Alchemy & Oxfam

oxfam logoI know it is a cliché, but if something seems too good to be true, it probably is.

Oxfam’s new campaign urges us to believe that they have designed a package of measures that would give $280 billion to the world’s poor “without putting any extra burden on ordinary taxpayers.”

That would be terrific. But why stop there?  Why not make it twice as big and fix climate change while we are at it?  Now that we’ve invented a free money machine, the possibilities are limitless …

Oxfam’s three ideas are a Currency Transaction Tax, reallocation of Special Drawing Rights, and clamping down on tax havens.  These may all seem like painless taxes, but that ignores the reality that these additional costs will be passed through the system and the costs will, in the end, be an extra burden on ordinary taxpayers.

For example, I’m all in favour of international companies paying more tax in the countries where they create value or extract resources rather than in low-tax rich countries. I am in favour of changes to the tax rules, and increased information sharing, to make that happen.   But on the happy day that multinationals start paying more money in tax to developing countries, that money is going to come from someone – shareholders (that’s our pension funds and some rich individuals), customers (that’s us), the workers in that business (us again) or from less tax paid to our own government (that’s more tax for us to pay, or less money for public services).

Similarly, currency transaction taxes and giving away the seignorage from issuing SDRs will impose costs on businesses and government which will eventually be borne by “ordinary” people. (Actually hardly anybody is ordinary, but that is a point for a different day.)

Oxfam is making a classic mistake of confusing how a tax is levied with its eventual incidence.  When you put up a business tax, who pays?  Clearly not the business on which it is levied, because it isn’t a person.  The tax will be paid by some combination of the shareholders, customers and workers – the exact incidence depending on things like how competitive are the markets in which the businesses are operating.

Who exactly does Oxfam think is going to pay for the extra $280 billion of benefit to people in development countries?  If they want the cost to be borne by the rich, a far simpler and more reliable mechanism would be to introduce a higher rate of income tax on the rich.

To pretend that none of this will add to the burden on ordinary taxpayers makes Oxfam sound, at best, naiive; at worst they are setting out to deceive.

I am strongly in favour of spending more money on international development.  Peter Singer’s book, The Life You Can Save, sets out how much can be achieved with a modest contributon from each of us.  Let’s be honest about what is needed, and the very small sacrifice that is required, and not pretend that we have invented a perpetual energy machine or found ways to turn lead into gold.

4 thoughts on “Alchemy & Oxfam”

  1. Great post Owen.
    I’d add that Oxfam is being similarly deceitful in their report “Blind Optimism” about the private health sector in developing countries. The number of times where the information is selectively chosen, and then misinterpret is sufficient for me, in any event, to rule out naivete.
    Here’s a letter to the BMJ rightly challenging much that is in the report
    I pointed out some of the misrepresentations and (willful?) misinterpretations in my CGD blog

    I greatly regret this turn at Oxfam, as I have great respect for many of their activities, and the dedicated people who work there. I hope they will reconsider this particularly type of unhelpful policy advocacy.

  2. hmmm, I guess the difference is between thinking in terms of the economy and the political economy. As an economist, you are right of course, no such thing as a free lunch etc etc. To a political economist, some ways of raising revenue are clearly more feasible than others. It may be morally right to follow Senger’s suggestion (and hey, that’s how Oxfam raises most of its money), and more straightforward to introduce something like a hypothecated addition to the top bands of income tax, but the first is unlikely to raise the kinds of amounts needed, while the second would run into massive opposition. We have just lived through a year of financial alchemy (money out of thin air), much of it of the wrong kind. I guess we are arguing for a spot of ‘pro poor alchemy’ to redress the balance.

    As for April, she clearly has some kind of issue with Oxfam, but we (and others) have already responded on the CGD website to her rather intemperate criticisms( – odd that she fails to put a link to that on her comment!

    Owen replies: Thanks Duncan. With respect, the press release does not say that these taxes would be politically feasible because the costs would be borne broadly across the population and hence relatively invisible. It says that the money will be raised “without putting any extra burden on ordinary taxpayers” and that just is not true. Those of us who believe in global social justice should be resisting financial alchemy, not trying to get our snouts in the trough.

  3. Thanks for this Owen

    You are of course right- it is not strictly money for nothing. All taxes are passed on to some extent in one way or other. However, these three ways of raising money do not have an immediate effect on the budgets of governments in rich countries, which are currently hard pressed, and that is why we would think they would be more likely to be considered by the G20 than say meeting 0.7% now. Both the tax haven crackdown and the tobin like tax would also create more tax revenues in rich countries, which would be good for public services that are facing cuts. The cost of SDR transfer is indeed an issue, but the proposals on the table are to use IMF internal resources to do this.

    With this media brief we were trying to speak to the issues of the moment- we know there is some discussion of transferring SDRs- and doing this in a way where the interest is borne using the IMF’s own resources. We also know that a small tax on currency transactions in the wholesale market would raise billions and has more political salience now than in a very long time. Equally cracking down on tax havens; this issue too is getting some discussion in the G20 but not enough. With media briefs such as this one we are seeking to push issues that are being discussed right now, and sadly a global income tax on the rich is not on the table at the G20 much as I too would love that to be the case.

    In response to April’s post, our paper Blind Optimism,

    is a far more detailed and seriously researched paper; we have responded in detail to both the criticisms she has provided links to, both of which were based on a misreading of our intention and our data in the report (these responses are included at the same address). The debate over health provision is a deeply fractious one, and April has very strong views to the right of the political spectrum that disagree with ours. I would strongly encourage your readers to read our paper and our responses to the criticisms made and make up their own minds.

    Owen replies: Thanks Max. I appreciate you taking the time to reply. I continue to believe this is an irresponsible campaign which undermines Oxfam’s credibility as an organisation that is willing to speak truth unto power.

    An honourable argument would be that at a time when we are willing to spend a lot of money bailing out our own economy, we should not forget the world’s poor, whose predicament is far worse than our own. The amounts of money are small and the impact would be dramatic for the people affected.

    I do not think it helps anyone to suggest that there is a way to get this money to poor people without taking it from the pockets of people in rich countries – whether through their taxes or in some other way. By pretending otherwise, you undermine the point that we should all consistently focus on: the amounts of money at stake are relatively small and completely affordable. We don’t need alchemy, we need some honesty and to make choices that recognize the value of the lives of others.

  4. Your post raises a broader and important issue which is whether charities should be using donations to fund campaigns that are only tangentially connected to the purpose for which they have been formed. A private donor might reasonabley expect his funds substantially to go to the needy in developing countries. If he had read the Oxfam website he would find that his donation would “make a real difference to people’s lives around the world and help eradicate the causes and effects of poverty and injustice”. He would understand that a small proportion of his donation would go to administration expenses but, without examining the accounts, would hope this would be not more than 10% and ideally less than 5%. What he might not realise is that Oxfam is becoming a campaigning organisation using questionable economics to advocate policy to the G20 finance ministers, is leading a demand to world leaders gathering in Copenhagen in December for a meeting on climate change, and so on. I am surprised that Oxfam’s constitution allows such use of its donors’ money. I am surprised that the Charities Commission sanctions it. I would advise a private donor to give funds to smaller charities who deliver food, equipment, etc. to the places that need it and will not syphon off part of his donation for loosely connected campaigns.

    Owen replies: Thanks Anthony. I’m personally in favour of Oxfam spending money on these campaigns, which I believe are likely to make more difference in the long run to the world’s poor than delivering food and equipment. I give money to Oxfam and shall continue to do so. Oxfam has had remarkable success in persuading donors to commit to bigger aid budgets, debt relief and to a fairer trade deal – and though not all of these have been delivered yet, I’m sure that the benefits are far larger than if Oxfam had used the money for service delivery instead of campaigns. But I agree that if you are not in favour of such campaigns, you should choose another organisation to give to.

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