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.