Feb 22 2011

The Independent’s review – making TI stronger

Just getting around to this review in The Independent. One of a minority of reviews that don’t like Treasure Islands that much (for the majority, see here.)

The first part of the review is a kind of overview of the book (though he reverts to the OECD’s way-out-of-date figure for six trillion in offshore cash – the real figure is anywhere between 10 and 20 trillion.) Then the review kind of veers off into criticism. Most specifically, discussing my distaste for certain things that happen in Jersey:

“Apart from new potatoes, gold-top milk and some tourism, Jersey has little going for it economically. Nor do most of the British overseas territories fingered by Shaxson – which are only nominally under UK jurisdiction, a point he neglects or misunderstands. Most are too small and poor to be independent states, even with their financial income. As a second-best they have been granted self-government and they are, uncomfortably for the rest of us, entitled to levy tax as they wish as of democratic, sovereign right – though their self-government sometimes leaves much to be desired. Why should the UK bully them?

Besides, it is an ugly but unavoidable truth that if Jersey or the Caymans didn’t do it, then someone else would. At least in “our” havens, we have a chance of keeping an eye on things. In tax, the one great wearisome certainty is that someone, somewhere, in some other obscure treasure island with an even more relaxed attitude to dirty money, will always undercut you in the great race to the bottom.

Right. I will deal with these things, one by one.

First, that “these places are only nominally under UK jurisdiction”. Dear me, no. Just take one example, Bermuda, selected (genuinely) at random:

“Bermuda is a UK overseas territory with a substantial measure of self-government. Its bicameral legislature is responsible for most internal affairs. There is an upper house of 11 members appointed by the governor (three at his/her discretion, five on the premier’s advice, three on the advice of the leader of the opposition) and (following a constitutional change enacted in 2003) a 36-member house of assembly, elected in 36 constituencies by universal adult suffrage for a five-year term. The governor is responsible for external affairs, defence and internal security. Appointed by and representing the UK monarch, the governor in turn appoints the majority leader in the house of assembly as premier. The premier appoints the cabinet, which must include at least six other members of the legislature.”

I hardly mention Bermuda in Treasure Islands, but this fits the pattern I describe rather exactly. This, above, does not look very nominal from where I am sitting. Just for fun, and to underline the point, I’ll post a picture of the governor, Sir Richard Gozney.

Next, in the Independent Review, we get onto a really nasty, vicious argument put forwards by the writer, Sean O’Grady. That is:

“it is an ugly but unavoidable truth that if Jersey or the Caymans didn’t do it, then someone else would.”

I see. So, er, if we don’t let people traffickers run their international smuggling operations openly out of London, then somebody else will get in on the racket. So we should just get a piece of the action, and while we’re at it make sure that it’s all being organised in a clean way?

What a foolish, morally bankrupt argument. Not everything in tax havens is as bad as people trafficking – far, far, from it — but this example illustrates the principle neatly. O’Grady’s position is simply indefensible. (Unless you were to say that what these places offer is beneficial – but that’s a whole different set of arguments, which are discussed here.)

His next argument is not quite as appalling – but still foolish:

“they are, uncomfortably for the rest of us, entitled to levy tax as they wish as of democratic, sovereign right – though their self-government sometimes leaves much to be desired. Why should the UK bully them?”

Now let’s, for the sake of argument, take a tax haven that isn’t under the UK’s part-control, and which is genuinely independent. They do indeed have the sovereign right to levy tax as they wish. But here’s the kicker. If the tax haven sets up a tax structure, or a secrecy facility, that aggressively attacks and undermines the tax systems or criminal laws of other nation states – then those other victim states have every democratic, sovereign right to take aggressive counter-measures against the attacker. If that means cutting the tax haven aggressor out of the global financial system, or imposing sanctions, or coming together with other nations to put in place the necessary defences – then so be it. It is their sovereign, democratic right.

His last argument is the only one even worth discussing.

“Most are too small and poor to be independent states, even with their financial income.”

In other words, they’ve got nowhere else to go. This carries quite a bit of truth, and we should take the needs of local populations into account. But even then, we should keep perspective. In places like the Caymans, for example, if their style of finance was outlawed overnight the biggest number of people who would lose their jobs directly would be white, middle aged men who are residents, but mostly not citizens. The islanders, of course, do see trickle-down up to a point. Even then, however, a lot of tax havens in the Caribbean and elsewhere actually see tax havenry adding up to just one or two percent of GDP at most, as I explain in Treasure Islands.

Consider the local impacts – then weigh up these against the impacts on the ordinary people of North and South America, Europe, Asia, Africa, Australasia, the former Soviet Union, and so on – and O’Grady’s argument falls away again.

No, Mr. O’Grady will have to do better than that.

But in some ways the negative reviews are comforting – because in my view none of them have even landed a serious blow yet. And what doesn’t kill you makes you stronger.

2 comments so far

[…] This post was mentioned on Twitter by JK, Nicholas Shaxson. Nicholas Shaxson said: @johannhari101 just responded to your colleague Sean O'Grady's misguided review of my book http://bit.ly/gaRc7x […]

Heathcote Ruthven 2rd February, 2011 12.38 pm

Fantastic take down

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