LONDON – Although the Group of Eight has often been used for gestures, it affords a rare opportunity for common action by the governments of major countries. Manifestly, there have been serious deficiencies in global economic governance. By addressing them the G-8 can help not only ourselves, but the people struggling in the world’s poorest countries. This has been Britain’s agenda as host of this year’s G-8.
At the top of the agenda has been taxation. Tax cooperation has not kept pace with the internationalization of business and the innovations of corporate lawyers and accountants. Treaties designed to avoid double taxation now deliver double non-taxation. The resulting tax avoidance reduces fiscal revenues and provides an unlevel playing field for business. At a time of national austerity, it is essential for us to address this problem.
But the problem has been shared even more acutely by poor countries where there is a gulf between the capacities of companies and of tax authorities. If all the companies operating in Africa paid reasonable taxes, most countries would no longer need our aid. Closing all the loopholes cannot be done overnight. But this G-8 aspires to deliver clear political commitment from heads of government, linked to sustained technical cooperation.
The United Kingdom is not just holding a meeting; it is launching a revolution in corporate transparency. Governments are being asked to do what it takes to achieve workable common standards.
The commodity booms ushered in a decade of discovery: Britain now has previously unknown potential for gas. But most of the new discoveries are in the poorest countries. This is a huge opportunity, but it carries commensurate risks. The history of resource extraction in poor countries is predominantly one of plunder. Resource extraction companies are not just producers; they are custodians of the natural assets that belong to citizens. Being responsible for other people’s assets, they are analogous to banks. We have learned that banks must be regulated to higher standards than ordinary companies, and the same applies to resource extraction.
There is also scope for more transparency not just in resource extraction but across government, and not just in poor countries but in the G-8. If governments need to know more about citizens, then citizens must know more about government. Information technology is radically lowering the cost of opening government to scrutiny. The G-8 can showcase the new opportunities and launch partnerships between rich and poor countries that put them into practice.
Trade is the archetypal process of mutual benefit. But the arteries of trade depend upon infrastructure that in poor countries is utterly inadequate. Western investors have judged it too risky. Meanwhile, China has occupied this space uncontested. Yet through more strategic cooperation between existing organizations, the G-8, the African Development Bank and the World Bank can substantially reduce the risks, enabling African infrastructure to be market-financed.
The agenda for this G-8 is not glamorous. Nor can any of these issues be fixed overnight: the intention is to launch an unstoppable process of change. But, by putting their house in order, the G-8 will make a material difference to the lives of the poor while also benefiting its own citizens.
Paul Collier is professor of economics and public policy at the Blavatnik School of Government, Oxford University. He has been advising British Prime Minister David Cameron on the G-8 agenda