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Archive for the ‘Competition’ Category

Walter Williams explains why politicians and bureaucrats shouldn’t have the power to tell us what we’re allowed to buy.

At first blush, the mercantilists’ call for “free trade but fair trade” sounds reasonable. After all, who can be against fairness? Giving the idea just a bit of thought suggests that fairness as a guide for public policy lays the groundwork for tyranny. …Last summer, I purchased a 2010 LS 460 Lexus, through a U.S. intermediary, from a Japanese producer for $70,000. Here’s my question to you: Was that a fair or unfair trade? I was free to keep my $70,000 or purchase the car. The Japanese producer was free to keep his Lexus or sell me the car. …The exchange occurred because I saw myself as being better off and so did the Japanese producer. I think it was both free and fair trade, and I’d like an American mercantilist to explain to me how it wasn’t. Mercantilists have absolutely no argument when we recognize that trade is mostly between individuals. Mercantilists pretend that trade occurs between nations such as U.S. trading with England or Japan to appeal to our jingoism. …That’s nonsense. Trade occurs between individuals in one country, through intermediaries, with individuals in another country. Who might protest that my trade with the Lexus manufacturer was unfair? If you said an American car manufacturer and their union workers, go to the head of the class. …it’s never American consumers who complain about cheaper prices. It’s always American producers and their unions who do the complaining. That ought to tell us something.

The only thing I would add is that protectionists and free traders should unite in a campaign to get rid of misguided government policies that make it more difficult for American companies to create jobs and produce goods in America. America’s punitive corporate tax rate, for instance, should be dramatically lowered.

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Regular readers know that I am a tireless advocate for tax competition, which exists when governments are encouraged to adopt better tax policy in order to attract/retain jobs and investment. In other words, I want governments to compete with each other because that leads to better policy, just as we get better results as consumers when banks, pet stores, hairdressers, and grocery stores compete with each other.

There is powerful evidence that tax competition has generated very good results in the past 30 years. Top personal income tax rates averaged more than 67 percent back in 1980, but thanks in large part to tax competition, the average top tax rate on individuals has fallen to about 41 percent. Corporate tax rates also have dropped dramatically, from an average of around 48 percent (this data is not as easy to pin down) in 1980 to 25 percent today. And we now have more than 30 flat tax nations today, compared to just 3 in 1980.

That’s the good news. The bad news is that greedy politicians don’t like being constrained by tax competition. Politicians didn’t lower tax rates because they wanted to. They only made their tax systems better because they were afraid that jobs and investment would escape to lower-tax jurisdictions. They resent the fact that tax competition makes it hard to engage in class-warfare tax policy.

That’s why many of these politicians are seeking to replace tax competition with some sort of tax cartel. They want to impose rules on the entire world that will make it hard for taxpayers to benefit from better tax policy in another jurisdiction. In effect, they want some form of tax harmonization, which would create an “OPEC for politicians.” And just as the real OPEC extracts more money from energy consumers, a tax cartel would grab more money from taxpayers.

One aspect of this battle is the way proponents of higher taxes try to demonize so-called tax havens. Many of these jurisdictions are very small, but the smart ones nonetheless defend themselves against the attacks coming from the world’s major welfare states. Here’s a good example. Tony Travers of Cayman Finance, the association representing the financial services industry in the Cayman Islands, recently spoke about the left’s campaign against low-tax jurisdictions.

Travers said he believed the widespread negativity was part of well organised and powerful public relations campaigns driven by onshore Treasury, and supranational and domestic regulatory bodies. British politicians such as Emma Reynolds and former Prime Minister Gordon Brown and even US President Barack Obama were, he said, examples of politicians that were “blame deflecting … and anxious to obfuscate the failures of their domestic regulatory systems … by suggesting that in some way it is the tax or regulatory system of the offshore financial centre that is at fault.” He claimed the problems they were trying to conceal by their demonisation of offshore centres had their source onshore. He described various socialist activist movements, such as the trade unions, major charities such as Oxfam, and Travers arch nemesis, Richard Murphy of the Tax Justice Network as the “Tax Taliban” .

This fight is occurring at all levels. A new scholarly study from the Instituto Bruno Leoni in Italy digs into the academic debate about tax competition. Written by Dalibor Rohác of London’s Legatum Institute, the report debunks the argument that tax competition somehow is economically inefficient.

The first common argument is that tax competition distorts the allocation of mobile factors of production across countries. The second argument recurrent in the literature says that tax competition can reduce tax revenue and endanger the stability of public finances. The troublesome feature of both of these arguments is that they start from the assumption of government benevolence and omniscience. For instance, the first argument presupposes that the initial allocation of capital between the two countries was optimal and that tax competition is driving it away from the optimum. Likewise, the second argument implicitly assumes that the initial amount raised in taxes corresponded to some well-defined social optimum and therefore that tax competition drives revenue below that optimal level. Hence neither of these arguments holds in the light of basic public choice theory which convincingly demonstrates that governments do have a tendency to overspend and overtax.

Rohác cleverly exposes the other side’s statist agenda. He explains that their main argument is based on the idea that different tax rates in different nations will lead to an inefficient allocation of investment. He then points out that there is a pro-growth way and an anti-growth way of dealing with this supposed problem.

…if the problem of capital misallocation is caused by differences in tax rates among countries, than introducing a maximal rate is a solution that would be equally appropriate. …tax competition might well offer a solution to the alleged problem of misallocation of capital caused by tax differentials. If tax competition was a “race to the bottom,” then the final outcome would actually be a tax rate harmonized across countries and harmonized at a rate of zero per cent, thus eliminating capital tax distortions altogether.

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The fight for financial freedom and limited government is global. The Center for Freedom and Prosperity recognizes Eduardo Morgan Jr., an individual whose work for his native Panama echoes much of our own efforts to defend fiscal sovereignty from the onslaught of anti-growth taxation and regulation.

As Panama’s Ambassador to Washington from 1996 to 1998, Eduardo Morgan Jr. saw his country attacked by US political and economic leaders. Ever since, he has dedicated himself to exposing the hypocrisy of the OECD and its members for attacking other countries that want to compete for investment and capital.

Since the beginning of the year, Eduardo has also contributed factual analysis to the online discussion with his blog, which I highly recommend to our readers. His work on behalf of Panama should serve as an inspiration to all individuals and nations that seek freedom and prosperity.
http://www.eduardomorgan.com/blog/

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The U.S. Postal Service has been hemorrhaging money for decades, and it’s not hard to understand why.  As a government protected monopoly, the Postal Service cannot adjust to changing market conditions like an ordinary business.  In addition, they are often subject to political pressure and must make decisions on factors other than economics.  The obvious solution is to remove government from the postal business.  Allow Postal Service to make decisions without being pressured by politicians who know nothing about the business of carrying mail, and then allow other mail carriers to compete directly with them.  The market will sort it out.

The Washington Post editorial board today makes the issue much more complicated than it needs to be.

The Postal Service is funded by ratepayers, not taxpayers. But because of its mailbox monopoly, its pricing decisions for both market-dominant and competitive products must be reviewed by the Postal Regulatory Commission. Any rate increases must be linked to inflation, and federal law prohibits the closure of failing post offices. This cumbersome structure of oversight creates significant obstacles to change.

So far so good.  They’ve correctly identified the problem.  Unfortunately, after stumbling upon the truth, they get up, dust themselves off, and  move on as if nothing happened.

One proposed reform would limit mail delivery to five days a week. The shift clashes with the Postal Service’s Universal Service Obligation, which mandates that service remain at 1983 levels. In a world where bills can be paid, taxes filed and communications carried out at the push of a button, coverage standards that date from an era when the mail functioned as the nation’s nervous system look increasingly absurd. Congress must redefine the Universal Service Obligation in a way that makes sense for a new century.

As collective bargaining begins this fall for major portions of the USPS’s 500,000-strong career workforce, Congress and the Postal Regulatory Commission must also require that arbitrators take the Postal Service’s finances into account, allowing room for reasonable cuts in hiring and benefits rather than assuming that employee costs can simply be passed along to taxpayers. With an institution as large and entrenched as the Postal Service, reform moves slowly. By redefining universal service, encouraging reasonable bargaining and beginning to reshape the USPS’s monopoly to free it from crippling regulatory structures, Congress can ensure that the Postal Service moves in the right direction.

This is a round-about, and ineffective, way of trying to accomplish what markets would offer all on their own.  We don’t need to make sure arbitrators take into account this or that factor, we need to realize that any arbitrator is bound to fail at mimicking the dynamics of free markets.  Only market competition allows the best and most efficient models to dominate.

When government is recognized as the problem, the best solution is to simply remove it from the equation.

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The United States has a very anti-competitive corporate tax regime. The federal tax rates is 35 percent and the average of state corporate tax systems brings the rate to nearly 40 percent. In Europe, by contrast, the average corporate tax rate is about 25 percent. Depending on which measure is used, the United States and Japan have been rivals for the dubious prize of having the highest corporate tax rate in the developed world. But that’s about to change. According to a story that I saw linked on the Tax Foundation blog, the new Japanese government intends to lower its corporate tax rate by 10 to 15 percentage points. This means America will have no rivals in the contest for having the most anti-growth business tax system in the world. This is something to keep in mind the next time you hear a politician complaining about jobs going to China and India:

Japan’s new government plans to cut corporate tax closer to international norms as it tries to haul Asia’s biggest economy out of a long slump, the economy minister said in a report Friday.

The government is aiming to cut tax on company earnings by five percentage points next fiscal year, from an effective 40 percent now, the Nikkei business daily quoted Economy, Trade and Industry Minister Masayuki Naoshima as saying.

“It’s a fact that international corporate tax rates are 10 to 15 points lower than Japan’s,” said Naoshima, who is part of Prime Minister Naoto Kan’s new cabinet sworn in this week.

“Over the medium term, the government will aim to bring the rate down to around the global standard,” he said.

…”It is now the time to decide (on cutting corporate tax) for the sake of future economic vitality, employment and securing increased tax revenues,” the minister said.

“Japan’s economy has basically been in a slump for the past 20 years and people have been overwhelmed by a sense of stagnation.”

http://www.google.com/hostednews/afp/article/ALeqM5iEJsU0LVfqm6Ir6mybC5_wx5AyoQ

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There’s an article  in the Wall Street Journal showing how already-established companies and their union allies will use the coercive power of government to thwart competition. The article specifically discusses efforts by less competitive supermarkets to block new Wal-Mart stores. Not that Wal-Mart can complain too vociferously. After all, this is the company that endorsed a key provision of Obamacare in hopes its hurting lower-cost competitors. The moral of the story is that whenever big business and big government get in bed together, you can be sure the outcome almost always is bad for taxpayers and consumers. 

A grocery chain with nine stores in the area had hired Saint Consulting Group to secretly run the antidevelopment campaign. Saint is a specialist at fighting proposed Wal-Marts, and it uses tactics it describes as “black arts.” As Wal-Mart Stores Inc. has grown into the largest grocery seller in the U.S., similar battles have played out in hundreds of towns like Mundelein. Local activists and union groups have been the public face of much of the resistance. But in scores of cases, large supermarket chains including Supervalu Inc., Safeway Inc. and Ahold NV have retained Saint Consulting to block Wal-Mart, according to hundreds of pages of Saint documents reviewed by The Wall Street Journal and interviews with former employees. …Supermarkets that have funded campaigns to stop Wal-Mart are concerned about having to match the retailing giant’s low prices lest they lose market share. …In many cases, the pitched battles have more than doubled the amount of time it takes Wal-Mart to open a store, says a person close to the company. … For the typical anti-Wal-Mart assignment, a Saint manager will drop into town using an assumed name to create or take control of local opposition, according to former Saint employees. They flood local politicians with calls, using multiple phones to make it appear that the calls are coming from different people, the former employees say. …Former Saint workers say the union sometimes pays a portion of Saint’s fees. “The work we’ve funded Saint to do to preserve our market share and our jobs is within our First Amendment rights,” says Jill Cashen, spokeswoman for the United Food and Commercial Workers Union. Safeway declined to comment. …Mr. Saint says there is nothing illegal about a company trying to derail a competitor’s project. Companies have legal protection under the First Amendment for using a government or legal process to thwart competition, even if they do so secretly, he says.
http://online.wsj.com/article/SB10001424052748704875604575280414218878150.html

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For the past 15 years, America has been ranked as the world’s most competitive economy according to the Swiss-based IMD World Competitiveness Center. In the 2010 report that was recently released, the United States fell to number three, trailing Hong Kong and Singapore. Obama deserves much of the blame, but a nation rarely become less competitive overnight and it is quite likely that the big government policies of the Bush years also are responsible for what will probably be a long-term decline in America’s economic vitality. Here’s a blurb from the Associated Press:

Singapore and Hong Kong are the world’s most competitive economies, an annual survey said Friday, demoting the United States from the top spot for the first time since 1993. The study lists 58 economies according to 328 criteria that measure how the nations create and maintain conditions favorable to businesses – a formula that had favored the U.S. for 16 years. …Switzerland and Australia rounded out the top five. Then came Sweden, Canada, Taiwan, Norway and Malaysia.
http://apnews.myway.com/article/20100521/D9FR6CSO0.html

http://www.imd.ch/research/publications/wcy/World-Competitiveness-Yearbook-Results/#/

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