The Systemic Approach to International Financing for Development and the Need for a World Tax and Financial Organization

Abstract

Monterrey Consensus (MC) inspired hope that some progress would be made in international financing for development (IFfD). However, at the beginning of a new decade, private capital flows continue to exhibit their defining characteristics (scarcity, spatial concentration, volatility and reversibility), the debt problem continues to limit the development prospects of many less developed countries and Official Development Assistance has remained as the insufficient final element of the whole system. Moreover, the consequences of global financial and economic crisis highlight the need for reforming the current financing system and the need to redesign key aspects of the international financialisation process. Hence, a systemic (holistic) approach to IFfD is required. This article analyses the recent evolution and current status of IFfD, examines the relationship between the current model and international financialisation, and proposes a set of measures intended to remove the bottlenecks that currently are found in both processes; most of these converge on the need for a World Tax and Financial Organisation.Le Consensus de Monterrey a suscite´l'espoir que des progre`s seraient re´alise´s dans le financement international du de´veloppement. Pourtant, en ce de´but de de´cennie, les flux de capitaux prive´s continuent de pre´senter les meˆmes caracte´ristiques (rarete´, concentration spatiale, volatiliteé t re´versibilite´), le proble`me de la dette limite toujours les perspectives de de´veloppement d'un grand nombre de PMA, et l'APD reste le dernier e´le´ment faible de l'ensemble du syste`me. En outre, les conse´quences de la crise financie`re et e´conomique mondiale mettent en exergue la ne´cessited e re´former le syste`me financier actuel et de remanier certaines dimensions-cle´s du processus global de financiarisation. Ainsi, une approche syste´mique (et holistique) du financement international du de´veloppement est requise. Cet article analyse l'e´volution re´cente et l'e´tat actuel du financement international du de´veloppement, examine le lien entre le mode`le actuel de ce financement et la financiarisation internationale, et propose un ensemble de mesures destine´es a`e´liminer les goulets d'e´tranglement qui aujourd'hui entravent les deux processus ; la plupart de ces mesures appellent a`la cre´ation d'une Organisation Fiscale et Financie`re Internationale.

International Financialization and the Systemic Approach to International Financing for Development

“…In addition to the role of IFL in the financialization of DE/LDCs there are undoubtedly other contributing factors, such as the affluence of short‐term and volatile capital, the entry of multinational corporations and global banking institutions in their productive systems and the proliferation of financial derivative instruments. However, in our opinion, the key element of financialization in the developing world is its international dimension and specifically IFL, which is characterized by a dysfunctional process of liberalization, deregulation and internationalization of financial markets based, from a theoretical point of view, on the fundamental theorem of welfare economics and the hypothesis of efficient financial markets (Agüera Sirgo and Garcia‐Arias, ; Garcia‐Arias, ) in a context of lax or nonexistent government regulation (Arestis, ; Vasudevan, ; Painceira, ; Garcia‐Arias, ).…”

“…It is also important to implement a clear and audacious regulation of tax havens. All of these points encourage us to recommend the establishment of a World Tax and Financial Organization (WTFO) (Garcia‐Arias, ).…”

“… See Garcia‐Arias (, ) and Garcia‐Arias et al. () for a more detailed analysis of the IFfD system, empirical data and additional references. …”

European Periphery Crises, International Financial Markets, and Democracy

“…For most of the decade preceding the explosion of the crisis, large and lingering current accounts surpluses and deficits generated net flows of capital, causing significant effects both in those economies with external financing capacity and in those with financing need (excessive domestic demand in some of the most advanced economies, overabundance of savings, and scarce investment opportunities) (Garcia‐Arias , ). However, the most important element is the symbiotic relationship that was established between export‐led growth in a certain group of economies and leverage‐led growth for others, which generated large gross flows and enormous creditor positions on the part of exporting countries toward importing ones.…”

“…Finally, the fact that the neoclassical mode of thought became hegemonic in economics (see Saad‐Filho and Johnston () for an excellent analysis) has implied the elevation of mere performative beliefs to an axiomatic rank (Lawson ). For instance, the international financialization of capitalism established the definitive impulse for the transition from an industrial capitalist model to a purely financial one, thus making possible the practical performance of a “casino economy.” Some of the most plausible and dramatic consequences of this process are related to a disproportionate increase in the resources exchanged on financial markets, with the strengthening of systemic risk, with the recurring presence of banking, currency, and financial crises, or with the guarantees that national public sectors and international financial institutions have come to offer to the entire process, intensifying the problems related to moral hazard (Agüera Sirgo and Garcia‐Arias ; Garcia‐Arias ; Toporowski ).…”