Reflecting back, looking forward: Alex Cobham

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1. Tell us a bit about your work with the Center for Global Development

 CGD is a ‘think and do tank’ established in Washington, DC in 2001, doing rigorous research with the aim of producing policy proposals to improve the development impact of (or reduce the damage done by) rich countries. I work for CGD Europe, based in London, as a research fellow leading on illicit financial flows, and continuing to dabble in inequality.

 2. Looking back at 2013, what do you think were the most promising developments in your field? Do you think they will be sustainable into the next year and beyond?

I think 2013 will be remembered, one way or another, as a very important year for illicit financial flows in particular. It could turn out to have been a rhetorical high watermark in a process that ultimately delivers little; but there’s a real chance it will turn out to have been the beginning of the end for financial secrecy.

We can identify three important elements of progress. First, the related issues of illicit financial flows and effective taxation were recognised as priorities by both the G20 and G8 groups of countries. In both cases, the particular damage done to development by financial secrecy was highlighted, without ignoring the risks to rich countries.

Second, this rhetoric gave rise to a series of tangible policy actions: in particular, a two-year schedule of actions for the OECD to deliver in relation to corporate profit-shifting and tax transparency, and a (mixed) set of commitments from G8 members to enhance their own transparency – most importantly, around the beneficial ownership of companies.

The third important element was the recognition of illicit flows as a global development priority. This has been a gradual process, but took a particularly concrete form through the inclusion of a target in the proposed post-2015 framework that was published by the UN Secretary-General’s High Level Panel of Eminent Persons:

12e. Reduce illicit flows and tax evasion and increase stolen-asset recovery by $x

Notwithstanding the few issues to be resolved before this could become a meaningful target, the inclusion of such a proposal is an important confirmation of policymakers’ focus in this area. The decision to dedicate the 2013 African Progress Panel report to ‘equity in extractives’, and hence – in effect – to illicit flows, was also noteworthy.

On the issue of inequality, quite striking progress was also seen in the post-2015 context. First, the UN’s global consultation on inequalities (disclosure/trumpet blow: I was part of the advisory group) uncovered a broad and deep consensus on the need for the new framework to ensure a dramatically better response than had the Millennium Development Goals to a range of inequalities (horizontal and vertical, economic and otherwise).

Second, the (somewhat more conservative) High Level Panel’s framework proposal took a great deal of this on board, reflecting the extent of consensus on this issue. As I noted at the time, the proposed requirement that no target be considered met until it was met separately for each marginalised group (in terms of gender, disability, age, ethno-linguistic group, income quintile, and region) would be enormously powerful.

Where the Panel’s proposal is markedly weaker than the broad outlines to emerge from the global consultation, however, is in regard to an economic inequality goal – suggesting that despite the evidence on the damage done by inequality, produced by anyone from the IMF to Oxfam, there is still work to do for proponents of an explicit economic inequality target. [CGD’s high-level event fleshed out much of the technical issues, and covered a fair bit of the politics too…]

3. What do you think were the most worrying developments in your field? Do you think that they have been, or will be, successfully tackled?

As the above should show, last year was overwhelming positive in the areas I work in. If there is a common concern running through most of the developments though, it is this: that developing country concerns are not always well represented when it gets to policy prioritisation (for example, here’s ActionAid on shortcomings of the OECD profit-shifting initiative). However…

4.  What new trends/events/challenges do you think that people should be looking out for in 2014?

…it looks like 2014 will see some big policy moments that may result in clear African leadership on both these issues.

On illicit flows, public awareness – and anger – has been growing for some time, and there are two particular events to watch out for. The UN Economic Commission for Africa High Level Panel on Illicit Financial Flows from Africa, chaired by Thabo Mbeki, will release interim and final reports, reflecting its two years of work on the issue, and setting out what are likely to become the major directions for policy within Africa, and for African leadership on the global stage. Relatedly, the Tana High-Level Forum on Security in Africa takes illicit flows as its theme this year, and is likely to add to the momentum for concerted action.

On inequality, Ghana – which was joint sponsor, with Denmark, of the UN thematic consultation – will host a pan-African inequalities conference. Again, it will be fascinating to see whether this gives rise to a stronger policy focus across the region, and a more coherent position in international for a, such as the post-2015 negotiations. Could, for example, we see African leaders push for an income inequality target? 

(Disclosure/trumpet: I’ve been lucky enough to have some involvement in each of these.)

5. If you had the chance to put one issue on the region’s agenda in 2014, what would it be and why?

Unitary taxation. However successful the OECD is in overhauling the system for taxing multinationals, it won’t deal with the complexity and power issues that mean most African tax authorities (and many others) find it very difficult to apply the transfer pricing rules with any success. The alternative is to tax at the unit of the multinational group, rather than the individual company within a group, and to allocate the global profit according to the proportion of economic activity in each country.

No system is perfect, but as policymaker understanding grows of the current system’s failings – and the limits of the OECD’s reform effort – it will be fascinating to see whether more revenue authorities start to look at their own data and consider the potential benefits. This research group (disclosure/ trumpet) at the International Centre for Tax and Development would, of course, be delighted to assist…

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