Alex Cobham argues that if the world’s poor are to be lifted out of poverty, the world’s rich must stop giving with one hand and taking away with the other
GORDON BROWN, in New York recently for a meeting of the United Nations General Assembly and an emergency UN summit on the Millennium Development Goals, didn’t make the connection. But to those well versed in the economic woes of the developing world, it was blindingly obvious.
Arguing that the greatest threat to poor countries was indifference, the Prime Minister told the summit: “The hungry are dying while we wait. We say we are one world, but every three seconds we allow one child to die from extreme poverty.” At the UN General Assembly the following day, Brown’s recipe for resolving the current financial crisis was “a new global financial order founded on transparency, not opacity”.
In fact, it is a combination of indifference and opacity towards the developing world which has hamstrung improvements from the moment in 2000 that the eight MDGs – intended to halve global poverty by 2010 – were agreed. The indifference is evidenced by the insistence with which donor nations and international financial institutions, dangling the twin carrots of trade and aid, have forced developing countries to liberalise their economies. “Free trade is always an engine of growth” has been the mantra, but that is not the way farmers in poor countries have seen it as they have found themselves unable to compete against a flood of cheap – often subsidised – imports. The opacity is manifest by the way transnational corporations (TNCs) and other businesses use offshore havens to evade their tax liabilities in the developing world. Christian Aid estimates their activities costs poor countries some $160 billion a year in lost corporation tax alone.
If used according to present spending patterns, that money could have saved the lives of 5.6 million children in the developing world between 2000 and 2015. The sum is more than one-and-a-half times the total aid from rich to poor countries in 2007. And it is tenfold greater than the $16 billion reportedly pledged in New York last week to the MDGs.
The new pledges are, of course, very welcome. They will pay for schooling for more than 20 million children by 2010. Food security will be boosted and $3 billion will go on the battle against malaria. But the international community has missed a salient point. What it is giving with one hand, it is taking away with the other. The real problem in realising the MDGs is the lack of attention that has been paid to MDG 8, which calls for “a global partnership for development” that would address the needs of least-developed countries and include an “open, rule-based and predictable non discriminatory trading and financial system”.
The first seven MDGs include halving the number of people living on less than $1 a day, and the number suffering from hunger, promoting gender equality, achieving “full and productive” employment for all, making primary education universal, and obtaining dramatic cuts in child and maternal mortality rates. Meeting these targets is being held back by a shortage of funds.
They can be met by spending, but in order to spend, there must be a tax system that delivers revenue and growth that expands the revenue potential and offers economic opportunity. MDG 8 sets out how that growth can be achieved and signposts where the international community can change global structures to the permanent benefit of those living in poverty. Until it is implemented, the other MDGs will in numerous countries remain an aspiration only.
Realising MDG 8 will require fundamental changes to the manner in which the international community seeks to influence agricultural and trade policies in poor countries. The signs, though, are not good. Although there is growing recognition of the damage caused by overly rapid trade liberalisation, it remains firmly implanted as a principle of the Economic Partnership Agreements that the European Union is pressing African, Caribbean and Pacific nations to sign.
If the international community is really serious about realising the goals that have been set, it must ensure development is a priority in all trade negotiations between rich and poor countries. Towards that end, the World Trade Organisation Doha Development Round talks, which collapsed in Geneva earlier this year, must be restarted and completed in accordance with the original intentions of delivering development and being of special benefit to the lowest income countries.
World Bank economists had concluded that the outlines of the deal being discussed in Geneva would have undermined the economies of the poorest countries, showing just how far the talks were from being a genuine Development Round.
As the MDGs have become ever more elusive, it is ironic that big business has been asked by the Prime Minister to embark on a set of initiatives to contribute to the goals, including offering employment opportunities, increasing incomes and implementing responsible standards and practices.
Harnessing the drive to make money to achieve the goals could, in principle, be very rewarding. However, some mechanism must be created to monitor that what corporations are doing really is in the interests of the countries where they will roll out these programmes. Thus far, their record of support for the developing world is not good.
The lost corporation tax is largely the result of a method of tax evasion involving the abuse of “transfer pricing”, in which different parts of the same TNC sell goods or services to each other at manipulated prices. Using this method, TNCs are able to claim that the goods sold from the developing world fetch very low prices, thereby reducing the profits they declare and the tax they owe there.
The “buyer” – another part of the same TNC based in a tax haven – then inflates the price when it sells the produce on, ensuring the profits accrue offshore where they will not be seriously taxed. Developing countries lack the resources and expertise to investigate. Unsurprisingly, they receive no assistance from the tax havens in determining how much they are really owed.
In the new global financial order envisaged by the Prime Minister, such efforts to hide true ownership of assets (and liabilities, like those in the banking system) must be removed from mainstream business practice. They present insurmountable obstacles to countries trying to escape poverty by basing their economies on tax revenues rather than aid – by far the preferred option.
Part of the solution would be to force corporations to report a full set of accounts in each country where they operate. That way, anomalies could be quickly spotted. Another would be to bring to an end the opacity which tax havens offer.
As the South African finance minister Trevor Manuel said in January this year: “It is a contradiction to support increased development assistance, yet turn a blind eye to actions by multinationals and others that undermine the tax base of a developing country.”
Alex Cobham is policy manager at Christian Aid
