There's a comment from a 'City investor' on the Pfizer deal in the FT this morning that reveals the bankruptcy of thinking that pervades so much of our financial markets. The quote is:
“This is a global corporation operating on a global scale,” says one big investor, shrugging off suggestions that political intervention in the US or UK might derail the deal. In his world view, a company such as Pfizer should have no qualms about switching its registration to the UK to cut tax. Nation states compete for corporate capital as hoteliers do for guests.
That, last comment is completely absurd.
It is true hoteliers compete. We even encourage them to do so because, quite frankly, most of us would rather not stay in bad hotels and in that case we tolerate failure, knowing that, by and large, a failed hotelier is usually replaced by a new hotelier who might do better.
But that's not true of states. Competition is built on the notion of failure. It has to be. After all, if that is not the case the downside that incentivises the process does not exist. But in the case of the state failure is impossible to contemplate. No one wants to live in a state like Somalia. More than any bank, states have to be too big to fail.
But in that case what does tax competition require? There is only one answer, and that is that it must mean that the tax burden is shifted from mobile capital to largely immobile labour. That is the inevitable consequnce of tax competition and it is why the notion of tax competition is so popular in the City and why there is also no benign form of it. It always and inevitably undermines well-being, increases inequality and harms society.
That is why tax competition is unlike any other competition. And it is why the current race to the bottom is so harmful. That the UK is deliberately leading it is something that should worry us all.
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Absolutely to the point, Richard.
Tax competition = taxing capital (difficult) vs taxing labour (easy)
But on telly yesterday they were bemoaning the fact that big pharma is not willing to ‘invest’ in new antibiotics – and we’re running out of effective ones. Isn’t it bleeding obvious what has to be done – when the market fails?
People move, capital moves. It’s been one of the themes of human history going back thousands of years.
The only way for a state to avoid the competition for people and capital is to lock them in. This is not some straw man argument, but something some states have done, and still do. For the reason that know their systems are unattractive, and that people and capital would flee if the doors were opened.
Do you advocate states preventing people and their capital leaving? On the assumption your answer is ‘no’, then competition between states is an inevitable conclusion. As with the hotels, they have to make themselves attractive.
(where the analogy with hotels breaks down is that unlike a hotel, a state can’t completely close, but I don’t think that is the point of the analogy).
The mobility of capital is much higher than people – and the barriers much lower
So yes, I do advocate capital controls
As we also do have control on people – lest you have not noticed
I’m aware there are restrictions on people entering, but I’m not aware of restrictions on people leaving (other than in places like North Korea, Cuba etc.).
I’ve left Australia a couple of times over the past 22 years. Didn’t need to tell the authorities I was leaving. And they don’t pick it up with me at the airport when I go back to visit.
My British wife and I lived in Australia from 2000-03. She didn’t need permission from anyone in the UK to leave.
So no, I have not noticed any restrictions on people leaving. Are there such restrictions of which I am not aware?
If there are restrictions ion arrival there are always de facto restrictions on leaving unless you intend to travel forever
Not sure I understand the logic of that.
If I wanted to permanently leave Australia it is a matter between me and the country I wish to move to. Australia does not get involved in the thing at all (except where a criminal history is involved, if the incoming country asks).
But no, the outgoing country isn’t placing restrictions at all. Buy a plane ticket and go. That’s all there is to it.
And for skilled workers, there is competition across borders. Ask Philippines what is happening with their very well trained nurses. Polish construction workers. Latvian hotel staff. Indian IT professionals. Australian and NZ lawyers.
If you don’t understand the logic of that, please don’t bother commenting
It looks as though you’re both right to me. An ‘unemployable’ individual will indeed face restrictions on entering anywhere else, so effectively cannot leave; their home nation is stuck with them.
But, a highly motivated entrepreneur is far less likely to face significant restrictions – indeed, countries will often try to attract them through eg tax policy. On their facts, the overall restrictions on their movement are minimal.
There are four consideration – for the individual, do I want to leave here, vs do I want to go there, and for the countries the ‘home’ state has to consider whether they want to restrict exit, while the ‘target’ state has to consider whether to restrict entry. Pretty much every state works purely on the ‘entry’ side, by trying to make their jurisdiction attractive to the workers they want, and inaccessible to those they don’t. That in turn of course feeds the individual’s assessment of where they want to be.
Shall we get real about the number of such entrepreneurs that there are?
I picked on the ‘entrepreneurs’ because they tend to be the excuse used by policymakers as the driver for their tax incentives. They may be few in number but their influence is disproportionate (in many ways) to that number.
But to be fair, most professionals find it relatively easy to move as well; the barriers are much lower, (they’re not turned away) but they aren’t actively courted in quite the same fashion.
And all that is without considering the EU freedoms…