The trouble with these theories of labour and capital is that, like so many things that work in economics textbooks, they have not translated to reality. In the case of capital that’s because economists have almost never taken note of tax havens, regulatory arbitrage, tax or tax abuse when they come to proffer their idealistic vision of free markets. The truth has been that instead of capital flowing to the places that could make best use of it for productive purposes a significant number of EU states, including Luxembourg, Ireland, Cyprus, Malta, the Netherlands and the UK and its tax havens (which for these purposes count as part of the EU) have put in place measures to designed to attract capital on the basis of the higher market returns that can be obtained from market and tax abuse hidden behind the secrecy that they have been willing to offer. The result has been dysfunctional markets, the growth of a rentier economy, a reduction in investment in productive capital and lost growth at the cost of a parasitical financial services industry. Far from dragging states upwards a race to the bottom has ensued.
You know, economists did actually did actually consider these things. And Bolkestein deliberately set up the taxation system for corporations as he did. Because corporation tax is a bad way to collect tax: thus let’s compete it away.
That’s quite aside from the lunacy of thinking that money that passes through tax havens stays there. It’s still invested in the real economies of those real countries: just without paying some of the corporate tax. As it was intended should be done. And as is beneficial for the economy as a whole of course.
In the case of labour economists forgot, yet again, a number of quite important factors. The first is the reluctance of many people to move: such things as social ties never occurred to the economists who promoted the theories that underpin the single market, and nor did they exist in their idealistic calculations. Nor, since many of these theories were promoted before the growth of the welfare state, did those free market theories take into account the fundamental changes in wage pressures that this has created, with resulting significant differences in the labour markets of each member state. The inevitable consequence is that these unanticipated, but entirely predictable ( even in the 1950s) factors were ignored in the design of the EU and this failure has been perpetuated over decades with the consequence that flows of labour are nowhere near as free as economists assumed, social security systems have on occasion been abused and, most important of all, labour market freedoms designed to prevent wage inflation have in fact been used to force real wages to be stagnant when economies as a whole have been growing. In other words, the race to the bottom has, once again, been the outcome.
Economists don’t consider social ties and their influence upon migration? This bloke been at the wife’s drugs cabinet down the surgery?
Those states who abuse tax systems, including the UK with its low rates, refusal to tax corporate income from outside our country and blind eye failure to even collect tax returns from companies incorporated here that claim they trade elsewhere so that the countries where they really owe tax can collect no data on their activities, have to be prevented from perpetuating their abuse. If this means suspension of the free market whilst they put reforms in place, so be it.
And those countries that wish to protect their populations by providing a sensible and appropriate safety net for those in need must be allowed to do so with out being abused by other states refusal to provide the same protection for their own populations.
Unless these fundamental, and systemic, flaws in the design of the EU are addressed it cannot achieve the objective of delivering real economic growth and increasing prosperity to those who live within it. In that case it’s purpose for existence has to be questioned.
Pitching for a job with the European Greens now, is he?