Clik here to view.
By putting their own house in order on taxation and transparency the G8 countries can deliver change
Although the G8 has often been used for gestures, it affords a rare opportunity for common action by the governments of major countries. Manifestly, there have been serious deficiencies in global economic governance. By addressing them, the G8 can help not only ourselves, but the people struggling in the world's poorest countries. This has been Britain's agenda as host of this year's G8.
At the top of the agenda has been taxation. Tax co-operation has not kept pace with the internationalisation of business and the innovations of corporate lawyers and accountants. Treaties designed to avoid double taxation now deliver double non-taxation. The resulting tax avoidance reduces fiscal revenues and provides an unlevel playing field for business. At a time of national austerity, it is essential for us to address this problem.
But our problem has been experienced even more acutely by poor countries, where there is a gulf between the capacities of companies and of tax authorities. If all the companies operating in Africa paid reasonable taxes, most countries would no longer need our aid. Closing all the loopholes cannot be done overnight. But this G8 aspires to deliver clear political commitment from heads of government, linked to sustained technical co-operation. The UK is not just holding a meeting; it is launching a revolution in corporate transparency. Governments are being asked to do what it takes to achieve workable common standards.
As countries rise out of poverty, there are better opportunities for business, and many British companies are market leaders. But widespread corruption has plundered poor countries and disadvantaged decent companies. Last month a report by Kofi Annan, the former UN secretary general, highlighted the scale of the problem. It estimated that corporate tax avoidance and money laundering were, in combination, costing Africa more than double its aid inflow. Money laundering has been the getaway car for bribery: this year's G8 aims to do something about it. It has started the process of cracking open the opaque international corporate labyrinth within which the true – "beneficial" – ownership of crooked money has been concealed. As with tax, it will need the combination of political commitment and sustained technical action fully to crack the problem. But the shock wave of G8 attention has already triggered a chain of conversions to transparency in jurisdictions that until now have been havens of secrecy. If you are inclined to dismiss G8 meetings as mere theatre, check the recent commitments to automatic information exchange in Luxembourg, the Caribbean and east Asia.
The commodity booms ushered in a decade of discovery: Britain now has previously unknown potential for gas. But most of the new discoveries are in the poorest countries. This is a huge opportunity, but it carries commensurate risks. The history of resource extraction in poor countries is predominantly one of plunder. Resource extraction companies are not just producers; they are custodians of the natural assets that belong to citizens. Being responsible for other people's assets, they are analogous to banks. We have learned that banks must be regulated to higher standards than ordinary companies, and the same applies to resource extraction.
The global regulation of resource extraction is in its infancy – 50 years behind banks. The G8 is driving catch-up. The key objective of regulation is transparency. In the typical poor country citizens do not trust their governments to handle money, governments do not trust companies to behave honestly, and companies do not trust governments to keep their word. Such pervasive distrust is debilitating: confidence is an essential underpinning of prosperity. Transparency is crucial because it is the basis of building trust: people learn whether their suspicions are warranted.
Yet the G8 countries can only hope to encourage transparency by others if they practise it themselves. Britain, France and the US have now signed up to the standards of the Extractive Industries Transparency Initiative. For the first time by law, companies across Europe, the US and, as of last week, Canada, must report publicly all their payments to governments.
There is also scope for more transparency not just in resource extraction but across government, and not just in poor countries but in the G8. If governments need to know more about citizens, then citizens must know more about government. Information technology is radically lowering the cost of opening government to scrutiny. The G8 can showcase the new opportunities and launch partnerships between rich and poor countries that put them into practice.
Trade is the archetypal process of mutual benefit. But the arteries of trade depend upon infrastructure that in poor countries is utterly inadequate. Western investors have judged it too risky. Meanwhile, China has occupied this space uncontested. Yet through more strategic co-operation between existing organisations, the G8, the African Development Bank and the World Bank can substantially reduce the risks, enabling African infrastructure to be market-financed. Africa can get the electricity and ports that it needs, while savers in developed countries could get a better deal than the paltry returns currently available in the mature economies.
The agenda for this G8 is not glamorous. Nor can any of these issues be fixed overnight: the intention is to launch an unstoppable process of change. But, by putting our house in order, the G8 will make a material difference to the lives of the poor while also benefiting its own citizens.
Paul Collier is professor of economics and public policy at the Blavatnik School of Government, Oxford University. He has been advising the prime minister on the G8 agenda