The FT, as the Tax Justice Network is pointing out, is lending support to those aiding tax havens right now.
But it’s also promoting a series on the future of capitalism. And as it notes in today’s editorial:
Today’s disastrous outcome is testimony to those leaders’ intellectual failure. Most fundamentally to blame is their unwillingness to see (or their wilful ignorance of) what markets need in order to produce good outcomes for society.
Every first-year economics student learns the conditions for an unregulated market, in theory, to function efficiently. The most important are full information, enforceable property rights and contracts, and the absence of “externalities” – effects of economic transactions on third parties. These conditions are never fulfilled, but many markets come close enough that participants’ self-interested actions achieve good outcomes for all.
When these conditions are absent, markets malfunction; the way they do so is one of the great topics of economic theory. It tells those who care to listen that when a market is too opaque, or when the effects of market transactions are too inter-dependent, the pursuit of self-interest can make everyone worse off, or unfairly land some with the losses caused by others, or – in extremis – make markets disappear altogether. Nowhere are these problems greater than in financial markets.
- Tax havens are designed to deny people information.
- They deliberately create opacity.
- They deliberately create barriers to entry, as I argue here. These are artificially created externalities.
- They are designed to promote the pursuit of the self interest of those using them over that of the societies of the places where they live.
- They do, as the FT says, make everyone worse off.
- They do, as the FT says, destroy markets.
They have, in summary, destroyed well being as the FT says is inevitable.
But as the FT also says:
Those who sound the death knell of market capitalism are therefore mistaken. This was not a failure of markets; it was a failure to create proper markets. What is to blame is a certain mindset, embodied not least by Mr Greenspan. It ignored a capitalist economy’s inherent instabilities – and therefore relieved policymakers who could manage those instabilities of their responsibility to do so. This is not the bankruptcy of a social system, but the intellectual and moral failure of those who were in charge of it: a failure for which there is no excuse.
Well, maybe, I say to that. But what I do know is this: tax havens represent that moral failure. The failure to address them was an intellectual failure. And unless the FT recognises this then it is going to be part of that continuing moral and intellectual failure.
It has a choice.
You’re either for sound markets and against tax havens, or for the continuation of failure and for tax havens. There is no in-between.