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Competition is the Freedom to Act Differently From Others

August 3, 2009

When someone makes something better than I do, faster, cheaper, more beautifully–they’re doing so differently. If instead they imitated me to the micro-movement, they’d  make an inferior product. They’d also live an inferior life. They could do better. Competition is the mother of a richer personality.

Everyone fears a monolithic society, but the greatest trick the bureaucrat ever played was marketing it as a change for the better. Many nation states decry “tax havens,” but what they really loathe is the idea of people acting differently from the way they do. A cartel of nations imposing a single tax table is a cartel of conformists.

There’s a great Op-ed in the NYTimes today on Swiss banking by Pierre Bessard, the president of the Liberales Institut in Switzerland. He argues for competition in tax rates and against the “transparent citizen,” that poor sap whose every move and resource is tagged, tracked, and weighed by the government:

We think government exists to serve us, not the other way around. We understand that we have to pay taxes — and we do, with numerous studies showing that the Swiss are extraordinarily honest about paying what we owe — but we do not think it is the government’s role to intrude on our privacy and wrench them from us.

A link at the Liberales Institut points to a thought-provoking paper on tax competition by Bessard. I highly recommend it, if only for viewing the “tax oppression” index. From the intro to the article:

By restricting tax competition, for instance by trying to harmonize tax policies or by fighting “tax havens”, high-tax states – tax hells – deprive their citizens of one of the great benefits of competition, experimentation. As Friedrich Hayek often pointed out, competition is a “discovery process”. In a purely imaginary world of perfect knowledge, competition would surely be unnecessary, for everyone would know what the best solutions to any problem are. But we are not in a world of this kind. Yet that is precisely what the high-tax states fighting against tax competition would like to make us believe. They assume that their tax policies are the best possible and that any competition would lead to a “race to the bottom”. But if the tax rates applied in the tax hells – for instance for the taxation of capital – were optimal, capital would not flee. For a long time, drastic foreign exchange controls have allowed many states to despoil capital. They cannot tolerate that their “tax slaves” can flee to more favorable areas. And yet, as this study so opportunely underscores, the whole world benefits from the existence of low-tax areas. For these areas not only lead to capital movement, but also create incentives to accumulate more capital.

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5 Comments
  1. August 3, 2009 9:22 pm

    As a practical matter, opposition to tax havens may be due to aversion to tax competition. However, I am not sure that your theoretical justification of tax havens is tenable. Imagine a small country that provides low corporate taxation and few social services, and has companies registered there only as a flag of convenience. Without any hand in providing either the workforce of the companies or the manufacturing infrastructure they use, I’m not sure if this can be counted as “jurisdictional competition.” Although it would lead to lower global taxation – an outcome I favor – it seems like a zero sum game transferring revenue from governments to corporations.

    If, however, companies move their revenue-generating operations to low-tax jurisdictions, then that would be legitimate jurisdictional competition, much like individual emigration.

  2. August 3, 2009 9:58 pm

    I really liked this post, it was really clear. Thanks for sharing.

  3. Karl permalink
    August 9, 2009 8:18 am

    To say that “Competition is the Freedom to Act Differently From Others” is a true statement, but not a very useful one. The important concept is diversity, not competition. Competition is about rivalry, where one entity gains advantage at the expense of the other. Cooperation is a much more useful paradigm, where all participants gain. The amount of competition and/or cooperation in a system is orthogonal to the amount of options available. The freedom to choose among existing options or create new ones, however, is greater where there is cooperation.

  4. April 22, 2014 11:14 pm

    Awesome! Its iin faft remarkable paragraph,
    I have got much clear idea about frpm this article.

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