Thursday, May 05, 2011

Jeffrey Sachs really seems to be getting it now

Recently we wrote a blog entitled Jeffrey Sachs joins the tax justice movement, sort of after he wrote some superb (but incomplete) things in the Financial Times about the race to the bottom on corporate tax.

Well, now he has a new piece on Project Syndicate, to which we have already briefly linked, but which is worth expanding on. It's entitled The Global Economy’s Corporate Crime Wave, and it's excellent, all the way through. We are particularly excited by this section:
"We will need to light the dark corners of international finance, especially tax havens like the Cayman Islands and secretive Swiss banks. Tax evasion, kickbacks, illegal payments, bribes, and other illegal transactions flow through these accounts. The wealth, power, and illegality enabled by this hidden system are now so vast as to threaten the global economy’s legitimacy, especially at a time of unprecedented income inequality and large budget deficits, owing to governments’ inability politically – and sometimes even operationally – to impose taxes on the wealthy.

So the next time you hear about a corruption scandal in Africa or other poor region, ask where it started and who is doing the corrupting. Neither the US nor any other “advanced” country should be pointing the finger at poor countries, for it is often the most powerful global companies that have created the problem."
Yes, yes, and thrice yes. We have been critical of Sachs in the past, but he has demonstrated himself to be one of those people who, presented with new evidence or analysis, appears to change their mind appropriately. Sachs also has an accompanying video, published on Reuters Insider, here. As he says there:
"Globalisation has changed the balance. Now companies are bigger than their governments, companies have many places to hide their malfeasance. There are a lot of tax havens, a lot of places to really exercise power over governments by saying 'if you don't go with us on this, we just move' to the next jurisdiction."

I think we do have a kind of epidemic of malfeasance that showed up in the financial crisis of 2008 . . . now we see an explosion of corruption scandals in india as well, kind of the emerging markets version of this, where the companies have gotten very big, and outrun the political system, or captured the political system."

Perhaps he has been reading TJN's output, or Treasure Islands. We hope so. It is particularly good to see him standing out on this issue, because there is a consensus being fiercely defended in Washington - not just in the World Bank and IMF, but in some large non-governmental organisations too - that these issues are peripheral, or not worth bothering about. We are aware of certain individuals in the World Bank, for instance, who are -- for whatever reason -- actively working to suppress analysis being produced by TJN and our colleagues. This suppression, it seems, leaks out to Washington think tanks, development organisations, and others, tainting their research.

At a dinner in Zurich recently, the legendary US crime-fighter Jack Blum, a TJN senior adviser, described to this blogger how, several years ago, he started talking in a meeting at the IMF about the "tax for development" angle, and TJN's issues, and the IMF general counsel came out, specifically to rebut him.

"He shouted at me," Blum remembers. Subsequently, he asked someone what the fuss had been all about, and he was told that people in the room - IMF directors and others, some from developing countries - were related to people who were deeply involved in perpetrating illicit financial flows themselves. John Christensen, TJN's director, has had similar experiences. As he said:

"We have been hectored at meetings, sometimes with great belligerence. There is a pattern here.

For example, I went to meet Tony Blair's Commission for Africa and sat down with a panel of five people - truly the Great and the Good - to talk about illicit financial flows, about the need to strengthen tax regimes; for international tax cooperation, and so on. The response was 'this is not the issue to bring up at this stage.' It was dismissive, but the tone was quite belligerent. They didn't see how this fitted in to their programme for how to help coujntries. I felt a combination of being patronised and bullied at the same time.

I spoke at a public forum of the Africa Commission at St James's Church in Picadilly - about six or seven years ago, where Lord Desai, who was close to the Blair government, was dismissive of my question about illicit financial flows and their relevance to developing countries, and piously proposed that if African governments wanted to repatriate this money, they should have an amnesty: offer special tax concessions to the perpetrators to encourage the capital back. The audience hissed - it was a delightful moment."

So in light of this kind of consensus prevailing in Washington and elsewhere - it's so welcome, and so important, to see someone with Sachs' profile speaking truth to power.

Oh, and he's got another sensible post about taxes, here. Noting, among many other things:
"Contrary to the claims of the supply-siders, the US economy would not be harmed by higher marginal tax rates. The economy thrived in the 1950s and 1960s when top marginal tax rates were over 90% in the 1950s and 70% in the 1960s. The steep cuts in the top marginal tax rates that began in 1981 did not deliver on the supply-sider promise of high employment and rapid economic growth. Instead, the thirty years of low top tax rates have contributed to large budget deficits and the exceptionally high inequality of income."
Well, from this evidence, Jeffrey Sachs is a tax justice kind of a fellow.


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