May 21 2012

Blueseed: Silicon Valley’s deluded pirate ship fantasy

Posted by: Nick Shaxson in: Thoughts

What timing! Just a few days after the eruption of a lot of anger surrounding the expatriation of Eduardo Saverin, one of Facebook’s founders, to Singapore (in a move that will save him a fair amount of tax, and has prompted cries of treachery ,) the San Francisco Chronicle is now reporting this folly:

“. . . a giant floating startup barge anchored 12 miles off the coast of California, stocked with 1,000 entrepreneurs from around the world.

The project, which may take the form of a converted cruise ship, would bring startup founders within ferry distance of Silicon Valley’s key resources – venture capitalists, top talent and a business environment friendly to outlandish ideas. (Ahem.) But their offshore status would let them work without having to go through the rigamarole of obtaining U.S. visas.”

And no, we aren’t anywhere near April 1st. Blueseed says:

“While Blueseed doesn’t collect taxes, any Blueseed resident will have to ensure they comply with all laws, regulations, and tax liabilities that apply to them or their firms, given their legal residence in the country whose flag Blueseed will fly (Bahamas, Marshall Islands etc.).”

They don’t appear to provide much detail beyond that, but that statement points to predatory tax haven behaviour, pure and simple. This is the standard policy of tax havens: ‘We won’t tax and regulate you – somebody, elsewhere, will do that.’ Countries do put in place defences against the worst of it, but those defences are always leaky. As a result that ‘elsewhere’ very often means ‘nowhere.’ An escape route for the rich and powerful.

Paypal co-founder Pether Thiel and the other people who are setting this up are clearly so immersed in an anti-regulation, anti-tax worldview that they are unable to understand the politics that lie behind the creation of offshore activity. A bit of history will help explain why this project is unlikely ever to get off the ground, or at least survive very long in the offshore form that is envisaged. Back in 1972 Carl Gerstacker, Chairman of Dow Chemical Company, said:

I have long dreamed of buying an island owned by no nation and of establishing the World Headquarters of the Dow company on the truly neutral ground of such an island, beholden to no nation or society. If we were located on such truly neutral ground we could then really operate in the United States as US citizens, in Japan as Japanese citizens and in Brazil as Brazilians rather than being governed in prime by the laws of the United States.

There have been similar madcap projects before by private interests to set up offshore centres, but almost always they have collapsed to the ground, for want of strong enough official support.

That same year Gerstacker said that, some American libertarians tried to create just such a place. Led by a Las Vegas real estate millionaire called Michael Oliver, they used a dredging ship to dump a large pile of sand on a reef southwest of the Kingdom of Tonga in the South Pacific, built a stone platform, and in January 1972 they proclaimed it the Republic of Minerva. It would be a tax haven whose economy would be based on free enterprise and “rugged individualism.” There would be no taxes, no welfare, no subsidies, and no economic intervention. “People will be free to do as they damn well please,” said Morris Davis, Minerva’s self-proclaimed new President. “Nothing will be illegal so long it does not infringe on the rights of others. If a citizen wishes to open a tavern, set up gambling or make pornographic films, the government will not interfere.”

Five months later The King of Tonga, Taufa’ahau Tupou IV, sailed there with the Tonga Defence Force, a convict work detail, and a brass band. Nobody was there, so they tore down the flag and knocked down the platform.

Oliver tried again in 1973 on the tiny Abaco islands in the Bahamas, in partnership with a virulently anticommunist firearms tycoon named Mitchell WerBell III and a British Conservative Member of Parliament, Lt.-Colonel Colin Mitchell. (As an aside, I met Mitchell, sometimes known as “Mad Mitch,” a sobriquet he hated, in 1993; that year I was one of few western reporters to visit the besieged, war-shattered and heavily mined town of Kuito in central Angola, where I was the Reuters reporter. On my return to the capital Luanda I introduced his organisation, the Halo Trust, to Kuito’s governor, who had asked me to find him a de-mining organisation to help them. This led to Halo setting up an operation which, years later, would produce the iconic image of Princess Diana in a Kuito minefield.)

Anyway, the Abaco plot was foiled when the would-be revolutionaries were intercepted at Miami airport en route to a training mission. Oliver tried again in Vanuatu in the Pacific in 1980, joining up with separatist rebels and with John Hospers, the first Presidential candidate of the U.S. Libertarian Party, but they were thwarted this time by troops from Australia and Papua New Guinea.

In fact hundreds of people, including many white, male American libertarian gun fanatics, drug-runners, Klansmen, arms dealers, mobsters, former CIA agents and Nazis – got involved in the 1970s in these and in several other similar attempts to set up free-standing, self-governed tax havens: in Costa Rica, the Azores, Haiti, the Dominican Republic, Anguilla, Vanuatu and Dominica. One group even tried to persuade Muammar Gaddafi to set up an offshore state in the Libyan desert. Every attempt failed. The adventurers may have felt unlucky, for at that very time successful new tax havens were sprouting around the world and growing explosively.

But this was not about luck, for they had failed to understand a fundamental truth about offshore: for all their extreme freedoms, tax havens are created, nurtured and protected by large, powerful nation states – or, more precisely, by rich and powerful elites in those states who wish to use these offshore zones to escape rules and taxes that they resented. Think Britain and its Crown Dependencies and Overseas Territories; think China and Hong Kong; think France and Monaco; think the United States and Panama; think even Switzerland and Liechtenstein.

The libertarians’ mistake every time was to try and set up uncontrolled havens outside the orbit of, and without the blessing of, a larger power.

Amid all the austerity and budget-cutting these days, and the rapid rise of tax up the political agenda, it is hard to see how such a project with an offshore agenda can ever be accepted, politically speaking. The SF Chronicle continues:

Its organizers acknowledge that much of the media attention so far has been of the you’ve-got-to-be-kidding-me variety. But they’re making a serious effort to realize their plan.

Plans appear to be quite well advanced: Blueseed plans to launch itself in the third quarter of 2013, and the company says it has already received interest from nearly 700 individuals from 50 countries. But take a look at some of the coverage elsewhere:

Pirates Off Silicon Valley! 133 Startups to Live on This Rogue Boat

Blueseed, The Pirate Ship of Silicon Valley

Perhaps with the offshore component stripped out, this project might be workable.

“If Blueseed is funded, they’ll pay anywhere from $1,200 to $3,000 per month, plus an equity stake in their company, to live onboard.”

That on its own could, just perhaps, be a business proposition.

The burst of offshore adventurism that emerged in the early 1970s was taking place just as a new phase of financial liberalisation and globalisation was taking off around the world. Few people knew it, but tax havens were central to a new era of globalisation and would become the most important devices used by the financial services industry to escape laws and regulations that were crimping their profits at home. Offshore centres became unregulated platforms allowing financial corporations to grow strong enough eventually to re-engineer the economic and political systems of some of the world’s major economies – most notably the United States and Britain. In the process, these countries increasingly turned themselves into tax havens as they tried to ‘compete’ with the offshore centres to attract the trillions of dollars in hot money sloshing in ever greater tidal waves around the world.

Things have changed since the global financial crisis erupted in 2007-8. Political systems the world over are now in turmoil, as angry citizens take to the streets and demand change. The mood is steadily turning against those who would provide the world’s wealthiest citizens with an escape route from tax, financial regulation and the other responsibilities of society.

Hat tip: Mary.

3 comments so far

Faringdon 5th May, 2012 9.44 am

They are not quite the same thing though, are they Nick. A few wacky libertarians trying to find a place to be “lawless” is one thing. Tax havens, protected by nation states as you say, are another.

But don’t you think that some enormous companies are trans- or supra-national and seek to avoid paying tax in any country. They see themselves as above the law of sovereign states and only acknowledge them when they need them for some legislation, usually against some other transnational.

They may lobby within national states against labour laws, or against bank regulation or against environmental protections etc, but don’t view that they have a reciprocal relationship with those countries.

So although the mood is turning as you say, there is nothing that those citizens can do against those companies. Normal citizens have no power. And neither do nation states really. No political power. No economic power. What is the way forward?

Nick Shaxson 5th May, 2012 7.02 am

Well, you do have a point, but I think that something as high-profile is this should get pushback. And the silicon valley lobby is powerful, but I don’t think powerful enough here.

[…] been positive. Nicolas Shaxson, author of Treasure Islands, denounced the idea on his website as a “deluded pirate ship fantasy” which fed into a broader tradition of damaging tax haven […]

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