The irrationality of fiscal havens

Written on May 30, 2007 by Max Oliva in Development

J.Pozuelo-Monfort, MSc candidate in economic development at LSE.
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Flying from Barcelona to London I was able to glance at the Jersey Islands from the window seat of a low-cost airline. A two-hour flight that goes over the north of Spain and France before entering the Atlantic and further north England. Between France and England there are a few islands that form the well-known Jersey Islands. Jersey is one more fiscal haven in a world where tiny islands lost in the middle of the ocean usually maintain a regrettable condition that escapes from today’s understanding of fairness in a globalized world.
Jersey is from the sky far from being a haven, far from being a paradise. Jersey, as well as many other fiscal havens, has to justify its existence and plays an unfair role of facilitator of money laundering. Fiscal havens are sometimes tourist havens. Think of Bermuda. Think of the Virgin Islands. Those islands have an alternative industry to which its townspeople can devote their time and skills in order to earn a living. But think of Jersey, in the middle of the ocean, surrounded by water, with no easy access to mainland England and France. Think of Jersey’s citizens, their occupation. It is not touristic. It is barely agricultural. Oh well, for god’s sake there are fiscal havens in this world, that are job creators and wealth generators for tiny islands lost in the middle of the ocean, surrounded by water.
Fiscal paradises might enable the creation of jobs and wealth in tiny islands, but in exchange for what? In exchange for serious and severe collateral damage to countries in the first and third world. Serious and severe collateral damage because the first world loses taxation revenues because fiscal havens channel out funds from the better off of the society. Serious and severe collateral damange because third world’s leaders have oftentimes laundered their country’s money to secret bank accounts in fiscal havens.
Think of a professional killer that earns his or her living getting rid of undesired individuals. He or she might earn a living. Oh well, for god’s sake there are still professions in this world for everyone. The professional killer might only know how to kill. Thanks to his killings he is able to bring money home and raise his kids. But then think of the proud parents of children he or she gets rid of. What about them? What about their kids that will not be able to be raised appropriately?
Today’s world is justifying a financial architecture that only makes sense for a few better off. For a few inhabitants of tiny islands that might otherwise have to do something else, that might otherwise have to move to mainland and get to work in a tougher industry. But that’s the case for a majority of the population. And we should not sustain a few when it does so much harm to so many.
Let’s not only look at the maximization of economic profit. Let’s look at the maximization of social capital. The world’s financial architecture may then have potential for change.


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