Developing countries need justice not charity. Researchers have found that trillions of dollars are being spirited away from developing countries – with the OECD’s leading nations, financial centres and banks colluding in the charade.
The relationship between north and south, or the wealthy nations of the OECD and the developing world is characterized by huge disparities in wealth and poverty, as well as significant differentials in health and education outcomes. Today more than £102bn ($125bn) of aid flows from north to south each year a gesture of good will and support assistance to help poorer countries close the gap. But it all is not entirely as it appears.
The American Global Financial Integrity (GFI) and Norway’s Centre for Applied Research (at the Norwegian School of Economics) has published an interesting paper that turns conventional wisdom on its head.
After accounting for all of the financial transfers and resources between rich and poor nations, and including foreign investment and trade flows, but also workers’ remittances, debt cancellation, capital flight transfers, the surprising result is that rich countries gain much more from developing nations than previously thought.
2012 was the last year of recorded data. In that year developing nations received a total of $1.3tn, including all aid, investment and overseas income. In the same year $3.3tn flowed the other way. Poor countries are paying a staggering $2tn more back into the OECD. And, if we look back to 1980, this figure reaches a cumulative total of $16.3tn – or more or less the entire GDP of the USA. Rich nations do not support the developing world, they depend on it.
Since 1980,developing countries have forked out over $4.2tn in interest– putting aid that they received during the same period in the shade. Repatriated profits from conglomerate’s overseas investment also represents a significant proportion of the $16.3tn. However, the biggest culprit is unrecorded capital flight- often illicit income, spirited away to pay fake invoices and ending up in offshore havens. GFI estimates this represents a whopping $13.4tn of lost value for developing countries. But if you add services, this figure could be as much as $3tn – 24 times the total aid budget. This lost revenue strips developing nations of an important source of revenue for development accounting for 24 times the total international aid budget. Imagine what you could do with that?
So how do you fix that? Prohibiting tax havens could solve the problem overnight. There are 60 dotted over the world. Some are controlled by OECD nations. The EU has Luxembourg and Belgium, and Switzerland on its borders, whilst the Americans have Delaware. The biggest network of tax havens is run out of London, and falls under the British Crown Dependencies.
Developing countries need justice not charity. What does justice look like? Well it’s clear it may not be appealing to the bankers who have for so long benefited from this charade. Here is a list of just solutions to tackle the issue;
1. Write off developing nation debt
2. Close down the secrecy jurisdictions
3. Penalize bankers and accountants facilitating illicit outflows;
4. Eliminate the incentive to offshore by imposing a global minimum corporate income tax