CAPITALISM'S ACHILLES HEEL Dirty Money and How to

352 CAPITALISM’S ACHILLES HEEL
back to the poorer countries. It does no good when western laws and commercial
practices encourage export revenues to stay abroad and not be
repatriated back to exporting countries. More important than encouraging
exports, clean up the global financial system.
Doubling or tripling foreign aid is touted as the best thing richer
countries can do for poorer countries. I’m all for foreign aid. Provided
the aid-giving countries don’t take vastly more illegally out than the aid
they are putting in. At the moment, the ratio is about $10 out for every
$1 in. But $10 out and $2 or $3 in doesn’t make much better sense. Far
more important than multiplying foreign aid, clean up the global financial
system.
Foreign investment was in the past and, for many, is still seen as the
strongest contributor to progress in poor countries. I’m all for foreign investment.
Provided such investment is intended to earn properly declared profits
and pay dividends to overseas shareholders, rather than simply serving as a
vehicle for transfer pricing in order to shift untaxed earnings offshore. Foreign
direct investment into developing and transitional countries has in recent
years declined from earlier highs and has been limited to a handful of
economies, particularly China. To make FDI work effectively, clean up the
global financial system.
In fact, more important than all four combined—free trade, export
promotion, economic assistance, and foreign investment—clean up the
global financial system. Or, to put it differently, all four are made far
more effective by cleaning up the global financial system. At an estimated
$500 billion a year of illegal proceeds streaming out of poorer countries,
the best thing the West can do for the rest of the world is to curtail this
flow, thereby leaving hundreds of billions a year in poorer countries to
stimulate investment, boost trade, improve tax collection, pay for education
and health, reduce poverty, and stabilize weak states. Market institutions
rather than governments have the major role to play. The
constituency committed to reducing poverty and inequality must be
broadened to include western corporate and financial sectors. Business
and banking communities should themselves be saying, “If this is our
contribution to a better world, a fairer and more just world, then so be it.
This is a step we can and will take.”
Running capitalism right means cleaning up the global financial system.