Poor nations ‘deprived of billions as half of investment is chanelled through tax havens’

Report says one single transaction could have provided every Indian primary school child with a subsidised meal for a year if it been taxed fully

Some of the world’s poorest countries are missing out on billions each year due to investors chaneling money through tax havens before it reaches them, according to a charity report.

In How Tax Havens Plunder the Poor ActionAid claims that almost half of all money invested in developing countries goes through tax havens, with the money lost equating to three times that amount they receive in aid each year.

Mike Lewis, ActionAid’s tax expert who carried out the research, said: “As we have seen with recent cases like Google and Amazon, tax avoidance is a huge issue here in the UK.

“But evidence shows that poor countries are losing even more from tax avoidance, and are least equipped to protect fragile public revenues.

“Developing countries are being deprived of billions of dollars of tax revenue by wealthy corporations and investors using secretive tax havens.

“Tax havens are one of the main obstacles in the fight against global poverty.

“Their secrecy and harmful tax regimes leach money out of developing countries that could be used to end hunger and provide hospitals, schools and clean water.”

The charity reported that one single transaction through UK-linked tax havens would have supplied India with $2.2 billion in tax had it not taken place offshore.

The sum is almost enough to provide every Indian primary school child with a subsidised midday meal for an entire year.

In another case, a major mining firm is reported to get 84 per cent of its revenue from Africa but has just four of its 81 subsidiaries registered in African countries, and 47 registered in tax havens.

The report comes shortly before the G8 Summit in June when world leaders, including David Cameron, have an historic opportunity to call time on tax havens.

The UK is responsible for one-in-five global tax havens, more than any other country.

G8 countries are collectively responsible for 40 per cent of tax havens.

Research by ActionAid shows that 98 of the FTSE 100 companies use tax havens, showing the high involvement of British companies.

Source: The Independent


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Europe and the US should heed Latin America on drugs – Guardian editorial

It’s time to engage with Latin America and pursue alternatives to the present policy

You wouldn’t know it from listening to UK officials but a game-changing debate is taking place in the Americas about the war on drugs. There is a growing belief that the current punitive-based approach has failed. It has visited a savage level of violence on Latin America as narco cartels, moving cocaine and cannabis into the US, have butchered and bribed their way through the continent. The killing and corrupting of public officials – judges, police, politicians – threatened, and still threatens, to demolish the institutions of those states.

Those countries are now asking uncomfortable questions of the US and Europe, such as, why do we suffer so much in trying to prevent cocaine and cannabis leaving our countries in order to reach those markets where they are mostly consumed? There is near-unanimous agreement in Latin America that the war on drugs has failed.

A year ago, at the Summit of the Americas in Colombia, regional leaders, including Barack Obama, agreed to commission a study on drug policies and to recommend options. The report was delivered last week by the Organisation of American States (OAS), which includes all 35 North and South American countries. As we report on other pages, the report provides an evidence-based approach to rethinking the drugs war. It sets out different scenarios, including legalised, regulated markets, and provides a stimulus to debate new approaches. It also challenges America and Europe to engage with the new mood in Latin America.

Those countries are increasingly vocal in their determination to reset the war on drugs.

There are clear signals that one or more may unilaterally opt out and stop prosecuting those who pass drugs through their country. It is time for Europe and the US to join a conversation that has gained real momentum. If they leave it much longer, there is a danger no one in Latin America will be listening.

Source: The Guardian


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Young and poor hit hardest as UK cuts widen inequality, says OECD

Senior analyst says coalition has chosen policies likely to ‘fall on the back of the poor population groups’

The OECD has warned that Britain faces rising levels of inequality by pursuing austerity polices that are widening the gulf between rich and poor.

In a report examining the developed world’s response to the global slowdown, the thinktank warns that the “financial crisis is squeezing income and putting pressure on inequality and poverty” across the board.

It says that income inequality in the UK “remained pretty steady” between 1995 and 2007 but jumped during the first three years of the recession.

A fresh analysis shows that in 2010, the disposable income of the top 10% of UK households was an average £53,600 a year – 10 times higher than the bottom 10th, which survived on just £5,300. Five years earlier the ratio was closer to 9:1. In Europe only Greece, Italy and Spain appeared more divided societies after the first three years of the crash than the UK.

“The concern is inequality will rise much more once the full impact of public spending cuts is felt,” said Michael Förster, senior analyst at the OECD social policy division.

Förster said that in the UK the coalition had chosen policies that were likely to “fall on the back of the poor population groups”. By attempting to prune back welfare directed at poorer people, such as housing allowances, he warned, inequality will rise in the short term.

Förster argued that proponents of austerity defended the strategy on the grounds that more people will get jobs eventually – and help reduce inequality in society. “The theory is that in the medium term more people will go into the labour market and this low-wage employment will help equalise household incomes,” he said.

However this has only worked in one country in recent years – Germany – and that was unique, Förster said. “Germany had the benefit of a weak euro and high exports and also a model of social partnership where trade unions were always at the table, asking for very modest wage increases. But both these elements are not there in Britain.”

He warned that austerity would “not be enough” to make Britain more equal, pointing out that among 18 to 25-year-olds poverty rose by more than a percentage point annually during the first three years of the recession. Only young people in Estonia, Spain and Turkey fared worse. The report says the old have been protected while the young fall back: “On average, elderly poverty fell by almost 20% across OECD countries. In fact, children and youth now face larger levels of poverty than the elderly, on average.”

Source: The Guardian


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Climate change: swift political action can avert a carbon dioxide crisis – Observer editorial

Carbon dioxide levels have reached an all-time high. But there is some hope if governments take the figures seriously

The news that concentrations of carbon dioxide in our atmosphere reached a level of 400 parts per million last week might not appear to have immediate significance. The level is only a couple of units higher than last year, after all. Yet the development has undoubted importance.

With the realisation that carbon dioxide levels have achieved that symbolic 400ppm figure, it is now clear that two decades of warnings from scientists have fallen on deaf ears and that our leaders have failed completely to curtail rising outputs of greenhouse gases across the world. Indeed, they have allowed them to accelerate.

In the 1960s, levels rose at 0.7ppm a year. Today, they rise at 2.1ppm, as more and more nations become industrialised and increase outputs from their factories and power plants. As a result, the most conservative of scientific calculations suggest Earth now faces a 50-50 risk of a 2C rise in global temperatures by the end of the century. In fact, most researchers now believe the increase is more likely to reach 3 to 5C. Spreading deserts, rising sea levels and increasingly erratic violent storms look destined to blight our planet.

Earth has not had 400ppm of carbon dioxide in its atmosphere for millions of years. When it did, the Arctic was ice-free and sea levels were 40 metres higher. Our species has therefore never lived in a world that will be as hot as the one we are creating for our children and grandchildren. Civilisation rests on the happy fact that since the last ice age, the planet’s climate has been cool and stable, giving ancient farmers a chance to experiment with the growing of grasses and plants and so create the crops that now sustain billions of humans. All that is set to change, as temperatures rise, deserts extend and life-sustaining weather patterns are disrupted. Hundreds of millions of people would then be rendered homeless.

It is an apocalyptic vision. Yet it is not quite our destiny. There are signs from China and the US – the two nations responsible for most of Earth’s carbon dioxide output – that they are beginning to appreciate the dangers. American carbon dioxide outputs have dropped while China recently acknowledged it could not sustain its current levels of industrialisation without giving greater consideration to the environment. Equally, there are signs that low-carbon technology – new generation wind, tide and wave devices and carbon capture and storage systems – is beginning to be adopted in many nations. Given time, renewables could wean us from our oil, gas and coal dependency, cut carbon outputs and, in the process, give Britain an industrial boost. With our North Sea oil expertise and high winds and strong seas, we have the perfect credentials for developing a healthy, low-carbon power industry.

The problem is time. The government continues to send mixed signals about its commitment to renewable energy and so deters investment. A lull in outputs is now badly needed. If politicians can be made to understand that message and act at last, we have a chance. Hence the importance of highlighting the 400ppm figure reached last week.

Source: The Observer


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Bahrain Online founder Ali Abdulemam breaks silence after escape to UK

Bahrain blogger has been in hiding since being sentenced in absentia in 2011 to 15 years in prison for ‘plotting a coup’

On 18 March 2011 – in the middle of the Arab spring – the home of the prominent Bahraini blogger and human rights activist Ali Abdulemam was raided by security forces, along with those of fellow protesters who had taken to the streets to call for reform.

Abdulemam was not at home.

But a few months later, while on the run, he was tried in absentia by a military court and sentenced to 15 years in prison for “plotting a coup”.

In hiding ever since, he arrived in the UK a month ago, after a dramatic escape from Bahrain. In his first engagement since disappearing from public view, Abdulemam will speak next week at the Oslo Freedom Forum.

Now, he has broken his silence for the first time to speak to the Guardian, describing his treatment and his two years in hiding before being smuggled out of Bahrain in a secret compartment in a car. From Saudi Arabia, he went to Kuwait by land, where fishermen smuggled him into Iraq.

Aged 35, the former internet technology engineer with Gulf Air – who was fired for his high-profile activism – has not been able to contact his wife or his twin daughters since leaving Bahrain.

“I have just been waiting for the moment I could be reunited with them,” he said in his first newspaper interview since re-emerging.

It is a story that demonstrates the continuing human rights crisis in Bahrain and the price paid by those who have dared to stand up against the regime. Although victims of violations in a state ruled by a royal family from the Sunni minority have mainly come from the country’s majority Shia Muslim population, groups such as Amnesty have reported that anyone who expresses opposition to the ruling family is at risk of arrest, ill-treatment or other abuses.

Abdulemam launched the Bahrain Online blog in 1998, but began writing under his own name in 2001 amid promises of reform in the Gulf monarchy.

“I started using my own name because I wanted people to know it was a real person, a real activist behind it. I wanted to encourage people to think about reform and human rights,” he said.

Attacked by the local media, who called for his arrest for “encouraging sectarianism” and “insulting the king” – charges he adamantly denies – he was first arrested in 2005. “They accused me of spreading false news.”

However, his real problems began in 2010, in the runup to the Arab spring.

During a government crackdown on activists ahead of parliamentary elections, Abdulemam was summoned to the offices of the National Security Apparatus, which announced the next day he had been arrested while trying to flee to Qatar. His website was shut down on the same day.

According to Human Rights Watch: “The next Mr Abdulemam’s family heard of him was from a government news agency’s story, reporting that prosecutors were questioning Mr Abdulemam in a ‘terrorist network’ investigation. Mr Abdulemam, the account continued, had been ‘diffusing fabricated and malicious news on Bahrain’ and receiving funding from a London-based ‘terror mastermind’.”

None of this was true.

In any case, hHe did not find out the charges against him for weeks, during which time he says he was tortured and abused, and told to sign a false confession. “They said I was part of an organisation planning to bring down the state,” he told the Guardian from an undisclosed location in the UK.

“They didn’t tell me the charge until two days before my court appearance. I was not allowed a lawyer and when I tried to speak the prosecutor would not accept my answers.”

Held for five and a half months with other activists, he was released in February 2011 amid mounting demonstrations in the capital Manama calling for reform and the release of political prisoners that led Bahrain’s royal family to briefly attempt to negotiate an end to the political crisis.

“We had no access to the media but the authorities arranged visits for us and one of the people held with me saw in a newspaper that we were going to be released the day before. They let me go at midnight.” By 3pm the next day he was at Manama’s Pearl roundabout – the focus of the protests – and joined the demonstrations every day until police came for him again three weeks later.

“They raided my house again two days after martial law was announced, after Saudi forces came into Bahrain.”

He was not at home that night. It was the last time he saw his wife and children.

Now he feels that the world is ignoring the situation in Bahrain. “It is not that the world has forgotten Bahrain. The west and the international community has turned its back on us.

“People have died in jail. Our mosques have been damaged. People have been shot in the street. There is no justice. You see their blood in the road. The west’s response is that they see good reforms. But the reality is that people have no human rights. No civil rights.”

Source: The Guardian

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Watch out, George Osborne: Smith, Marx and even the IMF are after you

When even the IMF’s free market ideologues recoil from the UK chancellor’s austerity politics, democracy itself is at stake

George Osborne and his Treasury officials are gearing up for a fight. They’ve promised to make life difficult for the other side for the next two weeks. The unlikely opponents are the team of economists visiting from the IMF for a regular policy review.

Why has this routine meeting, which would hardly be noticed outside professional circles, become a confrontation? Because the IMF has recently dropped its support for the chancellor’s austerity policy and repeatedly urged him to rethink it. It even said he was “playing with fire”in refusing to change course.

This is an astonishing development. For in the past three decades the IMF has been the standard-bearer for austerity. Back in 1997 it even forced South Korea – with an existing budget surplus and one of the smallest public debts in the world (as a proportion of GDP) – to cut government spending. Only when the policy turned what was already the biggest recession in the country’s history into a catastrophe, with more than 100 firms going bankrupt every day for five months, did it do an embarrassing U-turn and allow a budget deficit to develop.

Given this history, being told by the IMF to go easy on austerity is like being told by the Spanish Inquisition to be more tolerant of heretics. The chancellor and his team should be worried.

If even the IMF doesn’t approve, why is the UK government persisting with a policy that is clearly not working? Or, for that matter, why is the same policy pushed through across Europe? A certain dead economist would have said it is because the government is “in reality instituted for the defence of the rich against the poor“. Dead right.

Current policies in the UK and other European countries are really about making poor people pay for the mistakes of the rich. Millions of poor people have lost their jobs and the support they received through welfare, but how many of those top bankers who caused the crisis have suffered – except for a cancelled knighthood here and a partially returned pension pot there? If anyone has suffered in the financial industry, it is its poorer members – junior analysts who lost their jobs and tellers who are working longer hours for shrinking real wages.

In case you were wondering, it wasn’t Karl Marx who wrote the words that I quoted above. He would have never put it so crudely. His version, delivered with typical panache, was that the “executive of the modern state is but a committee for managing the common affairs of the whole bourgeoisie”. No, those damning words came from Adam Smith, the supposed patron saint of free-market economics.

To Smith and Marx, the class bias of the state was plain to see. They lived at a time when only the rich had votes (if there were elections at all) and so there were few checks on the extent to which they could dictate government policy.

With the subsequent broadening of suffrage, ultimately to every adult, the class nature of the state has been significantly diluted. The welfare state, regulations on monopoly, consumer protection, and protection of worker rights are all things that have been established only because of this political change. Democracy, despite its limitations, is in the end the only way to ensure that policies do not simply benefit the privileged few.

This is, of course, exactly why free-market economists and others who are on the side of the rich have been so negative about democracy. In the old days, free-market economists strongly opposed universal suffrage on the grounds that it would destroy capitalism: poor people would elect politicians who would appropriate the means of the rich and give handouts to the poor, they argued, completely destroying incentives for wealth creation.

Once universal suffrage was introduced, they could not openly oppose democracy. So they started criticising “politics” in general. Politicians, it was argued, would adopt policies that maximised their chances of re-election but damaged the economy – printing money, handing out favours to powerful monopolies, and increasing social welfare spending for the poor. Politicians needed to be prevented from making important policy decisions, the argument went.

On this advice, since the 1980s, many countries have ring-fenced the most important policy areas to keep politicians out. Independent central banks (such as the European Central Bank), independent regulatory agencies (such as Ofcom and Ofgem) and strict rules on government spending and deficits (such as the “balanced budget” rule) have been introduced.

In particularly difficult economic times, it was even argued, we need to insulate economic policies from politics altogether. Latin American military dictatorships were justified in such terms. The recent imposition of “technocratic” governments, made up of economists and bankers who have not been “tainted” by politics, on Greece and Italy comes from the same intellectual stable.

What free-market economists are not telling us is that the politics they want to get rid of are none other than those of democracy itself. When they say we need to insulate economic policies from politics, they are in effect advocating the castration of democracy.

The conflict surrounding austerity policies in Europe is, then, not just about figures on budget, unemployment and growth rate. It is also about the meaning of democracy.

As José Manuel Barroso, the president of the European commission, has recently recognised, the policy of austerity has “reached its limits” in terms of “political and social support”. If European leaders, including the British chancellor, keep pushing these policies against those limits, people will inevitably start asking: what is the point of democracy, when policies serve only the interest of the tiny minority at the top? This is nothing less than crunch time for democracy in Europe.

Source: Ha-Joon Chang in The Guardian


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The Layman’s Case Against Austerity

By Stephanie Kelton. Cross posted from New Economic Perspectives

Steve Kraske of The Kansas City Star recently interviewed me for a piece about austerity.  The story ran in today’s paper. It doesn’t provide much depth (unlike bloggers, journalists have strict space constraints!), so I followed up with a few comments on the Star’s website.  I thought I’d share them here, since I’m always trying to improve the way I communicate these ideas with non-economists.  So here’s my best effort to make the anti-austerity case in simple terms.

1. When we allow our economy to operate below full employment (as now), we are sacrificing trillions of dollars in lost output and income each year. We can never go back and recover it.  It is gone forever.  You’ve seen the debt clock?  Here’s the lost output clock.

2. Capitalism runs on sales. In survey after survey, we find that the Number One reason businesses are slow to hire and invest in new plant & equipment is a lack of demand for the things they produce.  Businesses hire and invest when they’re swamped with customers.  See this story in The Wall Street Journal.

3. The two decades after WWII certainly aren’t the only time that robust growth reduced the DEBT/GDP ratio.  During the late 1990s and early 2000s, the economy grew at an above average clip.  Unemployment fell to 3.7%.  Inflation remained modest.  There was a job vacancy for every job seeker in America — genuine full employment.  Because people were working, there was less spending to support the unemployed (food stamps, unemployment compensation, etc.) and more people paying income taxes. The deficit disappeared, and the national debt fell to around 40% of GDP.  So you do not need post-WWII conditions to support the argument that economic growth is the way to reduce the debt.

4. The debt/GDP ratio falls when the denominator grows faster than the numerator.  Right now, just about everyone is fixated on using austerity (raising taxes and slashing spending) to reduce the numerator (DEBT).  The problem, as Europe has kindly shown us for years, is that austerity “works” by crushing incomes, which in turn crush sales (or what we call GDP).  So instead of bringing the ratio down, austerity hampers growth, which causes deficits and debt loads torise.

5. Although virtually no one bothers to mention it, the deficit is currently falling at its fastest pace since the end of WWII.  Yes, right now in America, even before the sequester, the deficit was plummeting at a scorching rate.  Why?  Because the economy was recovering from the Great Recession.  Unemployment was falling and growth picked up to around 2.5 percent.  When people get jobs, they earn wages/salaries, pay income taxes and stop collecting unemployment.   

6. Policymakers on both sides of the political aisle are moving us in the wrong direction. The fiscal cliff and the sequester both impose austerity (tax increases and spending cuts) at a time when there are vast unused resources (labor, raw materials, excess capacity in our factories) and inflation is running below the Federal Reserve’s target.  These are exactly the wrong policies and they will hurt the economy.

7.  Saying that austerity is bad policy ≠ saying government needs to spend more money.  Businesses need customers, but the government does not have to be the one doing the buying.  We have been advocating a full payroll tax holiday (extended to the employee and the employer) for 5 years now.  That amounts to a 6.2 percent across-the-board cut in the wage bill, and the addition of almost $300/month to the take-home pay of the average worker.  Businesses need customers, and customers can be created by leaving more money in the hands of those who work for a living.  

8. We have a serious infrastructure problem in this country.  The American Society of Civil Engineers just released its2013 Report Card, and it is ugly. Our ports, roads, waterways, etc. are in serious disrepair.  This makes it more expensive for businesses to produce/ship goods, which raises U.S. prices and reduces our global competitiveness.  Meanwhile, we have millions of out-of-work construction workers and manufacturing workers — the people with exactly the kinds of skills that are needed to repair and rebuild our national infrastructure.  So we have useful work that needs to be done, millions of people who want to contribute and policymakers with no plan to connect the two.  

9. What holds us back?  Fear of the Chinese? Fear of bond vigilantes?  Fear of the ratings agencies?  Fear of becoming the next Greece?  Fear of turning into Zimbabwe?  Fear of sticking our grandchildren with a huge tax bill?  This is what they tell us as they impose austerity.  None of it — I repeat — none of it has the slightest bearing on our reality.  

10.  Final (and most important) point: The United States of America has sovereign money.  The US dollar comes from the US government.  It cannot come from anywhere else.  We can never run out of dollars or be forced into default like Greece, which does not have its own currency.  We do not need to borrow from the Chinese to do the things that we decide to do for our economy.  As long as the real resources (labor, raw materials, factory capacity) are available, the financial resources (money) can always be there.    This can be done without causing inflation as long as the additional spending does not outstrip the economy’s capacity to produce.  We can afford to cut taxes and spend more money to improve our infrastructure without burdening the next generation.  Failing to get the economy back to full employment will burden us all for years to come.


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