Paul Collier meets the Africa Commission

The development economist Paul Collier, a leader in his field, has a good article in The Guardian today. He said this:

"At the time of the Commission for Africa, I urged that Britain revise its laws on banking secrecy. Yet despite the enormous emotional energy aroused by Gleneagles, there was no political appetite: aid, yes; banking openness, no."

This is exactly what we have encountered while meeting British officials. In March 2005 TJN's director John Christensen spoke at an event organised by the Commission for Africa, a British initiative promising "Action for a strong and prosperous Africa." He noted that this was a huge missed opportunity to address illicit financial flows, particularly since Britain receives such a large portion of those illicit flows, most routed via British tax havens; this neglect of the problem is an astonishing omission, given that the scale of the flows are so much greater than aid and debt relief.

Lord Desai, a Labour party politician and guest speaker, pooh-poohed John's words, arguing, even more astonishingly, that what African countries should do is to seek to attract the money back by floating tax-free bonds. John wrote under the section "Follow-up?" in his diary recording the event: "No follow-up - Desai is too flaky."

As Collier noted:

Capital flight of this magnitude is roughly equivalent to the entire aid inflow to the region, so closing it would generate a similar resource transfer to doubling aid.

Admittedly, Collier used an estimate of illicit outflows that is smaller than ours (see here for more details.) And he makes a more general point:

"The regulation which had worked well enough was dismantled because of the recent mantra that finance is the engine of growth as long as it is given free rein. Hence Gordon Brown's emasculation of financial regulation in the UK and Alan Greenspan's era of neglect in the US. This mantra radically exaggerates the upside potential of finance. At best, the contribution of the financial sector to the growth of an economy is second order: it facilitates the creativity of other sectors. Only at its worst is finance first order: as we are now seeing, it can be catastrophic."

Quite correct. And he goes on:

At last, we have a chance for change. Because the banks do well out of secrecy, to date they have successfully opposed proper scrutiny. The wall of secrecy started to crack after September 11, 2001, when governments forced banks to reveal deposits linked to the finance of terrorism. Incredibly, even that was resisted: Citibank lobbied hard to block it. But now that we have the banks on the run there is an opportunity to extend scrutiny, not only to help ourselves, but to help Africa.