Fellows meeting 2007
The power of money
Deregulated financial capital now dwarfs most national economies, and has resulted in wealth transfers from the poor to the rich. Yet finance is also crucial for investing in public services and pensions, and for supporting social enterprises. What regulation does finance need? What kind of tax systems could redistribute wealth? What are the implications of the rise of institutions like the Bank of the South?
History of Finance Capital and the need for regulation
Presenters: Tom Reifer and Myriam Vander Stichele
Marx argued that when capitalism has no further outlet, it seeks a financial outlet. His prediction has been borne out with a massive expansion of capital in global markets – seen in the rise of internal capital of transnationals, which no longer need to borrow to fund large-scale expansion; the accelerating growth of pension, insurance and mutual funds; and the dramatic rise in speculation and derivatives markets, which now dwarf most national reserves.
Financial capital now exercises far greater power than states or institutions like the IMF – and the results are ever more flows of wealth from poor to rich. The big question is what can be done. Regulations in the North are not binding, whilst in the South investment treaties and agreements such as GATS have locked in de-regulation of capital flows. Meanwhile the financial industry is consolidating and will soon be run by about 15 banks. States need to step in to control finance before it is too late.
Extending, securing and harnessing pensions
Presenter: Robin Blackburn
Pensions have come to symbolise many trends in financial globalisation: trends towards privatisation of public rights, commodification, and supporting the growth of power with public taxes. Pension funds are now both central beneficiaries but also shock absorbers for capitalism.
Robin Blackburn proposed an alternative of a universal small grant worldwide of $1 a day funded by the Tobin tax, taxes applied to share transactions and a Meidner scheme (which requires companies to contribute to a reserve social fund). He also proposed democratisation of pension funds to exercise greater control on corporations.
Participants in the session also questioned how to stop the dependence on and bolstering of financial markets, and proposed exploring other possibilities of both funding pensions and redistributing wealth
Redistribution and Regulation
Presenters: Sony Kapoor and Howard Wachtel
This session examined two proposals for tax systems to deal with falling tax revenues affecting public services and to tackle tax evasion, growing inequality, volatile financial flows and climate change. Sony Kapoor recommended a Financial Transaction Tax, which has already been applied in some countries and is both progressive and easily enforceable. Howard Wachtel proposed a global tax fund on non-financial corporations which would be set internationally and applied on publicly known profits. Any difference between what the company paid in its host country would be redistributed to the global tax fund and issues of transfer-pricing (ie buying from subsidiaries at below-cost and selling at profit) would be resolved.
Global Tax Justice
Presenters: Sol Picciotto and John Christensen
This session examined the weakness of the Anti Money Laundering (AML) regime, which is systematically undermined by offshore centres, tax havens, transfer pricing and mis-invoicing, lax bookkeeping and private banking regulations. An evaluation and overhaul of the entire system of international financial regulation is necessary and will need strong international cooperation. Up to now various political initiatives to strengthen national tax regimes have been consistently thwarted by the persistent and powerful lobbying of business and wealthy individuals.
The Tax Justice Network aims to act as a counter-pressure highlighting the costs of tax avoidance. It is working on a code of conduct for taxation and a Financial Transparency Index to work as a blacklist in order to draw attention to jurisdiction issues. However it was also acknowledged that avoiding taxes is not the only way corporations retain dominance: they also benefit from price fixing, state subsidies and the prevailing paradigm that low taxes are the only way to secure foreign investment
New challenges for the IMF and the MDBs
Presenters: Edgardo Lander and Tom Reifer
The Asian financial crisis raised serious questions internationally about the IMF and Multilateral Development Banks, with many agreeing that IMF policies of capital account liberalisation created the crisis and their response of austerity programmes worsened it. East Asian countries have responded by building up huge account surpluses but these are still unlikely to cope with future attacks by hedge funds. Moreover their bonds have become highly dependent on propping up the US dollar.
In South America, the challenges to the IFIs and to neoliberal market policies have led to the election of several progressive governments and effectively killed off the US-backed Free Trade Agreement of the Americas. Meanwhile countries like Brazil, Argentina and Venezuela have reduced IFI influence by paying off their debts to the Institutions. Venezuela’s proposal for a Bank of the South has the potential to threaten Northern dominance by taking money out of US treasury banks and Northern banks and create alternative sources of funding, including for people-focused development. It is complemented by the Bolivarian Alternative of the Americas, which seeks to develop alternatives to free trade and to limit foreign investors’ powers. However the proposal suffers from the fact that the region’s main forces are still wedded to export-orientated development, with Brazil largely joining the initiative to block any moves that reduce links with international capital.
Power, Money and Oil
Presenter: Kamil Mahdi
Oil has been central to Iraq’s history and, of course, to the US war and occupation. Whilst US demand continues to rise, Iraq holds 12 per cent of the world’s reserves with only a fifth of its fields properly explored. In the 1960s, the industry was nationalised with transnationals only allowed to act as purchasers or providers of technical services. But profits and financial worth on markets depend on reserves, and the occupation has given them a chance to reverse their losses. US military power backed by IMF conditions on debt relief have required Iraq to introduce a new oil law, which allows private foreign participation tied to contracts guaranteed by international jurisdiction. It also allows regions to compete with each other to award contracts to transnational companies, exploiting divisions within Iraq. The law has been approved without public discussion or transparency and is only being challenged by civil society groups.
Financing Public Services
Presenters: Emanuel Lobina and Dr V Suresh
Privatisation in the 1990s was promised as the solution to the lack of investment in the water sector in the South, yet experience has shown that it has failed to deliver either financially or socially. Major multinationals have been forced to withdraw from many developing countries. However, a public participative model in Tamil Nadu, India has shown that social ownership and good public governance can deliver with much less investment and with the support of Public-Public Partnerships.
More broadly, the need for capital, in particular for infrastructure, can be provided by public lending (which is cheaper than private) or supported by various financial schemes, from municipal bonds to ethical funds. The challenge is then to deliver long-term sustainable public and participative models of water management that have safeguards against changing political climates, corporate misuse of water and privatisation by stealth.
Presenter: Pauline Tiffen
Social investment has exploded as a phenomenon in recent years, from dotcom philanthropy to the explosion of “ethical” investment funds. With this success comes the danger that the essence of good social investment will be lost, the key to which lies socially structured organisations. The best Fair Trade organisations generate financing that enables participation in the global market, limits expectations of return, includes ownership by farmers and creates long-term links and exchange with consumers. Many funds and banks that have appropriated social investment contain none of these elements, however. Instead, they promote corporate practices and attitudes that undermine social ventures. The challenge is to create new models that avoid commodification and will work in the long-term.