The Finance Curse

occupation Jersey 2007 by Pat Lucas


How over sized financial centres attack democracy and corrupt economies

By Nicholas Shaxson and John Christensen

It is now well known that many countries which depend on earnings from natural resources like oil have failed to harness them for national development. In many cases it seems even worse than that: for all the hundreds of billions of dollars sloshing into countries like oil rich Nigeria, for instance,

such places seem to suffer more conflict, lower economic growth, greater corruption, higher inequality, less political freedom and often more absolute poverty than their resource poor peers.

This paradox of poverty from plenty has been extensively studied and is known as the Resource Curse.

This book asks whether some countries with over sized domestic financial centres may be suffering from a similar, and related, phenomenon.

We find strong evidence that the answer is yes and not just for reasons related to the Global financial crisis that erupted in 2007/8.

Perhaps, more surprisingly, this phenomenon that we are calling the Finance Curse is similar in many ways to the Resource Curse, there are big overlaps in both their causes and their effects.

The Finance Curse has been evident for decades and if untreated it may well endure for years or even decades after the latest crisis has blown over.

Every economy needs its financial plumbing and for decades academic studies suggested that bigger is generally better when it comes to financial sector growth.

The crisis has called all that research into question. New evidence is starting to emerge from the IMF, the Bank for International Settlements and others, revealing that above a certain size finance turns bad.

Our book, drawing on our many years of hands on experience of both resource dependent countries and finance dependent ones, goes far beyond the boundaries of their research to create an unprecedented comprehensive body of evidence about the perils of over sized finance.

Despite the trillions flowing into and through the City of London, for instance, Britain performs worse on major human development indicators – inequality, infant mortality, poverty, and more – than Germany, Sweden, Canada and most of its other rich country peers. Each ailment has many explanations, but over sized finance appears to be a major contributor.

The Finance Curse is a story about “Country capture” where an over sized financial sector comes to control the politics of a finance dependent country and to dominate and hollow out its economy. Some elements of this ‘capture’ are already well understood but our book introduces a wide range of new ideas and analysis.

In large finance dependent countries such as Britain or the United States, the Finance Curse’s causes and effects are masked by background noise in large, raucous democracies.

But in the small finance sectors and tax havens such as the Cayman Islands or Cyprus, these complexities are stripped away and the phenomenon is laid bare in purer, more crystalised forms which are easier to see and understand.

The tax havens, which we have studied extensively, carry important lessons – and warnings for larger finance dependent countries.

The Finance Curse is published by Tax Justice Network, you can download it here

DEFRA rethink air pollution testing changes

Defra are now rethinking their changes to air quality measuring after a strong public response to their proposed changes.

You can download the Defra have report on the outcome of the consultation on their proposals to significantly weaken air quality reporting and control in England here.

They acknowledge that there is little support for abolishing the requirement for local authorities to declare Air Quality Management Areas in locations with particularly high pollution levels and they will now reassess their proposal and issue a new consultation in mid-2014.

A big thanks to everybody who took part in the response to this consultation – because of the big response from the public via a number of organisations it looks like Defra’s unacceptable proposals are being taken off the table.

Biomass electricity = forest destruction and land-grabs

Clearcutting of coastal native hardwood forests in North Carolina – Drax is burning pellets from native forest logging in this region. Photo: Dogwood Alliance

Campaigners have reacted angrily to Government announcements on Wednesday setting out increased support for new biomass power capacity through “strike prices”.  High levels of long-term subsidies have been guaranteed for the partial conversion of Drax Power station to biomass (allowing both to avoid having to shut down), for the biomass conversion of the currently closed Lynemouth Power station and for a large new biomass plant proposed by MGT Power at Teesside Port. Coal to biomass conversion strike price is £105 p MWh. Dedicated biomass will get £125 p MWh guaranteed.

MGT Power’s plans have already been implicated in land-grabbing in Brazil for eucalyptus plantations, [2] whilst Drax has been shown to have burnt pellets sourced from the clear-cutting of ancient wetland forests in the southern US. [3] Overall, further support was announced for more than 4GW of biomass capacity, which will see operators burning almost 30 million tonnes of green wood a year and receiving approximately £ 1 billion in subsidies for this annually. [4] Drax has already been guaranteed around £198 million in subsidies for biomass conversion under an existing subsidy scheme.  30 million tonnes of wood is equivalent to three times the UK’s  total annual wood production.

Oliver Munnion, Biofuelwatch co-director said: “This announcement speaks volumes about the true nature of UK renewable energy policy. Billions are being thrown at old, inefficient coal-fired power stations in a desperate attempt to keep them generating, whilst new, equally inefficient dedicated plants implicated in land-grabbing are also receiving support. Burning 3 times as much wood as the UK produces every year is not the way to reduce emissions – it’s a smoke screen for the business-as-usual agendas of Government and energy companies.” Continue reading