Financial reform: Progress, what progress?


More democratic and ethical principles must be brought to a marketplace run amok. Also, concerns about economic instability and widening inequality of income and wealth around the world are issues that demand both government and multilateral action.

A series of inter-related events, beginning with the emergence of a global financial and economic crisis in 2008, have significantly dented public trust in political leaders and their ability and willingness to act in the public interest.

Many see the root cause of the crisis as corporate greed, enabled by government policies or serious failures of government oversight. Despite much hand-wringing and promises of change, there has not been sufficient, meaningful reform of the systems that led to the crisis. The practices that underpinned the financial crisis included predatory lending, the promotion of unsustainable private debt, and reckless speculation. Millions of people have been driven into hardship and poverty. Yet very few of those responsible have been held to account. Already, in some countries, bad practices seem to be re-emerging.

If the crisis gave people cause to mistrust government, the response further eroded public confidence in political leaders. People watched as public money was used to bail out banks - the very actors that were instrumental in creating the financial crisis. While the bank bailouts may – in some cases - have been necessary to protect customers, they should have been tied to accountability measures and reforms. With a few exceptions, this did not happen. According to the Center for Economic and Social Rights, the bailouts compounded the problems of recession-hit countries and contributed to public debt and borrowing problems in countries like Ireland. This, in turn, was one of the contributory factors in the imposition of austerity measures.

Austerity has been accompanied by growing unemployment, falling real wages, cuts in the social welfare system and privatisation of public property. Information gathered by non-governmental organisations and UN bodies has exposed how some of the poorest and most vulnerable have been the hardest hit by the crisis and the austerity response. Even in those countries where the response to the crisis was not austerity-focused, it is clear that income inequality has been increasing.

Data on growing income inequality are shocking. According to a recent Oxfam briefing paper, even when taxes and social security payments are taken into account, the richest in some crisis-hit EU countries have seen their share of total income grow, while the poorest have seen theirs fall. According to the Bloomberg Billionaires Index, the richest people on the planet got even richer in 2013, adding $524 billion to their collective net worth. In September 2013 The Economist newspaper summed it up: “The recovery belongs to the rich.”

The income inequality we are witnessing is structural, and the structures that enable it are created and sustained by governments. As crisis and austerity unfolded we witnessed shocking revelations about tax avoidance by massive multinationals. Money that could be used by governments to fund social spending and achieve human rights and poverty reduction is being diverted into private hands through channels that are legal, but widely seen as unjust. Global and national rules--systems like tax havens, tax treaties and other incentives for foreign investment--provide powerful protections for private wealth. The same systems also facilitate the movement of illicit wealth.

A 2013 report by Global Financial Integrity and the African Development Bank found that the developing world lost US$5.9 trillion in illicit financial flows from 2002-2011, with such outflows increasing at an average rate of more than 10% per year. The data show that the outflow – the proceeds of bribery, theft, kickbacks and tax evasion and avoidance – was far greater than the $80 billion that flowed into Africa in foreign direct investment and aid each year.

Why do governments enable all of this? Part of the answer lies in the fact that too many governments have crossed the line from providing legitimate support for business to pandering to private interests and allowing a very small few to dictate the public policy that affects millions. The links between massive wealth and political power have long been a concern; they are now a key battle ground, and how governments respond to public concerns over such issues as inequality and tax avoidance and evasion is central to restoring public trust in political leadership.

Policymaking in the public interest is impossible if the public good is over-ridden by private interests. As US President Barack Obama noted in a speech on inequality in December 2013: “Ordinary folks can’t write massive campaign cheques or hire high-priced lobbyists and lawyers to secure policies that tilt the playing field in their favour at everyone else’s expense.”

Yet despite the public anger that revelations about inequality have sparked, there has been only limited action to address it. It is everywhere on the agenda–but where is it in terms of real reforms?

The structures that enabled a minority of extremely wealthy actors to influence government policymaking on issues that entrench inequality must be dismantled. Initiatives–such as those of the G8 and G20 on beneficial ownership, tax avoidance and secrecy–are useful. But the lobbying power of vested interests will undoubtedly weaken such initiatives behind the scenes. To break the cycle we need to break the system. Open public debate and multilateral action are key.

Such debate helps chisel away at received wisdom, for instance, that some bad practices are just part of economic life. Tax avoidance and tax havens are the natural by-products of a globalised economy, some argue. If we don’t allow them, investment will move to countries that do, taking jobs with them. And despite the scourge of the crisis, we are still told that very large salaries and bonuses are needed to attract the best and the brightest talent—with no question about how so many banks so catastrophically failed.

It is time to stand up to these deceptive, economically manipulative, arguments.

We must not allow and accept rules that have no place in a world where the rights and dignity of everyone are valued. These rules and the way states and business do business must change. And of course, they can change and multilateral forums, such as the OECD, have an important role to play in making sure they do. A truly open debate, where technological advances can be used to enable wide participation, is also vital. What choices are being made, and why, must be open to scrutiny.

The human rights agenda is not an anti-business agenda. Indeed, thriving businesses–from the market vegetable stall to the massive multinational–are vital to realising human rights. But greed, secrecy and massive inequality are not vital ingredients of a prosperous economy. That much, at least, should be common ground. So let’s work to eradicate them.



Center for Economic and Social Rights “Rights in Crisis”, Brooklyn, USA. 

UN News Centre (21 January 2011), “Ireland’s vulnerable groups most threatened by financial crisis, warns UN expert”, United Nations, New York. 

Oxfam (September 2013), “A Cautionary Tale: The true cost of austerity and inequality in Europe” 174 Oxfam Briefing Paper, Oxford, United Kingdom. 

Matthew G. Miller and Peter Newcomb (10 January 2014) “Bloomberg Billionaires Index: The rich got $524 billion richer in 2013” in The Washington Post, Washington DC. 

The Economist (12 September 2013) “The Rich Get Richer, 12 September 2013” in The Economist, London, UK.  

Nicholas Shaxson (2012), Treasure Islands: Tax havens and the men who stole the world, Vintage, UK. 

Visit Global Financial Integrity at


OECD work on Income Distribution and Poverty

OECD work on Social and Welfare Issues 

OECD Forum 2014 Issues


Salil Shetty

Salil Shetty, Secretary-General, Amnesty International


© OECD Yearbook 2014


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