The Robin Hood Tax

First published at:
http://jubileeusa.typepad.com/blog_the_debt/2013/05/the-robin-hood-tax-one-way-to-avoid-austerity.html

By: Andrew Hanauer

If you are familiar with British actor Bill Nighy, it is most likely through his role in the popular film Love Actually, in which Nighy plays an aging rock star who grudgingly but shamelessly turns his hit song into a Christmas jingle.  In a movie starring Liam Neeson, Colin Firth, Emma Thompson, Keira Knightly and Hugh Grant, Nighy stands out thanks to his quirky mannerisms and comedic timing.

This year, Nighy is using his talents for a less glamorous but far more meaningful role: that of “the Banker” in a YouTube video aimed at advocating for a Financial Transaction Tax (FTT).  The FTT is also known as a Robin Hood tax because it would charge banks and other financial institutions a tiny tax for each financial transaction they make and use the money to fund initiatives aimed at helping the poor.  In “the Banker,” Nighy plays a banker who is not entirely enthusiastic about this idea:

The Robin Hood tax scored a major victory in late January when eleven EU countries, including France and Germany, voted to approve an FTT for the Eurozone.  Countries that are not participating in the FTT, most notably Great Britain, do not have to implement a Robin Hood tax, but transactions made on the London Stock Exchange by institutions based in those eleven countries will still be subjected to the FTT, thus further undermining the spurious claim that an FTT will simply drive financial institutions to move off-short or to non-participatory countries.  The fact that Europe is moving ahead with the Robin Hood tax also undercuts that claim as it applies to American banks.  If the UK passes an FTT, pressure will increase on Congress and the White House to do the same.

The FTT is a relatively simple concept.  Every time a financial institution makes a transaction involving stocks, bonds, derivatives or foreign currency exchange, a tiny tax is attached to it, ranging from .5% of the transaction value all the way down to .005%.  It does not apply to ordinary consumers (a person selling or buying a stock) and smaller investors can be exempted legislatively.  Many of the transactions being taxed by an FTT are speculative in nature: investors buying and selling derivatives or bonds in seconds in the hopes of making quick money without producing anything of value for the economy as a whole.

But put aside that last critique of the global financial system and the FTT still makes sense.  After all, such speculative investments are simply another form of product purchasing, the same way we go to the store and buy any number of things.  The average consumer is asked to pay about $9 in sales taxes on $100 worth of goods; a Robin Hood tax would charge financial institutions somewhere between half of one cent and 50 cents on $100 worth of “goods.”  Why is buying gas subject to taxation but buying bonds (and then reselling them thirty seconds later) a tax-free activity?

The main arguments against the tax are fairly easy to rebut intellectually, but more importantly they have been easily rebutted by extensive research, both on the economics of the tax and on its impact in countries where it has already been implemented.  No, the tax will not simply cause banks to pass on the added costs to the rest of us.  No, the tax will not encourage banks to move elsewhere.  No, the tax will not cause havoc to global markets.

What the tax will do is free up billions of dollars to be spent on…well…where to begin?  Avoid austerity?  Fund education?  Fund health care?  Relieve foreign debt?  Prevent children in developing countries from dying of preventable diseases?  The fact that governments do not always spend money in such altruistic ways misses the point: it is our job to push for Robin Hood legislation that earmarks the funds raised for specific purposes.  Congress, like any other political institution, will only pass legislation as good as the pressure mounted to support it.

Fans of Bill Nighy might know that he also starred in a little-known film called “The Girl in the Café,” in which he plays a British bureaucrat who takes a date to the G8 conference in Iceland only to watch in horror as she accosts powerful people with the imperative of devoting funds to combating poverty in the developing world.  When those powerful people finally decide they’ve had enough and have their security team kindly escort her to the airport, Nighy follows her there and confronts her with the revelation that she has a criminal past.

Nighy demands to know what crime she committed.

“I hurt somebody who hurt a child,” she responds.

“Was it your child?” he asks.

“It was a child,” she responds.  “Does it matter whose child?”

There needs to be the creation of a global system of finance that supports the well-being of children everywhere.  A Financial Transaction Tax is another step in that direction.  There is already legislation introduced in the House and Senate this year.  It’s time for Congress to act.

Apple’s Tax Evasion: Mr. Cook Goes to Washington

Apple CEO Tim Cook testified in front of a very self-righteous Senate committee today, where he was asked to account for the hundreds of billions of tax-free revenues Apple has made since 2009.  During this time, Apple has shifted portions of its operation to shell-company subsidiaries in Ireland, creating a situation in which, on a large portion of its revenues, the company could not only avoid paying taxes in the United States, but could avoid paying taxes at all, to anyone, anywhere.  The details are complicated, but the end result is clear: without breaking any laws, Apple saved itself billions of dollars that could have been spent avoiding some of the harsher elements of sequestration.  While food pantries, public elementary schools, and medical clinics are stripped of funding, Apple rolls in the dough.

This is a fitting contrast for a company that has somehow convinced us all that it is something that it is not.  Buoyed by the cult of personality surrounding the late Steve Jobs, Apple has never taken the public relations hit it deserves for its overseas labor practices.  This says a lot more the global financial system as a whole than it does about Apple.  As the company’s defenders are quick to point out, if Mr. Cook did not maximize shareholder value within the law, the company would replace him and find somebody who could.  This simple trait of global capitalism is exactly why the world needs financial regulations that protect society as a whole, and the poor in particular.

This brings us back to Mr. Cook’s visit to Capitol Hill.  While the criticism of Apple is understandable, of course, it is obviously hypocritical of Congress to sit in judgment of a company that has utilized the very tax loopholes those same lawmakers are so hesitant to shut down.  The case was made by a number of senators that Apple went beyond the norm of tax evasion, and that’s true.  But it doesn’t change the fact that the problem is the law, not one profit-seeking corporation’s decision to profit from it.

The solution is simple.  Close loopholes that allow companies to stash profits off-shore.  End tax breaks for companies that ship jobs or profits overseas, including in cases such as Apple’s.  This is about a much bigger problem than just Apple; while Tim Cook and Company may have shirked paying roughly $8 billion in taxes over the past few years, a report released by Senator Bernie Sanders indicates that American companies have used loopholes to avoid over $120 billion in taxes. Meanwhile, American companies continue to suck dollars out of a strapped treasury through dubious tax deductions, including a manufacturing tax credit that was stretched to include Starbucks at the behest of lobbyists, who argued that Starbucks manufactures coffee.

Imagine what $100 billion or more could do for a country that ranks second-to-last in child poverty among industrialized nations (defeating only Romania).  Thanks to the sequester, unemployment benefits could drop 9%, 100,000 formerly homeless men and women could lose their new housing, 70,000 kids could be dropped from head start, and several hundred thousand mentally ill individuals could lose care.[1]  Tim Cook may not have much to be proud of, but today, in that Senate hearing room, he was not the one with the most to answer for.  That would be the folks pointing the fingers.

Debt "Forgiveness" and Food for Crocodiles


Here’s a good reason to cancel the debts of impoverished countries: in many cases, their populations never chose to borrow the money in the first place.
This is a supposedly radical notion.  Lots of institutions and global actors, from the World Bank and IMF to western politicians to non-profit organizations, talk about “debt relief,” but very few talk about the legitimacy of the debt to begin with.  Debt relief or forgiveness is packaged as a sympathetic bit of charity from the West to the world’s poor, an act of kindness that is usually attached to demands made of the recipient government.  Those demands range from the hypocritical (“stop subsidizing your farmers…only we get to do that”) to the patronizing (“demonstrate to us in writing how you will properly spend your own money that we are allowing you to keep”) to the counter-productive (“commit to austerity…”).
Even those actors sympathetic to the cause of debt relief because of the impact it could have, including increased spending on health, education, and infrastructure and the accompanying decline in preventable mortality, often shy away from making the claim that debt relief should be a right and not a privilege.  This not only lets numerous people off the hook who should not be let off the hook, it is a complete distortion of history.  And history matters.
In Africa, the vast majority of debt was accrued in the 1970’s and 1980’s under dictatorships, many of which were tossed from power in the 1990’s.  The lending that created this debt financed many things, but was almost universally processed through un-democratic channels.  In many cases, it financed the dictator’s personal consumption habits.  In many cases, it financed the repressive organs of the state, which in turn suppressed dissent and preserved the dictator’s power.  In many cases, it was used to dispense patronage to internal actors who might otherwise have challenged the status quo.  In the end, this lending helped perpetuate the rule of tyrants while doing significantly more harm than good for the populations subjected to that rule.  It funded weapons that killed children, “development” projects that destroyed communities, and further enriched some of the richest people on earth at the expense of some of the poorest.  This is the debt that developing nations are being asked to pay back today.
In fact, the story of debt in Africa is so uniform across so many countries as to allow for the discernment of a system at work.  Foreign nations help a dictator take power for political reasons, and then fund his regime to ensure it can repel any attempt at a change in government.  Lending funds the security services, the patronage network, and the dictator’s personal spending habits, which become very lavish, very quickly.  Resource extraction is streamlined at the expense of the domestic economy and to the benefit of multi-national corporations while structural adjustment programs imposed as part of debt restructuring agreements crater the middle class and the civil service.  With the economy in free fall, money starts to flow outward in the form of capital flight, further draining the economy and obliterating the tax base.  Protests are squashed with external support.  Banks lend money knowing full well it will be stolen because they make money off the lending anyway.  Governments send arms and soldiers to assist brutal tyrants.  And then, when it’s finally all over and the nightmare of dictatorship is somehow broken by the will of the people, the banks and the rich governments and the multi-lateral institutions cough loudly and ask to be paid back.
Speaking of Africa as if it is a single place is, of course, absurd; this is a massive continent of enormous ethnic, religious, racial, social, and cultural diversity.  And yet this same scenario played out over and over again.  It happened in South Africa, where western institutions now demand that the ANC repay the debts of its Apartheid predecessors.  It happened in Rwanda, where France systematically armed and supported the genocidal regime around President Juvenal Habyarimana; today, Rwanda’s government, whatever its faults, continues to pay off the debts of its murderous predecessor.  It happened in Somalia, where a brutal dictatorship armed alternatively by the Americans and the Soviets was replaced by two decades of famine and anarchy, and where the newly emerging government is being lectured by the IMF to pay back what “it” “owes” to the West. 
And, on an unimaginable scale, it happened in the Democratic Republic of the Congo, where America’s favorite “anti-communist” dictator, Mobutu Sese Seko, looted his country for more than thirty years, leaving it in ruins.  Mobutu stole billions during his time in office, funneling money from kickbacks, loans, fraudulent development projects, and even straight from the country’s budget into his own pocket.  He spent state money to take his inner circle to Disneyworld and to ferry, on multiple occasions, a number of sheep from Venezuela to his personal farm in the DRC.  When asked if it was true, despite the suffering of his people, that he was the fourth richest person in the world, Mobutu became indignant and proclaimed, “no, no, no! I am the third richest man in the world!”  When the rebel Rwandan Patriotic Front began to advance on his good friend Habyarimana and his genocidal Hutu Power clique, Mobutu lectured him by saying “I told you not to build any roads…building roads never did any good…I’ve been in power in Zaire for thirty years and I never built one road.  Now they are driving down them to get you.”  This is the man George H. W. Bush invited to the White House before any other African leader (he had at least 45 other options).  This is the man Ronald Reagan declared was a “consistent voice of good sense and good will.”
When Mobutu was forced from power, the DRC was more than $12 billion in debt, while the former dictator was rumored to have as much as $8 billion in personal wealth stashed abroad.  The new Congolese government set about to recover this wealth, claiming correctly that it belonged to the Congolese people, but Swiss banks were sadly unable to recover much of it.  In Malawi, a similar situation unfolded after the death of autocrat Hastings Banda.  The banks told the Malawian government that they would be happy to investigate Banda’s riches if the government could simply produce a death certificate.  Sadly, this certificate went “missing.”  None of this should be surprising.  After all, if Swiss banks just handed over their clients’ money simply because it was stolen from orphans and teachers and farmers, they wouldn’t be Swiss banks.
The creditors (banks, governments, multi-laterals) bear much of the responsibility for this system, of course, a fact I covered in more detail here.  But if we are keeping up the charade that these debts are owed to somebody, then the people who need to pay them back are the Mobutus and Bandas of the world.  Their money is somewhere, and somebody is profiting from it.  To claim that these debts are somehow legitimately tied to the people of Malawi or the DRC is nonsensical.  To say that these dictators represented their people in any way that carries any validity in the real world is equivalent to suggesting that Stalin was the legitimate representative of post-war Poland.  When you conquer a country and subjugate its people, does it really matter whether you live there yourself or not?
Jubilee USA is one organization that gets it.  While advocating for the one-time cancellation of all debts, a concept with biblical precedence, Jubilee also argues consistently that much of the debt owed by developing nations is illegitimate, a fact that puts phrases like “debt relief” and “debt forgiveness” into a very different light.  The fact that Jubilee is an incredibly effective organization run on a tiny budget lends additional moral credibility to its calls for change.  Donations are helpful, of course, but there are lots of ways to get involved with Jubilee’s work.  
Hastings Banda once called his political opponents “food for crocodiles.”  Margaret Thatcher once called Banda’s government “one of our closest friends.”  In short, the West helped feed Africa’s people to the crocodiles, then peered inside the belly of the beast and yelled “don’t forget to pay us back for all the money we spent raising crocodiles!”  In fairness to the creditors, they are owed quite a bit of money.  After all, as Mobutu taught the world so vividly, one can spend an absolute fortune flying sheep around the world on private jets.

How Westerners Can Help Africa Without a Helicopter

Recently a friend of mine asked me my opinion on whether or not donating aid to Africa is actually helpful for Africans.  He is involved in a church project that donates supplies to Swaziland, he said, but he didn’t know if his help was doing any good and he figured he would ask around for perspectives.  I told him that I had no idea, of course, exactly what the impact was of donating goods to Swaziland, but I did know that Swaziland is ruled by a corrupt King who suppresses democratic rights, owns a hugely disproportionate share of his country’s wealth and, for what it’s worth, occasionally marries teenage girls against the wishes of their parents.

 
If you want to help Swaziland, I argued, the best way might be to pressure Coca Cola, the largest multi-national invested in the country, to pressure King Mswati to open up the government.  Until that happens, there is little hope for economic reforms that will benefit the population as a whole and that would negate the need for donations from people living ten thousand miles away.
 
My friend said he understood that, but there was a problem.  “I want to help,” he said “and that’s not really the way I envision helping.  If I’m completely honest with myself, I envision flying into the jungle on a helicopter and saving people.”
While my friend deserves credit for being honest about this, his admission that this urge is potentially self-serving is entirely accurate.  He’s also not alone.  From Kony 2012 to “Save the Children” to the adoption craze rising and then crashing and burning in country after country, it is evident that many in the West see their role vis a vis Africans as one of spiritual, physical, and societal salvation.  For those in the West wanting to help Africans living in poverty, understanding this dynamic and its implications has to be the first step.
 
To be clear, wanting to help people is obviously a good thing, and people who want to help should be commended, not condemned.  The old saying about the road to hell being paved with good intentions was clearly not coined by somebody familiar with Africa’s post-colonial history; Africa’s road to poverty and conflict has been paved by people with decidedly bad intentions, from Joseph Kony to CIA operatives, from the executives at Shell Oil to the architects of Hutu Power. 
 
But good intentions are not enough.  Donated goods can undercut local economies, enrich warlords, and even exacerbate the very problems such donations are intended to solve.  On a macro-level, millions of dollars of aid from western countries to African nations doesn’t seem to have demonstrably improved the lives of Africa’s people.  All of which is very frustrating to the person in the West who just wants to help.
 
So how can Westerners help?
 
Answering that question begins by asking a different question: why do some people in Africa need help in the first place?
 
To the World Bank, and other major practitioners of “development,” Africans need help because they are lacking technical expertise and resources.  In Lesotho, for instance, anthropologist James Ferguson described how the World Bank undertook an enormous project aimed at connecting a rural area to the rest of the country in an effort to improve local herders’ ability to sell their livestock at the market.  Clearly, if only these Africans knew how to better leverage their resources and if only they had the money to build a road, their lives would dramatically improve!
 
Well, as it turns out, the men of the area didn’t want to sell their livestock because the disposable income would then be turned over to their wives while the men were away working in South Africa as seasonal laborers.  They very much preferred to use the livestock to barter within their own community.  As for the road, the major change it seems to have accomplished is the extension of state power over an area that otherwise had been spared the day-to-day manifestations of the machinations of a corrupt party apparatus running the country.
 
This is what happens when you assume that people are poor because they are stupid, ignorant, or lacking, say, the right farming implement.  “Development,” as Ferguson argues, consistently seems to perpetuate itself in a world in which political explanations for poverty are ignored and replaced with “technical” ones.  People are poor, in this logic, because they lack the right farming equipment, not because they lack the ability to influence how their government distributes the right farming equipment.  And it is highly unpopular to question this logic.  After all, in the words of Brazilian Archbishop Helder Camara, “when I give food to the poor, they call me a saint.  When I ask why the poor have no food, they call me a communist.”  
 
The same goes for disaster relief, which can save lives, but which never seems to be accompanied by the question of why Africans are perpetually faced with famine and starvation and thus in need of help, except occasionally by the racist, ignorant segment of the population that demands to know why we in the West are wasting our money on “those people.”  One major reason for famines in Africa is IMF policy; loans are often attached to conditions that include the reduction or elimination of government intervention in the economy, often with disastrous results for food security

The hypocrisy of this is stunning: US agribusiness is heavily subsidized by the American government, but if Malawi wants to pay its people to grow food, the IMF will punish it by demanding harsh repayment on debts that were mostly incurred when institutions like the IMF loaned money knowingly to dictators who spent the funds on alcohol and Parisian shopping trips.  In multiple African countries, the IMF has demanded an increase in exports, meaning farmers are told to grow cash crops for sale in the West rather than staple foods for sale domestically.  So, much like during the potato famine in Ireland, when food was actually leaving Ireland and being shipped to England even as people in Ireland starved to death, famine in Africa is usually concurrent with food being shipped from the starving country to countries where people are largely not starving.  It’s just that the food is too expensive for the starving people to buy.

So you’re sitting at home, watching news clips of people starving in Africa (assuming there isn’t something more important going on in the news that day to push a famine off the newscast).  You want to help.  What can you do?  My advice is to follow these rules:
 
1. First do no harm.  Many types of aid are helpful (more on that later), but many types are not.  Donating goods can often undercut local businesses and economies and put people out of work.  Imagine if aliens dropped five million pizzas on Oakland tomorrow.  How would local pizza store owners and employees feel about that?  Giving to organizations that are involved in political situations is also very dangerous unless you trust that organization to properly understand the context in which it is working.  Invisible Children, producers of the “Kony 2012” video, is a perfect example of this. In their (obviously accurate) push to denounce Joseph Kony, they have essentially promoted the Ugandan government and the Sudan People’s Liberation Army as “good guys,” which is not so obviously accurate.  If you don’t want your donated funds to go to warlords or to put people out of work, do your homework first.
 
2. Change your government.  There are five concrete things the United States government can do right now to dramatically change the lives of millions of Africans.  Stop supporting dictators.  Forgive odious debts.  Change farm policy.  Demilitarize on the continent.  Support renewable energy to prevent climate change.  Nothing we as individuals can do compares to the impact of those five actions, and it’s not even close.  We have a democracy in this country, albeit a flawed one, and even if you don’t have your own Superpac, you can still lobby your government to make change.  If that seems daunting and you just want to write a check, there are organizations working on those very issues that could put those funds to good use.  Jubilee USA works on the debt issue in a highly effective and economically efficient manner.  350.org works on climate policy.  It’s not as fun as flying into the jungle on a helicopter loaded with food supplies, but it’s a lot more effective.
 
3. Give in sustainable ways.  There are some methods of giving that are more effective than others.  I am on the board of directors at Bridges of Promise, a non-profit that helps to fund school fees for kids in rural Tanzania, and one problem our students face is that they don’t have enough school supplies.  Rather than donate 100 boxes of pencils, Bridges of Promise gave money in the form of a small business grant to a Tanzanian entrepreneur to open a stationary store.  The end result is that families don’t have to travel five hours by bus to buy supplies, local people gain employment, and if any kids still can’t afford to buy pencils, donated funds can be used to subsidize their purchases.  When giving, ask yourself: how would this donation impact a community as a whole?  Why is this giving needed?  If I were poor, would I want this type of giving done in my community here at home?

In the end, it’s never a guarantee that anything we do to help will in the end actually be helpful.  But transforming the world in which we live is impossible unless we act with both an open heart and an open mind.  Whether or not dropping food on people from helicopters is a good idea probably depends on the circumstances. What is constant, however, is the fact that if we worked to change American policy toward Africa, we could stop debating how to feed and clothe people who would not need our help being fed or clothed, if only our government stopped funding their dictators, ruining their climate, and demanding they pay back money they never borrowed in the first place.  Essentially, people in the west are donating money to Africa in a desperate attempt to paper over the vast destruction done to the continent by western institutions. 

It’s not working. 
It’s better than nothing. 

For the most part.