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Thomas Pogge: How Are Human Rights and Financial Transparency Connected?

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May 18, 2015

Thomas Pogge
Global Financial Integrity

In May 2015, Professor Thomas Pogge delivered the keynote address at a conference, titled “Financial Transparency and Human Rights in Africa: Fostering Greater National and Regional Economic Opportunity in Africa through Human Rights and Financial Transparency,” co-hosted by Global Financial Integrity, the Friedrich-Ebert-Stiftung (FES), and the International Bar Association’s Human Rights Institute (IBAHRI) in Johannesburg, South Africa.

A member of GFI’s Board of Directors, Dr. Pogge is the Director of the Global Justice Program and the Leitner Professor of Philosophy and International Affairs at Yale University.

Below are Professor Pogge’s full prepared remarks.

____________________________

As Prepared for Delivery

May 18, 2015

University of Johannesburg
Johannesburg, South Africa

I have only half an hour, so I won’t go all the way back.

Humankind was born here in Africa, some 3 to 4 million years ago. Looking back on its full history, the last 500 years must strike one as a period of fantastic progress. After millions of years of minor meanderings and a few millennia of impressive but finally collapsing civilizations, we have rapidly grown together into a single global culture that is advancing at breathtaking and still accelerating speed. In a single lifetime, human capabilities have been changing beyond imagination: in science, medicine, construction, transportation, weaponry, communications, data processing, and other areas of knowledge, exploration, discovery, invention and endeavor.

When we contemplate these amazing triumphs of human ingenuity from a moral point of view, our glance shifts from the most gifted, educated and privileged individuals in each generation to those consigned to the lowest rungs of human society. Beholding their fate during this great progressive era, we are confronted with similarly astounding horrors: colonial conquests of most of the Earth, with large-scale genocides and enslavement, – wars and massacres on an unprecedented scale, – oppression, plunder, impoverishment and exploitation of a majority of the human population. The more advanced members of our species have continuously abused humanity’s new capabilities to inflict unimaginable suffering upon the majority, thereby further enhancing their own power and superiority.

We are told that, happily, this dark side of the progressive era is now behind us. The former colonies have been transformed into free and independent sovereign states, and we are all now committed to the idea that human progress is to be measured as much by improvements for the disadvantaged as by gains for the elites. Such progress for the less fortunate countries and populations is called “development”. And politicians everywhere proclaim their solidarity with the “less developed” countries – or (more optimistically) the “developing” countries – and are working together to overcome the remaining deprivations.

I must confess that I am skeptical about all this uplifting talk about being “united for development,” about “leaving no one behind,” about our shared dream of “a world without poverty.” To be sure, the rhetoric is real and omnipresent. And governments, intergovernmental agencies, foundations, NGOs and many others are spending a lot of time reiterating their commitments to development at summits and conference as well as in preambles, declarations and working papers. But much of their supposed effort is just smoke and mirrors; and the real-world trend is one of still-increasing inequalities.

You can study the clever use of smoke and mirrors by exploring in some depth what has been the grandest development project thus far, the Millennium Development Goals, adopted in the year 2000 pursuant to a UN General Assembly Resolution. These eight goals are very much in the news these days because they are reaching their target date at the end of this year: 2015. By this date, the world and its individual countries were to have achieved specific targets such as the halving of extreme poverty and chronic undernourishment, and the reduction of under-5 mortality by two-thirds. If the MDGs will be declared a qualified success, this is due to the fact that the international agencies – charged with both their monitoring and their implementation – have, again and again, revised the definitions and measuring methods to produce more favorable trend pictures. Perhaps the most egregious such revision happened just recently, in 2012, when – in the 22nd year of a 25-year development measurement period – the UN Food and Agriculture Organization unveiled a new methodology for counting the chronically undernourished. This “improved” methodology used a perverse definition of chronic undernourishment to transform a steadily rising number of hungry people into a steadily falling trend-line that absurdly shows no trace of the dramatic increase in world food prices toward twin peaks in 2008 and 2011. We know that poor people spend about 70 percent of their incomes on food; and we know that they suffered intensely from the near-doubling in food prices. But, with the FAO’s new method, this suffering is expunged from the official record. After having led a great lament in 2009 over the fact that the number of chronically undernourished people had broken above one billion for the first time in human history, the FAO is now telling us that this number had in fact been one billion already in 1990 and has, since that time, been steadily falling to a mere 800 million today.

On reflection, it cannot be surprising that we are treated to cosmetically enhanced statistics on development. International agencies, the monopoly providers of such statistics, are funded by and beholden to governments, and people in government are, of course, eager to appear successful, eager to show that the institutions and policies of their grand globalization project are working and creating that proverbial tide that lifts all boats. My message to you is: be skeptical, take a closer look, and you will find that the poorer half of humanity has not progressed nearly as much, and is substantially worse off, than the official statistics would suggest.

But there is something else. By contesting the official figures, by showing that progress for the poor has been much less than officially claimed, one is implicitly accepting that progress is what matters. One is implicitly accepting that the important issue is whether and to what extent the world’s poor are developing, are coming to be better off. I think we should be weary even about accepting this as the morally significant issue.

My worry can be put as a question: in assessing the condition of the world’s disadvantaged people, what is the morally appropriate benchmark of comparison? The development discourse firmly guides us toward one answer to this question: the appropriate benchmark is the condition of the disadvantaged at some earlier time: in 1990 perhaps, as the MDGs suggest, or in 1960 or 1830. All these diachronic, historical comparisons tend to make the status quo look good. Even if the disadvantaged have not gained as much as the official statistics proclaim, their condition on the whole has surely improved over time.

Here is another benchmark, which, I believe, is morally far more appropriate. It compares the present condition of the disadvantaged with the condition of the disadvantaged as it could be in our present natural, technological and economic circumstances. The question we should be asking is not: how has the extent of human deprivations changed since 1990? But rather: what part of the serious deprivations present in the world today is truly unavoidable?

Let me make this point vivid by invoking an analogy. Suppose we compared the practice of slavery in 1830 with the practice of slavery in 1800, say, and suppose we found that the condition of slaves had improved: they were better nourished, they were worked less hard, and they were also less often whipped and raped and ripped apart from their families. Would this be reassuring? Would it make us feel better about the practice of slavery in 1830 to know that slavery had been even worse at some earlier time? Perhaps it would, as a psychological matter. But I don’t see why it should. I think the question we ought to focus on is whether slavery as it was practiced in 1830 was justifiable in light of the then-feasible alternatives. Was slavery avoidable or improvable in 1830 and, if so, at what cost? This is the morally important comparison to investigate – not the comparison with some earlier period.

I ask you to make the same judgment about the deprivations people are suffering today. The morally significant issue is not whether such deprivations were even worse 25 years ago. Rather, the morally significant issue is whether such deprivations are today partly or wholly avoidable and, if so, at what cost.

In 1830, the practice of slavery was avoidable at tolerable cost – and slavery ought to have been abolished then, regardless of how much worse the practice may have been in 1800. I think we all agree on this. I am making the analogous point about the deprivations of poverty: they are today avoidable at tolerable cost and therefore ought to be avoided, regardless of how much worse they may have been in 1990.

Speaking about deprivations, we are referring, first and foremost, to unfulfilled human rights. A human right is unfulfilled when its bearer lacks secure access to its object. Looking at the world today, we find that by far the most widely unfulfilled human rights are the social and economic ones as encapsulated in Article 25(1) of the 1948 Universal Declaration of Human Rights: “Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family, including food, clothing, housing and medical care and necessary social services.” Even the official statistics count, of the 7.3 billion people alive today,

  • 805 million as chronically undernourished (FAO, IFAD and WFP, 2014: 8, 11, 40),
  • well over 1 billion as lacking adequate shelter (Rolnik, 2014: 1),
  • 748 million as lacking safe drinking water (Too-Kong, 2014: 47),
  • 1.8 billion as lacking adequate sanitation (ibid: 25),
  • over 1.2 billion as lacking electricity (World Bank, n.d.),
  • more than one-third as lacking reliable access to essential medicines (Nyanwura and Esena, 2013: 208),
  • 781 million over age 14 as illiterate (UNESCO, 2014), and
  • 168 million children (aged 5 to 17) as doing wage work outside their household — often under slavery-like and hazardous conditions: as soldiers, prostitutes or domestic servants, or in agriculture, construction, textile or carpet production (ILO, n.d.).

During the first decade of the new millennium, easily a third of all human deaths were due to poverty-related causes, some 50,000 daily or 18 million per annum (WHO, 2008: 54-59 Table A1).1 For the entire decade, severe poverty killed at least 180 million people, three times as many as perished in the Second World War.

It is worth noting that these same deprivations also entail massive deficits in civil and political human rights. Very poor people are substantially more vulnerable to violence, for instance, because they lack the protection of a secure home and because others — including police and other state officials — can with impunity ignore their needs and even mistreat them. Very poor people also are generally poorly equipped to fend for their legal rights and interests: many of them are physically or mentally stunted due to malnutrition in infancy, many are poorly educated or even illiterate, and most are in addition heavily preoccupied with their family’s survival and thus find it difficult to defend, individually or collectively, their legal rights to political participation and due process. Especially in rural areas, but also in relationships of domestic service, – employers, landowners or local officials find it easy to entrap poor people – often from an early age – in relations of abject servitude and personal dependence, which in turn perpetuates their poverty, often over generations.

We can sum up this information in the conclusion that at least half of all human beings still suffer one or more serious deprivations, and lack secure access to one or more of their internationally recognized human rights. It is clear that this huge human rights deficit is today almost entirely avoidable. This is clear just by looking at the global distribution of household income: The poorest third of humanity has only about two percent, the poorer half merely four percent while the most affluent fifth have over 80 percent. Shifting just two percent of global household income would suffice to end all serious deprivations on our planet. But the actual trend goes the other way, toward ever greater inequality. Less and less of global income is allocated as a reward for labor, ever more of global income goes to reward capital. And capital is becoming ever more concentrated. While the world is celebrating the end of the Millennium Development Goals, humanity is also reaching another, less highlighted milestone: the richest one percent of the human population will soon own over half of all global private wealth. The poorer half, by contrast, owns only 0.7 percent of global private wealth, about as much as the world’s 66 richest individuals.

It is often said that the first-line responsibility for poverty-related human rights deficits lies with the governments of the countries in which severe poverty persists. But most of these governments are also poor. While the advanced industrialized states have annual government revenues in the order of US$20,000 to US$50,000 per person, India has annual revenues of about US$200 per person and many other governments are poorer still. These large international discrepancies are due to two factors: the per capita gross domestic products of poor countries are much smaller; and these countries also raise a much smaller proportion of their gross domestic products as government revenues, typically below 20 percent as compared to an OECD average of well over 40 percent.

It is difficult for poor-country governments to raise income or consumption taxes from the poor majority of their population — such taxes are unpopular, costly to collect and aggravate the very human rights deficits they are supposed to alleviate. But such governments also encounter difficulties in imposing taxes on those who could pay. Through sophisticated efforts, wealthy citizens of these countries, and corporations operating there, escape taxation to an extent that would be unthinkable in an affluent country with political clout and a highly sophisticated and well-funded tax administration. Boston Consulting Group estimates that one third of all private financial wealth owned by people in Africa and the Middle East, and over a quarter of such wealth owned by Latin Americans — some US$2.6 trillion in total — is kept abroad; while the analogous estimates for North America and Europe are 1.8 percent and 7.9 percent, respectively (Boston Consulting Group, 2013: 4, 11). To collect taxes on the income and capital gains produced by this wealth, poor countries must largely rely on the honesty of their taxpayers as they lack access to information about their citizens’ overseas holdings.

Multinational corporations also reduce their tax burden significantly, typically by creating additional subsidiaries in tax havens and then having their poor-country subsidiaries contract with their tax-haven subsidiaries into arrangements that diminish the taxed profits of the former while increasing the untaxed profits of the latter – arrangements involving trade misinvoicing, abusive transfer prices, or inflated consulting or trademark fees, for example (Hearson and Brooks, 2012). Global Financial Integrity estimates that corporate tax abuse accounts for 80 percent of all illicit financial outflows from less developed countries, or about US$6.6 trillion during the 2003–12 period and about US$1 trillion in 2012 alone (Kar and Spanjers, 2014: vii). These illicit outflows constitute 3.9 percent of the GDP of the developing countries (5.5 percent in Africa) (ibid: 11), are larger than incoming total foreign direct investment (ibid: 12) and also vastly larger than the sum total of all official development assistance flowing into these countries, which officially amounted to some US$127 billion in 2012 (UN, n.d). Christian Aid calculates that, through these profit- and tax-diminishing capital outflows, governments of less developed countries have lost tax revenues in the order of US$160 billion annually — or about US$2.5 trillion for the 2000–15 period. “If that money was available to allocate according to current spending patterns, the amount going into health services could save the lives of 350,000 children under the age of five every year” (Christian Aid, 2009: 3).2

Clearly, massive reductions in existing human rights deficits could be achieved by allowing poor countries to collect reasonable taxes from multinational corporations and from their own most affluent nationals, assuming the resulting revenues were appropriately spent.3 One might fault various groups of agents for poor countries’ current inability to do so and for the resulting human rights deficit. There are the secrecy and tax haven jurisdictions (including Switzerland, Ireland, the UK, and the U.S.) that structure their tax and legal systems so as to encourage tax abuse and also typically protect bank secrecy against the tax authorities of less developed countries. There are the individuals and corporations who erode the tax base of poor countries by using tax havens to dodge or reduce taxes on their wealth and profits. And there are a number of bankers, lawyers, accountants and lobbyists who devise, implement and “legalize” these schemes. Moreover, the jurisprudence of the European Court of Justice has made it difficult for countries in the largest integrated economic area on Earth to enact legislation to address some of these concerns.

While all these agents surely share responsibility, it is quite unrealistic to hope that the problem can be meaningfully reduced through their morally motivated self-restraint. Even if many of them could be convinced to desist, their former dirty business would continue to thrive so long as it provides attractive and safe rewards. Realistically, tackling the problem of illicit financial outflows from the poor countries requires concerted action on the part of the more powerful rich-country governments, which currently all-too-often encourage the tax dodging of their multinational companies abroad4 and use strong-arm tactics to get tax havens to cooperate with their own tax enforcement efforts without ensuring that poor-country governments receive similar cooperation.5

The current draft of the Sustainable Development Goals, which will take the place of the Millennium Development goals on the 1st of January 2016, agrees that we should “by 2030 significantly reduce illicit financial and arms flows” (Open Working Group for Sustainable Development Goals, 2014: Target 16.4). But it falls miserably short of recognizing what the most powerful states within the global financial system would need to do in order to accomplish this task. All the draft demands of these most poverful governments is that they “strengthen domestic resource mobilization, including through international support to developing countries to improve domestic capacity for tax and other revenue collection” (ibid: Target 17.1).

The key to reducing the tax gap and consequent human rights deficit in the poor countries is global financial transparency: the abolition of shell companies and anonymous accounts, automatic exchange of tax information worldwide, and the requirement that, in their audited annual reports and tax returns, multinational corporations report their sales, profits and taxes paid country-by-country for each jurisdiction in which they operate.6 Adding such targets to the Sustainable Development Goals would open the door for policy reforms that are essential to curbing illicit financial flows which, by draining less developed countries of capital and tax revenues, are a great impediment to sustainable development. Such policy reforms would advance tax justice and thereby slow the trend to ever increasing economic inequality. In this way, such reforms would protect human rights by securing more resources for the poorer half of humankind. Such reforms would also help protect human rights by curtailing the activities of criminals such as terrorists, money-launderers and traffickers in persons, drugs and weapons.

A major break-through for financial transparency is now within reach. To achieve it, the citizens of the countries that are home to the world’s major financial centers must keep up the pressure on their governments to carry forward the needed institutional reforms and to shape these reforms so that the populations of the poor countries, whose basic human rights are at stake, participate fully in their benefits. And the citizens of the so-called developing countries must pressure and support their governments toward improving their institutions and policies and to beef up their enforcement capacities toward curtailing illicit financial outflows. And they must pressure and support their governments also toward jointly and competently representing their interests in international negotiations, agencies and courts. This huge problem has weighed upon the world’s poor long enough. It is ripe now for change. A persistent effort by experts and activists from South and North is bound to succeed.

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Footnotes:

  1. The figure in the text is derived by counting deaths from causes that occur almost exclusively in the poor countries, such as diarrhoeal diseases, hepatitis, HIV/AIDS, lower respiratory infections, malaria, maternal conditions, measles, meningitis, nutritional deficiencies, perinatal conditions, pertussis, tropical-cluster diseases and tuberculosis.
  2. Intense national and international efforts are underway toward improving current government spending patterns in poor countries, which are often distorted by corruption, bloated security apparatuses and indifference to the poor. Insofar as such efforts are succeeding, additional revenues would have an even larger human rights impact than Christian Aid is calculating.
  3. See also International Bar Association (2013).
  4. Shifting profits out of developing countries would not be so lucrative for MNCs, if their home countries taxed such profits while granting a tax credit for profit taxes already paid abroad. But most such home countries do not do this, allowing MNCs to pocket the taxes they dodge in poor countries as pure profit. The U.S. is an exception by imposing a 35 percent tax on funds that MNCs repatriate from tax havens while granting a tax credit for taxes already paid abroad. But there are ways of getting around this tax. Thus the U.S. Congress granted a “tax holiday” – misleadingly named the American Jobs Creation Act of 2004, which temporarily enabled U.S.-based MNCs to repatriate profits accumulated in tax havens at a discounted 5.25 percent tax rate (Alexander, Mazza and Scholz, 2009: 401-57). A coalition of 93 corporations spent US$282.7 million on a concerted effort to get this Act passed by the U.S. Congress, and these same corporations then repatriated over US$200 billion while realizing a total of US$62.5 billion in tax savings — US$221 for every US$1 they had invested in lobbying. The losses fell mostly on the populations of the less developed countries from which these MNCs had shifted their profits into tax havens; without the prospect of circumventing profit taxes in their home country, MNCs would have little to gain from such profit shifting.
  5. Even the OECD’s new landmark model agreement on automatic exchange of financial information is likely to exclude many less developed countries from its benefits because they lack the resources to set up the data collection arrangements required to qualify as a reciprocating partner.
  6. These are among the key ideas emerging from a recent Delphi study conducted by Academics Stand Against Poverty (ASAP, 2014).

References: