Home Economic Trends Global Governance versus Freedom and Free Enterprise – Lipton Matthews

Global Governance versus Freedom and Free Enterprise – Lipton Matthews

When assailing global governance, pundits rarely comment on its impact on small countries. Yet the degree to which small countries are ignored by global institutions—like the G7, the International Monetary Fund, and the World Bank—helps to illustrate how institutions of global governance tend to primarily reflect the values of managerial elites from large and wealthy states.

That is, global policies are earnestly tailored by rich states in the West in response to specific challenges. In Western countries leaders have expressed concern that major corporations use tax havens as a mechanism to lower their tax burden. Therefore, to rectify the problem, leaders of G7 nations are recommending a minimum corporate tax rate of at least 15 percent.

Such a policy will invariably harm small states in the Caribbean that have deployed taxation as a strategy to secure investment. Investors prefer low-tax destinations with light regulations, so if rich countries object to capital flight, then they should nurture an environment that is conducive to investment. Extracting resources from the entrepreneurial class hampers wealth formation and fails to yield a surplus. According  to Eric Pichet, the revenue lost by France’s wealth tax caused a shortfall of €7 billion or about twice what it yields. Rich countries can only expect to retain talent by creating a superior investment climate.

But it appears that Joe Biden is even more aggressive than the G7 in recommending a rate of 21 percent.  Biden’s proposal has not gone unnoticed, and in a recent editorial published by the Jamaica Gleaner, the editors contend this policy is impervious to the interests of small countries: “However, as much as this newspaper sees the broad merits of Mr. Biden’s proposal … we are not certain that the interests of small countries like Jamaica and its partners in the Caribbean Community (CARICOM) are on the table, and appropriately protected in plurilateral negotiations among the world’s powerful economies…. In any event, Jamaica and other small states have an interest in ensuring that there are credible and transparent arrangements which take account of their circumstances and do not preclude their ability to court investment.”

Meanwhile, in another editorial, the editors are also adamant that the EU must rescind its decision to blacklist Caribbean countries for failing to comply with anti-money-laundering regulations:

Prior to the EU’s declaration of its own regime, the standards for AML/CTF compliance were established by the OECD via the Financial Action Task Force (FATF) and regional subgroups such as, for this region, the Caribbean Financial Action Task Force. Now, according to the EU, the FATF merely “constitutes a baseline for the EU list”, which it built out with its own methodologies … CARICOM’s leaders—and vast numbers of people agree—that having usurped OECD/FATF’s authority, the EU’s arrangement lacks real transparency. Its blacklisting was done, CARICOM’s heads of government complained, “through unilaterally and arbitrarily determined standards and in an absence of any meaningful prior consultations”. 

Now, we can always debate the sensibility of money laundering, though the more pertinent matter is that in the grand scheme of financial corruption, the Caribbean is insignificant. One cannot possibly compare the extent of white-collar crime in America or any other rich country to Jamaica. If rich countries assert that money laundering is a problem, they must expend resources to fix it and desist from imposing costs on small countries.

The fight against locally controlled taxation policy is just one of many problems with global governance.

For example, here is a description of the EU’s latest proposal to regulate the digital economy featured in the Financial Times: “EU lawmakers have reached a breakthrough on how to target tech companies, including Apple and Google, as part of moves by Brussels to curb anticompetitive practices in the digital economy…. The act is aimed at banning anti-competitive behavior, such as taking advantage of a dominant position in a sector to undermine rivals’ services.”

Applying a laissez-faire approach to mitigating risk is inconsistent with the principles of the EU, because it is primarily a bureaucratic organization staffed by technocrats. The Hayekian notion of spontaneous order does not feature prominently in its decision-making process.  

But even if laissez-faire were the goal, implementing this vision on a global scale would also be difficult. Yet, global organizations operating under a free-market framework would also encounter hurdles en route to facilitate the global integration of capital and expertise.

Let’s us say, for instance, that the World Trade Organization declared that all tariffs must be abolished. This would not ensure cooperation, because inevitably some countries would resist. Considering the reality of ongoing support for national sovereignty, noncompliant actors must be given the opportunity to defect from the international system. This nonetheless allows others to reap the immeasurable benefits of free trade. Ensuring the cooperation of all agents—whatever the goal may be—is an insensible aim for global governance, even when engendering free commerce is the goal.

In its present form global governance is just another iteration of the managerial state and as such, countries should be free to exit a global order that is incapable of advancing capitalism and serving their interests.