Addressing inequality is foreign policy, not domestic

The scholarship on inequality has been producing a wealth of empirical findings about how inequality is created, expanded and perpetuated, building on the work of Thomas Piketty in tracing capital flows.

In a short memo for "a workshop on a left-liberal financial foreign policy," Henry Farrell describes how addressing inequality in a globalized world requires foreign -- not (just) domestic -- policy intervention.

In some ways, Farrell is just restating a frequent objection to proposals like a 70% tax on income over $10m and an annual wealth tax on massive fortunes: that the rich will simply figure out how to move (even more of) their wealth offshore, out of reach of the USA.

This is both a) true and b) surmountable (and c) urgent -- because the flows of capital into offshore havens is a corrosive force on other countries and they spread the rot back to the USA by laundering their money here).

Farrell starts with the way that global legal structures shift capital flows: international IP treaties pave the way for profit-shifting, where companies create the fiction that all the profit from their national subsidiaries is exhausted in licensing fees paid to related companies in offshore tax-havens); international state dispute settlement systems let companies overrule democratic laws on environment, pollution, worker safety, health, and other matters to preserve their profits.

More visibly, countries are lobbied to create tax regimes with interlocking loopholes: a company registered in country a realizes its profits in country b through a shell company in country c, with the net result being little or no tax owed, anywhere. Read the rest