Lose-Lose in the Global Game9 January 2015
This week’s TWOG is a story that I constructed for my Rebalancing Society book out of various components—an advertisement, a couple of phone calls, some articles in the Finnish press, and statistics on cuts in Canadian taxes and public spending. It all comes together in the global arena, to give an idea of what is happening in this world: there is no organized conspiracy going on, just the effect of one. In next week’s TWOG, I hope to address a few questions about where we can go from here. (Last week I promised to revisit mirrors in this week’s TWOG. That will be delayed.)
In December of 1999, I read a Nokia advertisement in a Canadian magazine. It showed the screen of one of its mobile phones, with the inscription “At Revenue Canada your call is important. Please hold.” Below the phone were the words “long battery life.”
Cute. Would Nokia have found cute an equivalently demeaning advertisement by the Canadian tax department?
Shortly after, on a weekday morning at 10, I called the Nokia number listed in the ad. In those days, people answered the phone (or didn’t). I listened to a “Please hold” voice until a real person answered—after 2 minutes and 55 seconds. Then I called the Revenue Canada number listed in the Montreal phone book. No voice said “Please hold”; a real person answered in 12 seconds.
One example is enough to make the point. Why do we tolerate such knee-jerk put-downs of government, in this case by a prominent corporation that did not even have its own act together, at least on that morning?
Later I contacted a friend in Finland, where Nokia is headquartered, with a question: had the company, or its senior management, lobbied for lower taxes in that country? The answer came back as four articles and a speech by or about Jorma Ollila, Nokia’s chief executive. He told one newspaper, “High taxation is untenable in the long run,” with a thinly veiled threat to move Nokia’sheadquarters out of the country (Helsingin Sanomat , April 27, 2001). “According to Ollila, [the] decision [of the government, to raise corporate taxes by 1%] will cause problems for Finland because many European countries are strongly bringing down their corporate tax percentages.”
Ollila claimed that lower taxes could actually give “a growth injection to the whole national economy” (Helsingin Sanomat , January 27, 2002) and thereby “create a possibility to finance services of the society” (in a speech to the Finnish Chamber of Commerce, June 4, 2002).
This suggests the following sequence: denying the government such revenue is good because it grows the economy, which in turn provides a base for more taxes, so that the government ends up with more revenue, and thus the citizens in need get better services. Win-win all around. Or is this lie-lie all around—a race to the bottom for the benefit of the rich?
Imagine if other countries followed suit. Indeed, there is no need to imagine. In Canada, when that ad appeared in 1999, the federal corporate tax rate was 28 percent. When I first drafted this piece in January 2012, the Conservative government had just lowered it from 16.5 percent to 15 percent. Three months later, this government was introducing 10 percent budget cuts across much of the federal public service, dismembering many social, regulatory, and environmental programs. The government, you see, was short of money, and this was going to save it $5.2 billion per year.
That 1.5 percent corporate tax cut was going to cost the government $3 billion a year. The cumulative corporate tax cuts since the Conservative Party came to power in 2006 were costing the government a total of $13 billion per year.1 In other words, there had been a significant transfer of public services into private profits. Most of the Canadian 99% is still waiting to win-win.
So the actual sequence turns out to be closer to this little closed loop: put government down, to gain popular support for reducing taxes, which starves public services, so that government appears incompetent after all, thus enabling more of these services to be shifted to the private sector, which reinforces its supremacy. Or to express this more bluntly: blame the government for not answering the phone so that the government can’t answer the phone.
Of course, that ad appeared in Canada while Ollila sought to reduce taxes in Finland. But here is where globalization comes in. He was aware of lower taxes in other countries—that was his justification for lowering taxes in Finland. If the ad did its bit to lower taxes in Canada, then the Ollilas of the global world had more ammunition to lobby for the lowering of taxes. in their own countries. This could even have become a never-ending spiral—imagine that.
There is nothing extraordinary about this story, which is precisely what makes it extraordinary. Nokia and Ollila were simply playing the globalization game: divide the sovereign nations to enhance the power of entitled corporations. As a consequence, the planet is warming and societies are boiling so that the rich can get exponentially richer. This we call progress.
1. Macdonald, D. and A. Jackson. What did Corporate Tax Cuts Deliver? Background Report for Corporate Tax Freedom Day 2012. Retrieved from http://www.canadianlabour.ca/sites/default/files/what-did-corporate-tax-cuts-deliver-2012-01-12-en.pdf
© 2015 Henry Mintzberg