Illicit Financial Flows, Poverty and Human Rights

November 5th, 2009

Philosophers distinguish between two types of moral imperatives: negative duty and positive duty.  Negative duty is the moral obligation not to cause harm, whereas positive duty is the moral responsibility to prevent harm.  For example, you have a negative duty not to push another person in front of a speeding train.  You might also have a positive duty to pull an injured man out from in front of a speeding train.

Most humanitarians talk about our positive duty to eradicate poverty.  In the face of overwhelming inequalities of income, rampant disease, and widespread starvation, these people contend that we have a moral responsibility to help poor nations and people.   Thomas Pogge, a philosopher from Yale, has another take.  He believes we have a negative duty to not make worldwide poverty worse.  But he also believes this minimal moral obligation is not being fulfilled.  Pogge argues rich countries are actively harming “many in the poor countries through the global economic order they impose.”  For this reason, poverty is a human rights issue because, in Pogge’s view, someone “is a human rights violator when he or she actively harms others or contributes to harming them.”

Thomas Pogge points to a variety of features of the developed-country-dominated global economic order that worsen poverty.  For example, Pogge cites protectionist measures in the world trade system, like agricultural subsidies prevalent among developed countries, which are widely argued to exacerbate poverty.  Many development Economists note subsidies make agricultural products cheaper to produce in developed countries, which give these farmers a huge competitive advantage and drives down the global price of agricultural products. So farmers in developing countries, instead of improving the agricultural self-sufficiency of their home country and gaining wealth through exports, are forced out of the market.  In fact, according to a report by the World Bank, if developed countries cut agricultural subsidies by 10 percent and manufacturing subsidies by 5 percent, they would produce gains for developing countries “of nearly US$350 billion in additional income by 2015.”

I believe there is an even better example of the Western’s world negative duty to not harm the poor.  And that is the phenomenon of illicit financial flows.  It is, in fact, the developed world’s systems of international finance that allow practices like abusive transfer pricing by multinationals.  These mechanisms funnel billions of dollars out of the developing world, into tax havens and…the developed world.  Which brings me to my next point.

An analysis on the absorption of illicit financial flows has so far shown that the majority of the funds wind up in developed country banks, including Switzerland and Ireland, but even more in the United States and the United Kingdom.  Raymond Baker, Director of Global Financial Integrity, has estimated that about a half trillion dollars per year flow out of non-western countries and “are lodged permanently in deposits, properties, and market investments in the United States and Europe.”  So why do we allow this to happen?  Baker explains “We have been guided for many years by an implicit cost-benefit analysis suggesting the receipt of such money is good for the United States, good for Europe.”  Or to put it simply: we like the money.

For these reasons I would argue we have a negative duty and, therefore a human rights obligation, to end the practices which foster systems that encourage and exacerbate poverty.  These goals can in part be accomplished by addressing the shadow financial system by instilling systems of automatic tax information exchange and country by country reporting.  Of course these steps cannot end illicit financial flows outright.  But they will take a leap towards curtailing them and, hopefully, a step towards ending poverty worldwide.

Written by Ann Hollingshead

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