Does being a tax haven make you rich?
Do they really? Take a look at this nice story from the tax haven of Bermuda, in the UK's Telegraph newspaper: not exactly a fount of radicalism.
Tony Black lives on the richest island on Earth. Today is a typical day: after driving a taxi for eight hours, he will head to a warehouse, where he has an evening job operating machinery. Late tonight, he will move on to his third job, as a nightclub bouncer. At weekends, Tony, 28, drives a truck.
Tony's story is not unusual. Bermuda has the highest GDP per capita in the world - 50 per cent higher than America's - and it has zero unemployment. Mega-wealthy Britons, among them actress Catherine Zeta Jones and insurance magnate John Charman, rub shoulders with even wealthier American tycoons such as Ross Perot and Michael Bloomberg. Meanwhile, the average black Bermudian takes two or three jobs just to make ends meet. And the problems are worsening. A severe housing shortage has pushed the price of even a modest home way out of the average Bermudian's reach. Now the issue of inequality has spawned a power struggle that some say risks destroying the tax haven's economy.
Ireland is another tax haven. Look at its position on the graph we pointed to yesterday: extremely high rates of child poverty. Now the tax haven of Jersey has just put out a performance record for itself for the year 2007. Like Bermuda, it is one of the world's richest jurisdictions - on paper. Dig beneath the headline numbers, and something different emerges.
As you can see, mainstays of the economy - like agriculture, manufacturing and tourism not only aren't growing - they are shrinking. Agriculture, according to the separate table accompanying this graph, has declined by more than 20% since 1998. And this is no co-incidence.
There is an effect here that is familiar to citizens of oil-producing countries: the Dutch Disease. It is part of a wider phenomenon known as the Paradox of Plenty: more money can sometimes actually make you poorer. It goes something like this: large inflows of money (in the case of, say, Angola, it's oil money; in Jersey's case it's money owned by rich Angolan politicians and others from around the world who love Jersey's tax haven status) cause prices to rise - either through a shift in the exchange rate, or through inflation, or both. The effect is to make everything produced locally more expensive, and so these sectors -- like agriculture or tourism -- can't compete. They wither. The tourists stop coming because it's too expensive. And so on.
As a result, these economies become ever more dominated by the financial services (or oil) industries. Even if they want to diversify away from these dominant industries, they can't: because these sectors are killing the other areas of activity. And, when a sector gets too dominant like this, you also get political "capture" - the lobbyists and cheerleaders for tax havenism get ever more politically intertwined with the politicians. It just gets worse.
Jersey's latest scorecard does not break down the distribution of income on the islands or provide other politically sensitive measures. Why not? In Angola's case, the contrast between the headlines (among the world's fastest growth rates for the last three or four years) and the reality for ordinary people (the world's second worst child mortality) is shocking.
Jersey's problems will not be nearly this bad. But, as many Jersey residents tell us, there are serious tensions on the Selfish Isles. In the absence of Jersey's scorecard on income distribution, let's look at its unemployment data. The data claim it's fairly low. But then the report says this:
It should be noted, however, that due to the absence of unemployment benefit in Jersey the number of people registered as unemployed should be regarded as an indicator rather than the actual level of unemployment.
Oh, and that's not all. Richard Murphy has unpicked another set of numbers from this Jersey report. Take a look.
To end with, let's get back to the Bermuda story:
One Brit - who, like most executives, does not want to be named for fear of making matters worse - said: "My son got home and said: 'Dad, am I a racist?' My wife also feels like a lot of this talk is aimed at her.
The political effects of this tax haven inequality, political capture, poverty, Dutch Disease etcetera can be very serious. When presented with breathless texts from the well-funded libertarian institutes shouting how tax havens make you rich, we would offer a couple of bits of advice. First, look behind the headlines. Second, and much more importantly, consider the harm that tax havens cause to other countries.