Global Capital and the Nation State according to Robert Reich

According to former Labour Secretary Robert Reich, giant corporations – not giant governments – are true rulers. Governments, the most powerful entities on earth, have monopoly on military and police force, courts and law-making powers, but alas, corporations still manage to subjugate them:

As global capital becomes ever more powerful, giant corporations are holding governments and citizens up for ransom — eliciting subsidies and tax breaks from countries concerned about their nation’s “competitiveness” — while sheltering their profits in the lowest-tax jurisdictions they can find.

Reich is again barking up the wrong tree. Governments grant powers to corporations – not the other way around. For that reason alone corporations cannot be so carelessly blamed when politicians are up for sale.  But fear not fellow citizens – Reich’s got a cure:

Major advanced countries — and their citizens — need a comprehensive tax agreement that won’t allow global corporations to get away with this.

True, irresponsible governments suffering self-inflicted economic injuries may wish for it, but do their citizens? Let’s just say the citizens would need this “comprehensive tax agreement” like a hole in the head. This smacks of one world government, but maybe that’s what Robert Reich really has in mind.

However, since the corporate income tax reduce profit and thereby discourage investment, the effect of an increase of the CIT is to reduce worker wages that Reich purports to be protecting.

Google, Amazon, Starbucks, every other major corporation, and every big Wall Street bank, are sheltering as much of their U.S. profits abroad as they can, while telling Washington that lower corporate taxes are necessary in order to keep the U.S. “competitive.”

Does Reich imagine that corporate taxes have no effect on global competitiveness?

…The fact is, global corporations have no allegiance to any country…

Nor should they actually. Corporations are run by entrepreneurs who produce, buy and sell in the best available market. They do not think nationalistically.

… their only objective is to make as much money as possible — and play off one country against another to keep their taxes down and subsidies up, thereby shifting more of the tax burden to ordinary people whose wages are already shrinking because companies are playing workers off against each other.

While it is true that corporations “objective is to make as much money as possible” lumping together that they are “shifting the tax burden to ordinary people” is misleading. Minimizing tax burden is not their objective, it is merely incidental to their true objective of maximizing profit.

I’m in London for a few days, and all the talk here is about how Goldman Sachs just negotiated a sweetheart deal to settle a tax dispute with the British government; Google is manipulating its British sales to pay almost no taxes here by using its low-tax Ireland subsidiary (the chair of the Parliamentary committee investigating this has just called the do-no-evil firm “devious, calculating, and unethical”); Amazon has been found to route its British sales through a subsidiary in low-tax Luxembourg, and now receives more in subsidies from the British government than it pays here in taxes; Starbucks’ tax-avoidance strategy was so blatant British consumers began boycotting the firm until it reversed course.

If those misguided Brits could connect the dots they might be less eager to boycott. Transferring money from a well run business, like Starbucks to a bloated British government isn’t going to result in a higher employment or higher worker wages.

Meanwhile, At a time when you’d expect nations to band together to gain bargaining power against global capital, the opposite is occurring: Xenophobia is breaking out all over.

But, just exactly who is this “global capital” we are supposed to bargain against Reich never gets around to defining.  “Global capital” does not pay the tax because it is not a person. Nor does it make sense to appeal to the cause of social justice by referring to “global capital.”  Negotiating  with “global capital” makes about as much sense as asking a building to pay  higher property tax or a factory to raise worker wages.

Here in Britain, the UK Independence Party — which wants to get out of the European Union — is rapidly gaining ground, becoming the third most popular party in the country, according to a new poll for The Independent on Sunday. Almost one in five people plan to vote for it in the next general election. Ukip’s overall ratings have risen four points to 19 per cent in the past month, despite Prime Minister David Cameron’s efforts to wrest back control of the crucial debate over Britain’s relationship with the European Union.

And who can blame them, what good did joining the European Union do them?

Right-wing nationalist parties are gaining ground elsewhere in Europe as well. In the U.S., not only are Republicans sounding more nationalistic of late (anti-immigrant, anti-trade)…

After admonishing corporations for having no allegiance to any country, i.e. not being nationalistic, it seems inconsistent for Reich to criticize Republicans for being nationalistic.

…but they (Republicans) continue to push “states rights” — as states increasingly battle against one another to give global companies ever larger tax breaks and subsidies.

The states are actually not battling against one another as much as they are asserting their constitutional rights denied to them by overbearing Federal government.

Nothing could strengthen the hand of global capital more than such breakups.

It would have been more instructive if Robert Reich actually named some names instead of using ambiguous term “global capital” that serves only to obfuscate the point.

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