Monday, 18 June 2012

The Role of Architecture in Humanity's Story

In this exclusive series of interviews, we speak to Martha Thorne (Executive Director of the Pritzker Prize), Richard Rogers (architect of the Pompidou Centre in Paris, the Lloyds building and Millennium Dome in London and founder of Rogers, Stirk, Harbour + Partners) and Mohsen Mostafavi (Dean of the Harvard Graduate School of Design and the Alexander and Victoria Wiley Professor of Design). We discuss the very nature of architecture itself, how it relates to culture and topics ranging from the nature of cities, how buildings influence our lives and the future of architecture itself


Vikas Shah, Thought Economics, July 2012

Humanity leaves immortal echoes through its history using the media of language, art, knowledge and architecture. These echoes are not simply viewed in retrospect; they are primary to our time and define our civilisation at any given moment, justifying our very sense of being human. This justification is important. Humanity exists in a near-perpetual war for existence. We are mortal, but we wish to become eternal and culture is our success in this battle. Culture allows us to assert our existence to ourselves to the extent that we are not just ‘now’ but are- in essence- forever.

In his 2011 book “Philosophy for Architects” Branko Mitrović notes that, “Plato reasoned that material or perishable things could not be called ‘real’ since what is real cannot be temporary…” He continued to describe a story where, “…Plato describes a group of people who have been chained inside a cave since childhood. Light comes from behind them, and they cannot see things directly. All they can see are shadows on the wall of a cave. They learn when various shadows coincide or follow each other, and they know what kinds of noises accompany certain shadows. They take these to be the noises of the shadows, and they take the shadows for reality.” Mitrović asserts that according to Plato, “…the ‘things’ of our world are reflections or shadows of eternal Forms or Ideas, which do not exist in space or time, but outside of it….”

Culture is experienced in the present time as the fluid gamut of structures that define our experience of living, but in truth (and paradoxically)… it exists in retrospect. We may use language to communicate and knowledge to exchange, but it is only when we look at the story of language, the body and origins of knowledge, that we can contextualise them, and understand their role as elements of culture.

Throughout time, architecture has persisted as one of the most profoundly important reflections of culture. Whether we consider monumental structures such as the Roman Coliseum, Notre Dame and Taj Mahal or modern icons such as the Empire State Building, Sydney Opera House or Guggenheim Museum, we see each building reflecting the story of the time, and how that iteration of culture wished to project itself to the future. Architecture also persists through our infrastructure from bridges to public spaces and even the very layout of our cities themselves. In this sense, one could consider architects as being the arbiters of our future history. So how did architecture become so central to our experience of being human?

In this exclusive series of interviews, we speak to Martha Thorne (Executive Director of the Pritzker Prize), Richard Rogers (architect of the Pompidou Centre in Paris, the Lloyds building and Millennium Dome in London and founder of Rogers, Stirk, Harbour + Partners) and Mohsen Mostafavi (Dean of the Harvard Graduate School of Design and the Alexander and Victoria Wiley Professor of Design). We discuss the very nature of architecture itself, how it relates to culture and topics ranging from the nature of cities, how buildings influence our lives and the future of architecture itself.

Martha Thorne is currently the Executive Director of the Pritzker Architecture Prize. She also serves as Associate Dean for External Relations of IE School of Architecture Madrid/Segovia. In recent years, Ms. Thorne has also led the architecture selection process for various public institutions, such as the Barnes Foundation of Philadelphia and Columbia College-Chicago , among others. From 1996 to 2005, she worked as a curator at the Department of Architecture at The Art Institute of Chicago.

She is the co-author of the books “Masterpieces of Chicago Architecture” and “Skyscrapers: The New Millennium”, editor of “David Adler: The Elements of Style”, editor and author for “The Pritzker Architecture Prize: The First Twenty Years”. Additionally she has written numerous articles for architectural journals and encyclopaedias. During a prior stint in Spain, she was a member of the three-person editorial board of Quaderns d'Arquitectura I Urbanisme, published in Barcelona.

Ms. Thorne received a Master of City Planning degree from the University of Pennsylvania and a Bachelor of Arts degree in Urban Affairs from the State University of New York at Buffalo. She undertook additional studies at the London School of Economics. She served for six years as a member of the Board of Trustees of the Graham Foundation for Advanced Studies in the Fine Arts and was on the Board of Advisors of the International Archive of Women in Architecture for three years.

Richard Rogers (Baron Rogers of Riverside) is the 2007 Pritzker Architecture Prize Laureate, the recipient of the RIBA Gold Medal in 1985 and winner of the 1999 Thomas Jefferson Memorial Foundation Medal. He is also winner of the 2000 Praemium Imperiale Prize for Architecture, the 2006 Golden Lion for Lifetime Achievement (La Biennale di Venezia) and the 2007 Tau Sigma Delta Gold Medal. Richard Rogers was awarded the Légion d’Honneur in 1986, knighted in 1991 and made a life peer in 1996. Most recently, in 2008 he was made a Member of the Order of the Companions of Honour.

In 1995, he was the first architect ever invited to give the BBC Reith Lectures – a series entitled “Cities for a Small Planet” – and in 1998 was appointed by the Deputy Prime Minister to chair the UK Government’s Urban Task Force on the state of our cities. He was Chief Advisor on Architecture and Urbanism to the Mayor of London, Ken Livingstone and has played an advisory role on design to the current Mayor of London, Boris Johnson. He has also been an Advisor to the Mayor of Barcelona’s Urban Strategies Council. Richard Rogers has served as Chairman of the Tate Gallery and Deputy Chairman of the Arts Council of Great Britain. He is currently an Honorary Trustee of the Museum of Modern Art in New York, Trustee of Médicins du Monde and President of The National Communities Resource Centre.

Richard Rogers’ practice - Rogers Stirk Harbour + Partners - was founded in 1977 as Richard Rogers Partnership and has offices in London, Madrid, Sydney, and Shanghai. It is best known for such pioneering buildings as the Centre Pompidou, the headquarters for Lloyd’s of London, the European Court of Human Rights in Strasbourg and the Millennium Dome in London. The practice has worked – or is currently working – on a wide range of projects including: Maggie’s Centre in London, winner of the 2009 Stirling Prize; Terminal 4 at Madrid Barajas Airport, winner of the 2006 Stirling Prize; Terminal 5 at London’s Heathrow Airport; two underground stations in Naples; the Leadenhall Building in the City of London; Riverside South, a major office development in Canary Wharf, East London; Tower 3 on the World Trade Center site in New York; mixed-use developments in Seoul and Florence; major residential developments in London and Taipei; the Oxley Woods housing scheme in Milton Keynes; Bodegas Protos, a winery in Spain; and a new exhibitions and conservation centre for the British Museum in London. The practice is also participating in the Greater Paris project, which looks at the future of the city as a more integrated metropolitan region as it faces the social and environmental challenges of the 21st century

Mohsen Mostafavi, an architect and educator, is the Dean of the Harvard Graduate School of Design and the Alexander and Victoria Wiley Professor of Design. He was formerly the Gale and Ira Drukier Dean of the College of Architecture, Art and Planning at Cornell University where he was also the Arthur L. and Isabel B. Wiesenberger Professor in Architecture. Previously, he was the Chairman of the Architectural Association School of Architecture in London.

Dean Mostafavi is a member of the trustees of the Van Alen Institute, and serves on the steering committee of the Aga Khan Award for Architecture. At Harvard, Mostafavi co-chairs the Common Spaces Committee, and is a member of the Executive Committee of the Mahindra Humanities Center and the Standing Committee on Middle Eastern Studies. He chairs the North American jury of the Holcim Foundation Awards for Sustainable Construction. Previously he served on the design committee of the London Development Agency (LDA), the jury for the RIBA Gold Medal, and the advisory committee on campus planning of the Asian University for Women. He is a consultant on a number of international architectural and urban projects.

He studied architecture at the AA, and undertook research on counter-reformation urban history at the Universities of Essex and Cambridge. Previously, he was Director of the Master of Architecture I Program at Harvard University’s Graduate School of Design. Dean Mostafavi has also taught at the University of Pennsylvania, Cambridge University, and the Frankfurt Academy of Fine Arts (Städelschule). His research and design projects have been published in many journals, including The Architectural Review, AAFiles, Arquitectura, Bauwelt, Casabella, Centre, Daidalos, and El Croquis. He is co-author of Delayed Space (with Homa Fardjadi, Princeton Architectural Press, 1994); and of On Weathering: The Life of Buildings in Time (with David Leatherbarrow, MIT, 1993) which received the American Institute of Architects prize for writing on architectural theory. Dean Mostafavi's recent publications include: Approximations (AA/MIT, 2002); Surface Architecture (MIT, 2002) which received the CICA Bruno Zevi Book Award; Logique Visuelle (Idea Books, 2003); Landscape Urbanism: A Manual for the Machinic Landscape (AA Publications, 2004); and Structure as Space, (AA Publications, 2006); Ecological Urbanism (Lars Müller Publishers, 2010); and Implicate and Explicate: Aga Khan Award for Architecture (Lars Müller Publishers, 2011); Louis Vuitton Architecture and Interiors (Rizzoli International, 2011).

Q: What is the fundamental purpose of architecture?

[Martha Thorne] That's a very simple yet complicated question. Architecture exists to create the physical environment in which people live. Obviously that's a very simple answer, but if we deep digger we see the complexities. What is the built environment? what constitutes quality of life? how do architects determine whether something is positive, helpful or relevant for individuals and collectives?

[Richard Rogers] It serves society and improves quality of life. It's a physical manifestation of the society's wishes to be civilised! ...public domain being the obvious place which encapsulates this as buildings, alongside being art and science, are part of the public domain.

[Prof. Mohsen Mostafavi] Architecture should fulfil multiple criteria. One of its purposes is to itself. A lot of people believe to some degree, in the autonomy of architecture as a discipline which means that part of the purpose of architecture is to construct new forms of knowledge that relate to the enhancement and advancement of the discipline itself. In a way, this is inseparable from the performance or performativity of architecture in terms of its responsibilities to engage with the society at large. There is, in a sense, a purposive dimension to architecture which really provides the symbolic ideas of habitation and- broadly- serving the humankind.

It's both this version of architecture that removes purpose, and one that really engages it fully in a purposive dimension. I think the simultaneity of these two conditions that's key.

Q: To what extent is architecture art or science?

[Martha Thorne] Architecture is both an art and a science. I might even take it a step further and say that it's a multifaceted gemstone as it is not just art, or just science... it is more than that. This is a discipline which draws on psychology, sociology, economics, politics and so many more areas.

I am reminded of my time working at the Art Institute of Chicago. Architecture in that sense was a curatorial department in a major art museum. Within the museum itself, there is a hierarchy and with my colleagues we sometimes joked that the more useful art is- the more you can walk on it or sit in it- the less it was considered an art and the lower down the totem pole it was!

Architecture on one hand is considered and art and is studied as such. It is strange in the sense that architecture is not truly the creation of an individual or collective for the purpose of research, contemplation or beauty but has the purpose of responding to functional needs. That takes it beyond the realms of art into other fields of human existence

[Richard Rogers] It has to be both! The architects nightmare is to have a blank piece of paper... we're not writers or abstract artists... we're a strange mixture of the two. It's about using imagination in form, giving scale, giving order, giving rhythm... to space.

Q: How does architecture relate to wider culture?

[Martha Thorne] Without a doubt, architecture is a part of culture- it has been called the mother of all arts! It is certainly part of how we see ourselves, and part of how we see the world. The unique aspect of architecture is that in its physical incarnation of buildings, it may last for hundreds and hundreds of years.

Architecture is created by people! the most successful architecture goes beyond just being a shed or a box for living... the most important architecture as we look back over history are buildings or environments that have done so much more in a variety of ways- be that innovation in building and construction, or buildings that have pushed the discipline to get us to think about our environment in different ways, or just incredibly beautiful buildings that have lifted the human spirit in addition to housing our activities and our lives.

[Prof. Mohsen Mostafavi] Many of the practices of architecture are about the discipline's entanglement in contemporary issues. The concept of contemporary is one that is fully implicated in contemporary tradition, practices and ideas. There is therefore a symbolic dimension to architecture which leads it to become a manifestation of those themes. Therefore, as a form of art practice... as a cultural production... it is obviously the manifestation of the spaces within which we see practices and lives taking place.... exemplars of contemporary life.

If architecture wasn't implicated in that project, one would simply have to conclude that it was not keeping up with the times. Does every piece of architecture accept these responsibilities? well... that remains to be debated. For me however, that responsibility is not in question.

Whenever you collaborate on a project which involves multiple agencies and participants- like people playing jazz together- each player contributes to the tonality, sound and experience of the overall. In that sense, architecture as a cultural production has the responsibility to be of them time, but represent the time.... to be the vehicle through which transformations are made....

We have to be aware of the responsibilities we have for architecture as a framework for social action. In that way, there is a reciprocity... a connection.. between how you're affected by a circumstance and how you affect the circumstance itself

Q: What do you feel makes great architecture?

[Martha Thorne] I'm immediately reminded of the words of Renzo Piano. It's very interesting to debate and discuss architecture and buildings with him, he's an extremely eloquent and thoughtful person. We've debated that buildings must be functional, manifestations of their time and not just seeking to replicate the past or manifest nostalgia... We've discussed the fact that buildings must be well constructed- one building must serve a multiplicity of functions and people in very defined ways. Renzo Piano always said, " addition to that, there's a quality of magic...."

That's what differentiates good architecture from just being any old building. Good architecture is intentioned. It somehow touches the people who use it and live in it... it somehow touches the human soul. I realise these phrases sound somewhat utopian, but truly good architecture has the ability to relate to individuals in a very profound way. That is a quality which cannot be deciphered into scientific terms or quantified- but is something we all know when we experience a quality building or a space that somehow goes beyond being functional and is- somehow- very special.

To give you an example... when I entered the Ningbo Museum by the recent Pritzker winner Wang Shu, it's a building which is truly huge. It is- in some ways- monumental. When you enter that building however, you know that it was made for the people that visit it and work there. You never feel insignificant... you feel that you're cared for as you go in the building. It's a magical quality that's hard to put into words, but undoubtedly is there within the building.

[Richard Rogers] This is a very difficult question and the answer would have to consider all the various aspects of architecture including rhythm, function, aesthetics and more. At one level, this could be something very simple... even a wooden hut in your garden.

[Prof. Mohsen Mostafavi] What's important is that we acknowledge architecture as an artistic practice not as pure science. It is an artistic practice to the extent that it involves new forms of creativity and creative thinking. At the same time, we are deeply conditioned by our knowledge of science.

Science is not purely seen in a rationalistic sense, but also in the context of natural sciences. We cannot then see the worlds of art and science as so inseparable but rather as fields of available knowledge and practices that are open to us. I think the relationship of art to practice is very important.

If we look at the act of drawing as a way of imaging as opposed to assuming you have a scientific knowledge of a field that you are replicating. The artistic dimension of creativity is critical and it's imperative that we do not separate the worlds of art and science in architecture.

Q: What have been the most significant eras in architecture?

[Richard Rogers] Every successful period history was modern during its time, so we see that change is a continuous process. The big changes in terms of 'modern architecture' are not only because of a modern-eye which moved from impressionism to modernism, but also new technology. It's been a stripping-down in many ways from the amazingly enriched periods like Baroque and Rococo to a more 'economic' visual time.

Every age thinks it's making the environment more human, but changes are always reflected. If I had to say what the greatest change has been in my more than 50 years as an architect? It is sustainable ecology. It has made tremendous changes to architecture... not enough... but still impactful.

If we go back through history to the beginning of the modern movement, the big change came in the form of the steel frame in Chicago, the lift and the telephone. You simply couldn't build high-rise buildings without these two innovations.

[Prof. Mohsen Mostafavi] We are very aware of distinct periods. When we now reflect on the medieval period, the renaissance or the baroque.... each of these temporal moments in reality are identified to us because of their specificity, differences in approach and differences in outcome. Many of the qualities that we find in baroque architecture are (or at least should be) of incredible relevance to what we do today.

It's not necessarily that we see a direct link between medieval, renaissance, baroque and contemporary practices- but there is no reason why we shouldn't be able to learn from them. Surely the purpose of teaching history in context of architecture is to make that material alive, make it present and to be inspired and learn.

Today we are more influenced by the tradition of enlightened thought- simply because there is a greater connection between the philosophies of that period and the notions and concepts of modernity and modernism.

I think one of the most wonderful periods of architectural advancement was the baroque. It's not clear to me that we have understood, studied and analysed this period sufficiently to understand the ways we could benefit from it.

Q: How is architecture influenced by the political, economic and social zeitgeist?

[Martha Thorne] There's definitely a link between the broader concerns of society or the situation we find ourselves in- and architecture. This often worries me. In recent years there has been too much misuse of architecture to create a narrative that is outside the built environment. Many times we see that politicians or other people seek to build a monument to something, or create a show of power. They are asking architecture to do things that go beyond what the true values of architecture are. It's upsetting to me when people say, "..we're going to create a new icon for this city or this country". An icon is something that evolves through popular acclaim or acceptance and develops over time or may be the result of a special event or a moment in history. To ask an architect to create an icon for a city, or an economic renaissance, is missing the point. The first purpose of architecture is to create habitat and to fulfil the needs of society or individuals for places to work and live. The purpose of architecture is not to create a monument to help someone get elected or to get them on a cover of a magazine. If it's a side product... that's ok... but if we're looking for iconic monuments and think we can produce them, I think that's missing the point.

Q: What is the relationship to the function of a space to its design and aesthetic?

[Martha Thorne] Architecture is all of these things together. If a building is well-designed, it of course functions well! The materials used are appropriate... it works with nature in terms of energy, light and use of resources... it creates spaces that somehow go beyond just functioning well. I like to often say that if something is well-designed, you don't need to add anything more or take something away- any of these acts would diminish the whole. In that sense, function is important but all these other aspects are too- and they can't be separated. I often cringe when someone says, "...we'll do the structure, and we'll add the architecture later..". No! Architecture is everything! It has to do with the structure, materials, purpose, context and function of a building. It's everything together and you simply cannot separate these ingredients out.

If we look at the word 'design'. It is increasingly applied to broad areas... we now speak of 'design thinking' in business, textiles designs and much more. If someone were to ask me what design was? I would start with the assertion that design begins by knowing what question to ask... reformulating a question. When an architect is asked to design a certain building or space, the first thing should be to ask what is needed? what is the purpose?, who will be using it? This leads to a process of introspection which asks much broader questions... do we really need an airport? do we really need a stadium? or... perhaps... this structure could do more than that! Design is first asking a question, and then creatively find the best answer. That answer is often not the most obvious or the most commonly used, and may involve pushing the envelope and thinking a different way. Design is therefore the formulation of a question to find the right answer!

Q: What is the role of aesthetic and beauty in architecture?

[Prof. Mohsen Mostafavi] Many of the tasks we undertake- even the simplest building project- as an architect, you are always hoping the outcome will be something beautiful. What constitutes beauty however, is more complex. To use the cliché, it's in the eyes of the beholder! Trying to foreground beauty is a valuable task.

Aesthetic refers more broadly to the philosophical thinking procedures, including questions around visuality, reception and the whole apparatus of discussing the aesthetics of buildings themselves. This is something that is very relevant and important. In terms of architecture, we don't discuss these issues very systematically- they have been left to be thought of in terms of purely subjective criteria. We do not spend enough time articulating the reason why we think something is beautiful, and that's all part of a training process that is necessary. To use an analogy from wine... you could drink any wine and think you do like one or don't like another.... but actually there is a lot of discipline involved in the appreciation of palette and the development of taste. It's not a purely subjective quality, there's an art in the way taste becomes sensitive to nuances. That's something which is critical in architecture- and we must pay more attention to the manner in which we discuss beauty as a topic.

Q: Can architecture influence the identity and emotion of a place and it's people?

[Martha Thorne] Without a doubt, buildings are accepted by communities and imbued with emotions and the appreciation or disdain of people! They are included in the identity of a people, city or place. I don't think it's something that an architect or developer can will onto people- it's something that happens naturally and relates to how people see a building, how they accept it and... of course... this does lead to discussions around branding and communications. In this sense, the Empire State Building has become part of the image and identity of New York and is a source of pride for the people of the city, and a connection they have to the city's past. It's fair to say that most people feel affection and appreciation for the Empire State Building!

People speak of the 'Bilbao Effect'. The Guggenheim Museum is a very important part of the city, but there is a misnomer. People often say that the Guggenheim Museum turned around the City of Bilbao and that Frank Gehry has turned the city around and created an icon. Well.. that's not exactly true.... Bilbao was an industrial city that was coming into the 21st century. All of the city's improvements were based around industries that were decaying and becoming obsolete. The regional government and city leadership developed a planned for around 13 different major public works. This included moving the port from Bilbao down river! These were huge investments which... on a postcard... are not as obvious as The Guggenheim Bilbao, but which were fundamental in changing the city. Cleaning the river was incredibly important and didn't receive as much credit as the Guggenheim.... alongside this you had the installation of trolleys across the city... conference centres... music halls... subway system.... all of these things also contributed significantly to the rejuvenation and rebirth of Bilbao.

Bilbao without the Guggenheim would not be Bilbao... but also, Bilbao without this collection of other public works would not be the city it is today.

[Prof. Mohsen Mostafavi] I certainly hope so!

Don't you find that often, when you walk into the room, you may talk about how you find the qualities of the room to be somehow calming? A space may instil certain emotional conditions and I certainly believe in the emotive power of architecture. Those emotive powers are very important as they speak about the sense of experience and the sense of experiencing architecture. It's not just about an intellectual reading of architecture as a cognitive rational process, but also about the emotive dimension.

The spaces and buildings we love the most instil certain feelings in us that are often not easy to describe.

Q: How does architecture respond to global challenges such as population and climate change?

[Martha Thorne] Architecture, as with any field, has excellent examples of attempts to move forward and be much more mindful of societal issues and problems. We must remember that architecture has to be kept in perspective. The vast majority of buildings in our world are not designed by architects. They may be undertaken by builders or begun spontaneously but we certainly cannot say that all buildings that populate our city were intentionally designed by architects.

I just came back from Austria where I attended a conference called "Space Matters". On one hand we realise that space is important, it affects our quality of life. But this also relates to the scientific sense whereby space is matter... it is made of matter, not something intangible. A lot of people were talking about architecture and activism. If we look at Favelas and other forms of spontaneous housing and communities, we see that there are alternative forms of architectural practice. Architecture in this sense is activism, not object creation. There are aspects of social integration and organisation in these communities that are enormously positive and we could learn a lot from them.

Q: What has been the impact of technology on the last quarter century of architecture?

[Martha Thorne] Technology has affected several aspects of architecture and the wider field.

One aspect is that some people are concentrating on form-making... because they can! Computers and the use of parametric models have made it much more feasible to create unique forms. Many people see this as a very important part of the discipline.

There are other aspects where technology has, and will continue, to have an effect. One has to do with the relationship of people who are undertaking architecture, and the building process. There's much more communication now between architects, engineers, contractors, builders and all other stakeholders in the building process. The way design and construction were traditionally undertaken was much more linear First you had the architect, then the engineer, then the builder and so on. Now it's much more integrated and unified. I think the jury is out in terms of whether this is leading to better buildings, but it has the potential to profoundly change the landscape of building.

The next area where technology has had a big impact has to do with the possibilities it opens up for construction. In the past, either standard products had to be purchased off-the-shelf- with the limitations they had. The only other option was for things to be custom made by hand, which was very expensive. Technology has made it much easier to send information from studio to production. It's now possible to do mass-customised elements for buildings. In the building process, that type of potential should definitely lead to better quality in construction... more possibilities for innovation and, hopefully, more creativity.

[Richard Rogers] Right now.. without a doubt... the web is the greatest single change agent. The fact that we can communicate globally at practically zero cost is astonishing. I have a meeting after this with a co-architect who is based in Beijing and we will be drawing together via the net.

Interestingly when the IT revolution began, there was talk about people retiring to their villas in the mountains using technology to communicate. The opposite has in fact happened because people want to be together, they want to communicate and you only have to go somewhere like Canary Wharf to see the vitality that exists after work because people want to be together.

Q: What are your views on urbanisation and do we need to rethink the concept of 'the city'?

[Prof. Mohsen Mostafavi] The concept of the city is often ahead of us. In many parts of the world, people are urbanising districts much faster than architects and planners have time, energy and resources to deal with. Thinking about the future of the city is a critical topic, and one that we need to spend more time on. The tools we have in terms of thinking about cities are fairly old fashioned. We are the inheritors of modernist planning and are now seeing the such a rapid shift from rural to urban that these tools are incapable of dealing with new forms of urbanisation. What is clear is that the whole topic of infrastructure and infrastructural-urbanisation is a first step to thinking about future cities. This is an area that requires more attention.

There isn't much expertise in the world to deal with the intersection of infrastructure, urban planning and public space. Infrastructure is thought of as part of engineering as opposed to thinking about the relationship for example, between infrastructure and its impact on urbanisation.

In terms of the future of cities... the big challenges will centre around the questions of extreme urbanisation, fast urbanisation, climate change and more. We must think very differently than we ever have done about how we plan cities and move away from master planning and separation of functions. We have been able to learn a lot from cities as they've grown organically but now we need new tools and techniques for imagining the cities of the future.

We are also faced with limitations on resources and must think creatively through these challenges to innovate and consider new types of urban environments that are really sustainable in the long-run. Many of these themes are being discussed from the point of view of assessment... insofar as we ask the question as to whether a city is liveable... but we should really be thinking from the perspective of production. How do you create new spaces that are quite different than the spaces we are used to. That's a big challenge!

Q: How can architecture influence economics?

[Martha Thorne] There are many ways that architecture can influence an economy. On a broad scale, this also relates to the design of entire cities and neighbourhoods, not just individual buildings. It also requires an wide scale understand of how a city functions. There are now conversations around efficient cities that make best use of resources including public transportation. People are now starting to consider how people interact with their city. Where do they live? where do they work? and how do they travel between these activities? Can those activities be combined to make city use more efficient?

There are many other ways in which architects can contribute to the economy- albeit this may not be direct! If we look at individual buildings I wouldn't go so far as to say they can illicit certain behaviours, but without a doubt... a well designed school can encourage learning and provide the right conditions of comfort, lighting and acoustics to foster ideas and set the stage to think creatively and promote curiosity. Bad architecture makes people tired, uninterested and bored! Well designed workplaces are crucial too. Many studies have shown that people in well designed spaces take less sick leave, they are more focussed and make better contributions to their organisation. This relates to the first observation that architecture is art, science and much more. Good architecture has to be aware of those aspects which may have economic impact.

Good design is good business!

Q: What is the economic and social role of signature buildings?

[Richard Rogers] I take signature to mean buildings which are recognised. If I take Pompidou, the first paragraph of our report (which we had to submit with our drawings) was that this should be a place for people, all ages, all creeds, the poor, the rich, a place for meeting. That explains the social context which drove the form in a way... Pompidou had a big piazza, continuation of the public space up the facade, interior flexibility and more.

This need for flexibility was critical. In the renaissance, the era of the 'monument', it was said that when a building was perfect nothing could be changed, nothing could be added to. Today it's nearly the reverse, if you can't add to it- it becomes a white elephant! Buildings frequently outlive their uses, and if we're talking about sustainability it stands that one would not wish to demolish a building and that it should be flexible for the communities who use it. I used to say as an example that the Lloyds Insurance building could be used as a university one day. At the time we built Lloyds Insurance, the IT revolution was just starting and questions were raised about why the building would need meeting spaces, market spaces and so on. Things can be very temporary...

Buildings also help to form the identity of a place. You can see the life of the people and community expressed in architecture and hopefully if these spaces are well-designed, they will positively affect the people within them. If you are unfortunate enough to live in a brutal derelict space then you, yourself, will be affected. Those of us who are lucky enough to live in nice green areas and areas with good public spaces most likely have a better chance at enjoying life and- I suppose- play a role as citizens.

Q: What is the role of architecture in the fields of infrastructure and transportation?

[Richard Rogers] The idea that as an architect works on his own is no longer valid, it's about teamwork. I work very closely with structural and environmental engineers, sociologists and people from other disciplines. You move forward as a team. Probably the most important person in this team is the client! All the buildings which I could say are the better ones we have done were driven by the vision of a client who understood what they were trying to aim at.

Let me give you a simple illustration. When we started the Pompidou, it had three major departments; museum, music and library. By the time we finished the Pompidou, the weren't any books in the library! Nobody had really envisaged that change would have moved so fast. We see this in terms of transportation too. My guess is that the car is dying.... What will replace it? how will it be replaced? there are interesting signs coming from researchers who build vehicles which, rather than being driven, follow magnetic lines and so on... That will make a tremendous difference to our streets and give us more public space. That is a situation where hopefully, the engineer and architect work together. You could also consider individuals like Brunelleschi. Was he an engineer? was he an artist? was he an architect? They are very overlapping.

Looking at transportation.... One of my first memories as a young child was going to Paris, and seeing trains going off to unheard of places and it was very exciting. In many ways, my inspiration was probably more influenced by railway stations than by neoclassicism. What really excited me when I took on airport projects was the spirit of travel. If you are going to spend time there, you may as well try and make it a gateway! ...a gateway in this sense is a spirit. This mode of thinking is part of the art of architecture. We cannot forget that for modern airports, the business-end is all about retail. I sometimes feel that what business people want is a shopping centre with wings on!

Q: What is the role of regeneration and repurposing on the story of architecture?

[Richard Rogers] Especially in countries like Britain which were massive industrial nations, the real art of architecture is retrofitting. Whether you are retrofitting in terms of brown-field (sites where buildings were already), retrofitting existing buildings or intensifying... that is a very important part.

England has more brown-field land than any country in the world! There's no point building outside cities, we're nowhere near filling gaps within our own cities. This is also an environmentally sustainable strategy. You could avoid using cars and go by bike, foot or even bus whereas if you live in the suburban sprawl, it creates tremendous pollution.

Cities are also a great meeting place for people- something which has been at the heart of the concept of 'the city' since its emergence in Mesopotamia. Cities met to exchange grain, meat, to think and to exchange ideas. In this sense, the core concept of the city has remained relatively unchanged for 6,000 years and so regeneration merely ensures more parts of the city meet these purposes.

Q: What is the relationship between government policy and architecture?

[Richard Rogers] I've worked very closely with governments in this regard. I was the Chairman of 'Urban Task Force' and other bodies under John Prescott, Ken Livingstone and Heseltine who were all tremendously good ministers. They had a tremendous intuition, world-view and realisation that things could be better... that quality of life could be improved. For example... there is a clear battle at the moment to retrieve the streets for people where they were previously only for cars.

The UK Government has recently overhauled planning laws and regulations which have been in place since 1945-46. They propose to take 1,500 pages of documents down to only 50 pages. I think the aim is questionable, but I do understand what they are trying to do. Regulations have made a difference... If you take the example of London becoming denser... Ken Livingstone stated that no rural land or open space will be used outside the brown-field areas in London. In 15 years, the city added over 1 million people who all live within these contexts. That also makes the city much safer as eyes on the street are a critical part of safety.

Q: What are the key challenges and opportunities faced by education in relation to architecture practice?

[Prof. Mohsen Mostafavi] I think one of the key challenges is to make architecture more relevant. This is very tough as we live within a cultural milieu where the value of architecture has been diminished. This is in many ways, a cultural question as much as an education question. We live in a world where the vast majority of students studying in high-schools have no exposure to architecture. In some parts of the world, they still have art classes- but there is very little coverage of the history of architecture and art- and even less about the organisation of our cities.

In the United States, it's extremely complicated to study architecture. You must complete a degree, work, then art school for a further 3 to 4 years... When you finish, you have a lot of debt and the salaries that people receive in this field are relatively low. It's a field which requires people to be incredibly passionate and dedicated to their discipline. This is a problem to the extent that over the years, the value of architecture has decreased.

For architecture schools, the challenge is to train individuals who are not only the most creative people in their field.... but also who are able to see their future job opportunities and possibilities in context of a society that appreciates what they do. Our challenge is not simply to train the best and brightest individuals. We also are mandated to argue for the importance of architecture, the importance of design, the value of beauty... outside the community of architects. With the enhancement of such senses of appreciation, we will create greater value for architecture and architects.

We are also living at a time where we have the responsibility to design and describe what is contemporary about architecture. This is not just about having certain know-how but also having sensitivity to the world around us. That's an immense challenge for the next generation of practicing architects- to develop a discipline and mode of practice that is genuinely contemporary in its approach. This sounds simple but believe me, it's a big task.

Q: What does the next quarter century hold for architecture?

[Martha Thorne] I cannot tell you architecture will do, but I can tell you what I hope it does.

I think the most pressing issues that are facing the world today have to do with the great social needs of a huge percentage of the world's population. Architecture has an enormous challenge and an enormous opportunity to design for that 90%! Not the 10% or 20% that may benefit directly as they do now... but for the larger population of humanity that has enormous needs for housing, schools and so on.

That may mean we don't build in the conventional sense that we're used to. We may undertake design much more with people. I think of architects like Shigeru Ban of Japan and the work that he does for disaster relief. This is another area where architects have a lot of potential to do incredibly valuable work. How do you quickly care for people after disasters, and provide shelter, privacy and some sort of help? how do you take people away from the devastation and prevent it becoming chronic? That type of issue is somewhere that architects can have a profound impact.

When it comes to questions around the use of resources, we realise that a lot of the world's solid waste comes from buildings. That is an area where I hope architects will focus their interests and see what can be done. How do you deal with ageing building stock? how do you deal with landfills that are full of residue from building sites and demolitions?

[Richard Rogers] Materials are getting smaller, lighter and stronger. You can do more with less.

I also hope that we will recognise our responsibilities more as citizens. We live in a period where we absorb information from around the world, and information that allows us to be critical of things.

There are also huge explosions happening around the world. The first time I went to Shanghai was around 15 years ago. It had 9 million people and 7 million bicycles. I went back 10 years later and the city now had 19 million people. Shanghai had added a New York in just a decade! Unfortunately, there were now 2 million bicycles... pollution and congestion were also now terrible.

[Prof. Mohsen Mostafavi] We can imagine that technology will become more ever-present but the use of technology is important. If we see computers as a device for drawing, imagining and so on... they become less the drivers... but more the catalyst for how we imagine. We do think about architecture in its own right and in the sense of the beauty of buildings. This goes back to the question of autonomy and leads us to the question of how we can advance the discipline itself.

I think it will be critical for us to think about urban environment, how we relate to people, the places we live and the places we work. All these things are up for grabs! In the last 20 years, we've already seen a lot of changes in patterns of living and working- and these trends will continue.

We must also consider these things in context of the new paradigms we face, meaning we have to be clever. The buildings of the future will have to take into account reduced energy, so the buildings themselves will have to be sustainable as will our actions in terms of the city. We will have to be more resourceful but not at the expense of aesthetics and at the expense of creating pleasurable spaces and experiences. We must not think about the reduction of energy use in a scientific fashion, but rather in a creative fashion.

We will also need to think differently in terms of our relationships to others. One example is the growing differentiation between rich and poor, creating more gated communities. In places like Dubai and others... the poor are literally hidden from site. Hopefully we will resist this, and think about cities with more community... more interaction and more engagement of people from different backgrounds. I hope we will really see the city as a place that is understood as somewhere that enhances democratic operations. You could argue many modern cities don't promote democratic relations.

The challenge is how we think about cities, and how can we bring people together to enhance democracy. One of the elements of such an existence is the role of infrastructure- the provision of services, for example, mobility, transportation, access and enabling people to move around. Many cities are being designed with outlying suburbs with difficult access which de-facto creates a certain notion of ghettos.

I hope we resist this and create radically more engaged and collaborative environments, but there is a lot of evidence that things are going the other way... but I continue hoping.


In his 2009 book “The Thinking Hand” architect Juhani Pallasmaa notes that, “…architecture provides our most important existential icons by which we can understand both our culture and ourselves. Architecture is an art form of the eye, the hand, the head and the heart. The practice of architecture calls for the eye in the sense of requiring precise and perceptive observation. It requires the skills of the hand, which must be understood as an active instrument of processing ideas in the Heideggeran sense. As architecture is an art of constructing and physical making, its processes and origins are essential ingredients of its very expression…” Linking art and architecture he continues, “…as today’s consumer, media and information culture increasingly manipulate the human mind through thematised environments, commercial conditioning and benumbing entertainment, art has the mission to defend the autonomy of individual experience and provide an existential ground for the human condition. One of the primary tasks of art is to safeguard the authenticity and independence of human experience.

Pallasmaa asserts that, “Confidence in future architecture must be based on the knowledge of its specific task; architects need to set themselves tasks that no one else knows how to imagine. Existential meanings of inhabiting space can be articulated by the art of architecture alone. Thus architecture continues to have a great human task in mediating between the world and ourselves and in providing a horizon of understanding in the human existential condition. The task of architecture is to maintain the differentiation and hierarchical and qualitative articulation of existential space. Instead of participating in the process of further speeding up the experience of the world, architecture has to slow down experience, halt time, and defend the natural slowness and diversity of experience. Architecture must defend us against excessive exposure, noise and communication. Finally, the task of architecture is to maintain and defend silence. The duty of architecture and art is to survey ideals and new modes of perception and experience, and thus open up and widen the boundaries of our lived world.

At the heart of this discourse comes an even more fundamental realisation. Architecture does not manifest by itself, it is not a natural process such as the growth of a tree or movement of the oceans, it begins with the mind conceiving a question, rationalizing the context, understanding the ethic and ends with the imagining of a solution. Architecture is thus in its purest sense, the tangible manifestation of our imagination, interwoven with our lives to an extent matched only by our own biology.

Architecture is not manifest apart from us, it is us manifest.

Click to read full article...

Friday, 1 June 2012

The Failures of Our Economic System

In this exclusive interview, we speak to Raymond Baker (Director of the Task Force on Financial Integrity and Economic Development). We discuss the true scale of the global illicit economy and understand how issues such as government theft, drug trafficking, global wealth, money laundering and the shadow financial system contribute to some of our most intractable issues ranging from poverty to hunger, terrorism and even economic crises.


Vikas Shah, Thought Economics, June 2012

It is an astonishing testament to our society’s economic development that the decade from 1999-2009 saw OECD countries giving over US$1.07 trillion (around 1.7% of world GDP) in overseas development aid, predominantly to developing economies. It is even more astonishing when you realise that in the same period, over US$8 trillion (an amount larger than the combined size of the economies of China and India) was illicitly transferred from these developing economies into the western world, in most cases- permanently. This amount, combined with the developing world’s estimated US$4 Trillion in external debt, means that 80% of our world population (some 5.15 billion people) live in poverty.

Some may argue that even against the backdrop of debt and outflows, it should still be applauded that these economies have received such a significant amount of aid. Surely, they may add, it must be helping? Economist Loretta Napoleoni notes that, “what turns a developing into a developed nation is not the amount of foreign aid it attracts, but how the money is spent.” Using the example of Africa she continues to describe how, “most of the half-trillion dollars received by Africa since the 1960s has funded military coups and civil wars, not economic development. Between 1982 and 1985, Zimbabwe spent $1.3 out of $1.5 billion of foreign assistance on arms and ammunition. In war-torn countries such as Ethiopia, Somalia and Sudan, foreign asset transfers have provided the most lucrative source of revenue for local armed groups. During the civil war in Sudan, the bulk of food aid intended for famine-stricken regions was spent by local armed groups and warlords, who bought Iraqi weapons to use against the Sudanese army and the population… in fact, 70% of the loans given to developing economies go to purchasing goods and services from Western corporation.” She also refers to the Swedish Economist Fredrik Erixon who has shown that since the 1970s, the volume of aid received by African countries has proven inversely proportional to economic growth. Far from being the cure he says, foreign aid has caused the disease. The more a country receives, the more it sinks into poverty.

The existence of a ‘market’ has been a core feature of human society since the Stone Age. At the heart of this market exists the exchange medium of ‘money’, governed by the ideological science of the ‘economy’. Napoleoni notes, “…The birth of new outlets for exchange has triggered economic progress. Human discoveries and innovations gain new meaning when they are shared with others and this happens when they are traded…” (Rogue Economics, 2008). In this regard, one can observe that a properly functioning economy, in which participants have confidence, is essential to the fundamental operation of society. It is clear to even the most casual observer however, that our global economy is faulty. This system, designed to support human progress, is inaccessible or inequitable for the vast majority of humanity. So what is the true scale of the faults in our economy?

In this exclusive interview, we speak to Raymond Baker (Director of the Task Force on Financial Integrity and Economic Development). We discuss the true scale of the global illicit economy and understand how issues such as government theft, drug trafficking, global wealth, money laundering and the shadow banking system contribute to some of our most intractable issues ranging from poverty to hunger, terrorism and even economic crises.

Raymond Baker is the Director of the Task Force on Financial Integrity and Economic Development and the author of Capitalism’s Achilles Heel: Dirty Money and How to Renew the Free-Market System, published by John Wiley & Sons and cited by the Financial Times as one of the “best business books of 2005.” He has for many years been an internationally respected authority on corruption, money laundering, growth, and foreign policy issues, particularly as they concern developing and transitional economies and impact upon western economic and foreign interests. He has written and spoken extensively, testified often before legislative committees in the United States, Canada, and the United Kingdom, been quoted worldwide, and has commented frequently on television and radio in the United States, Europe, and Asia on legislative matters and policy questions, including appearances on Nightline, CNN, BBC, NPR, Four Corners, and GloboNews, among others.

Mr. Baker is a Senior Fellow at the Center for International Policy in Washington, D.C., researching and writing on the linkages between corruption, money laundering, and poverty. He is also Director of Global Financial Integrity and a member of the High Panel on Illicit Financial Flows from Africa, chaired by former President of South Africa, Thabo Mbeki. In 1996 Mr. Baker received a grant from the John D. and Catherine T. MacArthur Foundation for a project entitled, “Flight Capital, Poverty and Free-Market Economics.” He traveled to 23 countries to interview 335 central bankers, commercial bankers, government officials, economists, lawyers, tax collectors, security officers, and sociologists on the relationships between bribery, commercial tax evasion, money laundering, and economic growth. From 1985 to 1996 Mr. Baker provided confidential economic advisory services at the presidential level for developing country governments. Activities focused principally on issues surrounding anti-corruption strategies, international terms of trade, and developing country debt. Research was conducted with 550 business owners and managers in eleven countries, concerning import and export mispricing and movement of tax-evading capital.

From 1976 to 1985 Mr. Baker conducted extensive trading activities throughout Latin America and in ten Asian countries including the People’s Republic of China. An affiliated company in London handled transactions in Europe. From 1961 to 1976 he lived in Nigeria and established and managed an investment company which set up and acquired manufacturing and financing ventures, the subject of two Harvard Business School case studies. Educated at Harvard Business School and Georgia Institute of Technology, Mr. Baker is the author of “The Biggest Loophole in the Free-Market System,” “Illegal Flight Capital; Dangers for Global Stability,” “How Dirty Money Binds the Poor,” and other works published in the United States and Europe.

Q: What is the methodology you use to measure illicit financial flows?

[Raymond Baker] We measure these flows entirely based on data filed by governments at the World Bank and the IMF. We apply two very established economic models. One is the World Bank's residual method, and the other is the IMF Direction of Trade statistical approach. These models have been used by economists for decades but we were the first group to apply these models to all developing countries.

These models depend entirely on government statistics. They automatically leave out many forms of illicit money such as drug trading, human trafficking, some forms of trade mispricing and so forth. That is why we feel our estimates are very conservative.

Q: What is the true scale of the illicit flows of money out of developing economies into the west?

[Raymond Baker] If you look at the decade which ended in 2009, our estimate is around US$8 trillion. As previously mentioned, we believe this is a very conservative estimate because there are major parts of illicit flows that are not included in that figure. To put this in context of specific countries, China has been by far the biggest exporter of illicit capital. Interestingly, China is also the biggest exporter of licit capital. We estimate the amount of illicit money to have left China in the 10 years ending 2009 to be around US$2.7 trillion. Other countries also have significant outflows. Mexico lost US$504 billion over the period, Russia US$501 billion, Saudi Arabia US$380 billion and Malaysia US$350 billion.. If you measure these losses as a proportion of GDP, outflows from China, Russia and India barely register 2% of GDP while outflows from Mexico and smaller countries can amount to 6-8% of their GDP.

We're talking about massive amounts of money that have been shifted from poorer countries to richer ones. Almost all of this constitutes a permanent outward transfer. In our estimate, only about 10-20% of global illicit money ever finds its way back into the country of origin.. China may be an exception to that with 20-30% of money 'round tripping' back into the country. One of the important things to recognise about that return is that it's not via citizen’s return of flight capital, but through foreign direct investment. That illicit money has gone abroad, acquired a foreign nationality (more often than not in a tax-haven) and comes back.

Q: What is the scale and impact of bribery and theft of funds by governments in developing and developed economies?

[Raymond Baker] We estimate that in talking about the cross-border flows of illicit money (not financial activity within one country) the component that is due to corruption- i.e. bribery and theft by government officials, is around 3-5% of the global total. It is very much the smaller part of the equation and takes place when corrupt politicians, high net worth individuals, and officials act in a private capacity- often using a network of secrecy jurisdictions and expert accounting, tax lawyers and other professionals to hide these transactions and resultant funds in complete anonymity. This is especially significant when you consider the amount of effort we, in the West, put into pointing out the corruption that takes place in those countries. We tend to paint the picture that corruption is the problem. The fact is, when you look at the cross-border flows of illicit money- it's only the smallest part of the problem.

For the societies themselves, this activity drains hard currency reserves, heightens inflation, reduces tax collection, curtails government service and undermines investment.. There is no good accomplished by this massive outflow of resources. Much of our work at the Task Force is aimed at maximising resources for development- thismeans curtailing outflows so that nations are able to keep their capital and spend it internally. When you put these outflows in the context of globalisation you see how trade mispricing is used to rob governments of much needed capital, which could otherwise be used to alleviate poverty and stimulate economic growth.

Finally let me add that these outflows weaken national security by providing a source of capital for terrorist groups and criminal organisations.

Q: What is the scale and impact of financial flows from drugs trafficking and racketeering in developed and developing economies?

[Raymond Baker] Our studies show that the proceeds from drug trafficking and other illegal criminal activities amount to between 30-35% of all illicit flows. Drug trafficking is the biggest single component, but it is not large enough to constitute a majority. Almost the same size is counterfeiting and contraband and then, of course, you have human trafficking and a gamut of other criminal activity. The proceeds of crime are the second ranking source of all illicit funds. This is the main platform by which cross-border criminal activity is conducted. Criminals did not invent any new ways of shifting illicit money across borders, they simply stepped into mechanisms that we- as a society- had already created to move flight capital, and capital that was avoiding tax across borders.

There is no doubt that by curtailing such capital flows we will be able to bring criminal organisations under control and reduce their power.

Q: To what extent do illicit financial markets contribute to the threat of terrorism?

[Raymond Baker] Illicit financial markets facilitate the movement of terrorist money. After 9/11, the United States moved very aggressively to address terrorist financing to the extent that there are now fifty departments in the US Government that have some focus on some aspect of terrorist financing. As a result of that, I think that terrorist organisations have been forced to resort to the movement of bulk-cash or gold, drugs, commodities and so forth. We've made it difficult- not impossible- for terrorists to use the legitimate financial system. The European Community has criticised Americans as having been heavy-handed but if I was a US Government official after 2001, I would have been heavy-handed also.

A recent edict from Saudi Arabian clerics published in the Washington Post a few years back recommended that if governments wished to deal with international terrorism, they curtail the generation and cross-border transmission of illicit capital. Let us not forget that the recent failed attempt to detonate a bomb in the middle of a crowded locality of Manhattan was financed through a "hawala" transaction. This is a transaction that occurs outside the normal banking and remittance system using a huge international network of money brokers located in the Middle East, North Africa, Horn of Africa and South Asia.

Q: What is the scale and impact of tax evasion and secrecy jurisdictions in developed and developing economies? And what does 'offshore' really mean in this context?

[Raymond Baker] Tax evasion is the biggest part of the movement of illicit money internationally and is a problem for both developed and developing economies. The principal mechanism for tax evasion is the mispricing of trade; that is to say you deliberately misprice an export or import in order to shift capital to a different tax jurisdiction. This practice occurs with great frequency and operates using much the same structures used by organised crime (arms dealers, drug smugglers and the like).

The deals themselves are not transparent, but it would be a stretch to say they take place contrary to international agreements. The effort to curtail trade mispricing is called 'the arms-length principle' that is to say all parties- whether they are corporations dealing between subsidiaries or domestic business people- should deal as though they had no relationship to one another. Price should therefore be based on normal market forces. Unfortunately that is not the way it works in reality. A very large proportion of the pricing of trade is done in tax-planning departments of multinational corporations where they are quite specifically making decisions to evade or avoid VAT, customs duties, income taxes and so on.

Prominent US and other advanced country commercial banks have been involved in money laundering and have had to pay fines for breaking anti-money laundering (AML) laws (unfortunately the fines are often not great enough to pose any series disincentive when compared to the money that can potentially be made). In a study, we found that between 24-44% of total economic outflows are absorbed in offshore centres, while commercial banks absorb the rest... up to 76%. The specific range depends on how one defines offshore centres (OFCs). If Switzerland and Ireland are counted as OFCs, then we get the higher end of the amount absorbed. Our findings indicate that both banks and offshore centres absorb illicit funds from developing countries and both of these parties are quite opaque regarding such transactions.

In terms of the effect on society... If you look at somewhere like the Cayman Islands where a lot of money flows in and out... no, it has very little impact. If the entire shadow financial system based in the Cayman Islands picked up and moved elsewhere the Cayman citizens would be left in a very similar condition to their world before the structures arrived. The shadow financial system does very little for the tax-haven economies themselves. If you look at the economies from where the income has been lost- they are left in an impoverished state. Firstly, the governments do not have the tax revenues to spend on health, education, social services, infrastructure and so on... but far larger than the tax loss is the capital loss. That capital has moved out of the country and is unavailable to the economy.

Q: What is the scale and impact of trade mispricing in developed and developing economies?

[Raymond Baker] Our studies have mainly focused on developing countries and only, to a limited extent, on advanced economies such as Greece, Spain, Portugal and Italy. Trade mispricing accounts for up to 55% of total illicit capital outflows from developing countries. Trade mispricing offers an excellent channel for the cross-border transfer of illicit capital because mispricing is comparatively difficult for overburdened customs administrations to monitor and punish.

Q: What is the shadow financial system?

[Raymond Baker] The global shadow financial system comprises a number of elements. Tax havens, most of which also function as secrecy jurisdictions, facilitate the establishment of disguised corporations in the millions where nobody knows who the real owner of the entity is. Anonymous trusts are part of these structures as are fake foundations and instruments used to misprice trade and launder money. There are also key holes left in western legal systems which facilitate the movement of money through this shadow financial system and into our economies.

If you go back several decades to the 1960s, this- you will find- was the period where the development of the shadow banking system took off in earnest. This period was significant for two reasons...,to begin with it was the decade of independence. Between the late 1950s and the end of the 1960s, 48 countries around the world gained their independence from colonial powers. The reality is that some of the economic and political elite in those countries wanted to get their money out by any means necessary. We in the West- through our political and banking systems- were very accommodating to these outflows of flight capital from poorer countries. The second reason this period was significant can be attributed to the spread of multinational corporations (MNCs). There were a handful of international businesses before then, but the thrust to plant your corporate flag all across the planet really started in the 60s and has continued to the present day. Lots of multinational corporations utilise the shadow financial system to move their money.

Q: What are your views about the concentrations in global wealth in regards to illicit financial flows?

[Raymond Baker] The driving force behind the global shadow financial system is the accumulation of wealth in a hidden or secret manner. This business is about getting rich secretly and not having to account for it elsewhere. It drives global inequality.

People talk about how we've begun to reduce the burden of global poverty. That is true... the statistics are reasonably good and the number of people living on US$1-2 a day is beginning to reduce with some modest degrees of success. Having said that... global inequality is rising and that is because the rich are getting richer far faster than the poor are working themselves out of poverty. All global statistics on income equality are short of the mark because none of them measure the earnings on foreign accounts. A citizen in one country who may have a great deal of money in another country... that money and the earnings on it rarely appear as income in the country where he is a citizen. When we're measuring global income disparities, until we factor in money within the shadow financial system, all our measures are off the mark.

Q: Are there concerns about money flows to charities and NGOs?

[Raymond Baker] I don't have any specific concerns as I believe that most NGOs and charities are doing a good job. We often make a comparison of illicit outflows to official development assistance that flows into these countries as foreign aid. Our estimate is that the amount of money coming out of developing economies is 8-10 times the amount of foreign aid flowing in. That's a situation that doesn't work for anyone- rich or poor.

Fortunately there are charities, religious organisations and NGOs who work hard to shift resources into developing economies but these flows are small by comparison.

Q: To what extent do illicit financial markets contribute to global issues such as hunger and poverty?

[Raymond Baker] It's a huge contributor. I lived in Nigeria for over 15 years and watched that country's oil revenues disappear. I know people in Nigeria who are living at a lower standard today than when I met them in 1961. This is inexcusable in an oil rich economy. About 70% of Nigeria's population live on US$1-2 a day, meanwhile hundreds of billions of dollars have shifted out of Nigeria into foreign bank accounts, impoverishing over a hundred million people in the country. There's no excuse for Nigeria still having people living on just US$1-2 a day. It's an oil rich country and had those revenues stayed within the country, it would be a whole different economy...

There are a lot of people who think the cost-benefit analysis is favourable to the western world when this money streams out of poor countries into our economies. I challenge anybody to make the case that their country is stronger as a result of being the recipient of this money. Hundreds of billions of dollars come into the United States. Look what happens on the other hand, we are forced by choice and necessity to spend magnitudes of this on defence, on curtailing crime in other countries, on foreign aid, on the lack of markets for our products internationally and more.

Q: To what extent did the global financial crisis expose illicit operations within the western financial markets? and how do illicit financial flows affect developed economies

[Raymond Baker] There is no doubt that many such practices have been exposed, but that is very different to stating that anything is being done about it. The premise that markets know best and should be left to themselves is deeply flawed and the global economic crisis has further affirmed this fallacy.

The last financial crisis had significant roots in the shadow financial system. One of the great unknowns as the crisis got underway was its size. What was the total number of credit default swaps? What was the total value of sub-prime mortgages? How big were the derivatives in the marketplace? Because we didn't know, we were paralysed in dealing effectively with the crisis in its earliest stages. It took four subventions of money to Citibank before it was finally bailed out, it took three subventions of money to AIG before it was finally bailed out... we kept pouring money into these institutions because we didn't know what they really needed and that was in part due to the shadow financial system, which shields information and makes it very difficult for us to deal with these kinds of crises.

To you, me and others this crisis showed that the financial system does not work in the best interests of the wider world. I don't think this view was shared by the financial community or global political leadership. Basically... the bankers have won! They have won the points they were making in this financial crisis insofar as they had been pushing to ensure that we don't over-regulate or intervene too much in banker’s activities. Bankers were left alone with the opportunity to leverage, make money and operate behind walls of secrecy on the premise that our global economy would be better off. They won that argument, but we saw that it wasn't good for the rest of us!

Q: How important is it for countries like India, Tunisia and others to recuperate lost assets?

[Raymond Baker] I'm all in favour of efforts to try and recuperate lost assets but to be totally honest, the global structures needed to facilitate such recoveries are extremely cumbersome and western financial systems will- all too frequently- erect barriers to stop this recovery. These barriers take the form of a lack of information exchange and a lack of co-operation- requiring the other country to prove that the source of the money was corrupt or criminal. We've made it very difficult for any such recoveries to take place.

Let us take India as just one example. Task Force member Global Financial Integrity recently published a study on illicit outflows which created a huge amount of comment within the nation. There is a focus on recovering 'black money' (as it is known in India). We've made ourselves clear many times that we must work toward that end but in the meantime you have to close the avenues that allow for the continued export of illicit money. It doesn't do anyone any good if you recover assets only to have them flow straight back out again!

The Solutions

Q: Can you give us examples of key [actual or potential] policy solutions to the problem of illicit financial flows?

[Raymond Baker] We advocate greater transparency in the global financial system. There is a key point there... When we talk about the global financial system, we're making it very clear that this is a two-way street. It's not just the remit of developing countries to have strong anti-corruption policies and better tax administration, but equally it is up-to us to curtail our receptivity to such money.

In this sense, we advocate some quite specific measures.

First, let's get rid of disguised corporations. There is no excuse for any financial institution in the world to do business with an entity where it does not know who the natural owners are. Yet there are millions of accounts around the world where that is exactly the case and financial institutions simply do not know who the natural, or real, owners are!

Secondly, we advocate automatic exchange of tax information across borders. Partly due to our work, the Prime Minister of India, at the last G20 meeting in France, called for automatic exchange of tax information between countries. Some of the richer countries have argued that their developing counterparts do not have the capacity to deal with this sort of exchange. That's not correct. Any country can deal with the first hundred names on the list! A country like India can deal with the whole of the exchange process.

Thirdly, we advocate country by country reporting. That is to say that corporations should be required to report their sales, profits and taxes paid for every jurisdiction where they are in business. That is not the case at the present time. If you were to require country by country reporting right now, you would find that many multinational corporations would report great losses in countries where they have heavy investment and huge profits in tax haven entities where they have no facilities or assets other than a bank account. How do you lose money where you're in business and make money where you're not? Unfortunately... our international accounting system permits that.

Q: Are any economic or other innovations needed in the fight against illicit financial flows?

[Raymond Baker] You may be familiar with SWIFT. It is not, in fact, a money transfer system but rather an information exchange platform based in Belgium. On most wire transfers, the information as to who is the remitter, the recipient, which banks are being utilised and so forth all goes through the SWIFT system. The information is available but very difficult to access.

The US government did succeed in accessing SWIFT information concerning terrorist financing. The way this was done was that they forced SWIFT to agree to a process by which questions about terrorist financing had to be answered. The process involved the establishment of a committee which had SWIFT on the one hand, the United States on the other and an accounting firm for oversight. The requests for information pertaining to terrorist activity had to be approved by this group. This process has curtailed the use of wire transfers in the financing of terrorism. Exactly the same process could be used for drugs trafficking, human trafficking and even tax evasion.... should we choose to do so. We have not gone that far yet, but the capability is there.

Q: Will technology help to curtail illicit flows?

[Raymond Baker] I'm not altogether convinced. When illicitly generated money moves from one place to another, it has to move out of one account and into another.. It doesn't matter whether the movement is by cash, cheque, wire transfer, telephone payment or what have you. The important thing is to know who the account holders are on either side of the transaction. Technology alone will not force anyone to provide information they want to keep it secret. Without the right rules and regulations in place to oblige disclosure of information even the best technology will be unable to curtail illicit financial flows.


Mr. Baker notes that the Task Force’s research is only able to scratch the surface of this problem. There is little doubt that illicit economies, in truth, are many magnitudes larger than even the above numbers would suggest. Against these facts, one could be forgiven for losing faith in the market itself along with the diverse stakeholders and participants within it. The market is unique in human endeavour where there is no real incentive to prevent immoral behaviour. In fact, those behaving (economically) in a manner counter to the good of civilisation (be they political, corporate or individual actors) are often rewarded much more handsomely for their actions than if they had acted in a manner which may have been seen as democratic; and herein lies the paradox of the market economy as being the critical tool to develop, and the easiest method by which to destroy.

Raghuram G. Rajan in his seminal work “Fault Lines” wrote that, “…Financial markets and democracy are not incompatible. The role of financial markets is to allocate resources to those most capable of using them, while spreading the risks to those most capable of bearing them. The role of democratic government is to create a legal, regulatory, and supervisory framework within which financial markets can operate. However, democratic government has other roles, including limiting the most inequitable consequences of the market economy through taxes, subsidies and safety nets… The past three decades have brought immense improvements to countries around the world, as they have harnessed the power of global markets and finance while obtaining economic freedom. Unfortunately, we have allowed political imbalances to develop within countries and economic imbalances to grow between countries. In many rich countries, insecurity and despair have replaced hope. We should not let what has gone wrong obscure all that can go right, or reverse the progress we have made. But to preserve and rebuild trust in the market system, we have to make fundamental changes. Governments have to do more to help their citizens build capabilities that will allow the market to function effectively.

To frame this differently, let us consider the fact that we observe humanity requiring three commodities for its basic survival: food, water and air. If any of these were removed for any length of time, we would die. To this end, billions are spent each year in securing food and water supplies throughout the developed and developing world to ensure continued confidence in availability. It is also fortunate in this regard that governments and corporations have not (yet) found a way to charge for air. It would be a moral abhorrence to conceive a time where, should someone not be able to afford air they would choke to death. I would argue that money should be considered as the fourth of these critical commodities, exhibiting the basic pre-requisite for being classified as such; i.e. the consequences of its removal would be fatal.

For humanity to progress, we don’t just require an advanced economy. We require an economy which functions as it should, bringing equity and opportunity to all of its participants. It is essential in this regard that we disconnect politics and economics. Political instruments are the only tools we have to deal with illicit mechanisms, and until politics ceases to be incentivised by economics, the will for action will not exist.

The market does not exist separate from humanity. It is the result of human will and endeavour. Whether we like it or not therefore, we must admit responsibility and accountability for the illicit economy. It did not spontaneously emerge from nowhere… we made it.

Addressing these economic challenges would require fundamental changes in how our world works. Many of these changes would come at a massive perceived cost, but the outcomes- over a number of generations- would exceed even the most utopian vision of a peaceful and equitable world.

Click to read full article...