14 April 2013

This quarter’s stories from the Policy Mags: Bad governance here incentivises bad governance elsewhere.

Having grown bored of the Economist, my regular policy magazine reads are the centre left UK based Prospect (P) and the centre right US based Foreign Policy (FP). Despite their positioning, these magazines are more alike than they think in terms of what they cover and what their writers advocate.

The articles that caught my eye this quarter all revolve around the idea that good enough governance in the poorer countries is dependent, directly or indirectly, on good enough governance in richer countries. This came through in several articles:

• The dwindling number of credit AAA rated European countries (FP). This article by Mohamed El-Erian tells us why this matters for Europe, but this also matters beyond Europe. Why? Economic growth in Europe is an important driver of resource flows to the poorer parts of the world via business investments, remittances, philanthropy and overseas development assistance (ODA). Africa is growing quite rapidly, driven by growing links with China and other countries, and by natural resource discoveries, but it needs a diversity of country partners.

• And on ODA (and not from F or FP) there was a letter from Richard Manning (my boss) in the FT last week which noted the bad behaviour from the Ministers of Finance in the OECD countries reflected in their new overly broad definitions of ODA. No doubt this stretching (and some would say breaking) of the definitions is driven by the difficulty of balancing budgets in the rich industrialised world. Richard, the former Chair of the OECD’s Development Assistance Committee (DAC), concludes his letter (which is behind an FT firewall): “The OECD must put in place a definition of concessionality that reflects the real cost of capital and requires real fiscal effort. It is shocking that the OECD should publish official statistics that allow “different practices” on such a key issue and which make a mockery of its own requirement that loans are concessional in character. It is encouraging OECD finance ministries to get away with murder as they seek to massage reported aid upwards at minimum cost. If the OECD cannot do a professional job on this, the UN should take over the reporting for international aid flows.” Strong stuff. Good stuff.

• You call it corruption, I call it lobbying (FP). A short piece by Ngozi Okonjo Iweala noting rich countries’ double standards when it comes to classifying influencing behaviours in one context as lobbying and in the African context as corruption. She also makes the case that domestic policy is now also international policy, something that even “self-absorbed” countries like the US and Nigeria will begin to realise sooner rather than later.

• Democracy in retreat (FP). An article by Joshua Kurlantzick at the Council on Foreign Relations notes that Freedom House’s democracy index, based on civil and political rights, has now been in decline for 7 years in a row. He assigns this to a growing global middle class which values stability over democracy, a preference only strengthened by the global economic downturn, which of course started in the West. The article says that the US cannot do anything about this because democracy is in retreat in the US too. Kurlantzick doesn’t actually explain what he means, but it reminded me of one of the few things the UK press, currently self absorbed with the death of Margaret Thatcher, can agree on—by taking a position on the issues (love it or hate it) Thatcher at least gave people a choice at the polls.

• Corporate opacity (P). Paul Collier has a lively essay on how more of the $21 trillion sitting in tax havens ($12 trillion from the rich and $9 trillion from the poorer countries) can be subject to tax. His argument is a familiar one: those with the best lawyers and accountants are best able to navigate the rules and loopholes and shift profits (not actual economic activities) to the lowest rate tax havens. And the corporations have vacuumed up all the talent. Through “professional brilliance”, profits, like water in a house, find the lowest level in the financial architecture. This corporate opacity or deliberate lack of transparency stimulates all kinds of corruption in North and South. Solutions? G8 leadership is necessary but not sufficient—solutions require large scale global action, so the G8 cannot do it on their own, but it won’t happen if they don’t act. Make exchange of information on profit switching automatic. Lower evidence thresholds for those who are suspected of acting illegally. Tax Inspectors Without Borders to support national systems. Being struck off professional registers and jail sentences (not fines) for violators.

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