Posts Tagged ‘tax evasion’

Corruption myth flipped but still lands butter side down

“Many international development organisations hold that persistent poverty in the Global South is caused largely by corruption among local public officials. In 2003 these concerns led to the United Nations Convention against Corruption, which asserts that, while corruption exists in all countries, this ‘evil phenomenon’ is ‘most destructive’ in the global South, where it is a ‘key element in economic underperformance and a major obstacle to poverty alleviation and development’.

There’s only one problem with this theory: It’s just not true.”

So says Jason Hickel. He explains:

“According to the World Bank, corruption in the form of bribery and theft by government officials, the main target of the UN Convention, costs developing countries between $20bn and $40bn each year. That’s a lot of money. But it’s an extremely small proportion – only about 3 percent – of the total illicit flows that leak out of public coffers. On the other hand, multinational companies steal more than $900bn from developing countries each year through tax evasion and other illicit practices.”

It is a good point, but here’s the thing: it’s not necessarily the amount of money stolen that matters. Since most of this money is stolen from government coffers this only materially harms a citizen of that country if the government would otherwise have spent the money on services to them. Round here, however, most people are pretty cynical; the government mostly spends money on itself (legalised corruption if you like) and is often pretty useless at actually delivering useful services.

But, as anyone who has spent significant time in the least developed countries will tell you, the bigger problem is the all pervasive, endemic petty corruption. I would wager that economic underperformance happens not so much because some official stole some money from the government, but because someone could not register their business without paying a bribe that they cannot afford; others die or are maimed in road accidents because the police accept small bribes on a daily basis to look the other way; the list goes on … I have no figures to back up this assertion, so could be wrong, and obviously some thievery does have direct economic consequences if it means a new road or power plant is not completed. On the other hand how many business investment opportunities are foregone with investors are put off by their inability to enforce basic contracts due to a justice system that is always on sale to the highest bidder?

Dr Hickel’s moral outrage is well directed. The scale of tax evasion by multinationals is truly disgusting. But it does not detract from the importance of developing country governments putting their own houses in order, and it would be a shame if the crusade against international tax evasion served as a fig leaf for inaction domestically. Alas I doubt a UN Convention will help much with that; real reform will only come when the citizens of these countries demand accountability for themselves.

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