Sea change moments and tax justice

Richard Murphy has drawn our attention to a blog by Andrew Baker at the Sheffield Political Economy Research Institute addressing the question of whether the opportunity for change opened up by 2007/8 financial market crash has been wasted.  Since this is a question we are frequently asked these days, the blog is well timed, and Andrew Baker does well to frame the issue in terms of the extraordinarily weak political response to the catastrophic failure of the financial markets.  As Dr Baker notes:

Politicians across the advanced world – from whom any new grand co-ordinating narrative must surely come – have shown themselves to be either incapable of, or largely uninterested in, developing new ideas and discourse about the lessons of the crash in ways which draw on and connect to the lessons learned by technocrats.

Indeed.  This has also been our experience (with a few, very few, honourable exceptions), but we have also seen a rising tide of public awareness of, and public engagement on, tax justice issues that pre-crash were, at best, regarded as marginal issues or, at worst, dismissed as running counter to the prevailing ideologies. Baker briefly probes what has prompted change, and what hasn't.

"These ideational changes share common features. One is that all of these ideas ran contrary to prevailing sentiment and were unpopular ideas cursorily rejected by powerful interests and leading policy makers during the boom of the 2000s. In each case, the financial crash and its fall-out have resulted in renewed interest in these approaches, followed by their acceptance by leading governments.

Another is that the pressure for each of these changes came primarily from technical experts. In the macro-prudential case, it was a combination of officials from the Bank for International Settlements, national central bank officials, and a range of private sector and academic economists. In the case of the MAP, it was primarily finance ministry and IMF officials, with some central bank involvement. In the tax case, the arguments in favour of a new approach were mainly developed by the Tax Justice Network, comprised of a former Jersey tax official turned whistle-blower, a professor of accountancy, a professor of law and a chartered accountant turned campaigner, leading to the conversion of key OECD officials and eventually resulting in support from G8 and G20 governments."

Increased public awareness, and anger at austerity programmes, has done much to propel the tax justice agenda from the margins to the centre of discussion at this year's G8 and G20 summits, and while the blog is correct in stating that in the case of the tax justice agenda it experts have played a central role in pushing for change, there is no doubt that the global civil society movement now engaged on tax justice issues has also played a major and growing part in taking our demands to the streets, and in building up a broader base of expertise too.

The big question now is how can we overcome the failure of supposedly progressive political parties in major finance dominated countries, like the U.K. and U.S.A., to engage on the tax justice agenda.  As Baker asks:

Why is democratic politics, and the political leadership of major political parties, seemingly failing in this endeavour, and how can this be overcome?

We would argue that, particularly in the case of the U.K., democratic politics have been side-lined by the malign effects of the Finance Curse:  in the same way that the oil and gas economies of the Middle East and both west and north Africa have been afflicted by the Resource Curse, countries that host an over-sized finance sector find themselves dependent on that sector as Dutch Disease effects harm other exporting sectors and attract the brightest and best away from productive activities into the higher paid jobs in the wealth-extracting finance sector.  Worse, political funding, revolving doors, and an unhealthy proximity between Big Finance and senior politicians, leads to comprehensive state capture, in much the same way that Big Oil has captured political processes elsewhere.

Our answer, therefore, to Baker's question about how to overcome the failure of democratic processes to address the issues raised by the financial crisis, lies with opening up a broader debate around the implications of the Finance Curse.  Politicians now need to recognise that a development strategy based on an ever-expanding financial sector will undermine prospects for maintaining a balanced and diversified productive economy, and will harm overall growth.  If they seek the latter, they should take effective measures to roll back the short-term rent-seeking activities of the finance sector and get banks to engage in the far harder task of nurturing productive activities.

Read more about the Finance Curse here (update 2014: see TJN webpage here).  And read Andrew Baker's blog here.