Tax and Aid (6)

There is little doubt that governments will have to play a major role in alleviating the world’s problems, from climate change to famine. Of course, nonprofits, foundations, and more recently, social enterprises are also major players. However, all of these organizations depend on world governments, be it funding, other forms of financial support, or policy, to survive and succeed. Social enterprises in particular, being businesses, need government support in the form of laws and policies to survive in an open market. Richard Brooks, in his article, Tax and aid: To trade with loaded dice, from November 29^th in the Guardian, discusses how large multinational corporations can inhibit governments, particularly those of very poor countries, from making a significant impact on these social issues.

He uses SABMiller as an example to highlight multinational tax avoidance, especially in poor countries: The SABMiller brewery located in Ghana only paid 0.3% of its revenue back as tax from 2007 to 2010. The company is using loopholes in local and international laws and creative financing arrangements to avoid paying taxes. In the country, corporate taxes form a significant amount of revenue for the government. Obviously, by avoiding these taxes, SABMiller is creating a significant negative effect on the governments operating income. Such tax avoidance is repeated by other multinationals throughout the world in both developing as well as developed countries. Obviously, this could be a huge source of revenue for governments, who could put the money to good use in helping their people. Specifically for poor nations, this would allow them to reply less on foreign aid, which considering the current economic climate and budget tightening, is likely to decrease.

In terms of social enterprise, money lost from tax avoidance could actually go to promoting social businesses whether it is direct funding, or other financial support mechanisms. Obviously, intelligent policies and laws are still needed, but closing tax loopholes and preventing the offshoring of funds could promote assistance to social enterprises and social causes in general. All that is needed is the political will, which sadly, is really lacking. Do you think political will and capital could be generated if there was more of a focus towards tax avoidance being a social issue? At the moment, it is described by opponents as a way to expand government, and by proponents as the corporate world being negligent. Additionally, do you think poor governments could go about collecting taxes without scaring off these businesses, without help from developed nations (where it seems there is a lack of political will)?

Finding Money to Stimulate Innovation for the World's Poor

There is no doubt that large scale change in the quality of life of the underdeveloped peoples of the world will require time and money. There needs to be major investments in human capital to provide the necessary resources for these less developed areas to grow and for their peoples to live happy and healthy lives. To achieve these major investments, developed governments will need to play a big role.

This article, or blog posting, by Ben Philips of Save the Children, describes his recent experience of being part of the run-up to the G20 Summit in South Korea this coming November. He describes South Korea as a guide, a “triumph of development” to help underdeveloped countries improve their conditions. The hope is that with the G8 being eclipsed by the G20 and with countries such as South Korea in the mix, a significant focus would be placed on poverty. Unfortunately, as he finds out, such is not the case, with governments being unwilling to discuss aid or debt. However, amongst those at the G20 who are focused on global poverty, there are talks of an innovative idea to raise aid money: the FTT or financial transaction tax. This tax would be a 0.05% tax on all global financial transactions that is projected to raise between £256bn and £466bn annually. As expected, however, with the unwillingness of governments to discuss aid and poverty, there is a pushback against the idea. There is a degree of hope, though, as he illustrates in an example that with a huge and consistent NGO push, an FTT could happen, as occurred with the landmines treaty.

The relevance here to this week’s discussion topic about Drivers of Social Innovation and Human-Centered Design Thinking is that the FTT is an example of a social innovation that would further drive innovation and socially conscious design amongst companies, entrepreneurs, and governments. Part of this money would, of course, go to direct aid and to provide for emergency services to the world’s poor. But a significant amount could also go to provide the funding for innovative ideas in developing clean water, providing adequate shelter, and creating a stable food supply, amongst others ideas. The problem, of course, is that there needs to be a push for this FTT, there needs to be socially conscious thinking amongst the G20’s policymakers and indeed people of the G20 countries to demand their governments to implement the FTT.

Obviously, in such a proposal as the financial transaction tax, there will be a huge pushback from business and self-serving governments. Instead of simply waiting for a new generation of policymakers and businessmen, who may or may not be more socially conscious of poverty outside their own borders, how do we help these NGO’s push for an FTT within our own borders? Is it reasonable to expect such a tax, or other similar policy instrument that might drive innovation, to actually be implemented in the relatively near future?