Globalisation Encouraging Growth:
- Globalisation has increased economic liberalism and deregulation of capital markets so there is more free trade, free markets, FDI and TNCs running globally
- Countries attempt to attract more investment by having a ‘low tax’ regime or even a tax-haven (no taxes being paid)
- This means that TNCs and the rich elite pay little or no tax therefore they keep more profits
- Whilst the UK and USA are attractive countries for companies to invest, they have high corporation tax (20%) whereas some other countries (Switzerland) have low corporation tax therefore some companies move headquarters to that country in order to pay less. Known as corporate migration
- UK remains competitive as it has strong benefits such as skilled workers, English language and lots of other TNCs, government support, low corruption and high levels of security.
- Companies use tax avoidance e.g Amazon who only paid 0.0001% of tax on their taking.
- Google has headquarters in different places across the world, they have parent companies that are set up to allow transfer pricing of profits in order to avoid tax
- Tax avoidance and low-tax regimes have advantages such as TNCs making money to develop better products and wages, also improves a country such as Ireland which has benefitted from investors.
- Negatives: Reduces revenues that governments get from tax to spend on health, education. Ethically and morally wrong ultimately, it is an unavoidable consequence of free market capitalism and globalisation
Tax-Havens:
- A more extreme way countries can use the global economic system to financially benefit. Smaller countries often struggle to grow a strong economy in traditional ways so they get rich individuals to place their earnings in a country and they do not get taxed as they would in the UK
- Vital source of income for some smaller states that otherwise would be much poorer. They do however, tax money from larger states that need it to develop and grow.
- IGOs and consumers have campaigned to clamp down on the issue such as the G20 have agreed to impose stricter regulations to make TNCs like Amazon and Google pay fairer tax
- People can protest as they did in Starbucks which can actually harm some TNCs public perception and image of the company
Global
Inequalities:
- Growing development gaps are dominated by the rich core countries which can led to opposition movements.
- The top 62 richest people in the world own more wealth than the bottom half. The global economy is dominated by rich TNCs.
- Emerging countries like China tend to add to the situation but the poorest LDCs tend to lose out the most e.g Chad, Congo. But some argue that the system actually helps as dependency such as aids and loans can allow modernisation and development such as that seen in South Korea.
- Alternatives to capitalism could be socialism as they attempt to put society and the people first but this can prove unsustainable as oil prices can fall and the Venezuelan economy has collapsed.
- The capitalist world economic system dominates and it helps the developed countries most, can allow emerging middle-income countries to grow like China and Brazil.
- Tax-havens are a negative effect that some countries use to compete and gain more investments to help them develop, whilst IGOs are attempting to clamp down on them, it is unlikely that socialism can replace capitalism in the long term.