The author of today’s FG blog has just had a piece in the Washington Post entitled Five Myths about Tax Havens in which Myth 5 goes like this:
“5. Cutting corporate taxes helps nations compete with tax havens.
Reducing corporate taxes to attract wealth back from tax havens sounds plausible — “Republicans call [tax inversions] the inevitable consequence of a flawed tax system,” Bloomberg View recently observed, “and say the only solution is a full revamp of the tax code, including lowering the corporate rate and limiting taxes on foreign profits.” But it doesn’t work that way. Tax cuts at home don’t persuade corporate bosses to ease up on tax avoidance, and there are always more lucrative shelters abroad.
The German-American economist Friedrich List never once mentioned competitiveness directly by name, but he nonetheless remains an important figure in the pre-history of the Competitiveness Agenda, a modern body of thought that, put crudely, says that countries need to shower capital on capital and the owners of capital, for fear that they’ll flee to more hospitable jurisdictions. It is, in part, a theory about how nations ‘compete.’
List is not a famous economist from history, and this blog judges him harshly. But this is not to say that he should be ignored: one cannot present a comprehensive historical account of the agenda without at least some discussion of List’s National System of Political Economy. It was he who first made the case in the 1840s for collective national sacrifice in the interests of stronger future macroeconomic performance. Choose carefully the sectors in which you might expect to prosper at other countries’ expense, he said, and then channel all available resources into those sectors. No other social objectives could be allowed to interfere with this one overriding priority, which is why List felt able to advocate the political privileging of national economic champions.
This latest post for Fools’ Gold by Matthew Watson reviews List’s arguments, but also shows why they have never been treated as good economics.
FG bloggers have been rather embroiled in the Panama Papers, fielding a blizzard of interviews and writing stuff like this. Apologies for relative lack of recent posts.
For now, please forgive our frivolity: all we have to offer at this stage is light entertainment.
FG bloggers who have confronted politicians and civil servants with our kinds of questions about the Competitiveness Agenda have so often been rebuffed with the “is your husband home?” kind of response.
Which is, of course, telling.