2009/02/16

Submission by Social Watch to Stiglitz Commission on Reforms to the Global Economic and Financial System

Social Watch

Social Watch is a network of citizen coalitions in over 70 countries monitoring the commitments of governments and international organizations to eradicate poverty and achieve gender equality. Social Watch has been reporting on social development issues every year since 1995 and in that process we have frequently addressed issues related to global finances and its governance. In particular, the 2006 Social Watch report was titled: “Impossible Architecture: How the financial structure is not working for the poor and how to redesign it for equity and development”. The 2008 Social Watch report, titled “The Answer is Rights” looks at the relation between Human Rights and the economic rules (and deregulation) brought by globalization. Social Watch has been an active participant in the 2002 Monterrey conference on Financing for Development and its 2008 follow-up conference in Doha.

Based on that experience and evidence gathering from the grassroots, the secretariat of Social Watch has formulated the following

10 measures to fight global recession and bail out the poor

1. Invest in people
   Anti-cyclical stimulus packages to reactivate the economy should at the same time invest in human resources, by improving the educational and health infrastructure and the provision of essential services like clean water, sanitation and electricity.
   
   
2. Promote Human Rights
   Human Rights, including gender equality, full employment and decent work and the necessary means to achieve 'dignity for all', should not just be mentioned in the preamble of international agreements, but mechanisms should be put in place that ensure compliance and make global corporations and international organizations accountable to HR obligations. This includes preventing national policy space from being eroded by policy conditionalities that erode democratic governance mechanisms like parliamentary oversight. Lack of oversight and regulation by accountable authorities is one of the main causes of the present financial crisis.
   
   
3. Green economy
   Rebuild a green global economy that respects and preserves our global common goods, prevents further global warming and ensures a sustainable, safe and clean environment for future generations. The introduction of a carbon tax, in this context, can be an efficient measure not just to combat global warming but also to compensate developing countries for the additional asymmetries created by increased subsidies and protectionism in developed countries.
   
   
4. Trade
   The financial service liberalization and deregulation measures included in bilateral and multilateral trade and investment agreements need to be reviewed. The Doha Round trade negotiations should separate the financial services agreements from the “single undertaking” package, so that any gains for developing countries in market access are not undermined by the increased vulnerability introduced by being forced to resign to key financial control and oversight mechanisms.
   
   All current trade negotiations both on the multilateral and bilateral level must be put on hold until the necessary firewalls to protect the financial system from future shocks are put into place, and until a better understanding is reached on the links between trade policy and financial stability at this moment.  Both bilateral and multilateral (GATS) trade agreements that call for the deregulation of financial services and the elimination of performance requirements for foreign investments should be renegotiated.
   
   
5. Stop the leakages: Control capital flows
   Capital control measures, such as deposit requirements to discourage short term speculative investors need to be reintroduced as part of the tools available to governments to avoid capital flights and speculative attacks. Taxation of international financial transactions, in the form of a Currency or Financial Transaction Tax can help to generate the resources required to “bail out the poor”. In addition, coordinated policy measures are necessary to allow for control of poverty generating illegal activities, from money laundering and tax evasion to transfer pricing in intra-firm trade and corruption.
   
   
6. Nationalize the banks
   Financial institutions that are “too big fail” and perform such a vital role for the real economy that deserve to be kept in business with taxpayers money, while the state takes the risk of guaranteeing deposits, ought to be in fact run under strict governmental supervision, with limits imposed on executive compensation and dividend payouts. The stakeholders that require losses to be socialized have no moral claim to privatize eventual profits and those institutions should thus be subject to the transparency and accountability rules of other state-run services.
   
   
7. Tax cooperation
   Shut down secrecy jurisdictions, the shadow banking system and offshore financial centres (OFC) as a way to eliminate cross-border tax evasion and capital flight and limit the scope for future tax avoidance, in order to mobilise much-needed resources for sustainable development. As first step, strong regulation on bank transfers to OFC need to be developed. Ultimately, an international tax organization under UN auspices is needed for the democratic control of taxation, i.e. to combat tax competition, tax evasion and corrupt capital flight. As a first step, the UN Tax Committee should be upgraded considerably.
   
   
8. Reform the IFIs
   The structure of the IFIs should be redesigned reflect the current balance of economic and political power in the global system.  In addition, technical capacity building mechanisms should be put into place to ensure a more effective participation of the LDCs in decision making processes regarding the IFIs both on a national and multilateral level.  The mandate of the IFIs should be reduced to their original purpose of being the guarantors of a stable economic and financial system, without intruding on the policy space of developing countries, especially in regard to social, labor and environmental policies.
   
   
9. Debt mechanism
   Establish an internationally applicable, transparent, impartial and comprehensive process to resolve debt crises, to judge what debt is unsustainable or illegitimate, and to ensure that international obligations on human rights take priority over debt servicing. Furthermore, establish guidelines for responsible, democratic, accountable and fair lending and borrowing, which promote sustainable and equitable development.
   
   
10. Inclusive negotiations
    The negotiations on a new international financial and economic architecture need to be fully inclusive, therefore the United Nations must be at the heart of these negotiations, with the aim of introducing an equitable, sustainable financial architecture to allow strong democratic representation and involvement of decision-making by developing countries – including equal voting rights. The voices of civil society should also be allowed to be heard during the negotiation process. The G-20 and G-8 are not the legitimate forums in which to resolve the financial crisis.