Friday, March 22, 2002

Remora

James Kenneth Galbraith � the Galbraiths are our favorite dynasty, much superior to the Kennedys and the Bushies � has a nice article in Daedalus entitled A perfect crime: Inequality in the age of globalization. Unfortunately, the article isn�t available on the web, but here are Galbraith�s points:

1. An old view of development and income inequality held that there was a archetypal pattern
that applied to developing economies, in which a primitive stage of industrialization would correspond to an increase in income inequality, which would then begin to level out as the
economy matured.

2. This view was disputed in the eighties and nineties, and displaced by a cultural view, which
held that one should concentrate on land holding, the level of protectionism, the willingness to sacrifice for an advantageous export position, and so on.

3. Galbraith gives us evidence to think that the older view is more realistic. Furthermore, he
holds that the increase in global income inequality since 1982 has not been the effect of the mystical machinery of globalisation, where the allocation of manufacturing effected by the magic invisible hand and the temporary availability of cheap labor � temporary in the historic sense, stretching over a generation or century or two - in diverse locales organizes itself spontaneously. His idea is that the Keynesian system fell apart on the backs of the poor. Here is
the core of his piece:

�Global inequality fell in the late 1970s. In those years, poor countries had the benefit of low interest rates and easy credit, and high commodity prices, especially for oil. Indeed, in the 1970s,
the UTIP [the University of Texas Inequality Project, headed by Galbraith -- LI] data shows that it was the lower-income workers in the poorer countries who made the largest gains in pay. But
in 1980--1981, the age of low interest rates and high commodity prices ended. In 1982, the repression took hold - a financial repression, to be sure, but not less real for having taken that form. And while the debt crisis was not accompanied by overt violence -- coups are,
indeed, often very limited in their overt violence --the effects were soon felt worldwide, and with a savage intensity that has continued for two decades. In sum, it is not increasing trade as such that we should fear. Nor is technology the culprit. To focus on "globalization" as such misstates
the issue. The problem is a process of integration carried out since at least 1980 under circumstances of unsustainable finance, in which wealth has flowed upwards from the poor
countries to the rich, and mainly to the upper financial strata of the richest countries. In the course of these events, progress toward tolerable levels of inequality and sustainable development virtually stopped. Neocolonial patterns of center-periphery dependence, and of debt peonage, were reestablished, but without the slightest assumption of responsibility by the rich countries for the fate of the poor.

It has been, it would appear, a perfect crime...�

Limited Inc should point out that there are some problems with Galbraith�s thesis. The major
one is that, as he admits, it does not account for China and India � a huge exception. But as a general thesis about the background dynamic of our present state of things, I�ll buy it.

So it is with the hauteur characteristic of inhaling theory that we read today�s NYT story about the coy corporate use of tax havens to cut down on their oh so substantial burdens. Senator Baucus and Senator Grasseley from Iowa have been tut tutting over Stanley Works decision to
�relocate� spiritually in the Bahamas � a shift in citizenship that costs the company nothing, but is a considerable tax savings. The Senators are even proposing doing away with this tax haven business. Horrors. Government interference with business once again! Here�s a couple of grafs:

�Gerard J. Gould, a Stanley Works vice president, said he had not known about the hearing. The company, he said, "feels there is nothing unpatriotic about following existing law and reinvesting the tax savings to grow the company for all of its shareholders."

In a statement, Ingersoll-Rand said, "Our move to Bermuda was approved by our shareholders, was a taxable transaction and is consistent with U.S. laws."

"We believe that upon further analysis, the committee will conclude that aspects of the U.S. tax law drive U.S. companies to change their place of incorporation in order to compete on a level playing field with international peers," it added.



Ingersoll-Rand�s idea, apparently, is that the tax rate should go down to, what? Rather like King Lear�s daughter: �What need you five and twenty, ten, or five� percent? There�s a Business Week story from March 4th that gives reports a study of the Institute on Taxation and Economic Policy that found that �52 of the 250 biggest U.S. companies paid effective tax rates of 10% or less in 1998.� Indeed, there�s competitiveness for ya! But as the Repugs in the House will suggest, their mouths full of steak, this is just too great a burden for the wealthy to bear! And of course Dumbo, the commander in chief, will march off in that general direction.

So it goes on the tax front.

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