Copyright © 2002 by Jeff Gates|
Draft of October 30, 2002
Wordcount: 5,131

Is Persistent Abject Poverty Now a Policy Choice?

Abstract: Development assistance need no longer be funded solely through the fiscal resources of donor nations. With the emergence of global capital markets, the requisite funds can be raised with two user fees: a fee for the liquidity-services provided by global financial markets (a "capital commons user fee"), and a fee on tax haven accounts (a "freeloader fee"). With multilateral enforcement, user-fee proceeds would be sufficient to address both persistent abject poverty and environmental restoration worldwide.

The most profound danger to world peace in the coming years will stem not from the irrational acts of states or individuals but from the legitimate demands of the world’s dispossessed.

-- Statement by 100 Nobel Prize winners, January 2002

Political instability and terrorism are fueled by persistent abject poverty and by fast-widening economic inequality both within and among nations. The global spread of the "emerging markets" development model contributes to that growing divide by largely disregarding economic distribution patterns. IMF structural adjustment programs widen the economic divide as governments reduce fiscal outlays directed to the poor. Meanwhile, donor countries grow steadily more reluctant to provide financial resources to fund a sub-optimal development model. This article proposes two user fees to meet the shortfall in development finance and to address the model’s shortcomings.

Since 1985, economic decline or stagnation has affected 100 countries, reducing the incomes of 1.6 billion people. [James Gustave Speth, "The Plight of the Poor," Foreign Affairs, May/June 1999.] The UN documents that three billion people live on $2 or less per day. [United Nations Human Development Report 1999.] The top-earning 20 percent worldwide account for 86 percent of worldwide consumption while the poorest 20 percent account for 1.4 percent. By the mid-90s, the income of the most well-to-do one percent (50 million people) equaled the combined income of the poorest 57 percent (2.7 billion people). [Branko Milanovic, "True World Income Distribution, 1988 and 1993," Economic Journal, January 2002.] Wealth is more concentrated than income. The world’s 200 wealthiest individuals doubled their net worth in the four years to 1999, to a combined $1 trillion [United Nations Human Development Report 1999.] while the number of billionaires in the United States grew from 13 in 1982 to 274 in 2000.

With worldwide population expanding 80 million each year, World Bank President James D. Wolfensohn cautions that, unless development specialists address the "challenge of inclusion," 30 years hence, five billion people could be living on $2 or less per day. With two billion people presently malnourished, including 55 million in developed nations, current trends suggest that the human family may by then include 3.7 billion people who share that indignity, including 100 million in developed countries. Insistent that poverty is our "collective enemy," Wolfensohn argues, "We will not win the peace until we have the foresight, courage and political will to redefine the war." [Speech to Woodrow Wilson International Center, March 6, 2002.]

The eradication of persistent abject poverty requires financial resources. As two recent global summits demonstrated (at Monterrey and Johannesburg), the financial will is lacking to wage a global war on poverty. Yet, as this article chronicles, globalization has imbedded within its emergent properties the financial resources required. Those funds became available with the emergence of global capital markets. The expanding reach of these markets, in turn, is the impetus for a dramatic shift in development banking.

Over the past two decades, international financial institutions have shifted their focus from capital-providers to also become capital-catalysts as development banks redirected their resources from traditional project lending (for dams, roads, electricity, etc.) to "capacity building." In particular, that shift focused on funding changes in the social architecture of developing countries, amending local laws, regulations, court systems and such to make developing economies attractive to global financial markets.

Capital Commons User Fee

Financial markets, whether long-established or newly emergent, function as a commons, akin to a shared pasture where everyone can graze their livestock. No one owns the pasture, yet every user benefits from its use. In that "contractual commons" where financial relationships reside and financial transactions arise, political stability is vital -- both to the creation of financial value and to its maintenance -- as investors discovered following September 11, 2001 when capital markets shed $3.2 trillion in capital value.

Financial "securities" merit that description because international law enforces cross-border contract rights, and because public resources are dedicated to the maintenance of political stability as a common good. One crucial financial value provided by this "capital commons" lies in the opportunity for investors to convert financial securities to cash or other securities. Financial liquidity and the opportunity to diversify have long been services provided free by this commons.

In terms of value-added, this commons-provided financial "property" (i.e., liquidity) boosts the value of a tradable security by 35 percent when compared to securities in a similar firm that are not readily tradable. That "liquidity premium" lowers the cost of capital to the extent that potential investors have confidence they can readily exit an investment. That reduction in financial risk provides a key rationale for development banking’s embrace of the emerging-markets development model.

The distributional effects of the model are fast becoming apparent, particularly in those economies where the build-out is most advanced. In southern Asia, for instance, World Bank research found that 61.7 percent of Indonesia’s market capitalization is held by that nation’s 15 richest families. The comparable figure for the Philippines is 55.1 percent and 53.3 percent for Thailand. Distribution-wise, it’s clear whose livestock are most fattened-up in globalization’s financial pasture. The worldwide emergence of highly exclusive economic distribution patterns suggests the need to revisit development-finance strategies in order to better match burden to benefit.

Imagine, for instance, if a nominal 3.5 percent "capital commons user fee" were collected on the average $5 billion of financial value claimed by each of the world’s 200 most well-to-do individuals. That single, tightly-targeted user fee could generate the $35 billion per year that the UN Development Program reports is sufficient to address the most critical human needs worldwide. Three-quarters of those 200 people reside in the 30 richest developed nations; sixty in the U.S. At 3.5 percent, less than a typical value-added tax, that user fee would recoup for the commons just 10 percent of the financial value that’s due solely to value-adding financial features (liquidity and the opportunity to diversify) that the capital commons now offers free-of-charge. That annual fee could be paid in cash or in-kind (i.e., as securities), with development agencies liquidating those securities on an as-needed basis. [See Jeff Gates, Democracy at Risk, 2000].

Poverty is Optional

If the geopolitical community coalesced on enforcement, the projected proceeds could be borrowed against to quicken the pace of development, issuing "prosperity bonds" both to accelerate development and to expand its reach by addressing other critical needs (such as the AIDS crisis in Africa). The developed nations have a built-in market for such bonds: they need only enact rules requiring that tax-subsidized retirement plans invest a small portion of their portfolios in prosperity bonds as a condition of their continued tax relief. In the U.S., the fiscal expense of such plans is projected to top $558 billion (FY 2002-2006), ranking retirement security second only to national security as a financial commitment. [U.S. Congress Joint Committee on Taxation, Estimates of Federal Tax Expenditures for Fiscal Years 2002-2006.] Because the benefits financed by retirement plans are perpetually 20-30 years in the future, a mandated investment in systemic risk management is consistent with the massive public subsidies invested in these plans.

User fees are distinct from transaction-based taxes as a means to fund development. Yale University professor James Tobin proposed more than three decades ago a fractional tax (0.25 percent) on transactions in global currency markets. Transaction-based levies come with a host of operational and political challenges, a key reason the Tobin Tax remains much discussed and not much else. In large part, political wariness is due to the need for a place (a locus) to levy a transaction-based tax. Neither the U.S. nor the U.K., home to globalization’s two largest financial markets, are keen to impose such a tax, confident those transactions could readily relocate to escape the levy. User fees focus instead on those few individuals who most benefit from the capital commons, regardless of location.

In addition, this commons-calibrated (versus transaction-based) approach suggests that it’s the opportunity for a financial transaction that’s the real source of financial value. The difference in the Capital Commons User Fee and the Tobin Tax is akin to the difference between potential and kinetic energy. A tradable security is more valuable than one not readily tradable, regardless whether it is, in fact, traded. That enhanced value is confirmed by the fact that a security’s potential liquidity enhances its value as collateral because a lender knows that, in case of loan default, the securities pledged can be readily converted to cash (i.e., in the capital commons). The issue raised here is simply put: should those who benefit most significantly from the financial commons bear a significant portion of the cost of its upkeep, particularly the development required to maintain stability of the commons?

With annual user-fee proceeds of $35 billion, UNDP reports it could address the six key building blocks required for human decency worldwide: safe drinking water, adequate sanitation, sufficient nutrition, basic health care, primary education, and family planning for all willing couples. By comparison, $35 billion is approximately nine percent of the FY 2003 defense budget, or roughly what the U.S. spent in 1999 to maintain the military readiness of its nuclear weapons, a decade after the fall of the Berlin Wall.

Other funding sources for development long ago proved unreliable, unavailable or politically untenable. Americans and Europeans spend far more each year on pet food than the amount required to fund basic health care and sufficient nutrition worldwide. For the developed world to pick up the anti-poverty tab would require contributions of 0.7 percent of donor nations’ combined GDP. At present, donors contribute an average 0.22 percent of GDP; the U.S. just 0.13 percent.

The March 2002 "Monterrey Consensus" on finance-for-development provided a stark reminder that the current development-finance model is certain to remain inadequate when compared to urgent human and environmental needs. The August 2002 summit on sustainable development in Johannesburg confirmed that donor-country fiscal commitments remain well short of what’s required. The UN’s Millennium Report calls only for halving, by 2015, the proportion of the world’s people (currently 22 percent) whose income is less than one dollar. At present rates of development-finance funding, the UN estimates that even universal access to safe drinking water cannot reasonably be expected before 2025 in Asia, 2040 in Latin America and 2050 in Africa

UNDP reports that 1.1 billion people lack safe water. Adequate sanitation is lacking for 2.3 billion. An estimated 36,400 people die each day from conditions related to malnutrition, mostly children under five. One in seven children of primary school age is out of school. Yet the development community proposes that people wait another half-century to address fundamental human needs that were first identified more than a half century ago. It’s difficult to imagine a development strategy more certain to breed the political instability that impedes development. Monterrey’s palpable lack of urgency, chillingly repeated in Johannesburg, offers keen motivation to design and implement a financing source for both development and environmental restoration that is free of fiscal impact and, ideally, self-financing.

Freeloader Fee

A second user fee could tap another financially valuable feature provided by the financial commons: the lack of transparency in tax havens. The extent of this value-added benefit became clear when the geopolitical community realized it lacked the analytical tools required to identify Al Qaeda’s network of financial support. Financial secrecy has long been globalization’s unseemly underside, visible only when, for example, Swiss banks were forced to concede that they relied on this officially sanctioned financial property to profit from the Holocaust.

At least $5 trillion (possibly as much as $15 trillion) lies hidden away in 37 tax haven countries worldwide. From international drug lords to reclusive billionaires, Russian oligarchs to petty swindlers, and from high-rolling financial entrepreneurs (Long Term Capital Management was chartered in the Caymans) to outlaw banks (likewise the Bank of Credit and Commerce International), these outlaw outposts offer the wealthy what those in the know realized long ago: taxes are optional. In addition, secrecy provides both a competitive advantage and quantifiable financial value to those who choose to harvest the benefits of globalization without incurring any of its costs.

If the geopolitical community coalesced to identify the owners of an estimated 1.5 million tax haven accounts, up from 200,000 since the late 1980s, an annual "freeloader fee" of 3.5 percent could generate as much as $350 billion -- assuming the amount in tax havens is in the mid-range of $10 trillion -- seven times the amount sought at the Monterrey summit. If fully successful, these dual user-fees &emdash; the Capital Commons User Fee and the Freeloader Fee -- would generate more than 150 times the current outlay for all UN development programs. Or 100 times the UN’s annual disbursements for peacekeeping operations, now raised pass-your-hat style.

That’s enough to build 175,000 schools or clinics at $2 million apiece, a long-missing component in the human-capital component of capacity-building. Or enough to fund the $300 billion that environmental researchers at Cambridge and Sheffield Universities report is required to "save the planet." A portion of the proceeds may need to be reserved for the rebuilding of tax-haven economies now built on sand &emdash; i.e., on the financial secrecy that has long served as their primary value-added service.

Global moguls such as Rupert Murdoch routinely boast how lawyers and accountants shuttle their complex affairs through tax-haven shell companies. Bragging about the competitive edge his media empire enjoys by paying only a seven percent worldwide tax rate, Murdoch taunts: "Isn’t that one of the advantages of being global?" By imposing a freeloader-fee for that advantage, globalizers could raise funds to underwrite international stability while also helping level the global playing field. The enhanced stability that accompanies an adequately funded effort to address persistent abject poverty may increase the value of financial securities by more than the fees collected, making this a sound (albeit forced) investment for the world’s most well-to-do.

Absent such an initiative, the competitive pressures of globalization will continue to drive more firms to establish their tax residency in tax haven countries. Individual tax receipts may also decline, particularly among the most well-to-do, as evidenced by a March 2002 Internal Revenue Service report indicating that as many as two million Americans may be using credit or debit cards issued by offshore banks to access hidden income. Absent tax-haven transparency, the loss of national tax revenue is destined to increase, further constraining donor nations’ fiscal capacity to support development efforts.

National Insecurity

The eradication of persistent abject poverty is a vast yet financially feasible task provided the architects of globalization put the living conditions of the poor on a par with the institutional changes required for the border-less build-out of global capital markets. The missing ingredient is political will, as evidenced at both Monterrey and Johannesburg. That experience suggests civil society may be required to catalyze the requisite financial transparency, a task that may prove easier than it first seems.

For instance, a coalition of foundations and well-to-do individuals could spur the disclosure of now-secret information by offering whistleblower rewards to induce the release of information from those in the know who reside in tax-haven countries (bookkeepers, accountants, secretaries, attorneys and such). The funds pledged as rewards under such an "induced transparency program" might well be reimbursed from the identification and recovery of illicit funds. For instance, organized crime now grosses an estimated $1.5 trillion a year, rivaling transnational corporations as a global presence. [United Nations Human Development Report 1999.] Combine cash rewards with offers of political asylum (negotiated by civil society), and the international rule of law would soon be much improved with a dose of what U.S. Supreme Court Justice Louis D. Brandeis called "the best sunshine."

With widespread access to wireless computers in tax haven countries (another supporting role that civil society could perform), much of that now-secret information could be conveyed directly to dedicated web sites where, with that data in hand, pattern-recognition specialists (AKA "data-divers") can craft the sophisticated algorithms required to facilitate account identification. With that essential first step, international law enforcement could then assist by identifying criminal networks, including those political criminals who pilfered official funds from economies worldwide. That includes an estimated $35 billion stolen by the Suharto clan in Indonesia, $12 billion by the Marcos family in the Philippines, as well as massive funds stolen by corrupt governments in Haiti, Iran, Mexico, Nigeria, Panama, Russia, Zaire, Zimbabwe, etc.

Transparency-induced Reform

Civil society-induced transparency could also help identify those who unjustly benefited when ill-conceived privatization programs led to the asset-stripping of formerly state-owned enterprises, a thievery that was particularly pronounced in those countries where privatization preceded the enactment of essential legal protections. Economies systematically looted by officials and their accomplices include not only an estimated $150 billion tunneled out of Russian firms but also tens of billions stolen from dozens of the 95 nations that the World Bank identifies with privatization programs. [Joseph E. Stiglitz, "Whither Reform: Ten Years of the Transition," April 28, 1999.] It’s long been suspected that those funds found their way to tax havens.

Because so many nations were rushing away from dysfunctional state-ownership systems, few bothered to question whether today’s globally dominant neoliberal model of privatization was a reasonable way to reform economies that had long been dominated by the state. Looking back at the ownership-pattern results, it’s difficult to imagine they could have chosen a model more certain to create widespread political discontent. Yet, even now, no international financial institution has undertaken an "ownership impact report" to assess the most dramatic ownership transition in history.

Similarly, though criminal syndicates work a corrupting influence on politics, commerce and law enforcement worldwide, as yet there’s been no coordinated effort to identify their ill-gotten gains. That deficiency undermines the best-known law enforcement sanction: the seizure of their assets. In addition to identifying criminals and corrupt politicians, tax haven transparency would also provide the data required for much-needed muckraking, supporting a journalistic genre that could take its place alongside political muckraking as a source of information, exposure, insight, intrigue and media-induced reform.

If intelligence communities can identify terrorist cells worldwide, as they claim, certainly they can compile a global ownership registry, particularly with the help of civil society-induced financial transparency. From 1995 to 1999, U.S.-led financial rescues entailed $230 billion in just six countries: Mexico, Thailand, Indonesia, South Korea, Russia, and Brazil. What’s been the impact of those bailouts on ownership patterns? We don’t know. To what extent have those funds been transferred out of the country or into tax haven accounts? Again, we don’t know. What we know is that information alone has power. It’s long been suspected that title to both bailed-out and privatized firms oftentimes found their way into the personal accounts of those with political clout.

Financial transparency offers a promising new means for stimulating debate on the impact of the emerging markets development model on exclusive ownership patterning, a sensitive subject that has long worked a corrosive effect on the viability of free enterprise democracies worldwide while being steadfastly ignored by the international financial institutions. That willful ignorance makes it essential that transparency succeed in identifying tax haven account-holders.

Privatization programs are often coupled with a new round of development-bank loans. Indeed, many privatization programs are initiated specifically to repay foreign-held debt with proceeds generated by selling state-owned enterprises to foreign owners. As much of that debt was sovereign-guaranteed, lenders in the developed world knew it was largely immune to default, particularly when privatization proceeds could be utilized for debt repayment. Yet even in debt-battered (and debt-defaulting) Argentina, the international financial institutions remain ignorant and indifferent &emdash; both as to how much of the funds lent have been transferred abroad and into whose hands privatization has transferred the ownership of formerly state-owned assets.

Any candid appraisal of the past two decades of neoliberal-modeled economic reform must include an ownership-impact assessment chronicling the ownership of both equities and debt. To whom were those massive debt payments made? And to whom was the ownership of state-owned enterprises transferred? Because much development bank lending was used to fund private-sector companies that built dams, roads, power plants, etc., any useful assessment must also identify the owners of those companies that benefited from contracts funded with development bank loans. Genuinely comprehensive ownership-pattern transparency would offer the additional advantage of sensitizing development policy to the multidimensional impact of such patterns, including how ownership patterns impact the flow of foreign exchange into and out of developing nations.

Transparency, Debt Forgiveness and the Tobin Tax

This era’s massive increase in developing country debt traces its origins to the 1973 oil crisis, the rise of the OPEC cartel, and the need to reinvest petrodollars deposited in U.S. banks. For the 41 most highly indebted poor countries, external debt grew from $55 billion in 1980 to $215 billion just fifteen years later. Their debt now tops $350 billion, roughly the same amount as the loss these nations suffered in just over a decade commencing in the 1980s due to their declining terms of trade in commodities such as coffee and cotton (virtually all commodities apart from oil have declined in value in real terms by half since 1980).

Developing countries have long had little in the way of value-added goods to export and limited access to developed-country markets. In 2000, OECD nations channeled $362 billion in subsidies to their agricultural sector, up from $182 billion in 1995 when the World Trade Organization was created. Thus, the poorest of the poor often experienced the pain of IMF structural adjustment only to experience an increase in the transfer of wealth abroad, largely low-priced commodity exports used to generate the hard currency required to repay debts held by OECD investors, particularly OECD commercial banks and OECD-capitalized development banks.

As global debt-collector, IMF adjustment programs placed steadily more downward pressure on social safety nets. Jubilee 2000, the international debt relief effort, reports that the diversion of fiscal resources from social services to debt service results in the death of 13 children per minute in the poorest countries. World Bank chief economist Nicholas Stern points out that the typical cow in Europe receives a subsidy of $2.50 per day ($7 in Japan) while 75 percent of the people in sub-Saharan Africa live on less than $2 per day. According to Oxfam, the U.S. spends three times as much on domestic cotton subsidies as it does on foreign aid for all of Africa. Mali lost roughly $43 million due to plunging cotton prices, more than the $37 million in foreign aid it received from the United States.

In 1999, leaders of the G-7 nations announced a debt-relief initiative for Highly Indebted Poor Countries, aiming to cap debt service for each of the world’s poorest country’s at 15-20 percent of export earnings. By comparison, after World War I, the victors set the limit on German reparations at 13-15 percent of exports. Historians agree that those repayment terms were sufficiently onerous and humiliating that they played a key role in catalyzing the forces that led to WWII. Yet debt forgiveness would not only reward some of the modern era’s most corrupt officials, it would also create enormous "moral hazard" as outright forgiveness would signal others to follow in their footsteps. That quandary suggests that financial transparency, genuinely global in scope, must be a central feature of any credible debt-relief initiative, ensuring that the politically corrupt can be forced to disgorge their ill-gotten gains. That transparency, in turn, could lay the foundation for new means to finance development, including the Tobin Tax.

The user-fee approach to development finance illustrates a flaw in the unstated premise of the Monterrey Consensus. Convened to discuss how developed nations could raise more funds to address global poverty, the unspoken assumption was simple: only nation-states can fund the effort, and those funds must come solely from the fiscal resources of nation-states. That traditional approach met with the donor fatigue one would expect from a half century of funding a development model that’s consistently generated sub-optimal results.

Even more fundamentally, the Monterrey Consensus suggests that taxpayers in donor countries should happily pay twice &emdash; once to support capacity-building for a model that Monterrey conceded is sub-optimal. And then again to address the model’s chronic shortcomings, yet without either reforming the model or proposing a practical means to identify and recover development funds stolen by corrupt officials. Monterrey’s funding strategy is further handicapped by the growing fiscal demands that donor nations face internally -- due largely to their reliance on neoliberal domestic policies that concentrate wealth and income, putting fast-growing fiscal strains on their internal safety nets.

This nested set of influences &emdash; all derived from allegiance to a suboptimal economic model -- provide a key rationale for a self-financed funding source for development. Taxpayers in donor countries grow weary of watching their taxes support a model that makes the well-to-do much better off while leaving the poor falling further behind. Far better that the geopolitical community apply its influence and expertise &emdash; buttressed by modern information technology -- to ensure that those most-favored by the current paradigm pay a significant portion of the costs of its well-known shortcomings.

Insensible, Indefensible and Unsustainable

To address its shortcomings, the model must be reformed to ensure that it no longer creates such highly divisive patterns of economic distribution. However, while it’s important that the model be revised, it’s urgent that persistent abject poverty be addressed with a strategy that includes (a) donor-country relief, (b) a better match of burden to benefit, and (c) rapid debt relief for the poorest countries.

Both the collection and disbursement of user fees present political and organizational challenges, though certainly no more than the Marshall Plan or efforts to establish the UN. Trans-sovereign enforcement suggests a new challenge for multilateral cooperation &emdash; not to compel democracies but to compel poverty-eradication policies consistent with the respect for human dignity that animates democracies. The successor to containment is humane and ecologically astute development, not unfettered globalization based on a chronically sub-optimal economic model (i.e., neoliberalism).

Persistent abject poverty should be viewed as a modern-day plague, a paradigm-deficiency that fuels the very instability and terrorism that jeopardize development. The political slogan for the war on terrorism is simple: "It’s the poverty, stupid." Much like the multilateral effort used to contain and systematically eradicate smallpox, the geopolitical community has the financial and technical know-how to identify and surround abject poverty until this age-old scourge disappears from the anguished face of humankind. As part of that process, the dominant development model must be revised to promote inclusive development as a way to inoculate against poverty’s recurrence.

Nation-states now forfeit their sovereign rights if they massacre their people or if they support terrorism. Likewise, human decency mandates that preventive and even preemptory steps be taken worldwide to address the greatest long-term threat to international security: the conditions that sustain persistent abject poverty. The financial requirements of development suggest that the excesses and abuses of the current development model be seen as a source of funding to remedy its many shortcomings. Politically, the proposed user-fees could be characterized as "abuser fees" imposed by the geopolitical community to ensure that the property rights presently granted the chronically greedy no longer run roughshod over the human rights of the truly needy.

This proposal for financing poverty-relief and environmental-restoration should be viewed not as a development initiative so much as an investment in systemic risk management. On a cost-benefit basis, prevention is easier than crafting a cure, just as it’s cheaper to build a fence at the top of a cliff than station an ambulance below. Healthy environments are cheaper than expensive health care and hospitals; vaccines are a bargain compared to plagues; diplomacy less troublesome than war; social justice preferred over revolution; financial stability over expensive bailouts. The precautionary principle requires that the geopolitical community enforce norms of civilized economic behavior as a means for nudging the forces of globalization toward the tolerable.

Full Spectrum Compassion

The U.S. Space Command’s national security initiative (titled "Full Spectrum Dominance") includes high-resolution satellite-surveillance capabilities offering optical resolution to one meter. A portion of that capability could monitor those societal and environmental conditions that endanger stability and international security. Much as the Geneva-based International Labor Organization catalyzes change by shining the spotlight of public scrutiny on unfair labor practices, satellite-facilitated monitoring could enhance national security by monitoring both property and poverty patterns while also chronicling the effects &emdash; distributional and environmental -- of a development model that, by all accounts, disproportionately benefits developed nations.

As a practical matter, a worldwide War on Poverty is a massively labor-intensive endeavor, akin to conventional war in the mobilization of human capital required. The jobs that such an effort would generate &emdash; in both the developed and the developing world -- may be just the tonic required to recover from the overcapacity recession that imperils economic recovery worldwide. Overcapacity, in turn, is closely linked to fast-widening worldwide divides in wealth and income that accompany the global build-out of the neoliberal economic model. Deploy a user fee-funded Prosperity Corps alongside a multilaterally-staffed Peace Corps and globalization may yet live up to its poverty-relief promise. Combine a user fee-financed War on Poverty with a globally coordinated energy initiative designed to phase out fossil fuels and an era of genuine global prosperity may become possible without plundering the planet.

Capital markets are a socially constructed reality, a social invention whose financial properties (security, liquidity, diversification, etc.) can be drawn upon to relieve poverty and address environmental restoration while also reducing investment risk and enhancing political stability. That strategy may yet prove to be the best financial risk insurance that globalizing free enterprise democracies could have, addressing a long-festering problem with only minimal new institution-building that’s perhaps best organized by the UNDP in conjunction with oversight by the Basel-based Bank for International Settlements.

If the requisite financial resources are now available to eradicate persistent abject poverty without fiscal impact, awaiting only the mobilization of political will, then allowing such inhumane conditions to persist becomes either an active political decision or evidence of a profoundly dysfunctional international system. If we hope to win a sustainable peace, the essential bedrock of both development and national security, we must muster the foresight, courage and political will to fight and win the war on poverty.

Former counsel to the U.S. Senate Committee on Finance, Jeff Gates is author of The Ownership Solution (1998) and Democracy at Risk (2000). He serves as president of the Shared Capitalism Institute (


Suggested Further Readings

James Gustave Speth, "The Plight of the Poor," Foreign Affairs, May/June 1999.

United Nations Human Development Reports (New York: Oxford University Press).

Branko Milanovic, "True World Income Distribution, 1988 and 1993: First Calculations Based on Household Surveys Alone," Economic Journal, January 2002, No. 476, p. 51.

Joseph E. Stiglitz, "Whither Reform: Ten Years of the Transition" (address to World Bank Annual Conf. on Development Economics, Washington, D.C., April 28, 1999).

Jeff Gates, The Ownership Solution (Cambridge: Perseus Books, 1998); Democracy at Risk (Cambridge: Perseus Books, 2000).


Bio: Former counsel to the U.S. Senate Committee on Finance (1980-87), Jeff Gates has since advised governments in 35+ countries while also serving as a practicing attorney and as counsel to a New York investment banking firm. Author of The Ownership Solution (1998) and Democracy at Risk (2000), he currently serves as president of The Gates Group and the nonprofit Shared Capitalism Institute.