May 02 2011

What would Treasure Islands say about Bin Laden?

Posted by: Nick Shaxson in: Thoughts

I suppose I ought to write something about Osama Bin Laden today.  I think this new AFP story gives me my angle.

“Pakistan is defying mounting Western pressure to end a giant tax dodge with fewer and fewer people contributing to government coffers, spelling dire consequences for a sagging economy.

Tax is taboo in Pakistan. Barely one percent of the population pays at all, as a corrupt bureaucracy safeguards entrenched interests and guards private wealth, but starves energy, health and education of desperately needed funds. Less than 10 percent of GDP comes from tax revenue — one of the lowest global rates and worse than in much of Africa, say economists.”

This, after all, comes down to governance. The old ‘no taxation without representation’ argument still holds, including in Pakistan.

Provide wealthy élites with offshore impunity – they can stash their money in secret, overseas – and you will start to get what looks like a failed state. With such a low tax ratio, the country has to be propped up by foreign aid. Which annoys a whole lot of people in Pakistan, especially as a lot of that aid comes from the United States.

The IMF and World Bank, which dispense advice on this subject, have for years shied away from getting countries to take this stuff seriously. Fortunately, there are early signs of possible change here – see this, for example. We have been seeing useful comments in this respect from the likes of Hillary Clinton:

“This is one of my pet peeves: Countries that will not tax their elites but expect us to come in and help them serve their people are just not going to get the kind of help from us that they have been getting . . . Pakistan cannot have a tax rate of 9 percent of GDP when land owners and all of the other elites do not pay anything or pay so little it’s laughable, and then when there’s a problem everybody expects the United States and others to come in and help.”

(and these comments, in turn, bring some interesting questions to the fore.)

If we got really serious about the proper role of tax in a functioning state, and took the problem of tax havens seriously, we would have a better crack at tackling the factors underlying all the anger that’s out there. It’s obvious really.

I will finish this with some slightly more specific details about this, from a fairly recent academic book on the subject:

“Taxation is the new frontier for those concerned with state-building in developing countries.

The political importance of taxation extends beyond the raising of revenue. We argue in this book that taxation may play the central (their emphasis) role in building and sustaining the power of states, and shaping their ties to society. The state-building role of taxation can be seen in two principal areas: the rise of a social contract based on bargaining around tax, and the institution-building stimulus provided by the revenue imperative. Progress in the first area may foster representative democracy. Progress in the second area strengthens state capacity. Both have the potential to bolster the legitimacy of the state and enhance accountability between the state and its citizens.
. . .
This idea is largely missing from the new scholarship on state-building. It is also largely missing from the practical concerns of those working in the aid community. The lack of attention to the relationship between revenue-raising and governance is surprising, especially given the long-standing linkage between taxation and governance assumed by students of European and American history.

Just sayin’.

one comment

Jon Frate 5nd May, 2011 10.21 pm

Hilary Clinton is wrong, and so are you for repeating her lies.

The reason the United States comes in with their ‘aid’ is not to help the people, but to transfer public American funds into private American profits through tied-aid.

$1 of American ‘aid’ goes to Pakistan or Haitian rural water purification projects. Those projects are compelled to have American decision makers who have solicit RFP’s from American vendors. Naturally the price set by the vendors are not market competitive, often they’re inflated, ‘cost plus’ or worst pure extortion.

Said aid is then spent on securing the water purification systems, which are operated by local front men who skim some of the profit along the way.

In the end, aid dissapears, there’s no clean water, nobody does work.

WORST STILL, repeat the above process through IMF loans, and you realize how criminal the whole process is. And it’s pretty much the pot calling the kettle black when Hillary Clinton stands up to preach to Pakistan et al.

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