Monday, September 22, 2008

Tax havens and market turmoil, Part 4 - on nation states

Our recent blog, explaining clearly why tax havens lie slap, bang in the middle of this whole evolving mess in world markets, looks particularly at whether or not to regulate, at the difficulties inherent in regulating, and at the context in which regulation is embedded.

But we can consider this in an even broader context. As Philip Stephens put it in the Financial Times:

"Once the storm abates – and FT colleagues better versed in these matters tell me that it will take some time – the task for politicians will be to ask some bigger questions. Putting aside the technicalities of collateralised debt obligations, capital ratios and the rest, what does the crisis tell us about the nature of the world in which we now live?

The messages are not straightforward; some appear contradictory. Overall, they speak to a growing tension between global integration and a shortage of credible international governance. Governments have been left with responsibility without power."

This is arguably the central question in the world right now. It applies to high finance, it applies to climate change, it applies to trade and outsourcing, and many other issues. How do we attain global governance in a world of sovereign, and often mutually mistrustful, states?

Once again, we return to tax havens. We won't claim that they are always central to everything - though they are, as we've shown, central to the current crisis. And we return to our submission to the UK treasury committee, and to our recent blog:

"Tax havens “deliberately set out to undermine the impact of legislation passed in other jurisdictions” and to make things appear other than they are. This is their core business. Regulation can work only if such obstacles are removed."


And tax havens (or "secrecy jurisdictions"), and the tax competition that is intertwined with them, are, at least in the domain of finance and regulation, at the root of Stephens' observation that governments have been left with "responsibility without power."

The current crisis will focus minds, inevitably, on the tax justice agenda. The essence of our approach has always been this: to shift the frame of reference from the local to the global, and from the individual case to the systemic analysis. It is the same in our corruption analysis, our analysis of tax competition, and so on. Now, with the current crisis, the systemic aspects of all this are front and centre of the debate, and will remain so. As Philip Stephens said:

"The tensions are not susceptible to neat solutions. But all point in the same direction. Interdependence is no longer an abstract noun. Governments need to find ways to reclaim some of the sovereignty lost to globalisation. That means more global governance: credible international rules.

Capitalism will survive these financial shocks. The risk, though, is of a retreat to economic nationalism. The stresses of globalisation are visible everywhere. Ultimately, if the politicians want the liberal market system to work, they will have to make multilateralism work."


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