Stateless income, global capital, and the death of empires (Rethinking liberalism part 11)

by John MacBeath Watkins

Via Ugh, at Obsidian Wings, we learn of the delightful term, "stateless income." It is a product of global capital, and one reason for the parlous condition of the international system. (It's not in his post, but in the comment section.)

Ugh, who is a Washington, D.C., tax attorney, comes at it from the fact that no one really seems to want tax simplification. That's because of the old, old story of those who want tax favors being the ones who can afford the lobbying muscle to actually effect the tax code. The more complex the code, the harder it is to see who's bought a favor.

And stateless income is certainly a part of this particularly annoying bit of corruption, but it's also a part of a larger trend.

The American Revolution started in 1776, the same year Adam Smith's The Wealth of Nations was published. Capitalism was in its gestation, not even its infancy. Most politicians were either physiocrats or mercantilists.  The physiocrats tended to be planters, who valued that philosophy for two of its major tenets: That all value came from the soil, and the lasseze faire idea that government should leave business alone. The latter was attractive to planters whose wealth was built on slave labor, because even at the time of the revolution, people like George Mason were saying that slavery was immoral.

Mercantilists, on the other hand, were natural empire builders. They believed that the state should work with business to increase the wealth of the nation, and in many cases, that meant getting colonies to supply raw materials for manufacture in the home country. India could grow cotton, for example, but it was shipped to the British textile mills. Gandhi rebelled against this, telling Indian men that they should spin and weave their own fabric.

Of course, it would be far more profitable for the cotton mills to be in India, where the labor was cheaper and the transport costs of the raw material less. And had the mills been in India, the people who lived there might actually have been able to afford the fabric.

Forget the Maine
But under the mercantilist system, the most profitable parts of the process were to be in the home country. The result was that the taxes needed to support the very expensive business of maintaining an empire were paid by the companies that benefited from the empire.

But the most envied positions in business are monopolies and free riders. If you can't swing the monopoly -- and starting with the Grange movement after the Civil War and culminating in anti-trust legislation, societies became increasingly hostile to monopolies -- the next best thing is to be a free rider.

This is inherent in the nature of public goods. For example, the most frequently used example of a public good is the lighthouse.

The problem became evident when private industry tried to supply the crying need for lighthouses. They were a benefit to all mariners, but who would pay for the use of a lighthouse? It's lit or it isn't, and if someone else pays for the lighthouse, it's impossible to exclude anyone from the use of a lighthouse.

So, governments granted lighthouse owners the right to collect fees, and ended up enforcing that right. Essentially, it took the government to collect the fees to support a private lighthouse.

That solved the free rider problem, but then it became evident that the incentive for lighthouses was to crank up the fees and spend as little on maintenance as possible, an example of rent-seeking by a monopoly.  This led to public demand for the state to provide better lighthouses.

Think about this in terms of public order. The British Empire, at tremendous cost in lives and treasure, maintained a relatively peaceful and lawful place to do business in India, and its merchant class brought profitable business to Britain that paid taxes to support the empire. But you can no more exclude someone from peace than from the spinning ray from the Fresnel lens of a lighthouse.

Ford was probably not the first, but in 1926 the company built plants to produce the Model T in India for the Indian market. Given how much help America had been in WW I (damned yanks, late to every war...) it was not politically practical to tell Ford to take a hike, and in any case, the age of empires was ending.

Ford was a harbinger of the age of global capital. It is an age in which companies have no loyalty to country. As Mitt Romney was wont to note, "corporations are people, too," but they are people without empathy, loyalty or conscience.

In short, a corporation is a sociopath. Unless, as with some small corporations like Twice Sold Enterprises, Inc., all the officers are one person, it cannot have the character traits we value in people. Lacking loyalty, patriotism is an emotion a large corporation cannot feel.

It is the perfect free rider, not caring about the unfairness of it taking advantage of a system it undermines by dodging payment for the service it enjoys.

At present, nearly half the world's military expenditure is spent by the good ol' USA, a country that comprises close to 25% of the world economy. The pax Americana is partially defrayed by the money paid by some other countries for the protection we offer. Japan, for example, pays about $2 billion a year to help maintain American bases on Japanese soil (well, mostly on Okinawan soil, which is a bit of a sore point with the people of the Ryuku Islands, annexed by Japan in 1872 and still treated as a somewhat separate people for matters such as who marries who.)

But it's becoming increasingly evident that America, like the empires before her, cannot maintain the world system. The expense is simply not paid by those who benefit.

There was much to despise in the old imperial system. The Sepoy Mutiny would hardly have happened in a harmonious nation where people actually liked being ruled by foreigners. The competition between countries that had empires, such as Spain and Britain, and those who desired them, such as Germany and Japan, led to horrendous wars with enormous loss of life.

The systems that have replaced it -- the competition of the Cold War and the resented hegemony of the Pax Americana -- isn't necessarily any better. Granted, when a country asks America to leave, we do. (My father flew as a navigator/bombardier on B-57s, and we had to leave Laon in 1958 because De Gaul did not want any American nuclear delivery aircraft on French bases. Yep, it's as easy as that to get rid of us, just tell us to leave and we go.)

But is the world as safe as it was before governments of powerful countries started to realize that all that money spent on wars was never coming back?

Presumably, stateless income and free riders on the international system will at some point undermine the safety of overseas investments to the point where they are not a profitable investment. At the same time, if wars are not profitable, there may be fewer wars.

Links for this series:

Rethinking liberal theory 1: Thomas Hobbes, blasphemer and patriot
Rethinking liberal theory 2: The outlaw John Locke, terrorist, liberal, and advocate of freedom
Rethinking liberal theory 3: A compact to protect property, or a conspiracy to create meaning?
Rethinking Liberal Theory 4: John Milton and the many shapes of truth
Rethinking Liberal Theory 5: Adam Smith, moral philosopher of the marketplace
Rethinking Liberal Theory 6: Mythmaking and manufacturing
Rethinking liberal theory 7: Hegel, the end of history, and the triumph of the liberal idea
Rethinking liberal theory 8: Liberalism and individualism: The invention of the Util and the way west
Rethinking liberal theory 9 Property and freedom: Why language is the basis for the social contract 
Rethinking Liberal theory 10: Physiocrats & mercantilists: The economic philosophies of the founding fathers
Rethinking Liberal Theory 11:Stateless income, global capital, and the death of empires
Rethinking Liberal Theory 12:Capitalism:So much more than market
Rethinking liberalism 13: What is money? 
Rethinking Liberalism 14: Tribalism and the emerging new world order
Rethinking liberalism 15: The poverty of neoconservative philosophy
Rethinking Liberalism 16: More on the poverty of neoconservative philosophy


  1. You peg 1776 as pre-capitalist and there is some truth to this.
    Relative to today, few people owned their land or tools. Those that did were envied.
    The English speaking countries were one of the first cultures where private property rights for the average Joe became a real possibility. Wealth accumulated and this grew into a powerful economic advantage.
    Going beyond capitalism really means that the common folk will not be able to own their own tools or the right to make a living.
    Mover capitalism, please.

    1. Actually, I think a great many Chinese, Celts, Romans, and people of other cultures owned their land. There used to be a great many models for how economies worked. The Inca came about as close as anyone to making state ownership work. Russia had everything from big (and noble) landowners, to wealthy peasants who owned and worked their land, to serfs who owned nothing and were treated much like slaves in America (and were freed at about the same time.)

      The thing is, private property and markets are not all there is to capitalism. If you've read the link about physiocrats and mercantilists, you'll be aware that I think the really powerful concept in capitalism was marginal utility. I think that concept, more than private ownership of tools and property, that distinguished capitalism from previous systems with markets and private property. It accompanied the industrial revolution, which concentrated the ownership of tools in fewer hands as textile mills replaced weavers as a cottage industry, but it did not move ownership of tools from the public sector to the private sector.

      Thanks for your input. Perhaps we need more posts on what capitalism is. The word, after all, wasn't used in its modern sense until about 1850, yet it's commonly assumed that we were founded as a capitalist country rather than a physiocrat or mercantilist country.


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