Treasure Islands - Nicholas Shaxson [101]
Second, tax isn’t only about revenue, the first of four “Rs” of taxation. The second “R” is redistribution, notably tackling inequality. This is what democratic societies always demand, and as the painstakingly researched book The Spirit Level attests, it is inequality, rather than absolute levels of poverty and wealth, that determines how societies fare on almost every single indicator of well-being, from life expectancy to obesity to delinquency to depression or teenage pregnancy. The third “R” is representation—rulers must bargain with citizens in order to extract taxes from them—and this leads to accountability and representation. The fourth is repricing—changing prices to do things like discourage smoking. Secrecy jurisdictions directly undermine the first three, if you think about it, and possibly the fourth too.
Then there is the small matter of the evidence. One might think that capital should flow from rich countries, where it is plentiful, to low-income countries, where it is scarce, promoting productive investment, growth, and better lives for all. In the real world, this has not happened. The low-income countries that have been growing the fastest, like China, tend to be those that have been exporting capital,33 not importing it. Countries need, above all, sound institutions, good infrastructure, and the effective rule of law—exactly what the offshore system undermines.
This is not such a surprise. A country can only absorb so much capital, just as an acre of land can only take so much seed corn. Capital loans to low-income countries haven’t found their way into productive investment, but instead they have washed back into private bank accounts in Miami, London, and Switzerland, leaving public debts behind. Waves of financial capital, processed “efficiently” offshore, have led to financial crisis after crisis. In many low-income countries, as the economist Dani Rodrik puts it, “capital inflows are at best ineffective, at worst harmful.”
And that is not all. Much of the world’s wealth derives from what economists call rents: the kind of unearned income that flows effortlessly to oil-rich rulers. “Oil is a resource that anaesthetizes thought, blurs vision, corrupts,” as the Polish writer Ryszard Kapuscinski put it. “Oil expresses perfectly the eternal human dream of wealth achieved through lucky accident, through a kiss of fortune and not by sweat, anguish, hard work. In this sense oil is a fairy tale and, like every fairy tale, it is a bit of a lie.”34
Nearly every sane economist since Adam Smith has agreed that it is very good, and very efficient, to tax rents at very high rates. One kind of rent comes from market monopolies or oligopolies, such as those enjoyed by pharmaceutical patents and Big Pharma; by the government-sanctioned licenses afforded to the Big Four accounting firms identified in chapter 1; by taxpayer-guaranteed international banks; or by the one-and-only Fédération Internationale de Football Association (FIFA), the super-wealthy international governing body of world football.
The global headquarters of most major players in all these highly profitable industries are located offshore, most especially in Switzerland—directly against every notion of economic efficiency. FIFA, for example, used its monopolistic position in 2010 to force poor South Africa to place it in a special “tax bubble” for the 2010 World Cup, shifting its revenues from a poor African nation to that of the company whose luxurious $200 million Zurich headquarters happens to lie just a few hundred meters from where I am writing this chapter.
Offshore is not only about tax, of course. When it comes to failures of regulation, the simplest, and commonest, argument that tax havens make is to deny responsibility