The best investment opportunities are right outside your door
The amount of money Bangladeshis have in Swiss Banks has fallen by 27%. This is the difference between the total amount registered as going from here, in 2016 (CHF 661 million) and 2017 (CHF 481m).
Most of us will think this to be a very good thing - fewer are avoiding their taxes and stashing their ill gotten gains. Economists are a little less vehement in their approval. Yes, avoiding or evading taxes can be a bad idea, but there are times when it’s a good one.
The basic background here is that the world is moving towards greater clarity over whose money is where.
Central to this has been getting the Swiss banks - the home of choice for generations of money of dubious provenance - to open up about whose money they were looking after. So we are getting these annual breakdowns of which nationality nominally applies to varied accounts and amounts.
However, it’s not true to say that all of these sums are illicit in any manner at all. My native Britain has use this greater clarity itself and the results were not as tax campaigners expected.
We were all told that there were billions upon billions of unpaid tax to be collected if only we could get a look at those Swiss accounts. As it turned out, once we did, the collections were a fraction of that.
Yes, the British tax system is different, but we found out that yes, lots of people did have Swiss accounts. Some people indeed lie and should have paid tax and we found that out. But the vast majority - 90% or so in fact - were accounts of people who might be British but didn’t have to pay British tax (I’ve said the system is different).
The absolute amounts are not a good guide to taxes not paid, that is.
There is also a certain ambivalence among economists. Yes, we do need government and that means we need taxes. But that’s not to, then, go on and say that all taxes are good taxes - meaning that sometimes the dodging of them can have a beneficial effect.
In an entirely closed economy, there is no opportunity to dodge - whether legally through avoidance or illegally through evasion - taxation, which is either economically damaging or manifestly unfair.
We thus would expect to end up with, sometimes at least, taxes which are manifestly unfair or economically damaging. A leakage in the system can - not must, but can - mean that these more damaging taxes aren’t imposed. On the grounds that the leakage leads to little revenue from them, so why bother to impose in the first place?
This might not be a moral manner of looking things, but it is pragmatic. It’s like the similar economic insistence that sometimes bribery is as good thing. Not that it’s moral or anything, but it’s possible to have an unbribed bureaucracy so stultifying that nothing is possible, bribery being the only thing which makes it possible to do anything. We’d prefer not to be in this place but we are and what should we do therefore?
Still, less money in Swiss banks and this greater openness might well be the cause. Except, well, perhaps it isn’t. For what’s the great economic story in Bangladesh these days? That’s the quite startling economic growth, isn’t it? Actually, at this 6% to 8% rate which has prevailed this past couple of decades, Bangladesh is getting rich as fast as any place ever has done. OK, maybe China takes the actual record, but we’ve really no record at all of anywhere doing better than 9% or 10% for decade after decade.
At which point, why would you want to put your money in Switzerland? You’ve one of history’s greatest investment opportunities going on right outside your front door. That’s the other thing which needs to be remembered here.
We might - indeed we have - constricted the supply of tax dodging banking opportunities but economics is always about demand as well as supply. As Bangladesh continues to develop and reaches - at current rates in only a few decades too - rich country status, then there are going to be many multi-billion dollar fortunes made. It’s an odd capitalist who would prefer the negative interest rates available from Swiss banks these days to the opportunity to participate in that.
Another way to put this is that in an economy not really going anywhere, those who do make something from it have a very strong temptation to extract their gains. But when we’ve got an economy transforming and growing as fast as any has ever done the desire runs the other way.
Not to take money out but to invest and reinvest in that great opportunity. That is, the greatest disincentive to offshoring money out of Bangladesh is the economic growth rate inside Bangladesh.
As ever in matters economic we’ve more than one thing going on. We can state with absolute certainty that all of them are. Our difficulty is in knowing quite how much of each. My preference, prejudice if your prefer, would be to say that it’s the money to be made at home lowering the amount being sent offshore as the greater influence. Feel free to disagree with that as you wish. I do though insist that this is part of it.
Tim Worstall is a Senior Fellow at the Adam Smith Institute in London.