The Economist published a review of offshore finance as a supplement with last weeks edition (24 February 2007). Most is not available free on the web, but the lead article is, here. As with KPMG's recent efforts, this is a poor piece of work. To put it another way, it's quite clearly designed as an apology for the fact that the Economist carries advertising for the tax haven operators of the world.
Some things in the supplement are just wrong. For example, the claim that Jersey regulates its trusts (page 10 of the report) is incorrect. It's true that the trust administrators are regulated, but that's very different. No one has any idea how many trust there are in Jersey. That's no indication of regulation. As another example, the 'tutorial' on the bases of taxation of companies is simply wrong: it takes no account of 'controlled foreign company' legislation for a start. The list could go on, and on. Whoever wrote this stuff clearly did not know their subject.
More important though are the unsubstantiated claims which show this whole thing to lack objectivity. Try these:
Many successful offshore jurisdictions keep on the right side of the law, and many of the world's richest people and its biggest and most reputable companies use them quite legally to minimise their tax liability.
How does the Economist know that? The very essence of secrecy is that this is not known, and secrecy is the essence of tax havens. This claim could never be proven.
Or take this:
In Cayman all regulated or licensed professions, including lawyers, auditors, fund administrators and auditors, insurance providers and service providers for trusts are required to blow the whistle if they suspect that something untoward is going on. This is separate from the money-laundering rules.
Well, that might be the law, but surely a good journalist would ask 'how often has it happened?'. Those from the Economist appeared to have overlooked this obvious point.
As they have overlooked the obvious corruption that these places promote. For example, they say:
Some jurisdictions still ply [a] trade [as passive depositories of the cash of large companies, rich individuals and rogues]today and should be put out of business. But the best of them for example, Jersey and Bermuda, have become sophisticated, well-run financial centres in their own right, with expertise in certain niches such as insurance or structured finance.
That's non-sensical. Jersey promotes the facilities to undertake tax evasion through its new trust laws. That's what these places, even the 'best' of them, are all about.
But the biggest unsubstantiated claim in the whole piece comes in the conclusion:
This special report will argue that although international initiatives aimed at reducing financial crime are welcome, the broader concern over OFCs is overblown. Well-run jurisdictions of all sorts, whether nominally on- or offshore, are good for the global financial system.
And yet, the whole supplement fails to prove this in any way, always finding negatives to counter-balance any claimed benefit, and finding no evidence that it can quote anywhere that tax competition is in any way beneficial to the world as a whole. Put simply, this supplement is like an article of faith, but not of reason. Richard Dawkins should give up arguing with those who believe in God and take on economists of this sort instead - they're an easier target and he's likely to have a lot more success in proving that their 'science' is in fact nothing of the sort, but is simply wishful thinking promoted in support of self-interest.
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Dear Richard
How ironic that The Economist should, as you rightly say, abandon reasoned argument for articles of faith and self-justification [incidentally, I have always been mystified by the number of small ads promoting second passports and offshore companies in the end pages – its rather seedy and downmarket for a paper which takes itself so seriously].
But the point you make about tax competition being taken as an unchallenged good is too serious to be ignored. I discussed this with the Economist journalist during our interview and made the point that in coming on for a decade I have never met an economist who has even attempted to rebut my critique of tax competition. Clearly neither did she, since despite the blather about “Many economists and businessmen disagree with Mr Christensen”, the only person cited is a banker from a Swiss private bank. Hardly objective journalism, and even he goes on to raise caveats by agreeing that tax competition can go too far. But this, of course, is the crux of the matter: what is too far? Where does the demarcation line lie between harmful and benign tax competition? And no-one other than extreme libertarians would argue the case for competition without some framework of rules. So what rules need to be put into place, and by whom?
None of the questions I put to The Economist were even raised, let alone answered. A shoddy piece of journalism all round.
John Christensen
Dear Richard,
As a result of this article by The Economist, I’ll take the Economist as a full-out advocate of the “tax revolt” which is ultra-conservative political movement to starve government spending by massive tax evasion, scrapping taxes on all fronts and when in government running tax deficits to finally “starve the beast” (as Reagan pioneered and Bush follows).
This special report demonstrates that the editors of magazine believe that circumventing democratic institutions is a good move. It’s totally hypocritical. Mugabe and Castro will join the ranks of The Economist editorial board very soon, as their taste for democracy is equally poor. Whether democracy is undermined by market populism, dictators or communism, the result is the same, ordinary citizens have no more say on how their governments are run, carry the burden of paying for it and in desperation will emigrate in the most riskiest manners possible.
If we allow for the offshore world to continue “business as usual” globalisation as a political process will fail. Without global income transfers, environmental taxation and global governance it will collapse. Full stop. Now we know who else to blame for not having any forsight. Shame on The Economist.
Matti Kohonen
The Economists article on tax havens reminds me of the news media in Jersey, MYOPIC.
Their support and praise of og tax haven activity and unsupportable argument for capitalist globalisation is leading civil society into an anomic spiral to self destruction and total anarchy.
[…] A (long) rebuttal of the arguments in the Economists’ recent feature on tax havens is now available here. As is noted by John Christensen, author of that critique: […]