“OECD calls for crackdown on tax avoidance by multinationals” says the Guardian. The report Addressing Base Erosion and Profit Shifting outlines the problems national governments now have taxing big corporations as they move profits around the world in a shell game. Angel Gurria, the OECD’s head, is not overselling it when he says “democracy is at stake”: the legitimacy of democratic states is being undermined as they allow both large corporations and wealthy individuals to avoid taxation, shifting the burden to taxpayers of lesser means and the users of public services. And it is refreshing to see the OECD out front on this: it has no authority, but as the leading think tank of the rich industrial democracies it can help shape the consensus and provide a focal point for action. Richard Murphy – an authoritative source these matters, and long a trenchant critic of the OECD’s half measures – is pleased by the report.
What is really funny is the line “The OECD said many countries had failed to update their tax rules to cope with the digital age.” This is certainly true, but it so understates the problem. It makes the problem sound almost technical, a missing app. You could just as well say “Google, Microsoft, Amazon and Facebook are able to maintain near monopolies in their market segments because many countries have failed to update their competition rules and regulation of network industries to cope with the digital age.” Peter Skott and I, in our current work, show how the upward spiral in CEO pay can be explained by the changes in market structure brought about by such instances of regulatory – and tax – dereliction. I’ll spare you the technical details of our paper, and instead focus on the rather obvious fact that these shifts in tax and regulation were not the results of an oversight, of some failure to keep up with technology, of the delayed development of the appropriate institutional app. New technologies do figure in the story – they rendered the old systems of regulation, legacies of the early twentieth century, costly and obsolete; the political outcome of the crisis which ensued was that in many countries – the US and UK above all – a new generation of plutocrats had the opportunity to ensure that the new rules could not “cope with the digital age” – not a bug, but a feature. It will not be easy to overcome their resistance to sensible new apps, and to democracy.