King, Keynes and Obama’s legacy at the IMF

‘True compassion is more than flinging a coin to a beggar; it comes to see that an edifice which produces beggars needs restructuring.’  - Martin Luther King, Jr., 1967



‘The difficulty lies not so much in developing new ideas as in escaping old ones.’ - John Maynard Keynes, 1935



If he were not assassinated while building a cross-racial, nationwide Poor People’s Human Rights Campaign for decent work and a living wage for all, Martin Luther King Jr would have turned 84 this week. As a testament to his legacy, President Barack Obama will be sworn in upon King’s very own copy of the Bible. But do the iconic human rights leader’s principles inform the President’s priorities? King’s last years were dedicated to economic justice for all, and he would surely be turning in his grave at the sight of private financial actors running roughshod over working people worldwide. What will President Obama—the one man ultimately responsible for holding Wall Street accountable, and with decisive voting power in the world’s primary public financial institution, the IMF—do to stem the tide of deepening deprivation and disparity at home, a European continent mired in the black hole of austerity, and a globalized financial system using US territory to concentrate wealth and power at the top? Is this too tall a task for an administration facing severe domestic constraints?

Well, there’s one thing Obama could do on the first day of his second term: call up his friends at the IMF, and tell them to get serious about tackling the global economic crisis by dropping their antiquated ideologies, and allowing governments to use all the tools at their disposal to combat inequality through progressive taxation and regulate their financial systems to bring some discipline and stability to a floundering, free-for-all economy.

It would seem the International Monetary Fund has been experiencing something of an epiphany lately. Or so the story goes.

In a much-lauded study released by the IMF’s head economist this month, the institution admitted its fault for miscalculating how bad austerity-based economic policies would be for countries in crisis; two to three times as bad as previously estimated for Greece, Ireland, and Portugal, for example. Not only did every dollar of budget cuts or tax increases rob people of around a buck and a half of economic growth, the regressive policies also depressed investment and consumption even more than recognized, especially at the early stages of the crisis. This is not an academic exercise, let’s remember. IMF forecasts on growth determine to a large degree the price governments have to pay to borrow money in a crunch, and thus the cost of essential public services like health, education, jobs programs, unemployment insurance, and food assistance which are so necessary to prevent an even deeper human rights crisis in times of recession. Let’s leave aside for a moment the regressive conditionalities set by the IMF in its deals to bail out Ireland and Greece. By advising many other governments to roll back essential public services in dire economic circumstances, inaccurate IMF estimates cost people their livelihoods, and, in some cases, their lives.

Much damage has already been done. But let’s call a spade a spade, and extend a tentative bravo to IMF researchers for inching the organization toward shelving this antiquated ‘cut-to-grow’ myth. Indeed, this recent mea culpa precedes a body of work questioning a series of its most-cherished institutional positions, for example on capital controls, inflation targets, macro-prudential financial regulation, the effect of many free trade agreements on the ability of governments to regulate their financial markets, along with the role of income inequality in driving financial instability.

While attending the International Monetary Conference in Savannah, Georgia—not far from where Martin Luther King Jr. was born and lived most of his life—a deeply disappointed John Maynard Keynes spent what were to be his final days watching as his intellectual children, the International Monetary Fund and the World Bank, went awry in their 1946 inauguration, captured he feared by the might of the US’ newfound economic and military superiority. Inspired by the performance of the Sleeping Beauty he’d recently seen, Keynes wished some mythical fairy-godmothers would grant Master Fund and Miss Bank three gifts: first, a rainbow coat ‘as a perpetual reminder that they belong to the whole world’; second, vitamins to encourage ‘energy and a fearless spirit, which does not shelve and avoid difficult issues, but welcomes them and is determined to solve them’; and lastly, ‘a spirit of wisdom … so that their approach to every problem is absolutely objective.’

Will the IMF become an evolving, creative, evidence-based, wise, and truly global institution with everyone’s interest in mind, and a firm determination to fight back against the fiscal fallacies reproducing poverty, inequality and economic strife? Or will it continue to succumb to the inertia of old ideas, and remain a guardian of an ideologically-captured economic edifice owned by and acting for the economic elite, with only charitable crumbs for the poor?

Let us hope on this day that King’s legacy speaks across the ages to inspire the institution’s biggest vote-holder, Barack Obama, to make Master Fund’s fundamental aim the realization of economic and social rights for all.

This blog by CESR Senior Researcher Niko Lusiani was originally written for the Righting Financial Regulation website.

Posted by Niko Lusiani on January 20th, 2013

Europe moves forward on Robin Hood Tax while US balks

Europe’s much talked-about financial transactions tax has come one step closer after a coalition of 11 countries – including France, Germany, Italy and Spain – agreed to move ahead with the initiative despite the opposition of several other states. A number of countries, such as Britain and Sweden, remain opposed to the ‘FTT’, but at a meeting of European Union finance ministers on Tuesday its proponents decided to avail of the EU’s ‘enhanced cooperation’ facility, thereby clearing the way for officials to begin designing the mechanism.

Much work remains to be done if the FTT is eventually to become a more widespread reality, however, as certain key states remain reticent. Indeed representatives of the world’s largest economy have been accused to trying to convince other countries not to go ahead with it. In a joint letter to US Secretary of State Hillary Clinton and Secretary of the Treasury Tim Geithner, CESR joined a large group of US civil society organizations such as ActionAid, Friends of the Earth US, Grassroots Global Justice Alliance, National Nurses United and Tax Justice Network USA to call on the US government to stop discouraging other nations from considering an FTT. The letter was issued after a US official made misleading statements, insisting that the FTT was not feasible. Paul Bodnar—a  member of the US climate negotiating team—argued at a recent UN meeting on climate change financing that it would be all but impossible to implement the FTT globally, and that financial traders would find ways to circumvent it anyway. He also affirmed that finance for climate change mitigation — one of they central motivations cited by those advocating for the FTT – should be directly linked to emissions. His arguments are rebuffed in the joint letter, which was signed by some 63 civil society organizations. Such taxes do not have to be global to be effective, as demonstrated by the fact that they are already up and running in many countries, and international financial transactions are actually relatively easy to monitor. The idea that a tax must be directly linked to the source of taxation, meanwhile, is patently erroneous. The weight of the civil society initiative, led by Friends of the Earth, was reflected in extensive media coverage as influentia institutions such as Bloomberg reported on the letter.

Civil society has also targetted World Bank President Jim Yong Kim in a joint letter, calling on him to use his position to champion the ‘Robin Hood Tax’, as it has come to be known. CESR added its voice to that of 57 other organizations by signing the communiqué, which provided yet more evidence of the growing civil socity consensus on the practicality and importance of the FTT. The viability of the financial transaction tax is further underlined by the backing it has received from many prominent economists and political actors. Support from leading business figures like Bill Gates and Warren Buffett is mirrored in the endorsement of political and diplomatic leaders such as Kofi Annan, Al Gore and even IMF boss Christine Lagarde.

In a time when multiple crises are exacting a devastating toll on the wellbeing of ordinary people everywhere, political leaders would also do well to remember the human rights principles underpinning calls for the financial transactions tax. The measure would go some way to integrate a modicum of equality and progressivity into a system where these are sorely lacking. Keeping in mind the role high-frequency trading has played in provoking the food and fuel crises, not to mention ongoing economic quagmire in which the world finds itself, the FTT could also help in preventing human rights abuses by third parties, as is required by international human rights law.

But perhaps most obviously, the FTT is precisely the kind of common-sense measure that would help governments comply with their obligation to mobilise the “maximum of available resources” for the protection of economic and social rights. It is estimated that the European FTT could raise in excess of €57 billion (US $75 billion) a year for the protection economic and social rights, while an FTT rolled out across the G20 group of nations could mobilise in excess of $250 billion.

Photograph of FTT demonstrators in Belgium courtesy of Oxfam Belgium

Posted by Luke Holland on October 10th, 2012

Spain answers to UN for rights impacts of crisis response

Amidst the deep economic crisis in which it currently finds itself, the Spanish state has an important date with the United Nations on May 7 and 8 at which it must explain the human rights repercussions of its social and economic policies. When Spain appears before the Committee on Economic, Social and Cultural Rights (CESCR) for the first time in eight years it will be obliged to respond to the international community for its handling of the crisis and for the severe austerity measures adopted to confront it, which are putting the enjoyment of economic, social and cultural rights at risk.

The Committee is one of the international system’s mechanisms for defending and guaranteeing human rights. Lamentably, these are often unknown to much of society. The mission of the Committee on Economic, Social and Cultural Rights is to supervise the application of provisions in the International Covenant on Economic, Social and Cultural Rights by states that have ratified it. This international treaty – ratified by Spain in 1977 – includes binding legal obligations that states must respect, protect and fulfill with regard to the rights to decent work, social security and protection, protection of the family, and an adequate standard of living, along with the rights to housing, education, health, culture and rights at work. The Committee evaluates the degree of compliance with the Covenant, not only in terms of the national legal framework, but also with regard to the translation of these norms into public policies, the resources deployed and the corresponding impact of government action on the full enjoyment of these human rights.

Since the last time Spain appeared before the Committee in 2004, the situation of economic and social rights in the country has suffered a series of reverses, with the economic crisis as a backdrop: unemployment has reached historic levels, affecting almost 24 per cent of the population and half of young people under 25; child poverty is besieging one in four boys and girls; mortgage repossessions have multiplied, resulting in thousands of families losing their homes, and cutbacks are exacting a heavy toll on health and education.

For its part, civil society has produced a number of alternative reports providing evidence of this situation. One particularly strong example is the Parallel Report delivered by a coalition of 19 Spanish NGOs. Some of the organizations which participated in this coalition presented their conclusions and recommendations to the ESCR Committee in Geneva on May 7, in advance of Spain’s examination.

The conclusions of this report point to an extremely worrying situation, confirming the pernicious effects on economic and social rights of the austerity measures adopted by Spain to confront the economic and financial crisis. Similarly, it has become clear that inequality in the distribution of resources in Spain, which in turn leads to differences in and threats to these rights according to geographic location, has increased, while there is a marked absence of specific measures to protect the most vulnerable populations (women, immigrants, persons with disabilities, the Gitano community and children). The report also provides evidence of deficient accountability of the Spanish state and the absence of effective mechanisms to promote real and effective civil society participation in economic and social matters.

In accordance with Article 2 of ICESCR, Spain committed to adopt measures “to the maximum of its available resources, with a view to achieving progressively the full realization of the rights recognized in the present Covenant by all appropriate means”. It can be affirmed, as indeed it was by the United Nations High Commissioner for Human Rights Navi Pillar at the opening of the 48th session of the Committee, that “at a time of dwindling resources and shrinking national budgets, we must insist that such obligations be carried out. (The) Committee has a vital role to play both in discouraging the adoption of retrogressive measures that may negatively impact on people’s  social rights, and in helping to find viable responses to the crises in respect of international human rights law.”

Spain faces a crucial examination to determine whether it is complying with the human rights obligations by which it is bound; it must give account of its progress, or deterioration, in the field of ESC rights.

For more information, see the Joint Submission to the Committee on Economic, Social and Cultural Rights of the United Nations, presented by the Center for Economic and Social Rights and 18 other Spanish civil society organizations in May 2012.  The sessions will be broadcast on the internet at: www.treatybodywebcast.org.

Photo of anti-austerity protesters courtesy of Olmo Calvo.

Posted by Marga Lema Tomé on

Time to address the economic and social rights deficit

We live, it has been said, in an age of rights. Undoubtedly, the world is in many ways a more rights-respecting place now than when the Universal Declaration of Human Rights was adopted 63 years ago to the day. Thanks to the tireless efforts of local human rights defenders and global movements such as Amnesty International, today’s governments are much less likely to imprison people for their beliefs or opinions, subject them to the death penalty or allow perpetrators of political killings and atrocities of war to escape justice. Human rights have become a marker of legitimate governance, and are a central point of reference in the foreign policy and justice system of practically every country across the globe.

But we also live in an age of austerity, in which many governments are rolling back social welfare gains, weakening labour protections and curtailing economic and social rights in the wake of the greatest global recession since the 1930s. How to balance the fiscal deficit, regulate the volatile financial sector and promote sustainable economic recovery are among the key policy challenges of our time, with profound human rights implications. Yet human rights are largely absent from the debate on these issues, whether at national level or in recent international forums such as the G20, the Busan conference on aid effectiveness or the EU Summit discussions on the European debt crisis.  

When it comes to economic and social policy, our leaders seem more concerned to heed the will of the markets than to protect the economic and social rights of their people. In the words of the UN High Commissioner for Human Rights, “political leaders seem to have forgotten that health care, education, housing, and the fair administration of justice are not commodities for sale to the few, but rather rights to which all are entitled without discrimination. Anything we do in the name of economic policy or development should be designed to advance these rights and, at the very least, should do nothing to undermine their realization.”

Economic and social rights are neither new nor optional. The 1948 Universal Declaration proclaimed the right of everyone to an adequate standard of living, including food, housing, health and social security, as well as the right to education and to decent work in just conditions, placing these rights on an equal footing with civil and political freedoms. Its drafters sought to consign to history the abysmal levels of poverty, preventable disease and chronic hunger of the post-war world, as lethally tyrannous and crushing of human dignity as conflict, dictatorship and political repression. They would surely be shocked to see the scale of deprivation and inequality that persists amid the unprecedented affluence of the 21st century.

All states have ratified at least one of the core international treaties addressing economic, social and cultural rights, thereby committing to honour the binding legal obligations these set out. Many have enshrined these rights in their national constitutions. Over the last 20 years there has been steady progress in claiming and enforcing the rights to health, education and housing (among others) through domestic courts and international bodies. The impact of legal enforcement has been literally life saving. A new UN complaints mechanism on economic, social and cultural rights, adopted three years ago today, is likely to enter into force next year - a major sign that states are committed to closing the gap in legal protection afforded to these rights.

But economic and social rights must be realized through policy as well as law. Ministers of finance and other key economic and social policymakers seem oblivious to the economic and social rights commitments their countries have signed up to. Yet these must serve as guiding principles of any economic recovery strategy. At the very least, human rights mark a set of red lines which should not be crossed even in times of economic recession: policy efforts should not have discriminatory effects or represent deliberate backsliding on rights; available resources should be maximized through progressive tax reform as well as more equitable spending; and certain minimums, such as guaranteeing a universal social protection floor, must be safeguarded and prioritized in all circumstances.

Matters of economic policy are not the sole preserve of technocrats. They cannot be shielded from citizen scrutiny and participation. There is an increasing clamour for a fairer alternative to the prevailing policy orthodoxy which dictates austerity measures for the majority while protecting the privileges of economic elites. Policymakers must heed these calls for a rights-centred approach to economic and social policy. If they do not, the age of rights may not survive these times of austerity.   

The views expressed in this blog are those of the author and do not necessarily reflect the official position of CESR.

Posted by CESR Executive Director Ignacio Saiz on December 10th, 2011

G-20 and financial regulation: what’s at stake for economic and social rights?

By CESR Senior Researcher Niko Lusiani.

It’s time for the self-selected rulers of the economic and financial universe to meet once again, this time in Cannes, France, to debate amongst other things financial regulation. So what’s at stake for economic and social rights?

In the midst of growing public resistance to rising inequality and an economic recovery biased toward the financial elite, the Group of 20 governments will meet later this week to thrash out several issues of fundamental importance to economic and social rights, perhaps most importantly financial regulation. As part of our ongoing efforts to defend against austerity-driven cutbacks and promote human rights-centered economic policy alternatives, my organization the Center for Economic and Social Rights (CESR) has joined the Center of Concern, Social Watch, CIVICUS and over 180 other social justice organizations from 54 countries to urge G-20 governments to meet their legal obligations to respect, protect and fulfill human rights by endorsing human rights-centered stimuli measures, preventing speculative activity that undermines the enjoyment of human rights, and preventing future financial collapse from harming public resources needed for human rights fulfillment. As part of their human rights duties, G-20 governments should also ensure financial institutions pay for the human rights costs of the crisis, and cooperate in increasing transparency and mutual accountability in the raising of revenue.

Human rights-centered economic stimulus measures

The global recovery so feted six months ago is now teetering, if indeed it ever really stood on its own feet. As we approach the brink of another global recession - this time driven largely by fiscal austerity policies and continuing financial instability  - peoples’ access to such basic rights as food, clean water, employment, affordable housing, quality education, social security, and a decent retirement - all of which are already under severe strain - are facing an ominous future. Participatory, transparent, accountable and non-discriminatory economic stimulus measures, on the other hand, can boost demand for goods and services (and thus economic activity) by putting resources into the pockets of people who have no choice but to spend them because of the immediate economic and social deprivations they face. In restoring economic activity (and thus revenue), stimulus measures can also provide the conditions to later pay down any unsustainable public deficits, while also contributing to the building of social, physical and human assets which are the pillars of a productive economy. And the options available to G-20 governments are not hard to find. They include gender- and environmentally-sensitive public infrastructure programs, transformational universal social protection systems, debt restructuring programs to relieve people of onerous housing or student debt burdens, and measures to increase the disposable income of the poor.

Gambling on famine: financial market speculation in commodities

Since the financial crisis, prices in certain commodities - oil and food in particular - have become more and more volatile. As a result, governments and the people they work for have been facing serious economic and social rights challenges, as more and more people are driven into hunger and malnutrition, thus eroding even further the prospect of achieving the MDGs by 2015. The 2008 food crisis, for example, was driven to a large extent by opportunistic commodity trading. The question that begs to be answered, therefore, is from whence has this volatility come? Study after study after study have shown that speculation in commodity derivative markets by globally-significant financial institutions like Goldman Sachs is a significant cause of this rights-threatening volatility. Even the UN Special Rapporteur on the Right to Food has attested to the links. While the US has taken some tentative regulatory steps to lightly reign in this speculation, a concerted global approach is needed. G-20 governments can make a start on meeting their obligations to prevent rights infringements stemming from financial speculation by bringing over–the-counter derivatives to public exchanges, establishing meaningful position limits on commodity derivatives, setting up of circuit-breakers, compulsory delivery or altogether banning certain types of derivatives trading in exchanges under their jurisdiction.

Which are too systemically important to fail: banks or human rights?

Over four years after the deepest financial crisis in 50 years, governments - and in particular the US administration - are no closer to guaranteeing that financial institutions will not pose a repeated threat to the global economic system. Will governments once again be forced to bail out banks with public funding at the expense of human rights? Large and complex financial firms, some of them operating in dozens of jurisdictions, have successfully resisted calls to reduce their complexity or size. They are able to profit from the tax and regulatory arbitrage that such a position makes possible, while their intricacy and enormity limits the chance they can be successfully resolved without disrupting vital banking activities in the event of a collapse.

This situation represents a tragedy of the highest order, and is an offense to governments’ legal obligations to take legislative and other steps to prevent and protect against foreseeable systemic human rights infringements by the financial sector. In order to fulfill their duty to protect human rights by preventing further systemic risks, the G-20 governments must undertake measures to reduce the size and complexity of systemically important institutions. This would mean breaking up large firms through direct regulatory intervention, if necessary. Banks cannot be allowed to gamble other peoples’ life-savings away, and so proprietary trading must be firmly separated from traditional banking services.

Governments must make a simple choice. Which are too systemically important to fail: individual private banks or fundamental human rights guarantees?

Bank capital requirements to prevent human rights harms

Like much in the era of liberalization and privatization, governments continue to rely on banks themselves to monitor and police their own capital requirements, in keeping with a model that still holds sway under Basel III’s new global regulatory standard on bank capital adequacy. The regulatory blind-eye afforded to banks, enabling them to hide the true extent of their risks (both to themselves and the global economy), was a significant contributing factor in the 2007 financial crisis which reeked havoc upon human rights worldwide, causing over 400,000 deaths of children in 2009.

Discipline and human rights protection can and must be instilled. In the short to medium term, governments should see regulation of banking services as one essential tool to enhance enjoyment of human rights for all. Instead of giving breaks to manipulative private financial institutions, governments should use regulatory tools to ensure substantive financial equality by protecting the poor and disadvantaged, and, where necessary, allowing for direct state engagement in the provision of banking services.

In the long-term, governments are going to have to replace the existing Basel III requirements with a framework for banking regulation that fully recognizes the duty of states to prevent, protect against and provide effective remedy for human rights infringements caused by irresponsible private financial activity. Stronger capital requirements will no doubt eat into the record profits of the financial sector, and so we can expect them to continue to fight and even blackmail everyday people by withdrawing credit from the economy. Nevertheless, there is little justification for their grievances when these institutions continue to enjoy record profits, pay record bonuses, and claim to operate on a highly efficient basis due to their artificially large size.

Tax justice: raising available resources for economic and social rights

Ask any government why it’s failing to live up to its legal commitments to fulfill the human rights to health, education, social security, work, or any other economic or social right, and they’ll likely tell you they’re broke. Yet, sources of financing are abundant. Governments are in fact obliged to expand their fiscal space under the International Covenant on Economic, Social and Cultural Rights in order to deploy the “maximum of their available resources” either domestically or through international cooperation to fulfill economic and social rights. What’s more, this obligation does not apply only to the resources under their command now; it also considers those resources which can come under their command in the future via more progressive taxation or financial regulatory policy, for example.

Unfortunately, quite the contrary has occurred over the last three decades, as freedom of capital and investment has generally led to more indirect and regressive tax policies which by definition disproportionately affect poorer and middle-income households. Instead of being held financially accountable for their role in the ongoing financial crisis, governments have for the most part failed to take an obvious first step by making banking and investment institutions and the rich pay their fair share. A once-in-a-generation deal on financial transaction taxes supported by Germany and France could raise substantial sums for desperately under-resourced economic and social rights programs, if it weren’t for the United States, Canada and surprisingly India blocking it. Illicit financial flows - estimated to add up to $1-1.6 trillion per year (more than 10 times worldwide foreign aid) - meanwhile continue to starve governments of essential sources of funding. Those states which facilitate tax evasion and corporate tax holidays, house tax havens, enable secrecy jurisdictions or are otherwise complicit with such illicit cross-border flows should live up to their obligations to cooperate internationally by putting an end to actions or omissions which prevent governments from raising the resources needed to fulfill their human rights obligations and get the economy back on its feet again.

The G-20 countries must acknowledge their responsibility to protect people against the vagaries of an out-of-control financial system, and act before it’s too late.

Niko Lusiani is Senior Researcher with the Center for Economic and Social Rights. Photo of Wall Street protester by Runs With Scissors/Ken Stein Photography. Photo of Mumbai slum by Luke Holland. Photo of President Obama at previous G20 summit courtesy of Downing Street, London. Photo of Afghan child drinking from water tap courtesy of United Nations Photo.

The views expressed in this blog are those of the author and do not necessarily reflect the official position of CESR.

The statement signed by CESR and 185 other social justice organizations can be accessed below:

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