The Finance Curse. Nicholas Shaxson

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СКАЧАТЬ between countries or tax systems bears no resemblance whatsoever to competition between companies in a market. To get a taste of this, ponder the difference between a failed company like Toys ‘R’ Us (which filed for bankruptcy in 2017, partly due to competition from the market-hogging Amazon) and a failed state like, say, war-shattered Syria. When a company fails it is sad, but hopefully its employees will get new jobs, and the “creative destruction” involved when companies compete in markets can be a source of dynamism for capitalism. But a failed state, a place of warlords and murder and nuclear trafficking, is an utterly different and more dangerous beast, which never disappears, only festers. The only thing the two kinds of competitive failure really have in common is a shared word in the English language. Even if you believe, as I do, that competition between private actors in unsabotaged markets can be a great thing, this says nothing at all about the state-versus-state kind.

      Not only that, but the Tiebout model requires eye-watering assumptions to make its “efficient sorting” work. In fact, Tiebout himself laid most of these out in black and white. For one thing, it assumes that hordes of citizen-consumers will flit back and forth from state to state or country to country at the drop of a tax inspector’s hat, selling and buying their homes costlessly and tearing their kids into and out of local schools at the latest tweak to tax rates. Second, it assumes that tax havens don’t exist, that corporations don’t use them to shift profits around the world or even threaten to shift them in order to terrify politicians into giving them unwarranted tax cuts and other goodies. In Tiebout’s model rich people don’t dodge tax or free-ride off public services. Crime, pollution, and other bad things don’t spill across borders. There is only one kind of tax—property taxes—and everyone lives off dividend income alone, while infinitely wise community leaders, in harmony with all other political forces, guide infinitely wise citizens. Company executives pondering where to relocate are never swayed in their decisions by free hookers sent up to their hotel rooms or cash-filled brown envelopes stuffed under doors on their location scouting trips, and corruption is absent from local politics.

      To avoid the free-rider problem, everyone must go to school and college or university in one place, then work, live, pay taxes, and grow old in the same locality, exclusively, for their whole life; otherwise jurisdictions will free-ride off each other’s education or pensions systems—and people can’t vote with their feet after all. So there’s no room in this model for people like the technology billionaire Peter Thiel, who has railed against high taxes and encouraged the United States to “compete” aggressively on its tax rates for big businesses and rich people like him—then in 2011 went and became a citizen of New Zealand, likely as a backup plan if politics ends up making life at home unbearable.³²

      Tiebout’s assumptions, in turn, rest on a whole archaeology of other rickety assumptions required to make the general “efficient markets” theories work. In a nutshell, humans must be rational, wise, and self-interested, and markets are infallible.

      None of this makes any sense, outside of a professor’s blackboard. In a world of rising inequality this kind of “competition” is always generically harmful, for it rewards the big multinationals, global banks, wealthy individuals, and owners of flighty capital, who can easily shift profits or themselves across borders, shopping for the best deal, the lowest taxes, the weakest worker protections, the greatest secrecy for their financial affairs, or the most lax financial regulations, and then threaten to go elsewhere if they don’t get state handouts. Your local car wash, your barber, your last surviving mom-and-pop fruit and vegetables merchant, or your average worker can’t jump (or credibly threaten to jump) to London or Hong Kong if they don’t like their tax rates or their hygiene regulations. So the big players get the handouts, and the small fry are forced to pay the full price of civilization—plus a surcharge to cover the costs of catering to the roaming members of the billionaire classes who are too important to contribute. This “competition” systematically shifts wealth upward from poor to rich, distorting our economies and undermining our communities and democracies. The free-rider problem is “one of those things you hear about in your first term of economics, then never hear about it again,” says John Christensen, who cocreated the finance curse concept with me. “It is one of the biggest dark continents in economics.”

      The answer to the second of my three questions for policy makers then is clear: “competition” among states on corporate taxes is indeed a race to the bottom that increases inequality and harms the world at large. It is not efficient, and it benefits a few rich folk at the expense of much larger, poorer communities.

      The third question is bigger and thornier. In fact, it is one of the thorniest economic questions of all time. It is this: Whether or not “competition” is a harmful race to the bottom that hurts the world at large, does it make sense for my country or state to “compete,” from the perspective of local self-interest?

      Schreck used to think not, at least for his area, but now he seems less certain. “In Lenexa we used to just say no,” he said. “But you have to get in the game, and once you’re in the game, it’s hard to get back out, the argument being that half of something is better than all of nothing. There are states, especially in the Deep South, which are much more aggressive, with amazing incentive packages. It’s a little whirlpool sucking on all of us. If you tried to swim out of it, you know, could you make it?”

      There is a deep and pervasive belief that holds firm to the idea that yes, the giveaways are sadly necessary from a local perspective and we should play beggar-my-neighbor. The notion that countries have no choice but to be “competitive” in areas such as corporate tax or financial regulation has been the basis of some of the main national economic strategies of Britain and the United States for the past few decades. As Bill Clinton once put it, each nation is “like a big corporation competing in the global marketplace.” Donald Trump has repeatedly touted plans to “make America more competitive, to reduce taxes, to roll back regulations.” David Cameron, a former British prime minister, put it in even starker terms: “We are in a global race today. And that means an hour of reckoning for countries like ours. Sink or swim. Do or decline.”³³

      This belief system is, however, flatly wrong. Like Tiebout’s theory, it is underpinned by elementary economic fallacies. In general terms countries can opt out of this race unilaterally, with no economic penalty—in fact with a net national benefit. Beggar-my-neighbor is in reality beggar-myself. The only good move is not to play.

      To see why this is so, it is necessary to leave the relatively calm waters of individual US states and venture into rougher, wilder, more perilous global seas. Here we will find that of the two major players in the global economy, Britain and the United States, Britain decided to play this game harder, faster, and more ruthlessly. In the process it has caused devastating damage to the international economy, and it has also beggared itself.

       CHAPTER THREE

       Britain’s Second Empire

      For centuries the City of London, the cash-pumping financial center at the heart of the British Empire, ran the greatest system of wealth extraction ever devised. Royal Navy gunships supported the predations of City-based groups like the East India Company, a trading organization that evolved into a bloodthirsty and unregulated operation with a private army, which in the eighteenth century looted the Indian subcontinent. At the Battle of Plassey, in 1757, the company defeated the nawab of Bengal; it then loaded the Bengal treasury’s gold and silver into a fleet of over a hundred boats and sailed off with it down the Hooghly River. British imperial rule in India was founded on this gigantic international monopoly, and its control over India’s industry, trade, and money would enable one of the greatest systems of wealth extraction ever devised. (That’s the very same East India Company that provoked the Boston Tea Party in 1773 and helped СКАЧАТЬ