*{ http://www.attac.org/fra/list/doc/nikonoff3en.htm 16 aout 2002 } Financing development Jacques Nikonoff Visiting professor at Paris VIII University (Saint-Denis), member of ATTAC's Scientific Committee Presentation given on 10 October 2001 during a symposium in the Brussels Parliament, organised by the Belgian Section of the Inter-Parliamentary Union (IPU). *{ Amanda Galbe & Pierre Henry Leflaec. Sophie Devin, coorditrad@attac.org } Symposium participants: Mr Dirk Van der Maelen (leader of the SP Flemish Socialist Party group of the Chamber of Representatives); Mrs Sophie Charlier (Entraide et Fraternité - Inter-AID and Fraternity); Mrs Shalmali Guttel (Focus on the Global South, Bangkok, Thailand); Mr Kamal Malhotra (UNDP, Financing for Development Secretariat, Department of Economic and Social Affairs, United Nations, New York, United States); Mr Frédéric Renard (Deputy Special Commissioner, Direction générale de la coopération internationale (DGCI), in the Ministry of Foreign Affairs, Foreign Trade and International Co-operation, Brussels, Belgium); Mrs Sabine de Béthune (first vice-president of the Senate, CVP Christian People's Party); Mr Camille Chalmers (CEO of the Haitian Advocacy Platform for an Alternative Development); Mr Pietro Veglio (Head of division for aid evaluation and political monitoring, OECD, Paris, France); Mrs Claudine Drion (ECOLO Francophone Green Party MP); Mr Michel Barbeaux (PSC Social Christian Party Senator); Mr Paul De Grauwe (VLD Flemish Liberal Democrats Senator); Mrs Leen Laenens (AGALEV Flemish Green MP); Mr Philippe Mahoux (Socialist Party group leader at the Senate); Mr Gerard Karlshausen (CNCD political secretary); Mr Rudy De Meyer (Hezad Head of Research, 11.11.11 umbrella of the Flemish North South movement in Belgium); Mr Thierry Dockx (World Labour Union); Mr James Howard (ICFTU, International Confederation of Free Trade Unions). And the opinions of: Mr Didier Reynders, Finance Minister and Mr Eddy Boutmans, Secretary of State for Cooperation for development. Dear Madam, Dear Sir, After the apocalyptic attack in the United States on 11 September 2001, the question of development and its financing has never been so sharply and urgently raised. Today no-one can deny that fanatic terrorism stems from the world's inequalities, from unresolved local crises – sometimes for decades – and from populations without any prospects and in despair. Fanatic terrorism must be fought. Legitimate military responses cannot, however, be the only solution. The world's problems need an overall, systemic answer. At the "Millennium Summit", the leaders of States and governments, gathered together at the U.N. Headquarters in New York from 6th to 8th September 2000, adopted a text of vital importance entitled the "Millennium Declaration". Allow me to quote a few extracts from it: "We recognise that, in addition to our separate responsibilities to our individual societies, we have a collective responsibility to uphold the principles of human dignity, equality and equity at the global level. Therefore, as leaders, we have a duty to every citizen of the world, especially the most vulnerable ones and, in particular, the children of the world, to whom the future belongs. We will spare no effort to free our fellow men, women and children from extreme poverty, which is an abject and dehumanising phenomenon that currently affects more than one billion people. We are determined to make the right to development a reality for everyone and to free the entire human race from want. We resolve: To halve, by 2015, the proportion of people in the world whose income is less than one dollar a day and the proportion of people who suffer from hunger, and to halve, by the same date, the proportion of people who cannot reach or afford safe drinking water. To ensure that, by the same date, children all over the world, boys and girls alike, will be able to complete a full course of primary schooling and that girls and boys will have equal access to all levels of education. To ensure, from today to this same date, that maternal mortality will have been reduced from three quarters, and under-five child mortality from two thirds. To have, by then, halted and begun to reverse the spread of HIV/AIDS, and to have controlled the scourge of malaria and other major diseases that afflict humanity. To provide children orphaned by HIV/AIDS with special assistance. By 2020, to have achieved a significant improvement in the lives of at least 100 million slum dwellers as proposed in the 'Cities Without Slums' initiative." This is a marvellous text. Will it remain a pure declaration of intent, or will it lead to concrete action? Unfortunately, there is room for doubt. We must keep in mind that according to the United Nations Development Programme "The cost of establishing and maintaining universal access to basic education, safe water and sanitation, and, for women, to gynaecological and obstetric care, is estimated at approximately $40 billion a year. This represents less than 4% of the cumulated wealth of the 225 wealthiest people". $40 billion is precisely the amount that the U.S. Congress has just voted for the anti-terrorist war operations… When I make this remark I do not mean that there is no need to make a budget available to wipe out fanatic terrorism. I note that the U.S. Congress voted this decision in one day because its members felt that it was in the interest of the American people and of the United States. This example just shows that there are no financial barriers to development aid. Tomorrow morning, if the governments of the developed countries – and the people of these countries – wanted it, massive and powerful means would be devoted to world development. I think that we must spread a global level of awareness among the people of the rich countries, so that they influence their respective governments in order for their interest to merge with that of all the earth's inhabitants. Following the "Millennium Summit", an International conference bringing together heads of State was given the task of examining the question of financing development. It will be held in Monterrey, Mexico, from 18 to 22 March 2002. This Conference must be a turning point, a break-off point, the start of a new era in our approach to developing and building a new world order. To achieve this we must work on two areas: questioning the ways of thinking that have brought about the failure of development programmes; and setting shared aims at financing development, as part of the construction of a new world order. *partie=titre I. – Questioning the ways of thinking that have brought about the failure of development programmes : neo-liberal ideology *partie=nil A certain number of ideas – I would say commonplaces – have now been accepted by the public, the media and the international institutions, without any real critical analysis. I will give only three examples. *partie=titre 1. – "Globalisation" is told to be inevitable and to benefit everyone *partie=nil Let us keep in mind that "globalisation" has two faces : the age-old one that brings human beings and peoples closer together, and the one of the domination of financial capitalism. We must therefore distinguish "globalisation" from "neo-liberal globalisation". "Globalisation" denotes a series of real stakes on a planetary scale. As for "neo-liberal globalisation", it expresses the victory of Anglo-Saxon capitalism and is simply the world-wide strategy of the neo-liberal political and economic forces. It is just an attempt at colonisation made by Anglo-Saxon capitalism. Indeed, the Anglo-Saxon model supports internationalism. "Neo-liberal globalisation" is the political ideal borne by the dominant power. It is the result of a balance of power not only between various forms of capitalism, but also between dominant and dominated powers. "Neo-liberal globalisation" has not answered the promises made to the poor countries. Presented by its upholders as a "happy" change, it is actually just a myth : economic liberalism has not led to political liberalism, the gap between cultures and peoples has not been narrowed, standards of living between North and South have diverged. There is merely no substance in the new Golden Age that was supposed to appear following the general adoption of the Western developed countries’ model. It is difficult not to consider "neo-liberal globalisation" as an evil. A large number of countries have been placed on the fringe of the world and, far from taking advantage of the increase in wealth, have been left behind. The overall gap between the richest 20% and the poorest 20% of humanity has doubled from 1940 to 1990. Let us give just one example : in 1976, Switzerland was 52 times richer than Mozambique; in 1997 it was 508 times more. 1.3 billion people do not have access to running water and every day 40,000 children die of famine-related diseases. Life expectancy in places like Sub-Saharan Africa and Russia has dropped dramatically. More than a fifth of the world population still live in absolute destitution (with less than $1 a day), and half live with less than $2 a day. The 2.5 billion inhabitants of low-income countries still experience an infant death-rate exceeding 100 to 1,000 live births, whilst this same rate, for the 900 million inhabitants of high-income countries, is only 6 to 1,000. In low-income countries, there are on average still 40% illiterate persons. The phenomenon of poverty and exclusion also exists within countries that are considered as being developed. Looking at this world, one is entitled to ask the following question : with such wealth and economic growth on one side, how can there be such poverty and economic insecurity on the other side ? How can anyone get accustomed to this situation? *partie=titre 2. – The doctrine of unrestrained free trade is supposed to bring about universal prosperity *partie=nil We hear it in all kinds of tone, monotonously, obsessively, that the unrestrained development of international trade would represent both a demonstration of democratic freedoms and the promise of universal prosperity. Since Smith, Ricardo and Montesquieu, it is generally considered that international trade is excellent for Nations. According to this belief, the first reason is that international trade grows faster than world production, and therefore "pulls" the latter. In order to develop economic growth and employment should we therefore "free" international trade from all restraints – especially national "barriers" – and practise the fullest free trade possible. The multilateral organisations like the World Trade Organisation (WTO) continually press for trade "liberalisation" and against State measures that could be qualified as "protectionist". The second reason for considering free trade to be excellent for Nations is that the specialisation of economies, the international division of work and the comparative advantages between Nations would be in theory factors of efficiency. Unfortunately, this is just a fairy-tale. First, given the immense advances in technology, the comparative advantages between Nations are decreasingly dependent on natural data, and increasingly "constructed". What has changed in relation to the 18th and 19th centuries is that today's comparative advantages should be considered as constructed and not as natural data. The utter perversity of systematic free trade clearly appears when it denies these changes, for no poor country will ever spontaneously acquire technologies. It is true that competition may, in the short term, reprimand a relative inefficiency in production. But it is macabre when it prevents a relevant comparative advantage from being constructed. Then, today's free trade upholds the domination of the most powerful countries over the rest of the earth. Immediately after the 1939-1945 conflict, the U.S. supported free trade as they organised world trade, because they were almost the only country capable of selling anything. The war made a new phase of expansion possible, affecting all sectors. From 1939 to 1944 the volume of goods and services produced increased by 50% in the U.S., raw materials by 60%, that of manufactured items tripled, agriculture increased production by a third, industrial potential grew 40%. Directed to the war effort, this economic development (resulting from political choices) needed markets once peace had returned : free trade and more open borders were applied so as to provide it with new or bigger outlets. The United States set up the GATT, created under the aegis of the U.N. In reality, international trade in the capitalist world is above all the economic exploitation of a periphery that is dominated (like the former colonies) by a developed and imperialist Centre (the West). It results from the strategies of multinational companies, eager to find outlets for their products and raw materials at a low price. This exploitation is due to unfair trade. Lastly, one side's exports are nothing but the other side's imports in a system of global commercial war. The financial advantage for a country to have a positive balance of trade necessarily produces a disadvantage for another country that has a negative balance of trade. In order to pay what it imports, the latter must buy the relevant currency with its own currency. Since it imports more than it exports, it grows poorer. Indeed, on a global scale, exports of the ones make imports of the others, the sum of them is consequently zero and the sum of the balances of trade of all the countries is zero. The sum of some countries' deficits is equal to the sum of others’ profits. This is why unhindered free trade is a simple confrontation between powers, making the most powerful ones richer and the others poorer – the weakest ones. There is no logical connection between economic growth and free trade. The huge challenge for humanity is to go from this total commercial war to international co-operation. It is quite possible that two or several countries reap mutual advantage from their trade. But this is possible only if their relationship is more co-operative than competitive. In other words, if there are synergies, or increasing yields, or positive "externalities" between them. International trade must have the same rules as judo: there are no competitions between heavy-weights and feather-weights… *partie=titre 3. – The reduction of the «tax burden» is essential to economic development and employment *partie=nil We are unceasingly told that the «tax burden» have reached "unbearable" levels in the developed countries. They must therefore be reduced, all the time and everywhere. It is the condition for economic efficiency and increasing employment. The expression the «tax burden» itself ought to be radically disproved as it does not represent reality and causes rejection. It gives the impression of being some kind of extortion, organised by the State against the taxpayers, for some dark purpose. The truth is much more simple: taxes and social security deductions are used to pay for social benefits and services (such as pensions) and the public health and education systems... This spending is financed by taxes, which are the result of a democratic vote by Parliaments. A better word would be "democratic services", or "vital expenditure", or "expenditure in the general interest" or "solidarity participation". Finally, we ought to speak of "contributions", as in the French Constitution : citizens "contribute" to the public spending according to their capacities. If one of these terms were used, no doubt that the debate on their share in the national revenue would change. The excessively high level of the «tax burden» is a myth. Nowhere in the world have the economy and employment taken advantage of the massive reductions of taxes and social contributions that have been implemented since the beginning of the 1980s. In reality, drawing attention to the «tax burden» is just a diversion. In the meantime, multinational companies are waging a silent "global tax war" on States, that they blackmail in order to obtain tax reductions. On the contrary, fiscal and social revenues need to be increased to finance collective services such as education and health care throughout the world. The facts demonstrate quite clearly that there is no connection whatsoever between the level of taxes and social contributions and the level of economic activity and employment. If one could summarise competitiveness in the level of taxes and employers' social contributions, every company in the world would have invaded Ethiopia or Bangladesh a long time ago. They have not done so because they need variously skilled labour, a reliable power supply, transport and communications infrastructures, markets close by. And these factors for competitiveness are closely connected with the level of government expenditure. The level of the «tax burden» acceptable to society has never been defined on an economic level. There is no doubt, however, that a limit exists, but it depends on the degree of solidarity that society accepts, on the income inequality that it believes to be legitimate and on the quality-price ratio that public utility services provide in return for the contributions paid. The tax war and the threat of offshore processing have led many developed countries to yield to blackmail and to gradually reduce the tax burden on companies and foreign investment. In the 1990s, these rates were usually around 30 to 35% in most of the OECD countries. In the beginning of the year 2000, only a very few countries had real tax rates over 20%. This total tax war, initiated by multinational firms, blackmails States : the major groups ask for tax cuts, otherwise they threaten to do offshore processing. This blackmail is particularly easy because the differences between national tax systems allow much arbitration in order to "optimise" fiscal circumstances for these groups. Meanwhile, the increasing and totally legal use of "tax havens" induces a drop in Groups' and wealthy people's contributions. These tax havens also encourage illegal financial activities, obviously exempt from tax. All in all, Nations are deprived of resources that would make it possible to eradicate poverty and unemployment within their own frontiers and throughout the rest of the earth. These change creates a transfer of the tax burden from capital to work. Its effects are regressive, because capital income is gathered by the wealthiest ones who avoid paying taxes, whereas taxes on consumption press hard on poor households, for it is actually the greatest part of their expenses. This situation partly explains the increasing inequality of income throughout the world. Tax havens are a perfectly legal means for multinational firms and wealthy people to avoid their legal obligations to contribute to the common welfare. Whilst the countries that harbour tax havens represent only 1.2% of the world population and 3% of the world's GDP, they represent 26% of the world's financial assets and 31% of the profits of the North-American multinational enterprises alone. The sum of all financial assets held in tax havens is estimated about one third of the world's GDP. According to estimates, the amount of money that passes through tax havens is between 6 and 7,000 billion dollars, that is the equivalent of the annual international trade in goods and services. Within this value, between 3 and 4,000 billion dollars belong to wealthy individuals. According to an IMF report, institutional investors hold 1,700 billion dollars in tax havens. Most of these funds are not taxed or benefit from reduced taxation. Although it is impossible to calculate the exact fiscal loss for Nations, a rough estimate sets it at $50 billion a year for the developed countries. Taxation is an essential element in a fair and efficient society. It represents a social and moral obligation for companies and individuals to pay proportionally to their income, in order to finance public welfare and health and social security services. The example of Mr. Murdoch's empire is a perfect illustration of this reality. His company News Corporation, with its subsidiaries, paid a 6% tax rate in 1999 for the whole world. It must be compared with the tax rates in Australia, Great Britain and the United States – countries where this company has subsidiaries - respectively 36%, 35% and 30%. The structure of the company is complex. According to its 1998 Annual report, the Murdoch Group owns 800 subsidiaries, 60 of which in tax havens like the Cayman Islands, Bermuda, the Dutch Antilles and the Virgin Islands. This situation has strange consequences. The Murdoch Group's most profitable British activity in the 90s was neither the Sunday Times nor the BskyB satellite television channel, but News Publishers, a company registered in Bermuda. In seven years the company made a £1.6 billion net profit. The figure is remarkable for a company that does not have any other employees or resources than those supplied by Mr. Murdoch's other companies. Looking for the available information, a British weekly newspaper tried to find out how much tax the Murdoch's 101 British subsidiaries had paid. From 1987 to 2000, despite its profits, the Group did not pay any corporate income tax at all. The reason lies in the legal use of tax havens to house profits. After having experienced the "currency snake" system, we will no doubt have to consider the idea of a "tax snake" that would control very tightly all the elements that make up taxes (field of application, bases, rates, etc.) so as to rapidly achieve a true world tax harmonisation. The amount of direct foreign investment in 1998 was $1,219 billion for the developed countries. The fiscal revenue that these countries should have been paid can be calculated by using an average return of investment and an average tax rate. The yield rate in developed countries, according to the World Bank, is between 16% and 18%, and much more in Africa. Nevertheless, these yield rates do not take into account the effects of the transfer costs and the other practices that multinational enterprises use in order to "optimise" their fiscal situation. It is therefore reasonable to use a yield rate of at least 20%. As regards tax rates, the OECD puts forward the rate of 35%. With a yield rate of 20% and a corporate income tax rate of 35%, the developed countries should have gathered $85 billion a year in tax resources from foreign companies. In reality they only collected $50 billion. Fiscal competition made them therefore lose $35 billion. To direct foreign investment must one add portfolio investments (foreign savings). It is the amount of capital movements, most of which are directed towards low-tax countries, that is used to estimate the resources lost. In 1990, the sum of these movements originating from developed countries was $700 billion. The fiscal loss may be estimated with an average yield rate and an average tax rate. Wealthy people who use tax havens have sophisticated portfolio management techniques that give them high yield rates. An average yield rate of 10% seems reasonable. Revenues from savings abroad are rarely taxed. The tax rate would be 22%. With a 10% yield rate and a 22% tax rate, the fiscal resources raised from $700 billion would be $15.4 billion a year. These figures are particularly shocking when one knows the financing needs of poor countries. Offshore centres provide the possibility of corruption, arms and diamonds illicit trading, and drug trafficking. It has been estimated that $55 billion of public aid to Nigeria was diverted during Abacha's dictatorship. To give a rough idea, the country's foreign debt was $31 billion in the early 2000s. Tax havens are an insult to hundreds of millions of people living in poverty. They have become central elements in financial globalisation. An international agreement is needed for a taxation of multinational enterprises on a global basis, including international mechanisms to allocate the fiscal revenue. The French Minister for the Economy and Finance, Laurent Fabius, gave a particularly horrible example of this anti-tax obsession. Taking advantage of new fiscal resources originating from improved economic situation and employment, he used this "fiscal nest-egg" to reduce taxes, especially for companies and well-off households. The sums involved – F120 billion – could have been used to finance more than a million jobs. Other European countries, Germany in particular, behaved in the same way. If, in the developed countries, full employment were truly a reality; if hospitals had enough personnel, space and equipment; if schools were havens of serenity and culture; if suburbs were places sought after for their quality of life; if public transports were spacious; if no one on earth were suffering from hunger… If all of this were true, then yes, we could ask ourselves how to further improve general well-being, possibly with tax reduction. But as long as this social optimum does not exist, reducing taxes with no compensation is a terrible policy. It is a policy for the rich and against the poor. As long as a single unemployed person remains, or a single poor person, a single injustice in the world, no uncompensated tax reduction is acceptable. The ideology of tax reduction leads to back up individualism and selfishness and to weaken solidarity. It is dangerous to give taxes a negative image, as tax contributions finance public expenditure, which is by nature a spending for general interest and solidarity. Lowering taxes without any compensation is killing solidarity. Taxes represent a participation in the national expenditure that every citizen must share. In 1789, French revolutionary Barrère even believed that "the freedom of the people lies in tax". I dare not mention here structural adjustment plans, which are unspeakable : they have totally failed, they must stop. *partie=titre II. – Some aims in order to finance development within a new world order *partie=nil Given the failure of multilateral institutions, all the conceptions of development and its financing must be reviewed : public aid must overcome market mechanisms. *partie=titre 1. – Humans as a source of development *partie=nil Aid to poor countries is not charity, it must aim at giving them the means for true autonomy. This will allow them to ensure their economic growth and human development. These always originate from national sources, as financing abroad can only be a top-up. The financing of development must then concentrate on human beings, not on things. Public spending is the only vector that can give priority to human development : · quantity and quality of food; · health; · education; · safe water and sanitation; · electricity. Until now, only the means have been considered (lowering inflation, lowering public deficits, lowering the «tax burden», privatisations, free trade, etc.). Today we must give our attention to the ends, i.e. human well-being. Humans must now be placed in the centre of the paradigm of development. *partie=titre 2. – Public aid as the main financing tool *partie=nil To finance development, there is no point in inventing a huge, labyrinth-like system : we must avoid what I call “the tun of the Danaides effect” and, instead, favour public aid. Avoiding “the tun of the Danaides effect” means creating a stable macro-economic environment: · stability of export prices and exchange rates; · reversal of the downward trend of terms of trade; · financial stabilisation by reducing short-term speculative capital movements; · cancelling the debt of the poor countries. Public aid must be favoured. Why could the market not be the main tool to finance development? For a very simple reason. If our basic aim is the development of human beings (food, health, education, safe water, etc.), the market is inadequate. It only exists to meet "solvent" needs. Are the hundreds of millions of humans that live with less than $1 a day "solvent"? What can they "buy"? So it is indeed public financing that must be favoured, using public aid for development (PAD) and the Tobin Tax. The aim of 0.7% of the GDP being assigned to PAD that the rich countries set themselves in the 1970s is far from being achieved, since the proportion today is 0.2%. This proportion has even dropped since 1992. The forgone income is $49 billion per year for the poor countries. The idea of implementing the Tobin Tax is growing throughout the world. This tax has two advantages: it restrains speculation and it frees resources for the poor countries. The Monterrey meeting in March 2002 will be the way to move these aims forward. It will be the occasion, after Seattle and Genoa, to keep on mobilising the earth's peoples for another world. *{ 15/01/02 }