They say there are no foreign threats to the US. Nonsense, cries the Washington Post. Echoing the Clinton administration and the OECD, the editorial page has found a rogue nation that imperils American life as we know it. As the headline ominously puts it: “The Threat from Vanuatu.”
Who cares about Vanuatu, you may ask, thereby indicating your ignorance of the fact that this is still a dangerous world. Vanuatu, known before independence in 1980 as New Hebrides, consists of 83 small islands in the southwest corner of the Pacific Ocean, northeast of Australia and slightly west of Fiji. Its total population is 200,000, mostly Christian as a result of 19th-century missionary activity, with the natives employed mainly in subsistence farming.
So what’s the threat? Are they building The Bomb? Harboring terrorists? Promoting hate? Trading with Iraq? Growing pot? No, the threat comes from Vanuatu’s laws on taxes (you don’t have to pay any) and banking (the right of contract between customer and banker is protected). Thus, Vanuatu has attracted some very large banks and provides a service that banks in the developed world are forbidden to offer: customer confidentiality and security in private property.
So where’s the harm? The spin is that governments of some poor countries are losing revenue, up to $50 billion per year. But that’s not the real driving force behind the attack. It’s the US government that is most worried. Can you imagine a bunch of politicians with $2 trillion per year at their disposal complaining they don’t have enough? Washington is awash in the loot we call taxes, with federal revenue soaring to unexpected heights. The reason is the economic boom. More income means more income taxes. Higher stock prices means more taxes from capital gains. More spending means more excise tax payments.
But somehow it’s never enough. Bureaucrats in DC can’t sleep at night for imagining the trickles of cash that are escaping their clutches and being banked in independent Vanuatu. Incredibly, the cartel of governments called the OECD is threatening trade sanctions against this poor country unless it changes its tax and banking laws. And not only Vanuatu: a total of 35 countries around the world are on the OECD hit list:
Andorra; Anguilla; Antigua and Barbuda; Aruba; Bahrain; Barbados; Belize; British Virgin Islands; Cook Islands; Dominica; Gibraltar; Grenada; Guernsey/Sark/Alderney; Isle of Man; Jersey; Liberia; Liechtenstein; Maldives; Marshall Islands; Monaco; Montserrat; Nauru; Netherlands Antilles; Niue; Panama; Samoa; Seychelles; St Lucia; The Federation of St. Christopher & Nevis; St. Vincent and the Grenadines; Tonga; Turks & Caicos; US Virgin Islands; and, finally, Vanuatu.
Bomb the Grenadines! Overrun Tonga! Liberate Liberia! Invade Grenada again, not to toss out the communists but to overthrow the capitalists!
But isn’t there such a thing as national sovereignty anymore? The answer is no, says the Washington Post: “Sovereignty cannot be an absolute defense of harmful behavior that spills across borders.” But in this case, the “harmful behavior” is a leak in Western governments’ otherwise ironclad system of looting. Obviously, the people who use the services offered by these countries benefit from them.
Even those who do not use their services benefit from the competition these countries provide to the high-tax regimes of the developed world. Because tax havens exist, governments in the OECD face at least some potential penalty for raising tax rates to too high a level. If rich governments don’t like the competition from these countries, there is an easy way out: lower tax rates to make evasion less profitable. The competition also helps poor nations understand that low taxes are the best means to attracting investment.
Instead, the OECD wants to go the other way, and create a world cartel of tax prisons, where money can go nowhere but through state-approved channels so the power elite can take its high percentage. Meanwhile, these same governments presume to prosecute private businesses for attempting to collude in their operations. Isn’t it obvious that the biggest and most dangerous cartel of all is the one that rich governments are attempting to create among themselves at the expense of their citizens?
This OECD is very dangerous to poor nations as well. They have little capital on which to build prosperity. They have low rates of labor productivity to generate income and attract business. Instead, the only way they can get ahead economically is by exploiting their comparative advantages relative to developed nations. And what are those advantages? Lower regulations, cheaper labor costs, lower taxes, and better banking laws.
In each case, rich nations are attempting to steal those advantages. We’ve seen the World Trade Organization attempting to rachet-up environmental regulations on poor countries. It was on this basis that ministers from the developing world walked away from the WTO meetings at Seattle. The International Labor Organization is trying to enact pro-labor union sanctions against low-wage countries. The World Bank is trying to pry open their banking system under the excuse of demanding “transparency.” And now the OECD is trying to take away their tax and banking advantages.
In neither the OECD report nor the Washington Post editorial can you find a word about the harm such “upward harmonization” of laws would cause poor countries like Vanuatu. Without its banking center, the country would immediately collapse into total poverty, all so greedy Western governments could get more tax revenue. The rich countries will respond by providing “development” aid, a bribe to local politicians to obey rich governments in all matters.
These little havens of tax liberation benefit everyone who matters: the citizens who use the banking services, the citizens who don’t because their governments face some degree of competition, the banks that provide the services, and the poor countries who profit from more capitalism as a means toward economic development. Who loses? Bloated governments in the OECD. In the war on Vanuatu, is there any doubt about what side is right?
Llewellyn H. Rockwell, Jr., is president of the Ludwig von Mises Institute in Auburn, Alabama. He also edits a daily news site, LewRockwell.com.
