Wednesday, November 11, 2009

Tax havens: fraudsters and rent-seekers

John Kay in the Financial Times:

"You can become wealthy by creating wealth or by appropriating wealth created by other people. When the appropriation of the wealth of others is illegal it is called theft or fraud. When it is legal, economists call it rent-seeking."


Which is what secrecy jurisdictions (tax havens) do - they appropriate wealth, and they foster the appropriation of wealth. Kay isn't particularly driving at the offshore system, but he is right to say

"Rent-seeking can be effected through rake-offs on government contracts, or the appropriation of state assets by oligarchs and the relatives of politicians. But in more advanced economies, rent-seeking takes more sophisticated forms. Instead of 10 per cent on arms sales, we have 7 per cent on new issues."

As a solution, Kay wisely advocates constraints on the concentration of economic power. Vigorous pursuit of such constraints, he continues,

"is the difference between a competitive market economy and a laisser-faire regime, and it is a large difference."

True. Once again, the secrecy jurisdictions are the proponents and supporters of a laisser-faire, not a competitive, economy. For just one example of this, read more here.

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