Fiscal Futures: Media’s Role in Reporting Fiscal Topics is a Matter of Relevance

Fiscal Futures: Media’s Role in Reporting Fiscal Topics is a Matter of Relevance

This post is part of the Fiscal Futures blog series exploring some of the biggest issues that fiscal accountability enthusiasts are likely to encounter over the next 10 to 15 years. Learn more about the Fiscal Futures project and download resources here.

Topics such as fiscal policy, accountability, and fiscal justice do not usually generate sweeping media coverage. Fiscal issues are among the kinds of stories that media producers would probably rather leave to economists and academics, or NGOs specialized in this field. Why? Because these topics are complicated, not easy to break down, and hard to visualize – in short, they’re not “sexy” stories. For these and other reasons, journalists and the media have largely stayed on the fringe of fiscal accountability research. Yet recent exposés such as the Panama Papers show that the media can still make powerful contributions to the greater fiscal transparency cause.  The question is whether, given current digitalization and ownership trends, the media can consistently rise to this challenge.

The “media” is a commercially driven industry and therefore has its own strengths, weakness, and idiosyncrasies. Let’s break down the “media” and look at journalism as the primary source of news. Journalism is still considered the intellectual backbone of today’s media industry, but like most other media products, journalistic products are considered content that has to sell, and therefore favors storytelling over — allegedly — dry facts.

Journalism usually only covers bits and pieces of fiscal issues and rarely covers the whole picture. Stories about corruption and other sorts of white-collar crime touch on one aspect of fiscal accountability, because obviously there is a market for that line of reporting. Beyond that, the business journalism niche covers complex topics like public budgets, tax, corporate finances, central banks, and the markets. However, this type of journalism is tailored to decision makers and professionals who work in these fields and understand the context and jargon. While business journalism covers fiscal decision making and public budgets, for example, these stories go mostly unnoticed by the larger audience.

There’s hardly anything in between those two approaches. Public budgets, public spending, or tax policies often seem to be a blind spot for mainstream reporting. Politicians often are not interested in advertising where public money goes, or how it is redistributed within the fiscal system, and journalists are often not chasing down that information.

Maybe too many media outlets have come to think that there is no merit in emphasizing that kind of coverage – because, supposedly, there is no larger market for it. As a New York Times columnist put it in a column called “Fiscal Ecstasy:” “Budget deliberations in Congress aren’t the most exciting topic in the universe.”

Media headlines from the LuxLeaks investigation. Source: International Consortium of Investigative Journalists

Even though the work of investigative journalists conducting large cross-border investigations such as Luxleaks, the Panama Papers, or the Paradise Papers has led to increased attention on the kinds of stories that touch on fiscal accountability, journalists reporting on them inevitably face a certain dilemma. Audience is often measured digitally, and losing audience, no matter how important the story, can mean instant loss of revenue. Journalists increasingly have to ask themselves: how much detail can the audience be expected to digest? How much fiscal literacy is required to understand the topic? For example, can complex tax matters be broken down without losing the story’s meaning? In struggling with those questions, media has — more often than not — remained on the fringes of fiscal accountability rather than emphasizing it.

Journalists might just be missing opportunities, but it’s not as if there haven’t been any wake-up calls. The most recent came in January 2019 but might as well have gone unheard. A Dutch academic, Rutger Bregman, spoke at the World Economic Forum in Davos, Switzerland, and made headlines by telling a room full of billionaires: “Want to fix the global economy? Then dig deeper. Pay up. Tax the rich.” One does not need to agree with his opinions, but he touched on an important fiscal issue that is a core problem in many countries that were represented in Davos: the so-called “top one percent” of the income pyramid do not pay taxes according to their wealth.

His passionate appeal went viral and drew lots of responses from a larger audience. Why? He made it personal. He challenged people face to face, pointing to a major lack in accountability, transparency, and fiscal justice. He gave injustice a face that, at the same time, made for good storytelling.

The lesson for future media reporting about fiscal accountability: make it personal! It’s important to note that journalists can do this without becoming campaigners or sacrificing their independence and credibility. Fiscal accountability is an abstract notion that is hard to associate with real tangible impact. However, a lack of fiscal accountability translates into a whole chain of tangible consequences: fiscal mismanagement, austerity, corruption, and poverty, just to name a few. And poverty, for example, does have a face. Millions of faces, to be exact, and behind those faces are millions of stories – personal and emotional ones that have winners and losers, fighters, heroes, and victims.

The stories needed to portray the big picture of the inner-workings of fiscal systems and their impact (“fiscal ecstasy”) that deliver exciting and in-depth insight are out there.  They may have been dwarfed by other concerns, but that doesn’t mean they’re not there.

There’s another lesson we can take from Rutger Bregman’s viral success: don’t be afraid to chase down the root cause. In an age in which stories need to become short in order to attract the even shorter attention span of the audience, there is often too little time or space to mention and track down the causes of the problems being reported. That, too, has become a blind spot in many reporting formats. Finding and defining causes for fiscal opaqueness or lack of accountability may require a lot of effort to track down money or chase paper trails, and, eventually, people. This task might involve building new knowledge and making more use of sources and experts who deal with fiscal matters in various fields. But more than anything else, it might mean departing from the traditional agenda and overcoming old habits and blind spots in order to emphasize background, explanatory reporting, and the bigger picture instead of “news only.”

While the latter might seem tantamount to renouncing basic journalistic instincts, the effort is worth it — and it might not only be a “nice to have” — it might be a “must.” In times of enhanced skepticism regarding media, fake news, and an ongoing struggle against declining relevance of quality media reporting, what could be more relevant than shedding light on the public budgets that impact peoples’ lives, peoples’ tax bills, the public goods (roads, schools, hospitals) people use, as well as illicit financial flows which deprive citizens of the very same. While journalists face more and more challenges of press freedom in many countries and regions, it’s vital to remain relevant to their audiences and supporters.

The good news is it can be done, and has been done increasingly in recent years, particularly in cross- border investigations in which journalists are joining forces rather than competing with each other. With the backlash against democracy and anti-press sentiment growing, the need for investigations around issues like corruption and accountability continues to rise. Cross-border investigations have shown that if journalists join forces they can create momentum – even for complex matters and stories. The Panama Papers and Paradise Papers shifted public opinion on tricky issues like tax avoidance, corruption, and illicit financial flows. In the wake of the Panama Papers, heads of state had to resign, millions of unpaid taxes were recovered by states around the world, and tax offenders in many countries turned themselves in. Tax evasion is not considered a trivial offense anymore and tax havens — particularly in Europe — have suffered severe damages to their reputations when it became clear that they were instrumental in the industrial scale of abusive tax conduct.

However, there are substantial challenges ahead for the media. Revenues from advertising, a classic pillar of the business, are declining steadily and irrevocably in many countries around the world. Digitalization will continue to be disruptive and continue to change the face of journalism as well as distribution. Further concentration of media ownership will inevitably follow, which might curb journalists’ ability to serve the public interest and tackle issues such as fiscal accountability. Media integrity is at risk when media becomes more and more commercially driven, or when outlets are primarily loyal to sponsors, or even governments. Like any other industry, media needs healthy, market-based competition – which is eroding and will continue to do so.

Where does this leave us? If journalism is still “printing what someone else does not want printed” and “everything else is public relations,” as George Orwell is often quoted, tackling stories that grow out of fiscal injustice could well be a promising strategy and a way forward. Many recent leak-based financial investigations such as Swissleaks, Luxleaks, the Panama Papers, and the Paradise Papers drew fierce criticism – not from consumers of media, but from those who have been held accountable in the wake of ground-breaking revelations that came to light because of the media.

Petra Blum is an independent journalist working for WDR, a public broadcaster in Cologne, Germany. In 2015, she was part of the Swiss Leaks investigation, studying secret bank accounts and focusing on tax fraud. During the Panama Papers, Petra was part of the team which unearthed the hidden money of people closely associated with Russia’s head of state. During Paradise Papers, Petra helped unravel corruption cases in resource-rich countries like the Democratic Republic of the Congo.

Further Reading

Fiscal Futures: The End of Sovereignty and the Influence of Corporate Power are Twin Challenges to Fiscal Governance

Fiscal Futures: The End of Sovereignty and the Influence of Corporate Power are Twin Challenges to Fiscal Governance

This post is part of the Fiscal Futures blog series exploring some of the biggest issues that fiscal accountability enthusiasts are likely to encounter over the next 10 to 15 years. Learn more about the Fiscal Futures project and download resources here.

Imagine that your ancestors have lived on the shore of Lake Texcoco, in the valley known today as Mexico City, for thousands of years. They have experienced Aztec resettlements, climatic events, and the Spanish conquest of Tenochtitlan. Through it all your family and their identity have survived, inextricably linked to the land and water that sustains you. However, seventeen years ago the government of Mexico first proposed to build a new international airport less than a kilometer from your home, threatening your history, livelihood, community, and environment. Twice now you’ve successfully organized to defend your rights, but now it’s 2018 and the stakes are higher: contracts have been handed out, public debt has incurred, excavation and construction have begun, and the price tag is already over 10 billion USD.

The Texcoco construction site near Mexico City. Credit: Brett Gundlock / Bloomberg

This situation – all too real for the people and communities of Texcoco – has been playing out for months in Mexico. The government of Enrique Peña Nieto hatched its plan in private, appropriating land, issuing bonds, assigning construction and operation contracts, and financing the project largely with public revenue, all while evading freedom of information requests, audits, and scrutiny. Faced with ballooning costs, uncertain revenue, and economic, environmental, and social unviability, the new government of Andrés Manuel López Obrador chose to cancel Texcoco and relocate the new airport to a military base. While seemingly a victory for you and your community, the public burden of the project remains and the loss of confidence in infrastructure projects is indelible.

During the struggle you learned from an open contracting watchdog that five wealthy families are the beneficial owners of over half of the new airport’s contracts, many without having to bid. One of these families also directly finances the project, not to mention numerous revolving door cases between the airport regulator, construction companies, and creditors. Now the new government must take losses to exit these contracts. You also learned that international bondholders and securities investors are reticent to accept the government’s liquidation terms. Furthermore, credit-rating agencies have downgraded Mexican bonds and issued warnings about planned megaprojects.

The new international airport – one of countless examples in Mexico and around the world – highlights twin challenges for fiscal governance everywhere: the end of sovereignty and the influence of corporate power. The power of transnational corporations and global economic and monetary institutions to influence national budgetary and financial decisions, including bond issues, debt pricing, and access to credit, is overwhelming. Similarly, the risk in any given country of the corporate capture of State decision-making is real, whether over public contracting, infrastructure financing, or the regulators themselves.

Facing such obstacles, as a Texcoco resident what reasonable expectation do you have that fiscal governance – both the supply of information (transparency) and the demand for results (accountability) – operates in the public interest? The answer to your question has everything to do with an economic system larger than any one country.

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To tell from the recent World Economic Forum in Davos, fiscal governance is not the topic du jour, nor is the transparency and accountability advocacy practiced by NGOs, philanthropists, and academia. Instead, big business is most preoccupied with the state of global capitalism. Its concern is whether corporate leaders, investors, and the Bretton Woods network of multi-lateral institutions can hold open the floodgates of the world market. Its preference for global leadership favors market-based solutions, not State action (except for police actions in times of perceived crisis).

The main effect of the shift of global capital away from nations as champions is none other than the palpable end of national sovereignty, not only over all things economic, but over public goods and spaces writ large. Where modern liberal politics once existed to defend the commons, today our postmodern world privatizes the public square and exalts private property above all else. This is our new normal, with real implications for fiscal governance everywhere.

The example of Mexico is particularly illustrative, one of numerous cases around the globe. Since the 1980s almost every major industry has been privatized, from railroads to mines, banks to refineries. Also, highways, airports, seaports, and postal services, to name several, have seen varying degrees of privatization. Literally the public square – historic sites, sidewalks, streets, green spaces – has been branded, licensed, leased, or sold to private interests. With transnational corporations becoming the engine of economic change as they take over public functions, including collecting financial flows and other wealth and directing them northward (mostly to the U.S., though that’s changing particularly in the case of China), it would seem that capital has largely replaced the State.

For advocates the question should be: isn’t it time we focus our transparency and accountability efforts on the economic system and the power of global capital?

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The void of national sovereignty, to a great degree caused by global capital and its institutions, has essentially been filled by corporate power. Today, State decision-making – once the manifestation of the public interest – to a varying degree has been captured by global capital and transnational corporations, whereby an oligarchy – through a revolving door of influence between government and business elites, often illegally – obtains and maintains among a privileged few decisive influence over everything from macro-economic policy to procurement.

The case of Mexico is especially flagrant. As of last count, 37 people own or maintain influence over 28% of the national economy through interlocking corporate directorships, the revolving door, and corruption, making it arguably the most unequal country on the planet. Since the 1960s one organization – the Mexican Council of Businesspeople – comprised of the owners of Mexican capital meets regularly with the president or his proxy to engage in a simple quid pro quo: the executive branch provides privileged information to the elite prior to announcing official decisions, for example about megaprojects such as the new airport or the recent oil and electricity privatization, in exchange for the business sector publicly expressing support for the president and his government so as to confer legitimacy. Essentially, in Mexico corporate capture has become institutionalized.

In its own right corporate power is formidable. But in the void of sovereignty and in the presence of capture, well, it’s overwhelming as both the engine of global capital and the determinate factor in public decision-making. With rapidly decreasing mechanisms to legislate and enforce regulations on corporations in any one country, the decisions about multi-billion dollar airports, fiscal flows, country credit worthiness, and the like are more often determined in the executive suite of a transnational asset manager in New York City than in the halls of government in Mexico City.

—–

The campaign to defend your community against the new international airport is an ostensible victory, but somehow feels hollow. This past time elite families benefited disproportionally by winning public contracts. The interests of transnational bondholders, investors, and credit-rating agencies seemed to come before yours, the people of Texcoco. And if not for a change in government the weak State captured by corporate interests would’ve imposed the megaproject over your best efforts. You have no assurances that this situation won’t repeat itself in the future. What role, if any, should fiscal governance play to assuage your fears?

As advocates, our work is at a crossroads. One path leads us to expand our transparency and accountability efforts to the network of companies, investors, and institutions that propagate global capital, incorporating analyses of power and corporate capture into our work, refining and enhancing our governance efforts at home and abroad. Another path – the one we’ve followed until now – leads us to more of the same: diminishing returns in our national strategies as declining sovereignty and increasing transnational corporate power render our efforts irrelevant. I choose the former.

If a fight to reclaim the public interest awaits us, we must boldly but intelligently confront the twin challenges that lie before us. Our efforts must address the human rights concerns of the people of Texcoco. We must learn from and build power with social movements that seek equality and justice, including communities, workers, indigenous peoples, feminists, and many more. We must change the social norm for expectations of fiscal governance, away from technocratic fixes and domestic government engagement to a wider embrace of research, organizing, and accountability efforts. We must make ours a cultural movement for change to re-territorialize the global landscape with postmodern alternatives to global capital. We must think and act globally, as global citizens.

As an example, PODER – one of several organizations contributing to the movement for corporate accountability – fosters local-global campaigning in Latin America by accompanying communities and other stakeholders to gain and wield business intelligence and access to decision-making so as to push back against corporate-sponsored human rights abuses. The objective is to support local “corporate accountability guarantors” at strategic nodes of the global economy to serve as informed, campaign-savvy horizontal accountability mechanisms, essentially checks on corporate power.

As advocates we must also engage critically though constructively with one another to ensure that our efforts do not unwittingly play into the hands of global capital, a system that has proven itself masterful at creating, adapting to, and benefiting from social division and tensions. If we’re smart, we will learn to use a variety of tools, including many contained within capitalism, as weapons in our fight. Shareholder and proxy strategies, expanding ESG (environmental, social, and governance) indicators to include fiscal governance, domestic financial reform legislation, beneficial ownership disclosures, whistle-blowing laws and protections, human rights impact assessments, and so many more means will help us achieve our end.

What will be our new commons, the public square, the public interest re-imagined? To my way of thinking we must “rage, rage against the dying of the light.” As New York City mayor Bill de Blasio said upon Amazon canceling its headquarters expansion in Queens, “We just witnessed another example of what the concentration of power in the hands of huge corporations leaves in its wake. Let’s change the rules before the next corporation tries to divide and conquer.” Fiscal governance will again be relevant – yes, even to the people of Texcoco – and will operate in the public interest when we expand and organize to make it so. Let us prove that democracy is anything but window dressing for capitalism.

Benjamin Cokelet is Founding Co-Executive Director of the Project on Organizing, Development, Education, and Research (PODER), a regional not-for-profit, non-governmental organization whose mission is to improve corporate transparency and accountability in Latin America from a human rights perspective and to strengthen civil society stakeholders of corporations as long-term accountability guarantors.

Further Reading

Fiscal Futures: Can We Turn Tax Competition into Tax Cooperation?

Fiscal Futures: Can We Turn Tax Competition into Tax Cooperation?

This post is part of the Fiscal Futures blog series exploring some of the biggest issues that fiscal accountability enthusiasts are likely to encounter over the next 10 to 15 years. Learn more about the Fiscal Futures project and download resources here.

Governments are engaged in a race to the bottom on corporate taxation. Tax rates are falling and tax incentives are multiplying. This is bad news when it comes to financing development. Citizens must demand transparency and accountability regarding tax incentives, and regional and global cooperation to set a floor under corporate tax rates.

The Sustainable Development Goals call for trillions of dollars of new investments in health care, education, agriculture, climate change adaptation, and more. Most of that funding is supposed to come from domestic resources. The corporate income tax represents a major source of domestic revenue for low-income countries – around 20% of their total government revenue.

Yet corporate tax rates are trending downwards. Last year the world’s largest economy, the United States, dramatically cut its rate from one of the highest (35%) to just below the average of rich countries (21%). The IMF estimates that U.S. tax reform will spill over onto other countries, cutting their revenue from multinational companies by up to 5% if they maintain their current policies, or by as much as 13% if they respond by decreasing their own tax rates in line with current trends.

Chart: Declining corporate tax rates
Unweighted averages. Source: KMPG

In addition to lowering the rate for all companies, many countries shoot themselves in the foot by granting tax incentives to specific industries or individual companies. Incentives include tax holidays (i.e., temporary tax exemptions), special economic zones (i.e., tax-free geographic areas), or reduced tax rates. Governments are desperate for foreign investment and use such incentives to lure multinational companies into investing in their country instead of their neighbors.

Foreign investment is important. But study after study shows that tax incentives are not very effective at attracting it. This is particularly true for extractive industries, where investments are tied to the location of resources, as well as for services like telecoms or tourism, where investments are tied to where customers are. These sectors account for the lion’s share of foreign investment in low-income countries.

Business surveys confirm that taxes are low on companies’ criteria to choose investment locations. The vast majority – 93% in four low-income African countries – of investments that benefited from tax incentives would have been made without them anyway.

Developing countries’ governments forego billions of dollars to tax incentives, often several percentage points of their GDP. That means funding for poverty alleviation programs is cut. It also shifts the tax effort onto workers and consumers. Poor people are hit by a triple whammy.

Why on earth do governments continue to waste money on such corporate giveaways?

Governments uniformly proclaim that they have no choice but to grant corporate tax incentives and reduce rates because their neighbors have done it.

That is not good enough. Perhaps it is just a matter of time and education for the evidence to sink in? After all, the neoliberal ideology has prevailed for years and continues to be hammered in through competitiveness indices like the World Bank’s Doing Business Index or the Tax Foundation’s International Tax Competitiveness Index. Still, mainstream opinion has started shifting.

Or else we are left with considering the worst hypothesis: government officials like tax incentives because they create opportunities for corruption. Oxfam has produced a number of case studies illustrating how private interests manage to shape fiscal policy in Latin America. The International Budget Partnership documents the opacity of decision-making processes for tax incentives in the same region.

Addressing the waste of tax incentives is, at its core, a transparency and accountability issue. The reform agenda is well known. It is not just INGOs like Oxfam, Christian Aid or ActionAid that are advocating for it. It is also pushed by the IMF, World Bank, OECD and UN, including through the IMF’s fiscal transparency code. Even some progressive businesses and industry associations support it. This agenda includes:

  • Tax incentives must be justified based on the national development strategy
  • Tax incentives must be transparent and quantified in the budget
  • Tax incentives must be based in law approved by parliament
  • Tax incentives must be subject to cost-benefit analyses
  • Tax incentives must be available on a level-playing field to all similar companies

National tax justice alliances have emerged to campaign on this agenda in many countries from Uganda to Pakistan. They need help. Any civil society organization that demands government spend more money on anything – from health care to agriculture – should join them, because there is not going to be more government spending without more government revenue. Tax justice alliances should work more closely with NGOs of different sectors to show the human cost of tax incentives and low corporate tax rates. Tax competition is a unifying theme that civil society could push during electoral campaigns. The global Fight Inequality Alliance has been successful at weaving links among groups, telling stories, and mobilizing the public on issues like taxation.

The debt crises that are looming over several countries offer another opportunity for change. Governments typically restore fiscal balance with “turn-key” reforms, like increasing the VAT rate or freezing civil servants’ salaries. Such measures hurt the poor and sometimes trigger large-scale protests. Tax justice alliances should be ready to seize such moments to demand the elimination or reduction of tax incentives for multinational corporations, which can in some cases be implemented quickly.

Emulating ICIJ’s work on tax avoidance, investigative research on emblematic cases of wasteful tax incentives would be helpful generate media attention. Regional scorecards ranking governments in terms of the transparency, governance, and design of their tax incentives could inform the debate as well.

Tax justice alliances could also create forums for dialogue with government officials and business leaders who accept they have a social responsibility regarding taxation. Such dialogue could help share knowledge and build consensus over the right approach to tax incentives.

Such forums should best be held at the regional level, where most tax competition takes place. Although tax is not near the top consideration to locate foreign investment, it is not completely irrelevant. That is especially true in manufacturing, which might explain why corporate tax rates have been falling faster in Asia than in other regions.

National tax justice coalitions should join forces to put tax competition on the agenda of regional institutions. Ultimately governments should gang up and set a floor under corporate tax rates and adopt a joint mechanism to monitor tax incentives.

Further Reading

Fiscal Futures: Can Public Finance Save Democracy?

This post is part of the Fiscal Futures blog series exploring some of the biggest issues that fiscal accountability enthusiasts are likely to encounter over the next 10 to 15 years. Learn more about the Fiscal Futures project and download resources here.

Recall the famous battle cry of the Boston Tea Party, ‘no taxation without representation,’ and acknowledge that control of public resources — the manner in which they are generated and spent — is a central feature of the modern liberal democratic project. What then is the future for fiscal accountability when its enabling political framework — liberal democracy — is under threat?

There is no need to provide a lengthy defense of the underlying assertion, namely that liberal democracy is indeed under severe threat. The alarm bells are ringing for all to hear: they ring loudly in several advanced liberal democracies in which ‘fortress democracy’ once appeared impregnable. Leading the pack is Donald Trump’s U.S., with Italy and Austria right up there. Even benign social democratic Sweden is home to thoroughly anti-democratic forces. These forces are ascendant in some leading new democracies — think Russia, Poland, and Hungary. And they are claiming the political systems and identities of several important large middle-income and developing countries — Turkey, the Philippines, Brazil, and the vaunted Indian democracy.

While each instance of transition from democracy to authoritarianism is deserving of its own account, there are several strikingly common features. Each of these transitions has been driven by a democratically elected leader — the generals and colonels of yore are, with few exceptions, conspicuously missing in action.

No sooner have these demagogues been elected to office, than they turn on the institutions of the democracy. The possibility of future electoral defeat is forestalled by gerrymandering and other means of electoral manipulation. Parliamentary opposition is demonized, treated as enemies of the state rather than political opponents, or bought. Then the judiciary and key law enforcement and regulatory agencies are captured, usually by utilizing the powers of appointment to senior positions enjoyed by the head of state or weakened and deeply divided legislatures. Then the traditional institutions of restraint, such as civil society organizations and the media, are vilified — often by casting them as unelected elites in thrall to sinister foreign agencies and individuals.

The hollowing out of the democracy, represented by the neutering of the institutions of accountability and oversight, is inevitably and sometimes paradoxically followed by an upsurge in corruption. ‘Paradoxically’ because some of the demagogues — vide Brazil and India — have come to power on the back of popular outrage at burgeoning corruption. It is the combined effect of the legislature, the criminal justice system, the regulators, the media, and civil society that hold the executive accountable, and that prevents capture of the executive arm of the state by moneyed interests. Remove these essential props of the democracy and all bets are off.

The economic and fiscal architecture of the state will, of necessity, be an early target of the corrupt political elite and their business cronies. South Africa, under Jacob Zuma, is an interesting case in point. It being South Africa, the lucrative, but heavily regulated, mining sector was an attractive target for Zuma’s moneyed co-conspirators and so, drawing on the presidential powers of appointment, the minerals ministry and regulators had to play ball. Public procurement was an obvious target, but in order to corrupt that system it was necessary, but insufficient, to capture the boardrooms and executive suites of the large state-owned enterprises. Given that the members of this corrupt conspiracy preferred not to pay tax, but principally because they could not declare their ill-gotten gains and expose themselves to the enforcement powers of the tax collector, it proved equally necessary to capture the national treasury: the custodian of the public procurement system and the South African Revenue Service. And the Financial Intelligence Centre had to be captured because of its role in monitoring suspicious banking transactions and unmasking attempts at money laundering. And the central bank had to be captured for its role in regulating cross border flows of money.

History will record that much of this was actually achieved although the state capture project ultimately foundered when it became necessary to capture the ministry of  finance, the pinnacle of fiscal policy, although not before major damage had been inflicted on these institutions and, with it, the South African economy.

There are some salutary lessons from attempts to capture the state’s fiscal institutions. Pre-Zuma South Africa boasted fiscal institutions that were not only characterized by the integrity of their leadership but also by their technical excellence. Think especially the National Treasury, the South African Reserve Bank, and the South African Revenue Service, which was widely regarded as one of the most effective revenue collecting agencies in the world. Yet this once impressive institution was trashed in a fraction of the time it took to build. Hundreds of key staff were driven out. Some of them were targets of bogus criminal investigations. Investigative and enforcement structures were disbanded in their entirety. All that it took to initiate this once proud institution’s destruction was the appointment by Zuma of a corrupt and ruthless crony to head the agency.

This experience points to some obvious reforms that are needed. For example, the process of appointing the head of the South African Revenue Service needs to be more transparent and democratic, and removed from the sole discretion of the President. The governance structure — the head of the Revenue Service appointed by the President but accountable to the Minister of Finance — requires urgent reform. But the key lesson is that while technical competence and the relative autonomy of the technocrats is a necessary condition for effective fiscal management, it will ultimately bend in the face of a corrupted political framework.

 

Why did the National Treasury and the Reserve Bank prove so difficult to capture? Essentially, while the public and powerful interest groups may be prepared to accept the presidential prerogative to appoint the cabinet, this does not extend to the finance minister. With an eye on the response of international financial markets, post-apartheid South African administrations have appointed technically competent and unimpeachably honest finance ministers. Successive attempts by the Zuma administration to upend this pattern — including the appointment of an incompetent crony who lasted just 4 days in office — were met by the swift and predictable condemnation of international lenders and investors which in turn galvanized an increasingly troubled domestic private sector. This pressure — coming on top of a vigilant civil society and independent media — proved a bridge too far for the state capture project. This may well be a case for the disciplining effect of globalized markets.

What these two cases certainly illustrate is the overriding role of politics — ‘bad’ politics destroyed the technically competent South African Revenue Service and ‘good’ politics saved a technically competent treasury.

The relationship between declining democracy and burgeoning corruption, both the antithesis of fiscal accountability, raises some large and complex questions:

  • Can the formal structures and mechanisms of liberal democracy be reinvigorated, a process which involves rethinking democracy rather than merely seeing off the demagogue?
  • Can liberal democracy separate itself from neo-liberalism, from an economic order characterized by widening inequality?
  • Are global markets compatible with muscular nation states?

These questions go way beyond the narrow, often technocratic questions raised by the fiscal accountability community whose proposed solutions often seem to revolve around searching for better techniques for presenting and disseminating information, solutions that presuppose a functioning democracy.

Moreover, these larger questions will not be addressed in the absence of an active civil society. At the very least, greater access to information has to be generative of enhanced political mobilization. For example, Corruption Watch, the South African civil society organisation for which I work, is about to launch a campaign aimed at strengthening police accountability. With community mobilization and activism front and center of our objectives and operating model, the data that we will gather and disseminate will not focus on the eye-watering national police budgets but will rather seek to reveal the resources available at a local precinct level — how many detectives in your precinct? How many police vehicles are allocated to your precinct? What is the name and telephone number of the station commander? Are there dedicated facilities for dealing with gender-based violence? And, above all, how do these data compare with neighboring communities and the rich suburbs up the hill?

To stay relevant and reinforce democratic space to operate, civil society needs to be more focused on connecting fiscal issues to what communities immediately care about and in turn will engage on.

Essentially, it’s politics, stupid!!

David Lewis is the executive director of Corruption Watch, a non-governmental organization working to fight corruption in South Africa.

Further Reading

What’s Missing in the Fight Against Corruption?

What’s Missing in the Fight Against Corruption?

The past 20 years of international efforts to curb corruption through reducing the openings for the misuse of public funds have led to the establishment of best practices in transparency and accountability, and the widespread creation of anti-corruption agencies within governments. These both have been important in promoting good governance around the globe. Still, the economic cost of corruption remains enormous. The annual cost of bribery alone, merely one subset of corruption, is estimated to be between US$1.5-2 trillion. And while new initiatives and projects are regularly undertaken to combat corruption, it remains stubbornly entrenched in government systems throughout the world.

View a recording of “Transparency, Anti-Corruption, and Sustainable Development: Is Progress Possible?” »

On 18 September 2017 the Brookings Institution held an event, “Transparency, Anti-Corruption, and Sustainable Development: Is Progress Possible?to discuss new developments in how initiatives on open, participatory, and accountable governance can contribute to reducing corruption and achieving sustainable development. Co-hosted by the World Bank, International Finance Corporation (IFC), and the Partnership for Transparency’s Anti-Corruption Forum, the event featured two panels of experts from international finance institutions (IFIs), civil society, and the private sector to discuss past and current challenges in transparency and anti-corruption work.

The first panel assessed the state of the global fight against corruption and emerging developments. Christine Lagarde, Managing Director of the International Monetary Fund (IMF), delivered opening remarks on governance and corruption, highlighting the complex nature of the problem and emphasizing the importance of viewing corruption as both an economic and political problem.

Panelists and participants in the second session discussed corruption issues related to natural resource extraction and introduced two new research initiatives, one led by the World Bank and IFC, and the other led by Brookings and its partners, Results for Development and the Natural Resource Governance Institute. Both panels featured spirited discussions, with major IFIs such the World Bank and IMF coming under fire for not doing enough to combat corruption in governments of their member countries.

What Are We Missing in Anti-corruption Work?

Though the discussions featured a variety of different perspectives on the history and future of transparency and anti-corruption work, some common themes and ideas emerged, offering several key takeaways:

Transparency is not enough.

It has long been established that transparency alone is insufficient for successfully addressing the problem of corruption in countries. Several panelists expressed frustration about how countries with transparency initiatives and right to information laws on the books were still arresting activists and members of civil society. Oxfam’s Ian Gary referred to the political dimensions of transparency problems and the plethora of anti-corruption initiatives that are (sometimes willfully) ignored by governments as the “transparency industrial complex.”

It is clear that reforms to increase transparency and right to information laws must be accompanied by measures for strengthening citizens’ capacity to act upon the information made available to them, if such initiatives are to be effective in curbing corruption.

Tools to measure corruption are still lacking.

A major challenge in determining the efficacy of anti-corruption initiatives is the difficulty in quantifying corruption. Much of the discussion surrounding corruption is anecdotal, allowing governments and other actors to deny involvement and evade culpability. Current anti-corruption work tends to be theoretical and analytical, missing the importance of numbers and other data on the actual incidence of corruption. As a result, even as new and exciting anti-corruption projects are implemented, their success or failure is difficult to gauge. New methodologies are needed to quantify and analyze the problem of corruption to ensure best practices are being implemented to mitigate the issue.

Data must be open, accessible, and utilized effectively.

Arming the public with information that can be used to hold governments accountable is a critical part of mitigating corruption. Panelists from both sessions addressed the use (or lack thereof) of open data. An increasing amount of data is being made available by a growing number of actors across the globe, predominantly through online registries and open platforms. Many governments are on board with open data initiatives and make large data sets freely available to citizens. However, a gap exists between the availability of data and its use to fight corruption effectively. Disclosure of data alone is not enough; data must be available in machine-readable formats that allow for independent analysis by citizens and civil society.

Political context must not be disregarded.

Recognizing a country’s specific political and economic context is of paramount importance in the fight against corruption. Though it is useful to draw broad lessons from global anti-corruption work, recognizing that there is no single strategy to combat corruption effectively in every country is key. The role of civil society organizations in the fight against corruption at the country level is critical, as these organizations typically have intimate knowledge of their country’s political and economic climates and have a better understanding of the safest and most effective ways to engage in anti-corruption work. Civil society organizations can also serve as effective monitoring agents, holding governments accountable to their agreements. Still, because these organizations can mirror the societies in which they work, and in some cases be used to facilitate corruption, it is especially important that international actors are familiar with the political context of the countries where they work.


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Mengekspos Kesalahan Terkait Hak Atas Informasi: Karya Freedom Forum (Forum Kebebasan) bersama Media di Nepal

Mengekspos Kesalahan Terkait Hak Atas Informasi: Karya Freedom Forum (Forum Kebebasan) bersama Media di Nepal

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Ketika Freedom Forum,  sebuah organisasi masyarakat sipil dari Nepal, memutuskan untuk menggunakan undang-undang Hak atas Informasi (RTI) di Nepal dalam menyelidiki dana khusus yang dialokasikan kepada anggota parlemen, mereka menemukan banyak sekali proyek yang tidak berguna. Dana yang ditujukan untuk proyek infrastruktur dan pembangunan ternyata digunakan untuk membeli alat musik, vihara, dan bangunan di perkotaan; berbagai peraturan dilanggar; dan dana disalurkan kepada politikus.

Pengeluaran yang tidak jelas semacam itu disalurkan melalui Dana Pembangunan Konstituensi (Constituency Development Funds/CDF) Nepal, mekanisme alokasi dana uang dari simpanan dana nasional kepada anggota parlemen untuk digunakan di daerah pemilihan mereka sendiri. Dengan menggunakan undang-undang Hak atas Informasi yang diberlakukan Nepal untuk menyelidiki CDF, Freedom Forum dengan susah payah melacak bagaimana dana digunakan dan bagaimana proyek-proyek seharusnya dikelola. Kemudian bersama wartawan investigasi, mereka  membongkar penyalahgunaan uang publik.

Masalah Dana Pembangunan Daerah Pemilihan (Constituency Development Funds/CDF)

Pendukung CDF biasanya berpendapat bahwa mereka mengizinkan pemberian dana secara langsung kepada masyarakat lokal. Dan bahwa anggota parlemen, sangat tepat untuk mengidentifikasi kebutuhan masyarakat karena mereka tinggal lebih dekat dengan daerah pemilihan mereka. Tapi seperti yang dikemukakan oleh Albert van dari IBP, mereka menghadapi banyak sekali masalah sistem. Selain rentan terhadap korupsi dan manipulasi politik, CDF dapat melemahkan pertanggungjawaban secara lebih luas, terutama dengan cara menembus pemisahan kekuasaan antara peran eksekutif dalam pelaksanaan keputusan anggaran dengan peran legislatif dalam mengawasi mereka.

Masalah ini tidak luput dari perhatian masyarakat Nepal. “Pada dasarnya, banyak sekali sumber daya publik yang dialokasikan kepada anggota parlemen, sehingga menarik perhatian masyarakat. Jadi mereka meminta pengumpulan bukti penggunaan dana tersebut, dan apakah kriteria pengelolaan dana yang dinyatakan sudah dipatuhi serta dana publik benar-benar telah sampai ke penerima akhir,” kata Taranath Dahal, Pimpinan Eksekutif Freedom Forum. Beliau menambahkan, banyak kritik masyarakat tehadap alokasi dana tersebut kepada anggota parlemen yang seharusnya berperan sebagai pembuat undang-undang. Freedom Forum memutuskan untuk melakukan penyelidikan.

Menggunakan Hak atas Informasi

Ada dua jenis CDF di Nepal. Alokasi umum yang lebih kecil diberikan kepada 601 anggota parlemen di Nepal. Sedangkan dana yang jauh lebih besar, yang khusus dimaksudkan untuk infrastruktur, diberikan kepada himpunan bagian anggota parlemen. Total sekitar 3,3 miliar Rupee Nepal (lebih dari US$30 juta) digunakan melalui CDF dan banyak anggota parlemen meminta jumlah yang jauh lebih besar untuk disalurkan melalui skema tersebut. Setiap jenis CDF diatur oleh serangkaian peraturan yang berbeda tentang bagaimana dana dapat digunakan, organisasi mana yang dapat melaksanakan proyek, dan jenis mekanisme partisipasi apa yang perlu digunakan.

Mengingat kompleksitas pelaksanaan CDF, Freedom Forum perlu menyusun serangkaian dokumen anggaran dan dokumen kebijakan untuk menguji apakah semua peraturan telah dipatuhi.

Nepal meraih skor 24 di Open Budget Index  2015 , sehingga menjadi salah satu negara Asia Selatan yang paling tidak transparan. Nepal mengalami penurunan tajam dari skor 44 pada tahun 2012, setelah pemerintah gagal menerbitkan Usulan Anggaran Eksekutif. Namun Nepal lebih awal dalam menggunakan undang-undang Hak Atas Informasi (RTI), pertama kali mengetahuinya dalam konstitusi tahun 1990 kemudian secara resmi memberlakukan undang-undang RTI pada tahun 2007.

Freedom Forum meluncurkan sebuah proyek untuk menggunakan RTI guna menyelidiki CDF di seluruh 75 daerah di Nepal. Mereka meminta sekumpulan informasi lengkap: dokumen tentang cara pengambilan keputusan pendanaan, rincian dana, rincian program, apakah rekomendasi dewan dipatuhi, dan laporan kemajuan. Setelah berulangkali dengan susah payah meminta informasi, ditolak, menyampaikan keberatan resmi, dan mengajukan banding terhadap keputusan yang merugikan mereka, akhirnya Freedom Forum berhasil mendapatkan informasi yang dibutuhkan terkait 68 dari 75 daerah tersebut.

“Pemilihan proyek dan pembelanjaan publik tidak mematuhi ketentuan peraturan,” kata Krishna Sapkota, Penasihat Kebijakan  Freedom Forum, “Dana tersebut tidak dimobilisasi untuk mewujudkan tujuan-tujuan alokasi, namun sebaliknya justru digunakan untuk menenangkan kader partai dan simpatisan partai, bukannya untuk masyarakat luas.”

Freedom Forum menemukan berbagai proyek kecil yang tidak ada hubungannya dengan pembangunan atau pengentasan kemiskinan. Dana bagi masyarakat miskin dihabiskan untuk alat musik dan band, dan dana bagi infrastruktur pembangunan digunakan untuk vihara. Miliaran rupee dihabiskan untuk proyek-proyek kecil yang tidak memenuhi persyaratan peraturan.

Bekerja Sama Dengan Media

Credit: Freedom Forum

Freedom Forum telah melatih wartawan agar menggunakan Hak Atas Informasi RTI dalam mengungkap cerita. Kendati banyak yang berminat, seringkali mereka perlu bantuan dalam menangani proses teknis yang melelahkan untuk menggali informasi dari pemerintah dan mengumpulkan informasi tentang situasi yang sedang terjadi. Pelatihan itu tidak membuatkan hasil nyata di berbagai cerita di media yang melahirkan permintaan RTI, namun mempererat hubungan organisasi ini dengan wartawan. Freedom Forum menyimpulkan bahwa strategi terbaik untuk menghasilkan cerita di media dari permintaan RTI adalah dengan berperan sebagai perantara; mereka menangani permintaan dan analisis RTI, kemudian bekerja sama dengan organisasi media untuk membuat ceritanya.

Strategi ini terbukti efektif. Setelah Freedom Forum menentukan sejauh mana kesalahan manajemen CDF, mereka bekerja sama dalam membuat cerita bersama beberapa media paling terkenal di Nepal. Himal Media, sebuah majalah mingguan yang populer di Nepal, secara resmi meminta untuk menggunakan bukti yang dikumpulkan melalui RTI pada beberapa kisah penyelidikan. Kantipur, surat kabar terkemuka di Nepal, dan Republica National Daily, menggunakan temuan tersebut untuk menerbitkan berbagai kisah tanpa basa-basi.

Kini Freedom Forum menggunakan permintaan RTI untuk bekerja sama dengan media di Nepal dalam berbagai cerita lain. Termasuk penyelidikan selama sembilan bulan terhadap perusahaan minyak milik negara, penghindaran pajak oleh berbagai bisnis lokal yang mungkin mengakibatkan kehilangan pendapatan senilai miliaran, dan kemungkinan korupsi di tingkat kabupaten. Meskipun harus melalui pekerjaan yang sulit, model ini terbukti sangat efektif dalam menyoroti kesalahan manajemen dana pembangunan yang amat sangat penting di Nepal.