ADDIS ABABA, Ethiopia — Recently, world leaders convened in the Ethiopian capital, Addis Ababa, for the Third International Conference on Financing for Development. The Conference was designed to be a forum where the 193 member states of the United Nations could agree on a development agenda for the next fifteen years.
Remarkably, the conference resulted in a robust set of 17 sustainable development goals designed to eradicate poverty by 2030. However, the international financial system, at least according to one man, might serve as a huge barrier to the success of those goals.
That man is Columbia University professor and Nobel Laureate of economics Joseph Stiglitz. In a recent article in the Huffington Post, Stiglitz sought to temper the enthusiasm of the Conference with some criticisms of the global financial system.
His main argument is that the system is not capable of directing enough funds towards the projects that truly need it. “The problem,” he explains, “is that the world’s financial markets, meant to intermediate efficiently between savings and investment opportunities, instead misallocate capital and create risk.”
The 17 new sustainable development goals are modeled after the now-expired Millennium Development Goals, and are perhaps even more ambitious.
According to the official press-release from the Conference, the goals are designed to tackle “key systemic barriers to sustainable development such as inequality, unsustainable consumption and production patterns, inadequate infrastructure and lack of decent jobs.”
However, Stiglitz does not think that the goals adequately address systemic barriers to development, especially with regards to the taxation and regulation of multinational firms.
He points out that while international policy makers are focused on enabling capital flows and private investment in developing countries, they are not creating a cooperative, equitable system of taxation which benefits aid-recipient countries.
In 2014, the International Consortium of Investigative Journalists released a report, nicknamed the Luxembourg Leaks, detailing the severity of tax evasion undertaken by large multinational firms. Stiglitz argues that “while a rich country like the U.S. arguably can afford the behavior described in the so-called Luxembourg Leaks, the poor cannot.”
That is why he is incensed at a perceived blockage of international tax cooperation during the Conference in Addis Ababa. One of the more contentious points of the conference was the proposed establishment of an international regulatory tax body within the United Nations.
The idea was quickly shot down by OECD countries (particularly the U.S. and U.K.), a group of the top 30 or so advanced economies which currently have the most influence over intentional tax systems.
Stiglitz and his colleagues argue that the current system is neither equitable nor efficient, pointing out that developing countries desperately need the tax revenues currently being stowed away by evasive multinational firms.
The current tax policy, he argues, cannot effectively ensure that they pay their fair share. Furthermore, with the OECD running the show, developing economies have little to no say in shaping the tax and finance policies which directly concern them.
This is not a new phenomenon; at the first International Conference on Financing for Development in Monterrey, Mexico in 2002, the consensus reached included a call to strengthen “the voice and participation of developing countries in international economic decision-making and norms-setting.”
Unfortunately, that doesn’t seem to have panned out during the third conference.
Hopefully, the sustainable development goals will result in a more equitable distribution of international policy-making power between countries who give aid, and those who receive it.
– Derek Marion