On May 2, 2014, there appeared in the New York Times an
article written by Steven Rattner under the title “End Corporate Taxation.”
When you read it and separate from it all the other considerations, you come
away with a few notions surrounding the reality that the big corporations are
increasingly becoming international. It is happening because these entities are
owned by shareholders from different countries; they produce goods and services
in several of them, sell everywhere and, when they find it advantageous, move
their head offices to a country that offers a lower corporate tax rate.
Rattner analyzes the situation and makes a few
recommendations – the most “ambitious” being to end corporate taxation in an
effort to keep the head offices in America . You think along the lines
of the recommendations and find yourself moving in circles on the same flat
level till something that you saw a couple of days before flashes in your head.
It interrupts the line of thinking you had adopted, and takes you in an
entirely new direction.
What flashes in your head is an article that was written by
Mark J. Perry and published on the website of the American Enterprise Institute
on April 30, 2014 under the title: “Despite China 's
impressive growth, on a per capita basis, the US
economy is still a century ahead of China .” And so you wonder if it
means to you now what it meant when you first read it. A couple of days ago,
you thought it will take China
– if not a century – a long time to catch up with America . But now that you know America is
being hollowed out of its head offices the way that it was of its manufacturing
base, you wonder if what you assumed then holds true today.
One passage in the Perry article that shook you is this:
“More than 30 million Chinese, basically the population of Texas , live in caves.” You did not attempt
to make a comparison then, but now that comparison is forced on you, it is what
you do. Thus, recalling that China's population is about five times as large as
America's, you wonder if there are not 6 million homeless Americans who would
be glad to find a cave in which to live permanently rather than have to hop
from living on the street one day, to living under a bridge the next day, to
living in a subway tunnel the day after that? Would a cave not become sweet
home to a homeless vagabond?
Another passage in the Perry article that raised your
eyebrow when you first read it is this: “The US remains the world's leading
economic power due to its technological innovation.” This reminds you of a
saying that lawyers never forget. It is this: “Argue the law when the law is
on your side. Argue equity when it is not.” It seems that the analog of the
economists is this: “Argue the GDP or the per capita income when they are on
your side. Argue something else when they no longer apply.” This time, Perry is
using technological innovation as the preferred yardstick. Tomorrow he or
another economist will use something else.
In fact, that something should be not another yardstick of
the same kind but another prism through which to look at reality. This means we
must drop the habit of comparing snap shots against snap shots. The fact is
that the future keeps coming because things keep changing. And the part we tend
to forget is that things change not separately from each other, but change more
and more in conjunction with each other. And this is taking place because the
world is getting smaller all the time – what happens in one place affects many
other places then feeds back to the origin and moves from there into new
directions.
Therefore, we can see that corporate head offices moving out
of America (mostly to
Europe) at a time when factories were moving into the emerging economies
(mostly China )
was no coincidence. It can only be that directly or indirectly, one
phenomenon has led to the other.
So the questions: Will it ever happen that corporate head
offices will start moving into China ?
Will it ever happen that research facilities will move there too? Come to think
of it, that's not a matter of if; it is a matter of when will it happen? The
obvious answer is that it will happen gradually as the developing world becomes
more developed, and the Earth becomes flatter by the day.
And this is why we must adopt a new way of thinking with
regard to our relationship with the rest of the world. We need to get away from
the policy of confrontation and the policy of forcing our views on others. We
need, instead, to get into the mode of consultation and cooperation with everyone.