He has kept a watching eye on Jersey since , as can be seen in his participation of the A.T.T.A.C. Jersey 2002 Conference, and more information on his recent views can be found at that link. Additional information and abstracts of his reports on Jersey can also be found on the "Offshore Watch" site at http://visar.csustan.edu/aaba/jerseypage.htm . A very recent paper (2002) of his is given in appendix 1, in which he argues that tax havens (such as Jersey) are " Offshore Pariahs".
I came across your site whilst searching for data on Jersey tourism and noticed your comments about Dr Mark Hampton, which cast him (unjustly) in a negative light in two respects:
First, you attempt to undermine his credibility by implying that he is a neo-marxist - and therefore tainted by extremism. In fact his work analyses offshore finance from a number of different economic perspectives - including the marxist. This is normal professional practice and to not discuss the development of offshore finance from differing perspectives would undermine the quality of his work.
Secondly, and more importantly, you are critical of Dr Hampton for not offering possible alternatives to its current self-inflicted dilemma of being over-dependent upon its tax haven activities. This is quite simply not the case. Dr Hampton and I (I have co-authored with him for many years) have consistently argued that Jersey's over-dependence upon offshore finance has precluded it from industrial diversification, largely because of the crowding-out effect of hosting such as rapidly growing and high cost activity (hence my terming financial services as a cuckoo in the nest). We therefore argue that until such time as the high cost base, particularly in the housing and commercial property markets (as you rightly point out in your essays) but also in the labour market at most levels (ie from unskilled labour through to managerial and professional workers), has been significantly eroded the island has no alternative strategies to choose from. The notion of Jersey competing with Bangalore as a centre of ITC development lacks credibility and I concluded as such when I chaired the Information Services Industry Development Group between 1995 and 1997.
It is not, therefore, that Dr Hampton doesn't care for the island, au contraire I know that he and I care passionately, but that we do not see ways forward that do not involve a significant retrenchment of the financial services sector.
Yours sincerely
John Christensen
1) The work in question "The Offshore Interface" uses the term factions of capital, and if your look on the web site itself there is a letter from Dr Hampton where he states - his own words - " I explored the Marxist Fractions of Capital idea". The terms are his, not mine!
If you can state the line where I criticise Neomarxism because I think it extreme, please let me know. I use it, as I imagine Dr Hampton does in his letter, as a useful term for description. I might be inclined to criticise it because it is not scientific, but I think that Marxism actually generates a number of useful insights, as can be seen by the work of Jurgen Moltmann in the religious sphere, an author I much admire. (By the way, and as an aside, did you know Marx visited Jersey for his health, see here)
I think the "fractions of capital" paradigm has been developed much further than can be found in the works of Marx, which is why I term it "neomarxism". I think it probably is useful as an explanatory tool, but its scientific provenance may be questionable.
2) I don't understand this. First you say that I am criticising Dr Hampton because he has not offered alternatives, and then you say that the island "has no alternative strategies to choose from".
One monetarist strategy which is likely to come in and take effect is the restriction of interest tax relief, which although only stated in terms of raising revenues, is in fact one of Jersey's few means of controlling its own money supply, and restricting property inflation.
On the labour market, I would refer you to my comments at http://www.societe-jersiaise.org/whitsco/outline5.htm which you might find interesting.
My point regarding his other work on small islands was that this clearly generated a whole range of possible stategies to try. I am sure that there are strategies to reduce dependence on finance, and needs a similar degree of "brainstorming". There seems to be a lot of effort put into thinking about strategies for poor islands, but not so much into richer islands, which still have a poor underclass which needs consideration. If the Jersey economy suffered a catastrophric collapse, would Jersey receive the same interest?
Also, there is a discrepancy between poorer small islands being told that they must utilise "the full political potential of Exclusive Economic Zones", which would seem to indicate some support for offshore finance. Perhaps you can enlighten me on that!
I would like to see the same measure of positive ideas as elsewhere, and I have not seen any. It is the lack of constructive comments compared with the effort elsewhere which I find is a deficiency in his work, and one I would be very pleased to see rectified.
On a personal note, I spend much of my time thinking up "alternative strategies" for my eldest son, 13, who is severely autistic (for technical details, see http://user.super.net.uk/~whitsco/autism0.html ). Some do not work, some only work piecemeal, and none is a complete solution, but I think it would be an admission of failure to say that there are no alternative strategies to choose from, or that we cannot help him until future medical advances make a significant breakthough. I do not believe that there are no alternative strategies, although I accept that they may need to be piecemeal.
Regards
Tony Bellows
1. Of course, Dr Hampton draws upon the fractions of capital debate, which - as he openly states - draws upon the marxist paradigm, but the point I was making is that he also draws upon other schools of economic thought (which is perfectly acceptable in a post-modernist context) and you should make this absolutely clear on your website, which reads to an independent expert as though it has been written by someone who has not read Dr Hampton's work, particularly the more recent book 'Offshore Finance and Tax Havens', and the paper published last year in the World Development Journal.
2. It is unfair on your part to criticise Dr Hampton for not offering alternative development strategies when the entire basis of his and my critique of the development strategy pursued by the States of Jersey over the past several decades is that it has crowded-out the possibility for alternatives. Jersey is quite simply too expensive for other industries to operate. Capping unlimited tax relief on interest payments is not a strategy - it is merely a long-overdue fiscal measure, which, incidentally, I recommended to the Finance & Economics Committee in 1990. It is important that a clear distinction is made between long-term development strategy and piecemeal measures taken in response to circumstances (the latter having been the modus operandi of the Jersey States for as long as I can remember).
Whilst I hope that piecemeal measures are helpful to your children, I would not extend your analogy to economic development strategy. A starting point for a strategy must be a clear vision of the final objective, something that is singularly lacking in the context of the States of Jersey.
3. I could recommend a number of strategies for lessening dependence upon tax haven activities, but the starting point would of necessity involve a substantial rolling back of the current employment levels in that industry, and a concomitant lowering of property prices in both the residential and commercial property sectors. Unhappily, the States has allowed the degree of dependence upon financial services to go way beyond what would normaly be regarded as a prudential risk spread, and has thereby inflated the entire cost base of operating in Jersey. If you know anything about my eleven years of work as economic adviser to the States you will know that this was the message that I put out at every opportunity.
John Christensen
Thank you for your reply.
1) I have amended the text to mention the use of other means of analysis by Dr Hampton,as I think this is a fair point.
2) On this I think we will have to agree to differ.
I tend to think that long term development strategies rarely work if introduced as a global measure because of the unexpected side effects introduced by changes in an economic system, and that piecemeal approaches which work towards solving particular problems are better, because there is a greater opportunity to see and plan for unexpected changes (the feedback loop).
While I mention piecemeal measures using my children purely as an illustration, I still think there is a very strong case for adopting that sort of approach. The best advocate for this was probably the late Professor Karl Popper, especially in his "Open Society and Its Enemies" and "The Poverty of Historicism", which sees that the purpose of economic and political strategy should be one of problem solving, rather than global planning (this is a rough simplification). Many piecemeal changes will amount to substantial overall change.
I would note that an unexpected side effect of the success of the finance industry has been wage inflation, which in its turn, has made Jersey less attractive than some other well regulated jurisdictions (the Isle of Man springs to mind), and the movement in the past year of many finance organisations to relocate their back office work away from Jersey, either offering transition packages or redundancy.
Employment levels are therefore dropping already, and this has some impact on wage inflation. It is difficult to assess the impact of this migration on the property market, as different observers are giving out different messages (i.e. some see the market as boyant, some as static).
3) I can see how you arrive at the point of "no alternatives" unless there is a severe curtailment of the finance industy. On this too, I suspect we will just have to differ. I think that Jersey should be on the look out for new markets, possibly in information technology (as in the Isle of Man), to supplement and eventually replace the finance industry. Given suitable tax incentives (the model used by the UK goverment for developing new industries in the 1980s), I think this approach may reduce the reliance on finance. I think that the future may well open up new opportunities, if Jersey is on the look out for them.
Again this is a difference of approach, but I would mention (as a lighter example) how predictions and calculations were made in the 1890s of the increase in horse droppings in London, and how if the numbers of cabs increased, the Capital would be knee deep within 50 years! The definitive misuse of linear extrapolation occurred during a survey of London traffic in Victorian England. It was seriously estimated that vehicular traffic would squelsh to a nasty halt by 1925 because the roads, by then, would be covered in horse manure to a depth of 12.652 feet. I think this illustrates the danger of extrapolating without recognizing the essential discontinuities of technological progress.
There were also gross miscalculations made in the early 1950s just as the first leaps in electronic computing were being made. It was confidently predicted that three or four EDSACs would more than cope with all the foreseeable scientific computing requirements of the UK. This type of error arises from the belief that inventions fulfill existing needs rather than create new ones.
Regards
Tony Bellows
I am familiar with the ideas of Karl Popper, but would re-iterate my view that piece-meal change without a clear vision of the prefered eventual goal is simply a recipe for drift and worse.
John Christensen
Regards
Tony Bellows
John Christensen
Democratic Planning and the Challenge of Sustainable Development
The sections in " "F. A. Hayek and the Rebirth of Classical Liberalism" on Prediction vs. 'Complex Phenomena'
The section on incremental reform in " The Process of China's Market Transition (1978-98)", PDF file
The section on network economics in "Gateways - just as important as standards"
The Isle of Man's development of IT industry and e-business as a hedge against the OECD.
Globalise or fossilise! By Donald J. Johnston, Secretary-General of the OECD
Financial stability issues for small island states by Karol J. Gabarretta, Central Bank of Malta
Working Papers by Professor Michael P. Devereux of the University of Warwick on taxation, and in particular "The incidence of mortgage interest tax relief", which is the only serious mathematical treatment I have seen on the impact of mortage interest tax relief and its reduction. Be warned: the reader will need some understanding of partial differential equations! Nevetheless, it is a useful reminder that professional economics needs to be well grounded in empirical science rather than verbiage.
John Christensen – Menas Associates Ltd.
John Christensen is a former economic adviser to the State of Jersey and worked for the development NGO Oxfam. John Christensen now works for the consultancy Menas Associates as a research economist on Tax Havens. He is member of the association for Accountancy and Business Affairs.john.christensen@menas.co.uk
“Taxes, after all, are the dues that we pay for the privilege of membership of an organized society.” Franklin D Roosevelt Speech, Worcs. Mass., 1936 Tax havens were the neo-liberals’ reaction after World War II against the New Deal. The idea was to create a framework for capital transfer beyond any control. This is threat for democracy.
“The democratisation of tax havens” is not anymore an issue concerning minorities: half of the value of the world trade is off share. This amounts to half of the world money supply.
•Tax havens “offer themselves as a place where non-residents can escape tax obligations in their countries of residence.”
•The key features of a tax haven •low or minimal taxes available to non-residents; Conversely, residents are subject to taxation: e.g. Jersey residents pay 20% tax. •ring-fencing of tax vehicles; •minimal business presence requirements; •lack of legislative transparency •banking secrecy
Over the past 25 years, the volume of bank deposits held off shore has risen from US$ 70 to US$ 11 trillions (1000 billions) Over the same period, the number of tax havens has more than doubled to 70 worldwide. For instance the Virgin Islands have 40,000 offshore companies.
In developing countries the accumulation of capital escapes the country of origin through tax havens.
“at a conservative estimate, tax havens have contributed to revenue losses for developing countries of at least US$50 billion a year . . . roughly equivalent to annual aid flows to developing countries. . . (this estimate) takes no account of outright tax evasion, transfer pricing, or the use of tax havens to under-report profits” Oxfam, Briefing Paper June 2000
US$50 billion is the approximate total value of development aid given annually by donor nations to promote sustainable growth of developing countries September 11 and the war on terrorism have raised the question of transparency in the financial sector.
Pro tax havens often claim that multinational companies should have the right to establish ‘tax efficient’ arrangements to protect the value of their assets, and to minimise their tax liabilities; but there is no justification for free-loading. And the existence of tax havens negates the social contract at the heart of democracy it distorts global markets by creating an uneven basis for competition between multinational and local businesses it distorts investment patterns - lowering the real cost of capital and (by switching tax burden) increasing the cost of labour and of land.
There are no benefits to directing long-term investment through a tax haven other than where the investor is seeking to obtain an unfair tax or regulatory advantage, or wants to avoid disclosure of the origins of the investment the secrecy space provided by tax havens creates an ideal environment for money-laundering, corruption and tax evasion. Jersey is an example of the undemocratic status of tax havens.
· Tax havens contribute significantly to fiscal and regulatory degradation; · Tax havens are global ‘free-riders’ that harm international markets; · Tax havens encourage criminality; · Tax havens undermine the ethos of fiscal equity; · Tax havens contribute to global financial instability; · Tax haven activity can damage the economic base of the host islands and micro-states through crowding-out; · Tackling tax havens requires global initiatives, with the UK government having particular responsibility for its overseas territories and crown dependencies
M.P. Hampton, J. Christensen “Offshore Pariahs? Small Island Economies, Tax Havens, and the Re-configuration of Global Finance” World Development, Volume (issue): 30 (9) 2002 pp 1657 -- 1673 http://www.elsevier.nl/locate/worlddev