimination is central to the SDGs. Poverty and Shared Prosperity 2016: Taking on Inequality is the World Bank’s first annual report tracking progress towards the two key SDGs on poverty and inequality.

Annual reporting on poverty, inequality
This particular report evaluates progress towards reducing extreme poverty to 3% of the global population and sustaining per capita income growth of the bottom 40% of the population faster than the national average. According to the Bank, with global economic growth slowing, reduction of income inequality will be necessary to ending poverty and enhancing shared prosperity.

The report focuses on inequality, which was generally neglected until fairly recently by most international organizations other than the UN itself. It provides some useful analyses of inequality, including discussion of its causes. However, it does not explain its claim of a modest partial reversal of previously growing inequality in the years 2008-2013 which it examines.

However, the report’s policy recommendations are surprisingly limited, perhaps because it neither analyses nor proposes measures to address wealth inequality, which is much greater than and greatly influences income inequality. Although it recognizes that increasing minimum wages and formalizing employment can contribute to reducing income inequalities, it does not talk about the determinants of wages, working conditions and employment. It also has nothing to say about land reform – an important factor contributing to shared prosperity in East Asia, China, Vietnam, Japan, Korea and Taiwan.

Its discussion of fiscal consolidation’s impact on inequality is misleading, even claiming, “European Union (EU) countries have embarked on comprehensive fiscal consolidations based on clear equity considerations in response to the 2008–09 financial crisis”. This implies that fiscal consolidation yields long-run equity gains at the cost of short-run pains which can be cushioned by safety-net measures – a finding contrary to International Monetary Fund (IMF) research findings!

Instead of the more conventional inequality measures such as the Gini coefficient or the more innovative Atkinson index, the World Bank has promoted “boosting the bottom 40 percent”. Yet, in much of its discussion, the report abandons this indicator in favour of the Gini index. Nevertheless, the report dwells on its “shared prosperity premium”, defined as the difference between the increased income of the bottom 40% and the growth in mean income.

Meanwhile, the World Bank’s Doing Business Report 2017 implies labour market regulations adversely impact inequality, even though it admits that they can “reduce the risk of job loss and support equity and social cohesion”. Yet, the report promotes fixed term contracts with minimal benefits and severance pay requirements.

The Bank’s Doing Business Report 2017 also implies that lower business regulation results in lower inequality. It claims this on the basis of negative associations between Gini coefficients and scores for starting a business and resolving insolvency. However, curiously, it does not discuss the association between other Doing Business scores, e.g., paying tax or getting credit, etc., and the Gini index.

Recent progress?
About two-thirds of the 83 countries analysed had a shared prosperity premium during 2008-2013, a period characterized by asset price collapses and sharply increased youth unemployment in many OECD economies. This unrepresentative sample is uneven among regions, and surprisingly, even some large rich countries such as Japan, South Korea and Canada are missing.

Recognizing that the shared prosperity premium is generally low, the report concedes that “the goal of ending poverty by 2030 cannot be reached at current levels of economic growth” and that “reduction of inequality will be key to reaching the poverty goal”.

The global Gini index has declined since the 1990s due to rapidly rising incomes in China and India, while within-country inequality has generally increased. More optimistically, the Bank notes that Gini coefficients fell in five of seven world regions during 2008-2013 despite or perhaps because of much slower growth. The report notes that the “progress is all the more significant given that it has taken place in a period marked by the global financial crisis of 2008-09”. As others have noted, the 2008 financial crisis and the subsequent Great Recession may have only temporarily reversed growing inequality.

Greek tragedy
After very impressive growth for a decade, the Greek economy went into recession in 2008-2009, together with other European countries. With severe austerity measures imposed by the EU and the IMF as bailout conditions, Greece fell into a full-blown depression with various adverse income and distributional impacts.

The report finds that the greatest increase of inequality during 2008-2013 occurred in Greece, where the mean household income of the bottom 40% shrunk by an average of 10% annually. Fortunately, as the Bank notes, some measures – such as lump sum transfers, introduced in 2014 for low-income families and the vulnerable, along with ‘emergency’ property taxes – “prevented additional surges in inequality”.

Brazil progress at risk

Brazil is the most significant of its five “best performers” in narrowing income inequality, with its Gini coefficient falling from 0.63 in 1989 to 0.51 in 2014. The report attributes four-fifths of the decline in inequality in 2003-2013 to “labor market dynamics” and social program expansion. Alarmingly, the new government has threatened to end regular minimum wage increases and to limit social program expenditure.

“Labor market dynamics” – deemed far more important by other analysts – include regular minimum wage increases, formalization of unprotected workers and strengthened collective bargaining rights. Social pensions and other social program benefits account for much more of the decline in inequality than the much touted Bolsa Familia.

The report makes recommendations on six “high-impact strategies”: early childhood development, universal health coverage, universal access to quality education, cash transfers to the poor, rural infrastructure and progressive taxation. While certainly not objectionable, the recommendations do not always draw on and could easily have been made without the preceding analysis.

]]>
http://www.ipsnews.net/2017/05/world-bank-fudges-on-inequality/feed/ 0
Growing Inequality under Global Capitalismhttp://www.ipsnews.net/2017/05/growing-inequality-under-global-capitalism/?utm_source=rss&utm_medium=rss&utm_campaign=growing-inequality-under-global-capitalism http://www.ipsnews.net/2017/05/growing-inequality-under-global-capitalism/#comments Thu, 04 May 2017 14:41:32 +0000 Anis Chowdhury and Jomo Kwame Sundaram http://www.ipsnews.net/?p=150295 Anis Chowdhury, a former professor of economics at the University of Western Sydney, held senior United Nations positions during 2008-2015 in New York and Bangkok. Jomo Kwame Sundaram, a former economics professor and United Nations Assistant Secretary-General for Economic Development, received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007. ]]> The World Economic Forum (WEF) has described severe income inequality as the biggest risk facing the world. Credit: IPS

The World Economic Forum (WEF) has described severe income inequality as the biggest risk facing the world. Credit: IPS

By Anis Chowdhury and Jomo Kwame Sundaram
SYDNEY and KUALA LUMPUR, May 4 2017 (IPS)

Income and wealth inequality has increased in recent decades, but recognition of the role of economic liberalization and globalization in exacerbating inequality has never been so widespread. The guardians of global capitalism are nervous, yet little has been done to check, let alone reverse the underlying forces.

Global elite alarmed by growing inequality
The World Economic Forum (WEF) has described severe income inequality as the biggest risk facing the world. WEF founder Klaus Schwab has observed, ‘We have too large a disparity in the world; we need more inclusiveness… If we continue to have un-inclusive growth and we continue with the unemployment situation, particularly youth unemployment, our global society is not sustainable.’

Christine Lagarde, IMF Managing Director, told political and business leaders at the WEF, “in far too many countries the benefits of growth are being enjoyed by far too few people. This is not a recipe for stability and sustainability”. Similarly, World Bank President Jim Yong Kim has warned that failure to tackle inequality risked causing social unrest. “It’s going to erupt to a great extent because of these inequalities.”

In the same vein, the influential US Council of Foreign Relations’ journal, Foreign Affairs carried an article cautioning, “Inequality is indeed increasing almost everywhere in the post-industrial capitalist world…. if left unaddressed, rising inequality and economic insecurity can erode social order and generate a populist backlash against the capitalist system at large.”

Much ado about nothing?

Increasingly, the main benefits of economic growth are being captured by a tiny elite. Despite global economic stagnation for almost a decade, the number of billionaires in the world has increased to a record 2,199. The richest one per cent of the world’s population now has as much wealth as the rest of the world combined. The world’s eight richest people have as much wealth as the poorer half.

In India, the number of billionaires has increased at least tenfold in the past decade. India now has 111 billionaires, third in the world by country. The largest number of the world’s abject poor also live in the same country — over 425 million, a third of the world’s poor, and well over a third of the country’s population.

Africa had a resource boom for a decade until 2014, but most people there still struggle daily for food, clean water and health care. Meanwhile, the number of people living in extreme poverty, according to the World Bank, has grown substantially to at least 330 million from 280 million in 1990!

In Europe, poor people bore the brunt of draconian austerity policies while bank bailouts mainly benefited the moneyed. 122.3 million people, or 24.4 per cent of the population in the EU-28, are at risk of poverty. Between 2009 and 2013, the number of Europeans without enough money to heat their homes or cope with unforeseen expenses, i.e., living with ‘severe material deprivation’, rose by 7.5 million to 50 million people, while the continent is home to 342 billionaires!

In the United States, the income share of the top one per cent is at its highest level since the eve of the Great Depression, almost nine decades ago. The top 0.01 per cent, or 14,000 American families, own 22.2 per cent of its wealth, while the bottom 90 per cent, over 133 million families, own a meagre four per cent of the nation’s wealth. The top five per cent of households increased their share of US wealth, especially after the 2008 financial crisis. Meanwhile, the richest one per cent tripled their share of US income within a generation.

This unprecedented wealth concentration and the corresponding deprivation of others have generated backlashes, arguably contributing to the victory of Donald Trump in the US presidential election, the Brexit referendum, the strength of Marine Le Pen in France and the Alternative for Germany, and the ascendance of the Hindutva right in secular India.

‘Communist’ China and inequality
Meanwhile, China has increasingly participated in and grown rapidly as inequality has risen sharply in the ostensibly communist-ruled country. China has supplied cheaper consumer goods to the world, checking inflation and improving living standards for many. Part of its huge trade surplus — due to relatively low, albeit recently rising wages — has been recycled in financial markets, mainly in the US, which helped expand credit at low interest rates there.

Thus, cheap consumer products and cheap credit have enabled the slowly shrinking ‘middle class’ in the West to mitigate the downward pressure on their living standards despite stagnating or falling real wages and mounting personal and household debt.

China’s export-led development on the basis of low wages has sharply increased income inequality in the world’s largest country for more than three decades. Beijing is the new ‘billionaire capital of the world’, no longer New York. China now has 594 billionaires, 33 more than in the US!

Since the 1980s, income inequality in China has risen faster than most! China now has one of the world’s highest levels of income inequality, rising mainly in the last three decades. The richest one per cent of households own a third of the country’s wealth, while the poorest quarter own only one per cent. China’s Gini coefficient for income rose to 0.49 in 2012 from 0.3 over three decades before when it was one of the most egalitarian countries in the world. Another survey put China’s income Gini at 0.61 in 2010, greatly exceeding the US’s 0.45!

]]>
http://www.ipsnews.net/2017/05/growing-inequality-under-global-capitalism/feed/ 4
World Bank Must Stop Encouraging Harmful Tax Competitionhttp://www.ipsnews.net/2017/04/world-bank-must-stop-encouraging-harmful-tax-competition/?utm_source=rss&utm_medium=rss&utm_campaign=world-bank-must-stop-encouraging-harmful-tax-competition http://www.ipsnews.net/2017/04/world-bank-must-stop-encouraging-harmful-tax-competition/#comments Wed, 26 Apr 2017 14:33:16 +0000 Anis Chowdhury and Jomo Kwame Sundaram http://www.ipsnews.net/?p=150163 Anis Chowdhury, a former professor of economics at the University of Western Sydney, held senior United Nations positions during 2008–2015 in New York and Bangkok.
Jomo Kwame Sundaram, a former economics professor, was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007. ]]>

Anis Chowdhury, a former professor of economics at the University of Western Sydney, held senior United Nations positions during 2008–2015 in New York and Bangkok.
Jomo Kwame Sundaram, a former economics professor, was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007.

By Anis Chowdhury and Jomo Kwame Sundaram
SYDNEY and KUALA LUMPUR, Apr 26 2017 (IPS)

One of the 11 areas that the World Bank’s Doing Business (DB) report includes in ranking a country’s business environment is paying taxes. The background study for DB 2017, Paying Taxes 2016 claims that its emphasis is “on efficient tax compliance and straightforward tax regimes”.

The World Bank has been promoting tax cuts and tax competition as magic bullets to boost investment. As a result, tax revenues in developing countries continue to fall. Credit: IPS

The World Bank has been promoting tax cuts and tax competition as magic bullets to boost investment. As a result, tax revenues in developing countries continue to fall. Credit: IPS

Its ostensible aim is to aid developing countries in enhancing the administrative capacities of tax authorities as well as reducing informal economic activities and corruption, while promoting growth and investment. All well and good, until we get into the details.

Tax less
First, the Report advocates not only administrative efficiency, but also lower tax rates. Any country that reduces tax rates, or raises the threshold for taxable income, or provides exemptions, gets approval.

Second, it exaggerates the tax burden by including, for example, employees’ health insurance and pensions and charges for public services like waste collection and infrastructure or environmental levies that the businesses must pay. The IMF’s Government Financial Statistics Manual correctly treats these separately from general tax revenues.

Third, by favourably viewing countries that lower corporate tax rates (or increase threshold and exemptions) and negatively considering those that introduce new taxes, DB is essentially encouraging tax competition among developing countries.

Thus, the Bank is ignoring research at the OECD and IMF which has not found any convincing evidence that lower corporate tax rates or other fiscal concessions have any positive impact on foreign direct investment.

Instead, they found net adverse impacts of tax concessions and fiscal incentives on government revenues. According to the research, factors such as the availability and quality of infrastructure and human resources were more important for investment decisions than taxes.

The World Bank’s Enterprise Surveys also do not find paying taxes to be high on the list of factors that enterprise owners perceive as important barriers to investment. For example, the Enterprise Survey for the Middle East and North Africa found political instability, corruption, unreliable electricity supply, and inadequate access to finance to be important considerations; paying taxes or tax rates were not.

Yet, the World Bank has been promoting tax cuts and tax competition as magic bullets to boost investment. Not surprisingly, thanks to its still considerable influence, tax revenues in developing countries are not rising enough, or worse, continue to fall. According to some estimates, between 1990 and 2001, reduction in corporate taxes lowered countries’ tax revenue by nearly 20%.

Instead of encouraging tax competition, therefore, the World Bank should help developing countries improve tax administration to enhance collection and compliance, and to reduce evasion and avoidance. According to OECD Secretary-General Angel Gurria, “developing countries are estimated to lose to tax havens almost three times what they get from developed countries in aid”.

Global Financial Integrity has estimated that illicit financial flows of potentially taxable resources out of developing countries was US$7.85 trillion during 2004-2013 and US$1.1 trillion in 2013 alone!

Conflicts of interest

However, the Bank’s Paying Taxes and DB reports do little to strengthen developing countries’ tax revenues. This should come as no surprise as its partner for the former study is Pricewaterhouse Cooper (PwC), one of the ‘Big Four’ leading international accounting and consultancy firms. PwC competes with KPMG, Ernst & Young and Deloitte for the lucrative business of helping clients minimize their tax liabilities. PwC assisted its clients in obtaining at least 548 tax rulings in Luxembourg between 2002 and 2010, enabling them to avoid corporate income tax elsewhere.

How are developing countries expected to finance their infrastructure investment needs, increase social protection coverage, or repair their damaged environments? Instead of helping, the Bank’s most influential report urges them to cut corporate tax rates and social contributions to improve their DB ranking, contrary to what then Bank Chief Economist Kaushik Basu observed: “Raising [tax] allows developing countries to invest in education, health and infrastructure, and, hence, in promoting growth.”

How are they supposed to achieve the internationally agreed Agenda 2030 for the Sustainable Development Goals in the face of dwindling foreign aid. After all, only a few donor countries have fulfilled their aid commitment of 0.7% of GNI, agreed to almost half a century ago. Since the 2008 financial crisis, overseas development assistance has been hard hit by fiscal austerity cuts in OECD economies except in the UK under Cameron.

The Bank would probably recommend public-private partnerships (PPPs) and borrowing from it. Countries starved of their own funds would have to borrow from the Bank, but loans need to be repaid. Governments lacking their own resources are being advised to rely on PPPs, despite predictable welfare outcomes – e.g., reduced equity and access due to higher user fees – and higher government contingent fiscal liabilities due to revenue guarantees and implicit subsidies.

Financially starved governments boost Bank lending while PPPs increase the role of its International Finance Corporation (IFC) in promoting private sector business. Realizing the Bank’s conflict of interest, many middle-income countries ignore Bank advice and seek to finance their investments and other activities by other means. Thus, there are now growing demands that the Bank stop promoting tax competition, deregulation and the rest of the Washington Consensus agenda.

Bank must support SDGs
However, nothing guarantees that the Bank will act accordingly. It has already ignored the recommendation of its independent panel to stop its misleading DB country rankings. While giving lip service to the International Labour Organization (ILO) and others who have asked it to stop ranking countries by labour market flexibility, the Bank continues to promote labour market deregulation by other means.

If the Bank is serious about being a partner in achieving Agenda 2030, it should align its work accordingly, and support UN leadership on international tax cooperation besides enhancing governments’ ability to tax adequately, efficiently, and equitably. In the meantime, the best option for developing countries is to ignore the Bank’s DB and Paying Taxes reports.

]]>
http://www.ipsnews.net/2017/04/world-bank-must-stop-encouraging-harmful-tax-competition/feed/ 1
Dispute Settlement Becomes Speculative Financial Assethttp://www.ipsnews.net/2017/04/dispute-settlement-becomes-speculative-financial-asset/?utm_source=rss&utm_medium=rss&utm_campaign=dispute-settlement-becomes-speculative-financial-asset http://www.ipsnews.net/2017/04/dispute-settlement-becomes-speculative-financial-asset/#comments Wed, 19 Apr 2017 14:46:24 +0000 Jomo Kwame Sundaram http://www.ipsnews.net/?p=150047 Jomo Kwame Sundaram was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007.]]> Investor-state dispute settlement (ISDS) will thus strengthen perverse incentives for foreign investors at the expense of local businesses and the public interest. Credit: IPS

Investor-state dispute settlement (ISDS) will thus strengthen perverse incentives for foreign investors at the expense of local businesses and the public interest. Credit: IPS

By Jomo Kwame Sundaram
KUALA LAMPUR, Apr 19 2017 (IPS)

Investor-state dispute settlement (ISDS) provisions in bilateral investment treaties (BITs) and free trade agreements (FTAs) have effectively created a powerful and privileged system of protections for foreign investors that undermines national law and institutions.

ISDS allows foreign corporations to sue host governments for supposedly causing them losses due to policy or regulatory changes that reduce the expected profitability of their investments. Very significantly, ISDS provisions have been and can be invoked, even when rules are non-discriminatory, or profits come from causing public harm. ISDS will thus strengthen perverse incentives for foreign investors at the expense of local businesses and the public interest.

New opportunity for speculation
In recent years, ISDS provisions of investment treaties, free trade and other agreements have increasingly provided an investment opportunity to make money by speculating on lawsuits, winning huge awards and forcing foreign governments, and taxpayers, to pay. Financial speculators have increasingly purchased corporations deemed capable of profitably bringing winnable ISDS claims, sometimes using ‘shell companies’.

Some hedge funds and private equity firms even finance ISDS cases as third parties, with ISDS itself the raison d’etre for such investments. Such ‘third-party funding’ of ISDS claims has been expanding quickly as financing such claims has proven to be very lucrative.

Third-party financing reduces litigation costs to the corporations themselves, making it easier, and thus encouraging them to sue. Foreign corporations typically do not have to declare receiving third-party funding for an ISDS case. Not surprisingly then, the ISDS claims-financing industry is booming as different types of investors have been attracted by and drawn into financing lawsuits, treating ISDS claims as speculative assets.

The International Council for Commercial Arbitration estimates that at least three fifths of those considering ISDS claims have inquired about possible third-party financing before pursuing them. Financing firms provide clients with litigation packages from the outset, advising on what treaties to exploit and which law firms to hire, even recommending arbitrators.

While bondholders do not actually develop productive capacities or sell services in a host country, they too can resort to ISDS arbitration to maximize returns to their debt purchases. Thus, bond-holders who have lost value can use the ISDS back door to sue countries for compensation, thus encouraging a new speculative investment option for ‘vultures’. Hence, ISDS allows investors with little connection to the ‘aggrieved’ initial investment to benefit financially as well.

Ripe for the picking
ISDS advocates claim that case outcomes remain uncertain, with foreign corporations only winning about a quarter of the cases they initiate. But this proportion does not include settlements agreed to before arbitration proceedings are concluded when the foreign corporations secure huge gains. ISDS arbitration is very attractive, even tempting to foreign investors who would otherwise not pursue claims in national courts against host governments.

Recent ISDS arbitrations have seen much greater delegation of authority to arbitrators in interpreting and applying agreements, without any option to appeal or otherwise challenge the arbitrators’ decisions. There is no way to ensure that arbitration tribunals will interpret and apply treaty provisions in ways consistent with governments’ understandings of what treaty obligations imply.

Those investing in ISDS cases recognize that the most vulnerable governments for investors to sue are typically those already in some trouble. For example, when a country resorts to emergency economic measures to protect its citizens, investors can easily claim that these undermine earlier understandings of international agreements. Ensuing lawsuits typically hurt the country’s credit rating, raising capital costs and undermining its ability to attract investment.

]]>
http://www.ipsnews.net/2017/04/dispute-settlement-becomes-speculative-financial-asset/feed/ 0
Economic Recovery Crucial to Sustainable Developmenthttp://www.ipsnews.net/2017/04/economic-recovery-crucial-to-sustainable-development/?utm_source=rss&utm_medium=rss&utm_campaign=economic-recovery-crucial-to-sustainable-development http://www.ipsnews.net/2017/04/economic-recovery-crucial-to-sustainable-development/#comments Tue, 11 Apr 2017 14:08:49 +0000 Anis Chowdhury and Jomo Kwame Sundaram http://www.ipsnews.net/?p=149903 Anis Chowdhury, a former professor of economics at the University of Western Sydney, held senior United Nations positions during 2008-2015 in New York and Bangkok. Jomo Kwame Sundaram, a former economics professor and United Nations Assistant Secretary-General for Economic Development, received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007. ]]> The World Economic Situation and Prospects (WESP) was the only such report to identify risks to the global economy before the 2008-2009 global financial crisis, while both the International Monetary Fund (IMF) and the Organization for Economic Cooperation and Development (OECD) largely ignored them. Credit: IPS

The World Economic Situation and Prospects (WESP) was the only such report to identify risks to the global economy before the 2008-2009 global financial crisis, while both the International Monetary Fund (IMF) and the Organization for Economic Cooperation and Development (OECD) largely ignored them. Credit: IPS

By Anis Chowdhury and Jomo Kwame Sundaram
SYDNEY and KUALA LUMPUR, Apr 11 2017 (IPS)

More than eight years after the global financial crisis exploded in late 2008, economic growth remains generally tepid, while ostensible recovery measures appear to have exacerbated income and other inequalities. Yet, despite the G-20 group of the world’s largest economies raising the level, frequency and profile of its meetings, effective multilateral cooperation and coordination remains a distant dream.

Little reason to cheer
The United Nations’ recent World Economic Situation and Prospects (WESP) 2017 offers little cause for comfort:
• the world economy has not yet emerged from the protracted slow growth following the 2008 financial crisis;
• significant uncertainties and risks weigh heavily on its projected modest global recovery for 2017-2018;
• despite modest economic growth, global carbon emissions have not declined in the last two years;
• more alarmingly, new investment in renewable energy dropped sharply in the first half of 2016, as progress in emissions mitigation in recent years could easily be reversed;
• growth in the least developed countries (LDCs) will remain well below the sustainable development goals (SDGs) target in the near term; and
• below-target growth and tax revenue threaten critical public expenditure on healthcare, education, social protection, and climate change adaptation.

Credibility
Unfortunately, the WESP does not attract as much media attention or fanfare as other similar global reports, such as the International Monetary Fund’s (IMF) World Economic Outlook or the OECD’s Global Economic Outlook. Nevertheless, WESP was the only such report to identify risks to the global economy before the 2008-2009 global financial crisis, while both the IMF and OECD largely ignored them.

Even after US sub-prime housing debt problems became apparent and Lehman Brothers had collapsed, both remained optimistic, predicting a soft-landing in the US at worst, which they suggested would be off-set by robust growth in Europe. Both supported the turn to ‘fiscal consolidation’ as soon as ostensible ‘green shoots of recovery’ were spotted in 2019. Despite greater consideration of ostensibly Keynesian policy options since, seriously Keynesian macroeconomic analysis remains largely off-limits.

Global recovery?
WESP 2017 identifies policy paralysis and lack of policy coordination as among the main factors holding back global economic recovery. Over-reliance on unconventional monetary policy and fiscal consolidation in major economies, especially in Europe, are contributing not only to policy uncertainty, but also to growing inequality.

Protracted weak global demand – due to fiscal contraction, high household debt and growing inequality – has reduced incentives for firms to invest. Political and policy uncertainties, due to events such as ‘Brexit’, have also discouraged private investment. Thus, investment has slowed significantly in major developed and emerging economies. The extended period of weak investment is driving the slowdown in productivity growth.

Meanwhile, international trade expanded by just 1.2 per cent in 2016, the third-lowest rate in the past three decades. Slow world trade growth is both contributing to and symptomatic of the global economic slowdown.

What needs to be done?
Thus, WESP 2017 calls for a more balanced policy mix – moving beyond excessive reliance on monetary policy – to restore a healthy growth trajectory over the medium-term for the global economy as well as to tackle some social and environmental dimensions of sustainable development.

Government support for public goods, such as combating climate change, remains crucial, as private investors tend to evaluate risk and return over short-term horizons and under-invest in public priorities. Investment in research and development, education and infrastructure would promote sustainable development as well as social and environmental progress, while supporting productivity growth.

WESP 2017 also calls for greater international coordination to ensure complementarities among trade, investment, and other public policies, and to better align the multilateral trading system with the 2030 Agenda for Sustainable Development to ensure inclusive growth and decent work for all.

Global Green New Deal

Any recession or economic crisis also offers the opportunity to weed-out lagging activities or obsolete practices, and to restructure the economy to put it on a more sustainable path. Thus, to tackle the global financial crisis, in early 2009, the UN proposed a Global Green New Deal (GGND) comprising of public work programmes and social protection, including in developing countries. This bold proposal remains relevant as the global economy struggles to recover, and achievement of the SDGs is threatened.

Most critically, public works programmes should be launched, not only in developed countries, which can resort to deficit financing, but also in developing countries, where resources are more limited and policies are generally more hostage to the global financial system. Thus, GGND can not only accelerate economic recovery and job creation, but also address sustainable development challenges more generally. To be more effective, GGND should be part of a broader international counter-cyclical effort comprising three main elements:
1. Financial support for developing countries, provided through the multilateral system, to prevent their economic slowdown.
2. National government-led investment packages in developed and developing countries to revive and ‘green’ national economies.
3. International policy coordination to ensure that developed countries’ investment packages not only create jobs in developed countries, but also have strong developmental impacts in developing countries. These should involve collaborative initiatives among governments of developed and developing countries.

The window of opportunity to restructure the global economy towards a more sustainable path has been closing as governments procrastinate, adopt self-defeating fiscal consolidation policies, and give up economic management responsibility to the monetary authorities. ‘Quantitative easing’ has not only failed to ensure a robust recovery, but has also exacerbated the inequalities and disparities breeding ethno-chauvinist populism. Bold, internationally well-coordinated actions are needed now more than ever.

]]>
http://www.ipsnews.net/2017/04/economic-recovery-crucial-to-sustainable-development/feed/ 3
Secret Tax Deals Increased Dramatically After Luxleakshttp://www.ipsnews.net/2017/03/secret-tax-deals-increased-dramatically-after-luxleaks/?utm_source=rss&utm_medium=rss&utm_campaign=secret-tax-deals-increased-dramatically-after-luxleaks http://www.ipsnews.net/2017/03/secret-tax-deals-increased-dramatically-after-luxleaks/#comments Mon, 20 Mar 2017 15:39:43 +0000 Ida Karlsson http://www.ipsnews.net/?p=149493 European Commission Building. Credit: Ida Karlsson

European Commission Building. Credit: Ida Karlsson

By Ida Karlsson
STOCKHOLM, Mar 20 2017 (IPS)

Despite the LuxLeaks scandal, the number of secret tax deals is skyrocketing. Such deals between companies and governments across Europe increased by almost 50 percent the year after the scandal broke.

Despite the controversy, the number of these individual secret agreements drawn up between European governments and multinational corporations in the EU have soared from 545 in 2013, to 1444 by the end of 2015, according to official data from the European Commission. It is an increase of 160 percent in just two years.

“This is obviously deeply concerning and shows that reforms in Luxembourg and elsewhere are a bit of a mirage, in particular since there is still no public scrutinity of these rulings yet,” Fabio De Masi, a politician from Die Linke in Germany and a Member of the European Parliament, told IPS.

The LuxLeaks scandal erupted in 2014 and sparked a major global push against generous deals handed to multinationals, which grew even stronger with new revelations such as the Panama Papers.

The two whistleblowers who exposed the profit-shifting of some multinationals such as Apple, Ikea and Pepsi were convicted again last Wednesday by Luxembourg’s court of appeal, but with reduced sentences compared to the first verdict. Antoine Deltour, a former PWC employee was given a 6-month suspended sentence and a 1,500 euro fine and Raphaël Halet, another PWC employee, was given a 1,000 euro fine.

“It is scandalous that those who did an invaluable service to society, risking their careers, have again been found guilty while the rich and powerful rob hundreds of billions of euros from citizens,” Fabio de Masi said.

Luxembourg’s finance minister, Pierre Gramegna, has described the leak as “the worst attack” his country has ever experienced.

EU Competition Commissioner Margrethe Vestager appeared to back the whistleblowers in comments last week.

“I think it was a good thing (the leaks),” she told a news conference in Brussels last Wednesday.

“I think it is important when people tell if they find that something is not the way it should be. Then authorities, law enforces, can do their job and do that in a better way. I think that a lot of people actually have benefitted from them telling what they knew.”

Developing countries lose an estimated 1,000 billion dollars annually to corporate tax dodging according to Global Financial Integrity.

For the first time, the group of countries in Europe in favour of transparency around the true owners of businesses is larger than the group against, according to the report “Survival of the Richest” by the European Network on Debt and Development, Eurodad. But there are still more governments against measures to show what multinationals are paying in taxes in the countries they operate in than those in favour.

Eurodad, the coalition of civil society organizations campaigning for greater tax transparency, analyzed European Commission data for 18 countries.

Eurodad also warned that European governments were signing controversial tax treaties with developing countries. The treaties were undermining taxations in those countries, it said. On average these treaties lower tax rates in developing countries by 3.8 percent, according to the coalition.

]]>
http://www.ipsnews.net/2017/03/secret-tax-deals-increased-dramatically-after-luxleaks/feed/ 0
Most Financial Inflows Not Developmentalhttp://www.ipsnews.net/2017/03/most-financial-inflows-not-developmental/?utm_source=rss&utm_medium=rss&utm_campaign=most-financial-inflows-not-developmental http://www.ipsnews.net/2017/03/most-financial-inflows-not-developmental/#comments Tue, 14 Mar 2017 15:11:01 +0000 Anis Chowdhury and Jomo Kwame Sundaram http://www.ipsnews.net/?p=149410 Anis Chowdhury, a former professor of economics at the University of Western Sydney, held senior United Nations positions during 2008-2015 in New York and Bangkok. Jomo Kwame Sundaram, a former economics professor and United Nations Assistant Secretary-General for Economic Development, received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007. ]]> The World Economic Situation and Prospect report 2017 calls for a complete revamp of the international financial system to address development finance issues and ensure needed resource transfers to developing countries. Credit: IPS

The World Economic Situation and Prospect report 2017 calls for a complete revamp of the international financial system to address development finance issues and ensure needed resource transfers to developing countries. Credit: IPS

By Anis Chowdhury and Jomo Kwame Sundaram
SYDNEY and KUALA LUMPUR, Mar 14 2017 (IPS)

Recent disturbing trends in international finance have particularly problematic implications, especially for developing countries. The recently released United Nations report, World Economic Situation and Prospects 2017 (WESP 2017) is the only recent report of a multilateral inter-governmental organization to recognize these problems, especially as they are relevant to the financing requirements for achieving the Sustainable Development Goals (SDGs).

Resource outflows rising
Developing countries have long experienced net resource transfers abroad. Capital has flowed from developing to developed countries for many years, peaking at US$800 billion in 2008 when the financial crisis erupted. Net transfers from developing countries in 2016 came close to US$500 billion, slightly more than in 2015.

Most financial flows to developing and transition economies initially rebounded following the 2008 crisis, peaking at US$615 billion in 2010, but began to slow thereafter, turning negative from 2014. Such a multi-year reversal in global flows has not been seen since 1990.

Negative net resource transfers from developing countries are largely due to investments abroad, mainly in safe, low-yielding US Treasury bonds. In the first quarter of 2016, 64 per cent of official reserves were held in US$-denominated assets, up from 61 per cent in 2014.

High opportunity costs

By investing abroad, developing countries may avoid currency appreciation due to rising foreign reserves, and thus maintain international cost competitiveness. But such investment choices involve substantial opportunity costs as such resources could instead be used to build infrastructure, or for social investments to improve education and healthcare.

The African Development Bank estimates that African countries held between US$165.5 and US$193.6 billion in reserves on average between 2000 and 2011, much more than the infrastructure financing gap estimated at US$93 billion yearly. The social costs of holding such reserves range from 0.35% to 1.67% of GDP. Investing about half these reserves would go a long way to meeting infrastructure financing needs on the continent.

This high opportunity cost is due to the biased nature of the international financial system in which the US dollar is the preferred reserve currency. As there is no fair and adequate international financial safety-net for short-term liquidity crises, many developing countries, especially in Asia, have been accumulating foreign reserves for ‘self-insurance’, or more accurately, protection against sudden capital outflows or speculative currency attacks which triggered the 1997-1998 Asian financial crisis.

Foreign capital inflows falling
Less volatile than short-term capital flows, foreign direct investment (FDI) in developing countries was rising from 2000, peaking at US$474 billion in 2011. But since then, FDI has been falling to US$209 billion in 2016, less than half the US$431 billion in 2015.

Most FDI to developing countries continues to go to Asia and Latin America, while falling commodity prices since 2014 have depressed FDI in resource rich Sub-Saharan and South American countries. Falling commodity prices are also likely to reduce FDI flows to least developed countries (LDCs), which need resource transfers most, but only receive a small positive net transfer of resources.

Bank lending to developing countries has been declining since mid-2014, while long-term bank lending to developing countries has been stagnant since 2008. The latest Basel capital adequacy rules also raise the costs of both risky and long-term lending for investments.

Portfolio flows to developing countries have also turned negative in recent years. Developing countries and economies in transition experienced net outflows of US$425 billion in 2015 and US$217 billion in 2016. The expected US interest rate rise and poorer growth prospects in developing countries are likely to cause further short-term capital outflows and greater exchange rate volatility.

Aid trends disappointing
Although aid flows have increased, aid’s share of GDP has declined after 2009. The recent increase has been more than offset by counting expenditure on refugees from developing countries as aid. When refugee expenditures are excluded from the aid numbers, the 6.9 per cent increase in 2015 falls to a meagre 1.7 per cent. In five DAC countries, aid numbers fell once refugee costs were omitted. Thus, WESP 2017 emphasizes the importance of decomposing aid components and of separately tracking country programmable aid (CPA).

At 0.30 per cent of the gross national income (GNI) of OECD DAC members, official aid falls far short of the 1970 commitment by developed countries to provide aid equivalent to 0.7 per cent of GNI. Only six OECD countries – namely Denmark, Luxembourg, Netherlands, Norway, Sweden and the United Kingdom – met or exceeded the UN target in 2015. But aid to LDCs has been declining since 2010; even bilateral aid declined by 16 per cent in 2014.

Meanwhile, disbursements by multilateral development banks only increased marginally in 2015 while new commitments declined. Commitments by the World Bank’s concessional lending arm, the International Development Association (IDA), which relies on donor contributions to provide concessional credits and grants to low-income countries, declined in real terms during 2014-2015.

Reversing resource outflows
Developing countries also lost an estimated US$7.8 trillion in illicit financial flows (IFFs) between 2004 and 2013 through tax avoidance, transfer-pricing, trade mis-invoicing and profit shifting by transnational corporations (TNCs). Over the past decade, IFFs were often greater than combined aid and FDI flows to poor countries.

Hence, WESP 2017 calls for a complete revamp of the international financial system to address these development finance issues and ensure needed resource transfers to developing countries. Failing to do so will put the SDGs at risk.

]]>
http://www.ipsnews.net/2017/03/most-financial-inflows-not-developmental/feed/ 1
Stemming Illicit Financial Outflowshttp://www.ipsnews.net/2017/02/stemming-illicit-financial-outflows/?utm_source=rss&utm_medium=rss&utm_campaign=stemming-illicit-financial-outflows http://www.ipsnews.net/2017/02/stemming-illicit-financial-outflows/#comments Tue, 28 Feb 2017 16:59:37 +0000 Jomo Kwame Sundaram http://www.ipsnews.net/?p=149164 Jomo Kwame Sundaram, a former economics professor and United Nations Assistant Secretary-General for Economic Development, received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007. ]]> Global Financial Integrity (GFI) estimates that in 2013, US$1.1 trillion left developing countries in illicit financial outflows. Credit: IPS

Global Financial Integrity (GFI) estimates that in 2013, US$1.1 trillion left developing countries in illicit financial outflows. Credit: IPS

By Jomo Kwame Sundaram
KUALA LUMPUR, Malaysia, Feb 28 2017 (IPS)

International capital flows are now more than 60 times the value of trade flows. The Bank of International Settlements (BIS) is now of the view that large international financial transactions do not facilitate trade, and that excessive financial ‘elasticity’ has been a major cause of recent financial crises.

Illicit financial outflows
Illicit financial flows involve financial movements from one country to another, especially when funds are illegally earned, transferred, and/or utilized. Some examples include:
• A cartel using trade-based money laundering techniques to mix legal money, say from the sale of used cars, with illegal money, e.g., from drug sales;
• An importer using trade mis-invoicing to evade customs duties, VAT, or income taxes;
• A corrupt public official or family members using an anonymous shell company to transfer dirty money to bank accounts elsewhere;
• An illegal trafficker carrying cash across the border and depositing it in a foreign bank; or
• A terrorist financier wiring money to an operative abroad.

Global Financial Integrity (GFI) estimates that in 2013, US$1.1 trillion left developing countries in illicit financial outflows. Its methodology is considered to be quite conservative, as it does not pick up movements of bulk cash, mispricing of services, or most money laundering.

Beyond the direct economic impact of such massive haemorrhage, illicit financial flows hurt government revenues and society at large. They also facilitate transnational organized crime, foster corruption, undermine governance and decrease tax revenues.

Where does the money flow to?
Most illicit financial outflows from developing countries ultimately end up in banks in countries like the US and the UK, as well as in tax havens like Switzerland, the Cayman Islands or Singapore. GFI estimates that about 45 per cent of illicit flows end up in offshore financial centres and 55 per cent in developed countries. University of California, Berkeley Professor Gabriel Zucman has estimated that 6 to 8 per cent of global wealth is offshore, mostly not reported to tax authorities.

According to GFI, Malaysia lost US$418.542 billion during 2004-2013, losing US$48.25 billion in 2013 alone. The illicit capital outflows stem from tax evasion, crime, corruption and other illicit activities. Malaysia is fifth among the top five countries for illicit capital flight, after China, Russia, Mexico and India, but tops the list, by far, on a per capita basis.

GFI’s December 2015 report found that developing and emerging economies had lost US$7.8 trillion in illicit financial flows over the preceding ten-year period, with illicit outflows increasing by an average of 6.5 per cent yearly. Over the decade, an average of 83.4 per cent of illicit financial outflows were due to fraudulent trade mis-invoicing, involving intentional misreporting by transnational companies of the value, quantity or composition of goods on customs declaration forms and invoices, usually for tax evasion.

Stemming the haemorrhage
Many tax avoidance schemes are not illegal. But just because it is not illegal does not mean it is not a form of abuse, fraud or corruption. To tackle the corruption at the heart of the global financial system, tax havens need to be shut down, not reformed. ‘On-shoring’ such funds, without prohibiting legitimate investments abroad, will ensure that future investment income will be subject to tax as in the US and Canada.

If not compromised by influential interests benefiting from such flows, responsible governments should seek to enact policies to:
• Detect and deter cross-border tax evasion;
• Improve transparency of transnational corporations;
• Curtail trade mis-invoicing;
• Strengthen anti-money laundering laws and enforcement; and
• Eliminate anonymous shell companies.

]]>
http://www.ipsnews.net/2017/02/stemming-illicit-financial-outflows/feed/ 1
Trump Marks the End of a Cyclehttp://www.ipsnews.net/2017/02/trump-marks-the-end-of-a-cycle/?utm_source=rss&utm_medium=rss&utm_campaign=trump-marks-the-end-of-a-cycle http://www.ipsnews.net/2017/02/trump-marks-the-end-of-a-cycle/#comments Tue, 21 Feb 2017 18:14:27 +0000 Roberto Savio http://www.ipsnews.net/?p=149052 Roberto Savio is co-founder of Inter Press Service (IPS) news agency and its President Emeritus. He is also publisher of OtherNews.]]>

Roberto Savio is co-founder of Inter Press Service (IPS) news agency and its President Emeritus. He is also publisher of OtherNews.

By Roberto Savio
ROME, Feb 21 2017 (IPS)

Let us stop debating what newly-elected US President Trump is doing or might do and look at him in terms of historical importance. Put simply, Trump marks the end of an American cycle!

Roberto Savio

Roberto Savio

Like it or not, for the last two centuries the entire planet has been living in an Anglophone-dominated world. First there was Pax Britannica (from the beginning of the 19th century when Britain started building its colonial empire until the end of the Second World War, followed by the United States and Pax Americana with the building of the so-called West).

The United States emerged from the Second World War as the main winner and founder of what became the major international institutions – from the United Nations to the World Bank and the International Monetary Fund (IMF) – with Europe reduced to the role of follower. In fact, under the Marshall Plan, the United States became the force behind the post-war reconstruction of Europe.

As winner, the main interest of the United States was to establish a ‘world order’ based on its values and acting as guarantor of the ‘order’.

Thus the United Nations was created with a Security Council in which it could veto any resolution, and the World Bank was created with the US dollar as the world’s currency, not with a real world currency as British economist and delegate John Maynard Keynes had proposed. The creation of the North Atlantic Treaty Organisation (NATO) – as a response to any threat from the Soviet Union – was an entirely American idea.

The lexicon of international relations was largely based on Anglo-Saxon words, and often difficult to translate into other languages – terms such as accountability, gender mainstreaming, sustainable development, and so on. French and German disappeared as international languages, and lifestyle became the ubiquitous American export – from music to food, films and clothes. All this helped to reinforce American myths.

The United States thrust itself forward as the “model for democracy” throughout the world, based on the implied assertion that what was good for the United States was certainly good for all other countries. The United States saw itself as having an exceptional destiny based on its history, its success and its special relationship with God. Only US presidents could speak on behalf of the interests of humankind and invoke God.

The economic success of the United States was merely confirmation of its exceptional destiny – but the much touted American dream that anyone could become rich was unknown elsewhere.

The first phase of US policy after the Second World War was based on multilateralism, international cooperation and respect for international law and free trade – a system which assured the centrality and supremacy of the United States, reinforced by its military might,

The United Nations, which grew from its original 51 countries in 1945 to nearly 150 in just a few decades, was the forum for establishing international cooperation based on the values of universal democracy, social justice and equal participation.

In 1974, the UN General Assembly unanimously adopted the Charter of Economic Rights and Duties of States – the first (and only) plan for global governance – which called for a plan of action to reduce world inequalities and redistribute wealth and economic production. But this quickly became to be seen by the United States as a straitjacket.

The arrival of Ronald Reagan at the White House in in1981 marked an abrupt change in this phase of American policy based on multilateralism and shared international cooperation. A few months before taking office, Reagan had attended the North-South Economic Summit in Cancun, Mexico, where the 22 most important heads of state (with China as the only socialist country) had met to discuss implementation of the General Assembly resolution.

Reagan, who met up with enthusiastic British Prime Minister Margaret Thatcher, stopped the plan for global governance dead in its tracks. I was there and saw how, to my dismay, the world went from multilateralism to the old policy of power in just two days. The United State simply refused to see its destiny being decided by others – and that was the start of the decline of the United Nations, with the United States refusing to sign any international treaty or obligation.

America’s dream and its exceptional destiny were strengthened by the rhetoric of Reagan who even went as far as slogan sing “God is American”.

It is important to note that, following Reagan’s example, all the other major powers were happy to be freed of multilateralism. The Reagan administration, allied with that of Thatcher, provided an unprecedented example of how to destroy the values and practices of international relations and the fact that Reagan has probably been the most popular president in his country’s history shows the scarce significance that the average American citizen gives to international cooperation.

Under Reagan, three major simultaneous events shaped our world. The first was deregulation of the financial system in 1982, later reinforced by US President Bill Clinton in 1999, which has led to the supremacy of finance, the results of which are glaringly evident today.

The second was the creation in 1989 of an economic vision based on the supremacy of the market as the force underpinning societies and international relations – the so-called Washington Consensus – thus opening the door for neoliberalism as the undisputed economic doctrine.

Third, also in 1989, came the collapse of the Berlin Wall and the end of the “threat” posed by the Soviet bloc.

It was at this point that the term “globalisation” became the buzzword, and that the United States was once again going to be the centre of its governance. With its economic superiority, together with the international financial institution which it basically controlled, plus the fact that the Soviet “threat” had now disappeared, the United States was once again placing itself at the centre of the world.

As Henry Kissinger, Secretary of State under presidents Richard Nixon and Gerald Ford, once said, “Globalisation is another term for U.S. domination.”

This phase ran from 1982 until the financial crisis of 2008, when the collapse of American banks, followed by contagion in Europe, forced the system to question the Washington Consensus as an undisputable theory.

Doubts were also being voiced loudly through the growing mobilisation of civil society /the World Social Forum, for example, had been created in 1981) and by the offensive of many economists who had previously remained in silence.

The latter began insisting that macroeconomics – the preferred instrument of globalisation – looked only at the big figures. If microeconomics was used instead, they argued, it would become clear that there was very unequal distribution of growth (not to be confused with development) and that delocalisation and other measures which ignored the social impact of globalisation, were having disastrous consequences.

The disasters created by three centuries of geed as the main value of the “new economy” were becoming evident through figures showing an unprecedented concentration of wealth in a few hands, with many victims – especially among the younger generation.

All this was accompanied by two new threats: the explosion of Islamic terrorism, widely recognised as a result of the invasion of Iraq in 2003, and the phenomenon of mass migration, which largely came after the Iraq war but multiplied after the interventions in Syria and Libya in 2011, and for which the United States and the European Union bear full responsibility.

Overnight, the world passed from greed to fear – the two motors of historical change in the view of many historians.

And this is brings us to Mr. Trump. From the above historical excursion, it is easy to understand how he is simply the product of American reality.

Globalisation, initially an American instrument of supremacy, has meant that everyone can use the market to compete, with China the most obvious example. Under globalisation, many new emerging markets entered the scene, from Latin America to Asia. The United States, along with Europe, have become the victims of the globalisation which both perceived as an elite-led phenomenon.

Let us not forget that, after the collapse of the Berlin Wall, ideologies were thrown by the wayside. Politics became mere administrative competition, devoid of vision and values. Corruption increased, citizens stopped participating, political parties became self-referential, politicians turned into a professional caste, and elite global finance became isolated in fiscal paradises.

Young people looked forward to a future of unemployment or, at best temporary jobs, at the same time as they watched over four trillion dollars being spent in a few years to save the banking system.

The clarion call from those in power was, by and large, let us go back to yesterday, but to an even better yesterday – against any law of history. Then came Brexit and Trump.

We are now witnessing the conclusion of Pax Americana and the return to a nationalist and isolationist America. It will take some time for Trump voters to realise that what he is doing does not match his promises, that the measures he is putting in place favour the financial and economic elites and not their interests.

We are now facing a series of real questions.

Will the ideologue who helped Trump be elected – Stephen Bannon, chief executive officer of Trump’s presidential campaign – have the time to destroy the world both have inherited Will the world will be able to establish a world order without the United States at its centre? How many of the values that built modern democracy will be able to survive and become the bases for global governance?

A new international order cannot be built without common values, just on nationalism and xenophobia.

Bannon is organising a new international alliance of populists, xenophobes and nationalists – made up of thee likes of Nicholas Farage (United Kingdom), Matteo Salvini and Beppe Grillo (Italy), Marine Le Pen (France) and Geert Wilders (Netherlands) – with Washington as their point of reference.

After the elections in the Netherlands, France and Germany this year, will know how this alliance will fare, but one thing is clear – if, beyond its national agenda, the Trump administration succeeds in creating a new international order based on illiberal democracy, we should start to worry because war will not be far away.

]]>
http://www.ipsnews.net/2017/02/trump-marks-the-end-of-a-cycle/feed/ 3
Tax Evasion Lessons From Panamahttp://www.ipsnews.net/2017/02/tax-evasion-lessons-from-panama/?utm_source=rss&utm_medium=rss&utm_campaign=tax-evasion-lessons-from-panama http://www.ipsnews.net/2017/02/tax-evasion-lessons-from-panama/#comments Tue, 21 Feb 2017 14:44:28 +0000 Jomo Kwame Sundaram http://www.ipsnews.net/?p=149048 Jomo Kwame Sundaram, a former economics professor and United Nations Assistant Secretary-General for Economic Development, received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007. ]]>

Jomo Kwame Sundaram, a former economics professor and United Nations Assistant Secretary-General for Economic Development, received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007.

By Jomo Kwame Sundaram
KUALA LAMPUR, Feb 21 2017 (IPS)

Unlike Wikileaks and other exposes, the Panama revelations were carefully managed, if not edited, quite selective, and hence targeted, at least initially. Most observers attribute this to the political agendas of its main sponsors. Nevertheless, the revelations have highlighted some problems associated with illicit financial flows, as well as tax evasion and avoidance, including the role of enabling governments, legislation, legal and accounting firms as well as shell companies.

US President Obama criticized ‘poorly designed’ laws for allowing illicit money transfers worldwide. He noted that “Tax avoidance is a big, global problem…a lot of it is legal, but that’s exactly the problem”.

US President Obama criticized ‘poorly designed’ laws for allowing illicit money transfers worldwide. He noted that “Tax avoidance is a big, global problem…a lot of it is legal, but that’s exactly the problem”.

The political tremors generated by the edited release of 1.1 million documents were swift. No one expected Iceland’s prime minister to resign in less than 48 hours, or that the then British prime minister would soon publicly admit that he had benefited from the hidden wealth earned from an opaque offshore company of his late father.

Panama Papers
The Panama Papers help us understand how shell companies and trusts operate. The documents, from the law firm Mossack Fonseca, involved 210,000 legal entities. The Panama-based law firm has worked with some of the world’s biggest banks — including HSBC, Société Générale, Credit Suisse, UBS and Commerzbank — to set up thousands of offshore companies to circumvent tax and law enforcement authorities worldwide.

The accounts enabled by just one law firm in Panama is the tip of a massive iceberg still hidden from public view as many other such firms in different locations provide similar services. High net-worth individuals and corporations have a far greater ability to evade taxes by paying tax advisers, lawyers and accountants, and by opening undeclared companies and financial accounts in low-tax jurisdictions. The expose shows that the firm aided public officials, their cronies and large corporations to avoid taxes.

Not surprisingly, Mossack Fonseca claims it has never been accused or charged in connection with criminal wrongdoing. This only underscores the fact that Panama’s financial regulators, police, judiciary and political system are very much part of the system. Similarly, many clients believe that they have not violated national and international regulations.

‘Offshore’ tax havens

Total global wealth was estimated, by a 2012 Tax Justice Network (TJN) USA report, entitled The Price of Offshore Revisited, at US$231 trillion in mid-2011; this was roughly 3.5 times the global GDP of US$65 trillion in 2011. It conservatively estimated that, of this, US$21 to US$32 trillion of hidden and stolen wealth has been stashed secretly, ‘virtually tax-free’, in and ‘through’ more than 80 secret jurisdictions.

According to Oxfam, at least US$18.5 trillion is hidden in undeclared and untaxed tax havens worldwide, with two thirds in the European Union, and a third in UK-linked sites. After the Panama Papers leak, Oxfam revealed that the top 50 US companies have stashed US$1.38 trillion offshore to minimize US tax exposure. The 50 companies are estimated to have earned some US$4 trillion in profits across the world between 2008 and 2014, but have only paid 26.5 per cent of it in US tax.

In a 5 April 2016 speech, following the US Treasury’s crackdown on corporate tax ‘inversions’, US President Obama criticized ‘poorly designed’ laws for allowing illicit money transfers worldwide. He noted that “Tax avoidance is a big, global problem…a lot of it is legal, but that’s exactly the problem”.

It was also estimated that this costs poor countries over US$100 billion in lost tax revenues every year. Oxfam also found that tax dodging by transnational corporations alone costs the developing world between US$100 to US$160 billion yearly. If ‘profit shifting’ is taken into account, about US$250 to US$300 billion is lost. After all, many countries and institutions actively enable—and profit handsomely from—the theft of massive funds from developing countries.

More so now than ever before, the term ‘offshore’ for tax havens refers less to physical locations than to virtual ones, often involving “networks of legal and quasi-legal entities and arrangements”. Private banking ‘money managers’ provide all needed services — including financial, economic, legal, accounting and insurance services — to facilitate such practices, making fortunes for themselves by doing so. Thousands of shell banks and insurers, 3.5 million paper companies, more than half the world’s registered commercial ships over 100 tons, and tens of thousands of ‘shell’ subsidiaries of giant global banks, accounting firms and various other companies operate from such locations.

Reforming tax havens?
In recent years, amid increased public scrutiny, the global tax haven landscape has changed. The Organization of Economic Cooperation and Development (OECD), the Paris-based club of rich nations, has been developing a global transparency initiative to crack down on tax haven secrecy. But Panama is refusing to participate seriously, with the OECD tax chief calling it a jurisdiction “that welcomes crooks and money launderers”.

To qualify for the OECD’s ‘white list’ of approved jurisdictions, almost 100 countries and other jurisdictions have agreed, since 2014, to impose new modest disclosure requirements for international customers. Hence, the Swiss government has now relaxed confidentiality-cum-secrecy provisions, allowing information sharing about illegal or unauthorized deposits with other countries, subject to certain conditions. Consequently, the world of illegal and unaccounted cash has moved in response.

Facilitating tax evasion
Only a handful of nations have declined to sign on. The most prominent is the US. Another is Panama. As Panama has dodged, delayed and diluted compliance with OECD regulations, many accounts moved to Panama from other signatory tax havens. As Bloomberg noted earlier in 2016, “Panama and the U.S. have at least one thing in common: Neither has agreed to new international standards to make it harder for tax evaders and money launderers to hide their money.”

Rothschild, the centuries-old European financial institution, is now moving the fortunes of wealthy foreign clients out of offshore havens subject to the new international disclosure requirements, to Rothschild-run trusts in Nevada, which are exempt.

It has acknowledged that the US itself is the world’s single greatest tax haven, while the UK plays a disproportionately greater role as a tax haven, considering the smaller size of its population and economy. A TJN study found that the US continues to facilitate financial secrecy and tax evasion. “Due to lax requirements…, it is far easier to set up an anonymous shell company in the US than it is in well-known tax havens”, according to the Financial Transparency Coalition.

The US does not accept a lot of international standards, and can get away with it because of its economic and political clout, but is probably the only country that can continue to do that. It has taken steps to keep track of American assets abroad, but not of foreign assets in the US.

]]>
http://www.ipsnews.net/2017/02/tax-evasion-lessons-from-panama/feed/ 2
Washington Rules Change, Againhttp://www.ipsnews.net/2017/02/washington-rules-change-again/?utm_source=rss&utm_medium=rss&utm_campaign=washington-rules-change-again http://www.ipsnews.net/2017/02/washington-rules-change-again/#comments Thu, 16 Feb 2017 13:33:45 +0000 Jomo Kwame Sundaram http://www.ipsnews.net/?p=148980 Jomo Kwame Sundaram, a former economics professor, was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007. ]]> South-south cooperation represents a progressive alternative to the Washington Consensus. Credit: IPS

South-south cooperation represents a progressive alternative to the Washington Consensus. Credit: IPS

By Jomo Kwame Sundaram
KUALA LAMPUR, Feb 16 2017 (IPS)

Over the last four decades, the Washington Consensus, promoting economic liberalization, globalization and privatization, reversed four decades of an earlier period of active state intervention to accelerate and stabilize more inclusive economic growth, associated with Franklin Delano Roosevelt and John Maynard Keynes.

The Golden Age
The US Wall Street Crash of 1929 led to the Great Depression, which in turn engendered two important policy responses in 1933 with lasting consequences for generations to come: US President Roosevelt’s New Deal and the 1933 Glass-Steagal Act.

While massive spending following American entry into the Second World War was clearly decisive in ending the Depression and for the wartime boom, the New Deal clearly showed the way forward and suggested what could be achieved if more public money had been deployed consistently to revive economic growth.

Michal Kalecki and Keynes provided robust analytical justification for counter-cyclical fiscal and other policies to maintain aggregate demand, very much contravening earlier received wisdom. Post-war decolonization gave birth to the academic field of development economics from the 1950s, initially pioneered by Central Europeans striving not to be left behind by the earlier ascendance of Western Europe and then the United States of America after its Civil War.

For about a quarter of a century after the end of the Second World War, the post-war ‘Golden Age’ saw rapid post-war reconstruction in Western Europe. This was crucially supported by the generous Marshall Plan, arguably the first, largest and most successful development cooperation program, triggered by the beginning of the Cold War. Similar economic development policies and assistance were introduced in Japan, Taiwan and South Korea, following the Korean War and the establishment of the People’s Republic of China.

US Secretary of State General George Marshall understood that inclusive economic development would help ensure a cordon sanitaire against the Soviet-led camp. Thus, thanks to the Cold War, Western Europe and Northeast Asia recovered quickly, industrialized rapidly and achieved sustained, rapid growth with interventionist policies which would be widely condemned by today’s conventional wisdom. While national economic capacities and capabilities had to be nurtured to ensure sustainable development, Marshall also recognized that aid should be truly developmental, not piecemeal or palliative.

Washington Consensus

The ‘Washington Consensus’ – uniting the American government and the Bretton Woods institutions located in the US capital city – emerged from the early 1980s to prescribe neo-liberal economic policies for developing countries for the ‘counter-revolutions’ against development economics, Keynesian economics and progressive state interventions.

Macroeconomic policies became narrowly focused on balancing annual budgets and attaining predictably low inflation – instead of the earlier post-colonial emphasis on achieving and sustaining rapid growth and full employment without runaway inflation. A ‘neo-liberal’ wave of deregulation, privatization and economic globalization followed, supposedly to boost economic growth. Economic growth was expected to trickle down to reduce poverty, with broader sustainable development and inequality concerns consigned to the garbage bin.

But the Washington Consensus policies not only failed to sustain economic growth, largely due to the greater instability and volatility associated with financial liberalization, especially across borders. But premature trade liberalization also undermined existing production and export capacities and capabilities without enabling the development of new ones. For the poorest countries, the loss of tariff revenue also undermined government revenues, expenditure and hence, the capacity to provide badly needed infrastructure, social protection and support for developmental initiatives.

Globalization’s Contradictory Discontents
Instead, those developing countries which achieved rapid growth and structural transformation were typically those which defied conventional wisdom by adopting pragmatic ‘heterodox’ developmental economic policies appropriate to their respective circumstances. Meanwhile, financial and other economic crises of various types became more frequent and disruptive, undermining sustained growth.

In the meantime, the more liberal developed economies experienced spurts of rapid growth as well as greater volatility and instability while most developed economies became more vulnerable to institutional stasis as they abandoned Keynesian policies for neo-liberal policies demanded by markets and their champions.

With European social democrats turning their backs on Keynes in favour of neoliberal economics, and often barely distinguishable from the centre-right in this regard, dissent against economic liberalization and its discontents moved to the ‘extremes’. With the left often on the backfoot in most developed economies for more than a quarter century, it has been the right which has successfully mobilized against cultural ‘others’ often divided among themselves.

While the rhetoric of the national chauvinist ‘new right’ rejects globalization and multiculturalism, it also rejects international solidarity, cooperation and multilateralism. Its rejection of the neoliberal Washington Consensus does not imply opposition to contemporary imperialism, but rather threatens a return to old — and new — forms of domination, economic and otherwise.

More than ever, it will be crucial for developing countries to work together, not only to ensure that South-South and ‘triangular’ (with the North) cooperation represents a progressive alternative to the Washington Consensus and its national chauvinist successors. Such solidarity will determine how well the South — and the world as a whole — will fare during the coming eclipse.

]]>
http://www.ipsnews.net/2017/02/washington-rules-change-again/feed/ 3
Mistrust Hindering Global Solutions, says Secretary Generalhttp://www.ipsnews.net/2017/02/mistrust-hindering-global-solutions-says-secretary-general/?utm_source=rss&utm_medium=rss&utm_campaign=mistrust-hindering-global-solutions-says-secretary-general http://www.ipsnews.net/2017/02/mistrust-hindering-global-solutions-says-secretary-general/#comments Mon, 13 Feb 2017 23:55:31 +0000 Tharanga Yakupitiyage http://www.ipsnews.net/?p=148935 By Tharanga Yakupitiyage
UNITED NATIONS, Feb 13 2017 (IPS)

The global lack of confidence and trust is undermining the ability to solve the world’s complex problems, said UN Secretary-General during an international conference.

UN Secretary-General António Guterres. Credit: UN Photo

UN Secretary-General António Guterres. Credit: UN Photo

The 5th Annual World Government Summit (WGS), hosted by Dubai from February 12-14, has brought together over 4000 participants from more than 130 countries.

Speaking at the second day of the conference, Secretary-General Antonio Guterres noted the growing lack of confidence in institutions, as many people feel left behind from progress.

“It is clear that globalisation has been an enormous progress…but globalisation had its losers,” Guterres said, pointing to the example of frustrated youth in countries unable to find jobs or “hope.”

“Lots of people [feel] they were left behind and that the political establishments of their countries have not taken care of them,” he continued.

The former High Commissioner for Refugees cited the migration crisis in Europe, stating that countries’ inability to implement a fair and coordinated response spurred a sense of abandonment, fear and frustration among the public.

“This is the best ground for populists, for xenophobes, for those that develop forms of anti-Muslim hatred, or anti-Semitism…to play a role in our societies. And I think that it is not enough to condemn xenophobia, it is not enough to condemn populism, I think we need to be able to engage in addressing the root causes that lead to the fact that to be populist is so simple in today’s world,” Guterres told delegates, urging for reform to reconcile people with political institutions and to empower citizens and young people.

He also noted that the deep mistrust between countries is contributing to the multiplication of conflicts and the difficulties in solving them.

Most recently, the U.S. blocked the Secretary General’s appointment of former Palestinian Prime Minister Salam Fayyad as the new UN peace envoy in Libya after U.S. Ambassador to the UN Nikki Haley said the UN has been “unfairly biased” for too long in favor of the Palestinian Authority.

Though he highlighted the need for impartiality, Guterres said that there was no valid reason to have rejected the nomination.

“[Fayyad] is the right person for the right job at the right moment…he has a competence that nobody denies and Libya requires the kind of capacity that he has and I think it’s a loss for the Libyan peace process and for the Libyan people that I am not able to appoint him,” he stated, adding that bringing an end to the conflict in Libya is in everybody’s interest.

When moderator and CNN anchor Becky Anderson asked about the new U.S. administration’s “America First” principle, Guterres noted the need for the UN to respect its values but also stressed the importance of multilateral solutions to global problems.

“In a world in which everything is global, in which the problems are global – from climate change to the movement of people – there is no way countries can do it by themselves. We need global responses, and global responses need multilateral institutions able to play their role,” Guterres stated.

“That is where the other gap of confidence becomes extremely important,” he continued, proposing reforms in the UN system to help build trust in such institutions.

Despite 2016 being a “chaotic” year, Guterres followed after French diplomat Jean Monnet in expressing his hope for the future.

“I’m not optimistic, I’m not pessimistic, I am just determined,” he concluded.

]]>
http://www.ipsnews.net/2017/02/mistrust-hindering-global-solutions-says-secretary-general/feed/ 0
Major Crisis, Minor Reformshttp://www.ipsnews.net/2017/02/major-crisis-minor-reforms/?utm_source=rss&utm_medium=rss&utm_campaign=major-crisis-minor-reforms http://www.ipsnews.net/2017/02/major-crisis-minor-reforms/#comments Fri, 10 Feb 2017 16:24:29 +0000 Jomo Kwame Sundaram http://www.ipsnews.net/?p=148889 Jomo Kwame Sundaram, a former economics professor and United Nations Assistant Secretary-General for Economic Development, received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007. ]]> A growing realization in the West that economic conditions for working people have been slowly, but steadily deteriorating in recent decades. Credit: IPS

A growing realization in the West that economic conditions for working people have been slowly, but steadily deteriorating in recent decades. Credit: IPS

By Jomo Kwame Sundaram
KUALA LUMPUR, Feb 10 2017 (IPS)

The 2008-2009 financial breakdown, precipitated by the US housing mortgage crisis, has triggered an extended stagnation in the developed economies, initially postponed in much of the developing world by high primary commodity prices until 2014. Yet, the financial crisis and protracted economic slowdown since has not led to profound changes in the conventional wisdom or policy prescriptions, especially at the international level, despite global economic integration since the 1980s.

To be sure, the spread of the crisis caused the G20 group of US-selected important economies to convene for the first time at a heads of government level in a mid-November 2008 White House summit instigated by then French President Sarkozy. Various national initiatives to save their financial sectors were followed by a Gordon Brown UK initiative to significantly augment IMF resources. Soon, however, the appearance of supposed ‘green shoots of recovery’ led to premature abandonment of fiscal recovery efforts, reinforced by Eurozone fiscal rules, the powerful influence of financial rentier interests and bogus academic claims of impending doom due to public debt growth.

Weak response, weak recovery
The uneven and lacklustre economic recovery and worsening conditions for many in the world since then have been accompanied by a tremendous new concentration of wealth. Meanwhile, there has been a growing realization in the West that economic conditions for working people, which had been rising rapidly in the post-war decades, have been slowly, but steadily deteriorating in recent decades.

This has been associated in the popular imagination with globalization and some of its major manifestations, including increased inflows of cheaper goods and migrants. Widespread political, social and cultural reactions were summarily dismissed by political and media establishments as unfounded populisms of one kind or another.

To be sure, the dominant tendencies have often been xenophobic, culturally chauvinist and intolerant, and sometimes, downright racist. Ostensibly to secure electoral majorities and to move with the times, most European social democrat leaders have joined the consensus of the financial rentiers, discrediting the ‘centre-left’ and strengthening the ‘popularity’ of the ‘far right’ and exceptionally, the left.

Despite this vortex of globalization, financial crisis, stagnation, rising inequality and populism, somewhat reminiscent of the 1930s, there has been no comparable policy or analytical response, and most certainly, no leadership comparable to, say, Roosevelt’s New Deal or the Marshall Plan.

Some rethinking, but to no end
Besides the brief rediscovery of Hyman Minsky’s work, Joseph Stiglitz, Robert Shiller, Thomas Piketty and other dissenters have received far more attention than if not for the crisis. Meanwhile, some distinguished mainstream economists have been forced by recent realities to reconsider elements of the conventional wisdom, without requiring abandonment of the creed.

Since the leadership of IMF Managing Director Dominic Strauss-Kahn, the Fund’s Research Department has contributed to such rethinking, especially on financial regulation, fiscal policy and income inequality. The Fund has been re-legitimized in the eyes of some of its critics elated by its research findings and their policy implications. In some instances, the nature and significance of the research findings have been exaggerated by erstwhile critics pleasantly surprised by the researchers’ apparently critical turn.

Such research results have broadened the scope of what is deemed acceptable economic policy discourse. But in fact, these research findings have had rather limited and mixed consequences for its operations, including its policy advice and conditionalities.

Meanwhile, the Fund has already begun to back-pedal on some of its bolder critical publications, e.g., on neo-liberalism’s responsibility for slower growth and greater inequality in its Finance and Development periodical in June 2016. Thus, while there has undoubtedly been a welcome shift in the Fund’s research findings, it is important not to exaggerate their actual significance for its role, impact and operations.

Before his passing a decade ago, neoclassical economics guru Paul Samuelson had raised concerns about the biased, one-dimensional and exaggerated claims of the benefits from international trade liberalization. But even now, the Washington Consensus presumption that trade liberalization raises all boats without any need for compensatory mechanisms, continues to be the conventional wisdom.

One step forward, two steps back
Worse still, so-called free trade agreements have less and less to do with reducing barriers to trade, but instead have become major instruments for advancing powerful corporate interests abroad, and certainly not for enhancing prospects for sustainable development and food security. Meanwhile, as Jagdish Bhagwati has long emphasized, the prospects for multilateral trade liberalization are being undermined by non-trade conditionalities as well as bilateral and plurilateral agreements driven by other considerations.

Much more remains to be done if economic research and policy advice are to rise to meet the challenges of our times. Unfortunately, for the time being, it is not clear that political conditions and leadership are conducive to such shifts in the near future.

To be sure, some of the recent rethinking is significant, with important policy implications, and could lead to state and collective international intervention mechanisms to rein in the neo-liberal paradigm in extremis. But most actual policy and regulatory reform initiatives have been limited in scope so far, and continue to be deeply compromised by powerful rentier interests and their proponents in the ‘deep state’, academia and the media.

]]>
http://www.ipsnews.net/2017/02/major-crisis-minor-reforms/feed/ 1
Trade War Threat Growshttp://www.ipsnews.net/2017/01/trade-war-threat-grows/?utm_source=rss&utm_medium=rss&utm_campaign=trade-war-threat-grows http://www.ipsnews.net/2017/01/trade-war-threat-grows/#comments Thu, 26 Jan 2017 08:08:09 +0000 Jomo Kwame Sundaram http://www.ipsnews.net/?p=148673 Jomo Kwame Sundaram was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 20]]> Waiting for work at the Day Workers Center in Seattle, Washington. The new Trump administration promises ‘tough and fair agreements’ on trade, to revive the US economy and create millions of jobs. Credit: IPS

Waiting for work at the Day Workers Center in Seattle, Washington. The new Trump administration promises ‘tough and fair agreements’ on trade, to revive the US economy and create millions of jobs. Credit: IPS

By Jomo Kwame Sundaram
KUALA LUMPUR, Jan 26 2017 (IPS)

New American President Donald Trump has long insisted that the United States has been suffering from poor trade deals made by his predecessors. Renegotiating or withdrawing from these deals will be top priority for his administration which views trade policy as key to US economic revival under Trump. What will that mean?

The new administration promises ‘tough and fair agreements’ on trade, ostensibly to revive the US economy and to create millions of mainly manufacturing jobs. The POTUS is committed to renegotiating the North American Free Trade Agreement (NAFTA), signed in 1994 by the United States, Canada and Mexico. And if NAFTA partners refuse what the White House deems to be a ‘fair’ renegotiated agreement, “the President will give notice of the United States’ intent to withdraw from NAFTA”.

Constraints?
Presidential fiat may well be extended in radically new ways by the incoming president with, or perhaps even without the support of a Republican-controlled Senate and Congress. However, in terms of trade, Trump may be constrained by his own party’s ‘free trade’ preferences, while the minority Democratic Party is likely to remain generally hostile to him.

Many informed observers doubt the ability of the US President to unilaterally impose trade policies, as the POTUS is subject to many checks and balances, conditions and constraints. But a widely held contrary view is that existing legislation allows the president considerable leeway. But as such ambiguity can be interpreted to grant the president broad authority over trade policy, Trump is likely to use this to the fullest.

Worryingly, Trump and his appointees often appear to see trade as a zero -sum game, implying that the only way for the US to secure its interests would be at the expense of its trading partners. Their rhetoric also implies that the most powerful country in the world has previously negotiated trade deals to its own disadvantage – a view almost no one else agrees with.

Thus, Trump’s belligerent rhetoric threatens trade wars or acquiescence to the US as the only means to change the status quo. But future deals even more favourable to the US can only be achieved with weaker partners, e.g., through bilateral treaties, or those with ulterior motives for accepting even less favourable terms and conditions.

Unequal effects
Of course, the real world is more complicated than one of competing national interests. For example, while US corporations and consumers may benefit from relocating production abroad, American workers who lose their jobs or experience poorer working conditions will be unhappy. Clearly, there is no singular national interest.

Trump’s rhetoric so far implies an opposition of American workers to the ‘globalist’ US elite with scant mention of consumer interests, the main source of support for the globalists. The unequal effects of freer trade have long been recognized by international trade economists except globalization cheerleaders who insist that freer trade lifts all boats – a myth belied by the experiences of increasing numbers of American workers and others in recent decades.

Meanwhile, US protectionists have been in denial about labour-displacing automation throughout the economy. They also fail to recognize how ‘laissez faire’ American capitalism has let the devil take the growing ranks of the hindmost. In contrast, ‘managed’ capitalism has often ensured less disruptive and painful transitions due to trade liberalization and automation, e.g., through government retraining schemes.

Trade rules biased
Nevertheless, it remains unclear how the Trump administration’s trade strategy will unfold. While trading system rules are skewed to favour the powerful, US relations with trading partners have sometimes become dysfunctional and perhaps less advantageous. Hence, a more aggressive Trump administration may well secure better deals for US interests. Some options favouring US companies would only involve minor disruptions, while others could disrupt the US as well as the world economy, possibly precipitating another global recession.

Besides renegotiating or rejecting bilateral and plurilateral deals, the US could also bring more cases before the World Trade Organization (WTO). After all, the US and Europe wrote most WTO rules after the Second World War, and the US has almost never revised its trade rules and practices, even after losing cases. The US has long used the WTO dispute settlement mechanism to great effect until it began disrupting its functioning recently after losing a case.

Trump has long threatened targeted duties to ensure compliance and more favourable deals. While trade lawyers debate the scope for and legality of such actions, most trade economists have argued that US consumers will pay much higher prices to save relatively few jobs.

Triggering trade war
However, instead of imposing duties on specific products, as allowed for by WTO rules, emergency authority may be invoked to impose broad-based tariffs on exports from specific countries, as Trump has threatened to do.

Such an escalation risks causing significant economic damage all round, especially if it provokes retaliatory actions, with no guarantee of securing a more favourable deal. A relatively minor trade dispute can thus easily spin out of control to become a very disruptive global trade war.

After Trump’s inauguration, the White House announced US withdrawal from the Trans-Pacific Partnership (TPP) trade deal, effectively killing the agreement. Ironically, the Obama administration had claimed the TPP would enable the US to write economic rules for the region instead of China, Trump’s favourite bogey. Thus, even presidential one-upmanship can trigger the new world trade war.

Bullying as global trade strategy?
In yet another irony, in Davos last week, a Goldman Sachs veteran announced the sale of a majority stake in his multibillion dollar business to a Chinese group before joining the Trump administration as senior trade adviser. Perhaps as a foretaste of what to expect, in response to Chinese President Xi’s reminder that “No one will emerge as a winner in a trade war”, he warned that China stands to lose ‘way more’ than the US if it retaliates when the new administration imposes selective tariffs on its exports.

]]>
http://www.ipsnews.net/2017/01/trade-war-threat-grows/feed/ 2
Trump Trade Strategy Unclearhttp://www.ipsnews.net/2017/01/trump-trade-strategy-unclear/?utm_source=rss&utm_medium=rss&utm_campaign=trump-trade-strategy-unclear http://www.ipsnews.net/2017/01/trump-trade-strategy-unclear/#comments Thu, 19 Jan 2017 15:55:46 +0000 Jomo Kwame Sundaram and Anis Chowdhury http://www.ipsnews.net/?p=148572 Jomo Kwame Sundaram, a former economics professor, was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007. Anis Chowdhury, a former professor of economics at the University of Western Sydney, held senior United Nations positions during 2008–2015 in New York and Bangkok. ]]> Now that Donald Trump has announced that he will take the US out of the Trans-Pacific Partnership (TPP) Agreement, an increase in  US trade protectionism is expected, possibly triggering serious trade conflicts with unpredictable consequences. Credit: IPS

Now that Donald Trump has announced that he will take the US out of the Trans-Pacific Partnership (TPP) Agreement, an increase in US trade protectionism is expected, possibly triggering serious trade conflicts with unpredictable consequences. Credit: IPS

By Jomo Kwame Sundaram and Anis Chowdhury
KUALA LUMPUR, Malaysia, Jan 19 2017 (IPS)

US President-elect Donald Trump has announced that he will take the US out of the Trans-Pacific Partnership (TPP) Agreement on the first day of his presidency in January 2017. Now, it is widely expected that Trump’s presidency will increase US trade protectionism, and consequently by others in retaliation, possibly triggering serious trade conflicts with difficult to predict consequences.

After decades of denial by ‘free trade’ advocates, it is now widely agreed that many manufacturing jobs in the US have been lost to both automation and offshore relocation by US corporations. Free trade agreements (FTAs) are also being blamed for the US’s large trade deficits.

Trump trade strategy?

With the global economic slowdown of the last eight years associated by many with the slowdown of trade expansion, the surprise election of President-elect Trump has become the subject of much speculation and some dire predictions. Many are concerned that Trump has made various contrarian pronouncements on FTAs, while his appointments to trade related portfolios seem to contradict his trade rhetoric.

In early December 2016, the Wall Street Journal noted the unexpectedly high number of TPP advocates joining the Trump administration to serve in trade-related capacities. Although the hopes of some TPP advocates of a last-minute reprieve are probably misplaced, there is no indication that some amended version, perhaps with a different name, will not eventually emerge in its place.

If President-elect Trump lives up to his campaign rhetoric, other plurilateral free trade agreements will also be affected. Trump has referred to the TPP and the North American Free Trade Agreement (NAFTA) as disasters for the US, and has vowed to renegotiate NAFTA. His announced preference for negotiating “fair” bilateral trade deals favourable to the US has not given much comfort to prospective negotiation partners.

And while Trump’s main preoccupations have been with US manufacturing jobs and the related international trade in goods, he is also expected to promote US corporate interests more generally, e.g., on intellectual property, financial liberalization, investor rights and dispute settlement.

Already, most US FTAs include ‘non-trade issues’, many of which have raised costs to consumers, e.g., by further strengthening intellectual property monopolies typically held by powerful transnational corporations, whose chief executives seem likely to be very influential in the new administration.

Currency manipulation
During the presidential campaign, both Hillary Clinton and Trump accused China of being a “currency manipulator”, despite market consensus that the Chinese renminbi has been reasonably aligned for some time. Under US law, evidence of currency manipulation could be grounds to impose additional tariffs on imports from a country so deemed by the Treasury Department. Aware that this could exacerbate trade conflicts, President Obama avoided pressure to do so from many Congress members, lobbyists and economists.

However, Trump can easily revise this position on some pretext or other, by taking trade or other retaliatory actions against China on the ostensible grounds of alleged currency manipulation which would contravene World Trade Organization (WTO) rules, allowing China to successfully take a case against the US to the WTO for such an illegal action.

WTO trade rules abused
Trump has also threatened to impose tariffs of as much as 45% on imports from China and Mexico! But while an across-the-board tariff hike is unlikely, as it is prohibited by the WTO, the new administration is likely to consider invoking WTO trade-remedy actions on products from China, Mexico and other countries by claiming they are being dumped or subsidized. This has already happened, e.g., with solar panels and wind turbines from China, raising the costs of renewable energy, and thus undermining the global warming mitigation effort.

To be sure, WTO trade remedy rules have long been widely abused for protectionist purposes. A country can impose high tariffs on an imported item from another country by claiming its price has been artificially depressed or subsidized by the government in order to export – or ‘dump’ – them at a price lower than the domestic price. No deterrent is imposed against the offending country even if a WTO dispute settlement panel rules that the ostensibly anti-dumping tariff-raising action was wrongly taken, even though the exporting country has lost considerable export earnings in the interim.

Furthermore, similar actions can be repeated without impunity with no threat of penalty. Such ostensible trade-remedy actions are more likely than blatant tariff walls. These may, in turn, trigger retaliatory counter-actions by aggrieved governments, potentially leading to a spiral of trade protectionism, i.e., trade warfare.

Fair trade?
It is unclear how the new administration views FTAs more generally. The President-elect’s objection to the TPP and NAFTA focuses on the goods trade, and the loss of manufacturing jobs due to cheaper imports, often brought in by the same companies which have chosen to relocate production capacities abroad, and are already mobilizing to resist actions which may jeopardize their profits.
This view does not seem to recognize that technological change, particularly with automation, has been the major source of job losses. Many jobs remaining in the US have higher skill requirements, with fewer employees producing more goods with less labour-intensive techniques.

“Fair trade” will be subject to self-serving interpretations by the governments concerned, arguably further undermining trade multilateralism. While freer trade has undoubtedly improved consumer welfare with cheaper imports, it has seen some deindustrialization in the North and industrialization in the South in recent decades with important employment consequences which have been a major source of the current discontent over globalization.

Trade growth slower
To be sure, the trade growth slowdown following the 2008 financial crisis suggests that the U-turn has already taken place after an extraordinary period of trade expansion due to much greater international specialization with the popularization of international value chains.

In December 2015, Obama’s United States Trade Representative (USTR) Michael Froman threatened the already difficult Doha Round of WTO trade negotiations by trying to introduce TPP issues which had been kept off the agenda from the outset of the ostensibly Development Round after the Seattle WTO ministerial walkout of 1999.

Perhaps most worryingly, there has been no indication so far that the next US administration will not undermine multilateral trade negotiations under the auspices of the WTO. Trump’s much-trumpeted preference for bilateral deals favourable to the US is likely to test trade multilateralism as never before.

But President-elect Trump also has a penchant for the unpredictable, and may yet surprise the world with a new commitment to trade multilateralism to advance consumer, producer, and development interests for all.

]]>
http://www.ipsnews.net/2017/01/trump-trade-strategy-unclear/feed/ 1
Free Trade Agreements Promote Corporate Interestshttp://www.ipsnews.net/2017/01/free-trade-agreements-promote-corporate-interests/?utm_source=rss&utm_medium=rss&utm_campaign=free-trade-agreements-promote-corporate-interests http://www.ipsnews.net/2017/01/free-trade-agreements-promote-corporate-interests/#comments Thu, 12 Jan 2017 10:02:26 +0000 Jomo Kwame Sundaram and Anis Chowdhury http://www.ipsnews.net/?p=148488 Jomo Kwame Sundaram, a former economics professor, was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007. Anis Chowdhury, a former professor of economics at the University of Western Sydney, held senior United Nations positions during 2008–2015 in New York and Bangkok. ]]> Trump's ‘Put America First’ alternative of negotiating bilateral trade deals will be problematic for its negotiating partners, especially smaller and developing countries with modest negotiating capacity. Credit: IPS

Trump's ‘Put America First’ alternative of negotiating bilateral trade deals will be problematic for its negotiating partners, especially smaller and developing countries with modest negotiating capacity. Credit: IPS

By Jomo Kwame Sundaram and Anis Chowdhury
KUALA LUMPUR, Jan 12 2017 (IPS)

So-called free-trade agreements (FTAs) are generally presumed to promote trade liberalization, but in fact, they do much more to strengthen the power of the most influential transnational corporations of the dominant partner involved. While FTAs typically reduce some barriers to the international trade in goods and services, some provisions strengthen private monopolies and corporate power.

Not surprisingly, FTA processes are increasingly widely seen as essentially corrupt. They are typically opaque, especially to the producer and consumer interests affected. The eventual outcomes are often poorly understood by the public and often misrepresented by those pretending to be experts.

For example, many economists from the Peterson Institute of International Economics and the World Bank have continued to claim very significant growth gains from trade liberalization due to the TPPA which have been refuted by US government economists from the Department of Agriculture and International Trade Commission.

And while many in the transnational elite who benefit remain committed to yet more FTAs as means to extend and expand their power and interests, public trust and hope have declined as people become aware of some of their most onerous provisions and likely consequences.

Thus, people are voting against the politicians held responsible for supporting FTAs regardless of their party affiliations. Brexit and the election of Mr. Trump are examples of such global trends.

Do FTAs promote freer trade?
While FTAs may increase trade and trade flows, but are they worth the effort, considering the paltry growth gains generated? There are considerable doubts that some FTA provisions — e.g., those strengthening intellectual rights (IPRs) or investor-state dispute settlement (ISDS) rules unaccountable to national judiciaries — enhance international trade, economic growth or the public interest.

Greater trade and trade liberalization may potentially improve the welfare of all as well as accelerate growth and structural transformation in developing countries. But such outcomes do not necessarily follow, but need to be ensured through complementary policies, institutions and reforms.

Furthermore, trade liberalization on false premises has also undermined existing productive and export capacities and capabilities without generating new ones in their place, i.e., causing retrogression rather than ensuring progress. Such effects have not only set back economic development, but often, also food security, especially in Sub-Saharan Africa.

Freer and fairer trade without FTAs
More people now realize that trade expansion compatible with welfare and development aspirations can happen without FTAs, e.g., through unilateral measures. This was evident when the US trade embargo on Cuba was dropped, and will happen if US trade relations with Iran improve. Similarly, US-Vietnam trade should expand rapidly in the absence of decades-long discriminatory and onerous US legislation imposed on Vietnam following the end of the War in 1975.

During the recent US presidential campaign, both presidential aspirants attributed the US trade deficit with China to the latter’s alleged currency manipulation. While many developing countries, especially in East Asia, manage their currencies for various reasons, the recent market consensus is that the renminbi has been reasonably aligned for some time, while the currencies of some other countries, mainly US allies in East Asia, are more significantly undervalued. US trade negotiators have long complained that they cannot get enforceable currency rules into any FTA as it is so easily prone to abuse.

More fundamentally, such a solution does not address the underlying problems of the international monetary system which confers an ‘exorbitant privilege’ on the US. With greatly liberalized capital accounts in recent decades, many ‘emerging market economies’ have experienced large and sudden outflows of capital. Hence, they have resorted to the expensive and contractionary practice of so-called ‘self-insurance’, by accumulating huge foreign exchange reserves in case of need for emergency deployment.

This has had substantial opportunity costs for emerging economies as these reserves could have been used more productively instead of keeping them in low-yield US Treasury bonds. Besides transferring seigniorage gains (to the currency issuing government due to the difference between the face value of currency and their production costs) to the US, emerging countries are, in effect, helping to finance US deficits and expenditure.

Multilateralism still best option
If President-elect Trump lives up to his campaign rhetoric, all plurilateral and multilateral free trade agreements will be affected. But his ‘Put America First’ alternative of negotiating bilateral trade deals favourable to the US is also hugely problematic because of the heavy demands it will place on the US as well as its negotiating partners, especially smaller and developing countries with modest negotiating capacity.

And while Trump’s main preoccupations have been with the goods trade and US jobs, there has been no indication so far that he will not continue to promote US corporate interests more generally, e.g., on intellectual property, investor rights, financial liberalization and dispute settlement, as part of ostensible comprehensive trade negotiations. Such concerns have been reinforced by the choice of recent appointees to senior trade-related positions in the new administration.

Determinants of trade flows and patterns are many and varied, including incomes (or, purchasing power), growth rates, tariffs, non-tariff barriers, exchange rates as well as import and export rules. The World Trade Organization (WTO) and other existing multilateral institutions can do much to facilitate greater trade in the interest of all if given a chance to succeed.

Worryingly, there has been no indication so far that the next US administration will not undermine multilateral trade negotiations under WTO auspices. Unfortunately, the current Doha Round of trade negotiations has been prevented by powerful corporate interests and the governments. Concluding a truly progressive trade agreement would not only meet developmental aspirations as well as advance national, public, consumer and producer interests, but would also help ensure a more balanced and robust global economic recovery.

]]>
http://www.ipsnews.net/2017/01/free-trade-agreements-promote-corporate-interests/feed/ 0