Apr 19 2011

Thomas the Tank Engine and the space explorers

Posted by: Nicholas Shaxson in: Thoughts

The website isleofman.com offers this breathless commentary:

“There are numerous firms now based here and one of them – Excalibur Almaz – plans to offer trips round the moon and back for space tourists at a cost of $31m.”

That isn’t an April Fool. This is for real.

Now what is the Isle of Man’s comparative advantage in space exploration? Perhaps its proximity to the equator, allowing the earth’s spin to give it that extra boost, for added efficiency? Er, no: it’s thousands of miles away.

So is it the Isle of Man’s close, efficient access to long supply chains and big markets? Er, no (and yes that link was intentional; the Isle of Man is the original inspiration for the Isle of Sodor, home of Thomas the Tank Engine – an island, sitting in splendid isolation between the British mainland and Ireland.)

So just what is the Isle of Man’s advantage? Why, it’s these factors, which any reader of Treasure Islands would understand immediately:

In 2003 it appointed ManSat‘s chairman and CEO Chris Stott as the Island’s honorary respresentative to the space industry.

And ManSat is

“a revolutionary partnership of aerospace, banking, financial services, strategic consulting, and international legal interests that have come together to offer unique business services to the world’s commercial space marketplace.”

OK – so this may be, depending on what ‘honorary representative’ means, a version of state and regulatory capture by foreign private interests. Exactly on-message with Treasure Islands. But that’s by no means all the Isle of Man is offering.

“The following year zero corporate tax was introduced for space activities.”

OK – so now we also have tax incentives, helping foreign interests escape taxes elsewhere. And then an overview:

The Isle of Man Government has attracted firms here due to the zero per cent corporate tax, government grants, the Island’s political stability, commercially friendly legislation and its state of the art telecommuncations infrastructure.

Now compare this to the definition of a tax haven, or secrecy jurisdiction, as outlined in Treasure Islands. A secrecy jurisdiction is:

“a place that seeks to attract business by offering politically stable facilities to help people or entities get around the rules, laws and regulations of jurisdictions elsewhere.”

Apart from the telecommunications infrastructure, the Isle of Man’s offering is classic tax haven activity. “Commercially friendly” could be a positive thing – but in this case it’s “financially friendly” – meaning that we will help you escape constraints you don’t like in your own country.

In summary, this is what is going on here: instead of economic activities gravitating towards where they are most efficient and best suited for real business purposes (along the lines of David Ricardo’s theory of comparative advantage) we get them instead ending up in places where they are best suited to helping capital-owners escape their responsibilities to the societies that underpin their fortunes.

Efficient capital markets, indeed.

4 comments so far

Jon Frate 5nd May, 2011 4.30 am

You make a lot of assumptions that aren’t backed up by proof.

If XYZ Corp is going to invest a dollar into future commercial space exploration, what’s wrong with Isle of Man giving them an tax incentive to spend the money there? what do you have against this strategy?

Every jurisdiction makes a pitch for foreign investments – from Canada, to Australia, to Singapore – some offer grants, lower taxes, others say ‘your employees will work longer and harder because we have free healthcare and universities etc’.

what exactly do you have against recruitment incentives?

Have you been to Isle of man? They’re not launching wars in lybia and iraq, and can afford their own upkeep…

Nick Shaxson 5nd May, 2011 8.28 am

Sigh. Have you read Treasure Islands? They are paying for their upkeep by taking tax revenue away from other countries. What I am against is the unlevel playing field, and what is effectively the provision of subsidies to businesses that don’t need it and should be able to stand on their own feet, and pay for the services they receive. Space exploration also receives massive hidden subsidies from decades of high-tech university education, (paid for by taxes) infrastructure (paid by taxes) and so on. Why should these investors get to reap the cream and then get everyone else pay for the things that underpin their activities?

[…] Oh, and for those who like this kind of thing, there’s another strange tax haven space story here. […]

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