Ritchie’s appalling misunderstanding of economic wealth

But we are back, of course, to Google relying on a logic of tax that defies all common sense and very obvious factual accuracy to claim that despite the very clear substance of it earning in India the legal form of the structure it has constructed says that the income in question arises elsewhere.

The OECD has already said that the Base Erosion and Profits Shifting project, – launched with much huff and puff by the likes of David Cameron last year to deal with such obvious egregious tax abuse as that of Google – cannot address this high tech abuse.

Does that mean wealth will continue to be stripped from india with impunity? My suggestion is it will not.

Sigh.

Clearly Ritchie believes that taxes legally not paid are wealth stripped from a country and its people. When taxes not paid, or even taxes paid, are clearly and obviously the least important part of whatever wealth creation might be going on. And the most important part of the wealth creation that is going on is the consumer surplus.

Indians who use Google to search for things find being able to use Goggle to search for things of value. Otherwise they wouldn’t be using Google of course. So that’s one part of said consumer surplus. Now as regards the cash part. Those who advertise on Google from within India also obviously find it worth their while. By definition the value they gain from sending money to Google is greater than the money they send to Google. So there must also be a consumer surplus there.

We can go further too: tax, even the tax that Ritchie thinks should be paid, is only a percentage of profits made. And profits made are of course smaller than those total revenues. So tax paid will be a fraction of a fraction of the value that has been created for those commercial customers of Google in India. And that’s without even considering the value to those who use Google to search.

The tax paid or not paid is thus a near irrelevance in the context of the wealth created by Google in India. They have to be putting more wealth into India by offering their services there than any amount of tax that they might be dodging. In which case how can their activities be described as stripping wealth from India?

In a way this is all a rerun of the mercantilist argument. Look at the money, see where it’s piling up, without ever bothering to consider what of value is being created nor who gets it.

4 thoughts on “Ritchie’s appalling misunderstanding of economic wealth”

  1. Didn’t you report on some research that measured the consumer surplus from doing Google searches in your Forbes column? IIRC they set some the task of finding the data through Google and another set the task of hunting round a library and the value in the Google search was quite staggering. I did a quick search but can’t find it.

    PS Any sign or your Forbes column returning?

  2. Amazing how the Richie view prospers.
    I had a lengthy & dispiriting e-mail exchange over the weekend with someone, who i’d’ve hoped would know better, about the French/Google tax issue. Cited the EU tax laws. Pointed out the orders of magnitude greater benefit to the French economy of Google services. Even pointed out;, if Google abandoned selling advertising by the French, to the French, in France, altogether, they could still make money selling advertising to non-French wishing to advertise to the French in France.
    All to absolutely no avail. Conversation kept looping back to Hollande’s demand. Google must somewhere be making money that somehow should pay French tax. Somehow.
    Very depressing.

  3. I write the odd bit of software over here in Canada when it’s too cold to go outside. I process data, do some data base stuff and so on.

    If I mail you a disk and you send me a cheque then run the software on your own laptop, did I earn the income here or in the UK? How about if I emailed you the software? How about if I kept the software on my computer but let you run it through a web-page front end?

    Me, I think I earned it here in the great white north in all cases. And Google does pretty much what I do in case 3, only a billion times bigger and better.

    Google does all the heavy lifting in the USA by writing the software. The locations of both customers and servers are pretty much irrelevant to value added.

    I just fail to see how exporting intellectual property is different from exporting wine. Will French wineries pay taxes to the Canadian government when I buy over-priced frog-plonk via internet?

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