Monday, December 08, 2008

The OECD and harmful regulatory competition

The OECD for some years has been engaging in what is known as its "harmful tax competition" initiative, which has resulted in some mostly welcome, but feeble, efforts to crack down on tax havens. Read more about this here.

We have a suggestion. Harmful tax competition is, as we've repeatedly pointed out, one of the great problems the world faces today. But we've also pointed out that tax havens, or secrecy jurisdictions as we like to call them, do a similar thing on regulation: they foster a race to the bottom which also, as on tax, end up making the wealthiest sections of society richer, at the expense of everyone else. They also, as on tax, undermine our faith in the rules, systems and institutions that promote the public good.

As the global economic crisis continues to unfold, more and more people are waking up to the terrible effect that deregulation has played in the crisis. So we need to turn our attention to the foundations of deregulation - and that means looking at beggar-thy-neighbour competition between nation states to "out-deregulate" each other. Long-term reform on regulation will fail without tackling tax havens and tax competitions - and decisively. See, just to give one example, Jim Stewart's article for tax justice focus on one aspect of this regulatory competition.

If the OECD has a "harmful tax competition" initiative, then recent events demonstrate that it also needs a "harmful regulatory competition" initiative too. That, in the current climate, would get very significant political support from many different areas. A merged initiative (it would probably end up having a horribly ugly name, unfortunately) might be a way to do things: for they would be aiming at the same things, to a large degree, and tax havens would be in the centre of their sights. And to "tax" and "regulation" we might add, in this vein, "secrecy" and "lack of judicial co-operation." As an e-mail to this blogger said recently:

"We need to re-iterate that lessons learned from the 1929 crisis were subsequently unlearned by politicians indoctrinated by laissez faire evangelists (a.k.a the Chicago Boys) who bullied them into thinking that any regulation undermines market efficiency (as the Keynes quote captures so eloquently), but we now live in a world with regulatory gaps caused by the complex multi-jurisdictional structures, so just putting new regulatory frameworks in place will prove ineffective unless the frameworks also tackle the gaps."

Just a thought. The OECD has a role to play, and hopefully it will start to step up to the plate. Having said that, it's important not to forget the potential role of the United Nations, either. On that, click here.

PS the quote from Keynes: we can't remember exactly which quote we were discussing at the time of the e-mail. Nevertheless, this one will do:

"If, however, a government refrains from regulations and allows matters to take their course, essential commodities soon attain a level of price out of the reach of all but the rich, the worthlessness of the money becomes apparent, and the fraud upon the public can be concealed no longer."
John Maynard Keynes, The Economic Consequences of the Peace


Post a Comment

Links to this post:

Create a Link

<< Home