The Broker Day on inclusive growth
The Broker Day’s special guest was Lilianne Ploumen, Dutch Minister of Foreign Trade and Development Cooperation. Monika Sie Dhian Ho, chair of The Broker’s board, officially opened the day.
Sie summarized the ‘Brokering’ process in three steps, simultaneously marking the essence of the The Broker Day: 1) clustering global experts’ knowledge and presenting it to a broader professional public 2) generating cutting-edge debates, and 3) advising policy makers on development strategies.
In his speech, The Broker’s editor in chief Frans Bieckmann addressed the causes and consequences of inequality, as well as possible policy measures to reduce global inequalities and prevent the structural widening of the gap between rich and poor. Bieckmann stressed that both international regulation of the global financial system, and promoting more national policy autonomy are crucial to achieve inclusive growth and less inequality globally.
In the recent past, national policy measures, such as conditional cash transfers in Latin America, have proved to be efficient in reducing inequality and strengthening the national economy, but they did not really address the national and global economic causes of inequality.
Also, as Bieckmann argued, the idea of predistribution might contribute to creating a more equalizing and sustainable economy from the start instead of redistributing income after a period of growth.
In response to Bieckmann’s statement, Minister Ploumen presented her ideas on the course of Dutch development policy with a view to the fight against global poverty and inequality. Ploumen summed up her main goals, which are the proliferation of global public goods (such as access to the labour market, health insurance and financialization), the promotion of foreign trade (‘trade and investment are the most important sources of development’), and economic cooperation with developing countries (supporting fair tax systems on a global scale and introducing a financial transaction tax – which the Minister identified as one of her ‘love babies’).
She added that she was very curious about what The Broker can mean to her in terms of challenging inequality, with a view to the policy strategy that she will present in March.
The next speaker was Ewald Engelen, professor of financial geography at the University of Amsterdam. Engelen’s speech was quite impassioned – he harangued against the role of the Netherlands in failing to supervise its own banks and permitting massive tax evasion by multinationals on Dutch territory. According to Engelen, pointing the finger at American banks, as if they were the main cause of the financial crisis that crossed the Atlantic to Europe, is wholly inappropriate: the problem is that European banks have disproportionate bank balances.
Hoarding financial property from other funding sources than savings, such as hedge funds and special purpose vehicles, known as ‘the shadow banking system’, plays a major role in sustaining inequality all over the world. Banks must be reformed by making them smaller and less complex, and their buffers must be levelled to 20%. Additionally, more rigorous regulation for financial transactions and putting a halt to ‘financial innovations’ that lead to unnecessarily complex financial products are needed to achieve global financial stability.
As Engelen demonstrated in his PowerPoint presentation, the total capital of banks in the Netherlands is five times the country’s GDP. 60-70% of these balances is collected using the channels of the shadow banking system. Another sore point in the Netherlands is our infamous tax haven industry. Every year, 12,000 billion euros flow through 23,400 ‘mailbox’ companies in the Netherlands. That is 20 times the country’s GDP. Engelen stressed that the benefits of tax havens for the Dutch labour market are strongly exaggerated.
He argued that Dutch politicians should intervene and wind up these rogue practices. In his closing statement, Engelen set the tone of the debate by arguing that capital which now vanishes into the financial sector should be invested in the real economy. The participants in the debate addressed several mechanisms that could contribute to regulating the global financial system and giving meaning to inclusive growth.
David Sogge (TNI) sharply pointed out that we should ask ourselves how it was possible in the first place for the financial sector to acquire so much power on the international stage. He referred to Simon Johnson’s The Quiet Coupe, which reconstructs the take-over of American democracy by the financial sector. Reducing inequality on a worldwide scale can only be achieved if both the power of the financial sector is restricted, and politics, based on a strong civil society, finds a way of giving itself clear leadership again. The task of filling in a political agenda that aims to achieve a global inclusive economy is a hard one, but the inequality debate at The Broker Day proved that bringing together experts to discuss possible means can produce fruitful results.
Rolph van der Hoeven (ISS) stated that the income share between capital and labour has recently shifted increasingly towards capital, placing labour income under pressure, while the tax burden on labour is growing. Van der Hoeven stressed that this is a matter of international concern, urging that for this reason global inequality must become part of the post-2015 agenda. If not, since poverty and inequality are closely linked, the international community will miss the boat regarding the majority of poverty reduction. Another way of promoting inclusive growth is to strive for proper employment and employment conditions all over the world.
René Grotenhuis (Cordaid) made an important point by stating that policy makers tend to neglect the importance of the informal sector in this respect. We do not have the adequate tools and models required to give the informal sector its full weight. According to Grotenhuis, the gap between the formal and informal sector can only be bridged if global development policy makers focus attention on ways to integrate the informal sector in their policy making strategies.
The major challenges were perhaps best summarized in a comment by Paul Engel (ECDPM), who said that it is precisely the informal sector and, related to that, efforts to create better employment (conditions) throughout the whole of the global economy, that are the most vulnerable to the negative impacts of ‘illicit flows’. In other words: the global financial system harms the most fragile economies disproportionately, because they do not have the institutional strength to cope with the damaging effects of globalization.
This bottom line, plus the fact that the financial system exerts enormous pressure on our national democracies by restricting their power to take political action, define the framework for action that The Broker will continue to intensify in the next months.