Tax Justice: Putting Global Inequality on the Agenda available in Hardcover
- Pub. Date:
- Pluto Press
Tax justice is a massive issue worldwide. Never before has there been so much wealth, and yet even the world's richest countries seem to lack public finances to fund the most basic needs of their citizens. It is a great paradox of our time.
This book argues that global wealth inequalities need to be addressed in order to achieve lasting social, economic development in all countries.
There will simply never be enough finances to provide welfare for all if the rich continue to evade taxes, and large companies shift profits out of poor countries. The authors show how we can develop new forms of international solidarity to tackle this -- and keep wealth within countries that need it. They detail how money is wasted and lost, and how the global finance system ends up taking money away from the areas that need it most.
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About the Author
Matti Kohonen is a sociologist who is a founding member of the Tax Justice Network, where he currently works building a global tax justice campaign.
Francine Mestrum is professor at the University of Ghent, Belgium. She is the author of several books on global poverty, inequality and international financial institutions.
Read an Excerpt
WHY WE HAVE TO FIGHT GLOBAL INCOME INEQUALITY
There should exist among the citizens neither extreme poverty nor excessive wealth, for both are productive of great evil.
A society can be Pareto optimal and still be perfectly disgusting.
Since the international organisations put poverty on the political agenda in the 1990s, little has been heard about inequality. This is quite amazing, since it was the income gap between rich and poor countries that gave rise to the development project after the Second World War. The first UN resolutions on development do not mention poverty, but they do refer to the huge inequalities between developed and underdeveloped countries.
With the new poverty agenda of the World Bank and the human development programme of the UNDP (United Nations Development Programme), both introduced in 1990, people, if not individuals, clearly have become the objects of development. There certainly are good reasons to welcome this shift, since development without benefits for people would be rather meaningless. But one also has to recognise the perfect convergence of this shift with the emergence of a neoliberal agenda that tried to weaken states and deprive them of their economic role. If countries are neither the objects nor the driving forces of development but only have to create an enabling environment and care for the extremely poor, there clearly is a new development agenda and there are good reasons to analyse all its consequences.
One of these consequences is the semantic change in the concept of social development. Poverty is defined in absolute and not in relative terms. The PRSPs (Poverty Reduction Strategy Papers) promoted by the World Bank and the IMF as well as the MDGs of the UN perfectly fit into the liberal agenda. Redistribution is no longer mentioned, while inequalities concern all matters of social life and rarely incomes, and equality of opportunity is the most ambitious objective. There is a global consensus, even with NGOs (non-governmental organisations), to give priority to poverty reduction. Yet, there are no convincing arguments to explain why poverty is more important than income inequality. As I will explain below, there are reasons to believe that inequality is more threatening than poverty and can be considered to be a more urgent global problem.
LEFT AND RIGHT CONVERGING
I can see three reasons to explain the success of this liberal shift. The first is the now dominant (neo)liberal ideology. As an article in The Economist in 20012 put it very well, only 'unjustified' inequalities have to be acted upon. The 1990s is said to have been the most exuberant period of wealth creation in human history and inequality is said to have risen. A dynamic economy needs inequality, but acting for the truly poor is 'a much worthier goal than merely narrowing inequalities'. In any case, the rich 'have their share of troubles', but what gives them pleasure is philanthropy. Lifting people out of poverty is good for society, as is having profitable companies. 'Squeezing the rich too much is in nobody's interest.' There is nothing new in this reasoning. According to Hayek, distributive justice is the road to serfdom; it necessarily leads to the destruction of the rule of law that is coterminous with equal rules for all. Inequality is more readily borne if it is determined by impersonal (market) forces than when it is a result of (political) design. The poor can be helped with a minimum of food, shelter and clothing, sufficient to preserve health and the capacity to work. Every step beyond this destroys freedom. 'A universal potlatch would make a civilized world impossible,' stated Milton Friedman. Poverty reduction, then, is desirable, inequality reduction is not.
The second reason relates to the impatience of development organisations, and especially NGOs. They have always been focusing on poor people, much more than the official development cooperation agencies. And despite considerable economic growth from 1960 to 1980, they have seen little progress for poor people, although all social indicators significantly improved during that period. The poverty agenda of the World Bank and of the UN were welcomed and interpreted as a truly important and holistic shift in development thinking.
A third reason is to be found in the emerging globalisation and the leftwing protests against it. Many social movements with a critical attitude towards globalisation consider the rising poverty as the final evidence of the negative impact of globalisation. However, although the disastrous social consequences of the structural adjustment programmes of the World Bank and the IMF can clearly be seen, the first critical assessments of them never mentioned a rise in poverty, simply because sufficient and reliable poverty statistics did not exist. Since 1990, the World Bank has made a significant effort to make worldwide poverty statistics, and even if serious doubts have arisen concerning their reliability, there is no alternative evidence of rising poverty. Social movements may be right in denouncing the negative consequences of globalisation on people, but there are reasons to believe that workers and civil servants are the main victims, not the already extremely poor rural population. The main victims of globalisation could be the middle classes instead of the poor. From that perspective, globalisation does produce relative poverty, although it does not worsen the situation of the extremely poor. This could explain the improving poverty statistics of the World Bank. According to recent statistics, extreme poverty fell from 40.14 per cent of the population in developing countries in 1981 to 18.09 per cent in 2004.
Whatever the reasons for the shift from inequality and (re)distribution to absolute and extreme poverty, it should be clear that two totally different agendas are concerned. On the one hand we have the development agenda of the 1960s and 1970s as designed by the UN and its new majority of poor countries. Development was supposed to enhance economic growth and social progress; it was a collective project for the modernisation and emancipation of countries and societies. On the other hand, the poverty agenda of the 1990s aims to help extremely poor people and especially women gain access to education and health services, in order to boost their productive capacities. Economic development is left to market forces and free trade is supposed to boost economic growth. (In)equality and (re)distribution are no longer on the agenda.
THE EMERGENCE OF ETHICS
By focusing on poverty and poor people, the (neo)liberal agenda made itself acceptable and gave itself a human face. One of the problems in criticising the social agenda of neoliberalism is that the welfare state, which was developed slowly from the end of the nineteenth century onwards, never had a solid theoretical basis. The most convincing thinkers to defend re-distributional welfare were J.M. Keynes and T.H. Marshall. But social security was mainly a political decision in the light of moral indignation for workers' conditions, the need for a productive workforce and the threat of emerging communism.
Amazingly, the theoretical basis for the poverty agenda is not only given by (neo)liberal philosophers like Hayek, but also by well-intentioned philosophers and economists who have been trying to improve the ethical basis of the current system. Unfortunately, Rawls's and Sen's ethical approaches have in common the limits to equality that are inherent in their theoretical thinking. Equality may be a desirable primary good or a necessary element of individual freedom, but it will only be realised as far as markets allow it to be realised. And markets are not impersonal phenomena but the result of powerful human agency. Consequently, there is a serious risk that they will never go beyond a minimal level of poverty reduction. They cannot solve the political problem. As for Van Parijs's basic income, it does not eliminate the possibility of growing inequalities.
Today, new theoretical approaches are being developed as global ethics. They mainly and rightly point to the necessity of organising some kind of social protection at the global level, but have difficulties in going beyond the poverty reduction policies. These can indeed be ethically founded, whereas truly anti-inequality policies will always be the result of political decisions. The fight against poverty is an ethical imperative, according to the UN. And the members of the G7/8, meeting in Gleneagles or Heiligendamm, fully agree. It should not surprise us that faced with a significant accumulation of wealth of the 1990s, they are the first to defend an ethical globalisation. These ethics perfectly fit with their discourse on the end of ideologies, the efforts to depoliticise social relationships and to dismantle social rights.
THE (RE)EMERGENCE OF AN EQUALITY AGENDA
It would be wrong to state that inequality has completely disappeared from the current political discourse.
In Latin America, the world's most unequal continent, even when poverty is declining, inequality can be rising. The concept has always played an important role in development thinking, and even recent World Bank documents on Latin America recognise its major role in producing poverty.
In recent years, a number of researchers and international organisations have again looked at inequality, even if they do not always link political conclusions to their findings.
The first and major organisation that has to be mentioned is the UNDP. Since it started publishing its Human Development Reports in 1990, it has provided yearly statistics on the growing inequality at the world level. In 1992 it published the now famous glass of champagne showing how the richest 20 per cent of the world's population possess 82.7 per cent of global income, while the poorest 20 per cent have to share 1.5 per cent.
The world's richest 1 per cent of people receive as much income as the poorest 57 per cent. The richest 10 per cent of the US population has an income equal to that of the poorest 43 per cent of the world. Put differently, the income of the richest 25 million Americans is equal to that of almost 2 billion people.
However, despite these shocking statistics, the UNDP never offers political proposals to reduce these income inequalities. It seems as if the examples were just mentioned to encourage all political actors to engage in more solid human development efforts. It is one of several points where the UNDP is found to be slightly schizophrenic.
Statistics are indeed very important. If poverty came on the political agenda before the World Bank had some more or less reliable empirical evidence on it, it seems as if the publication of data on inequality is one of the reasons why it may make a political comeback.
Just as is the case with poverty, there are many different ways to measure inequality, and they are not ideologically neutral. Many researchers have looked at the possible links between globalisation and inequality but come to divergent conclusions. Some find a growing level of inequality among or within countries. Others are more cautious, or state that inequality may have declined worldwide, but that when leaving China and India out of the analysis inequality is clearly rising.
These diverging conclusions are in fact inevitable because there are too few reliable data to measure income inequality, because different measurements are possible and different methods can be used. The lack of data is even worse than in the case of poverty measurements, where 67 countries lack any data and 93 countries lack trend data on the $US 1 a day poverty line. The main differences, however, come from the ideological stance the authors are taking, reinforcing the different values about what constitutes a just distribution of the gains from globalisation.
A first difference concerns the distinction between two very different concepts of inequality, one of which depends solely on proportionate differences in incomes while the other depends on absolute differences. Critics of globalisation will use mainly the second kind of inequality, in order to point to the income gap between rich and poor. When the incomes of the poor and the rich double in size the relative income gap remains the same. However, the absolute income gap then rises sharply, because the income gain is greater for the high-income household. Absolute and relative inequality are two different concepts. The preference for one over another reflects an implicit value judgment.
A second difference relates to whether one can focus solely on how the average gains from growth vary with income. Defenders of globalisation tend to focus on aggregates, while opponents will emphasise the losers among the poor. Growth tends to reduce absolute poverty on average, but that does not imply that growth is always good for the poor. If one person loses and another one gains, the impact will not be seen in the statistics, unless one specifically wants to analyse this kind of churning.
The third difference concerns the inequality between countries and the question whether one should weight countries equally or people equally. This is the issue of interpersonal versus inter-country inequality. Critics of globalisation point to the fact that income disparity has been rising over time. The average income of the richest country in the world was about ten times that of the poorest around the end of the nineteenth century. Today it is sixty times higher. This is correct if one treats each country as one, which means that countries and not people should get equal weight in assessing the fairness of distribution. This is the between-country component of total interpersonal inequality. Another possibility is to look at the within-country inequality. If instead of weighting countries equally one uses population weights then the tendency for rising inequality between countries vanishes. Inequality is even found to be the lowest it has been in half a century. When one looks at the high growth rates of China and India, the two most populous countries in the world, one clearly sees the importance of these differences.
One of the major researchers on inequality, Branco Milanovic, works with three different concepts of inequality. The first is unweighted international inequality. This uses income or GDP (gross domestic product) per capita and disregards population. This type of inequality has clearly been rising over past decades. Milanovic makes a distinction between four groups of countries: the rich ones; contenders, ready to catch up and join the rich club; Third World countries; and Fourth World countries. From the 19 non-Western countries that belonged to the rich club in 1960, only four remained there in 2000. Four new non-Western countries joined the club of the rich, and the group of contenders almost disappeared. Out of the original 22 contenders in 1960, 20 were either in the Third or in the Fourth World group in 2000. The group of Fourth World countries increased from 25 in 1960 to 71 in 2000. This leads Milanovic to conclude that there has been an Africanisation of poverty and a westernisation of wealth.
His second concept is population-weighted international inequality, where one assumes that everyone in a country receives the same income but the number of representative individuals from each country reflects its population size. This assumes that within-country distribution is perfectly equal. Measured in such a way, inequality has decreased in the past twenty years, though it has increased if one takes out India and China.
The third concept treats, in principle, everyone the same, disregarding individuals' nationality. This is no longer an international measurement of inequality but a global one, which goes beyond methodological nationalism. Here we see a sharp increase in inequality between 1988 and 1993. The poorest 5 per cent have lost almost 25 per cent of their real income, while the top quintile has gained 12 per cent. Most of this increase can be explained by the rise of between-country inequality: 50,000 rich people receive as much as 2.7 billion poor people; and 75 per cent of the world population lives with less than the world mean income of $3526 in PPP (purchase power parity) terms.
Excerpted from "Tax Justice"
Copyright © 2009 Matti Kohonen and Francine Mestrum.
Excerpted by permission of Pluto Press.
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Table of Contents
Matti Kohonen and Francine Mestrum
Part I: Visualising the Problems
1: Why we have to fight global income inequality
2: Rationale for World Public Finance: Mapping the tools for social change
Part II: Missing Public Revenues
3: The global financial system and enduring poverty
4: Dealing with Debt
5: Taxing Transnational Corporations
6: The fiscal impact of trade liberalisation
7: Global taxes for public finances in the South
8: Breaking The Vicious Circle: Grand Corruption In Kenya
Alvin Mosioma and Bob Awuor
Part III: Better Public Expenditures
9: The myth of development aid
10: Public finance for global public goods
List of contributors