There is well known economic rule called "beggar your neighbour". It is important in behavioural economics when you consider the model of the repeated Prisoner's dilemma. In that case beggar my neighbour represents the defection strategy. There is also a connection to companies seeking countries with the minimum regulation/taxation. This is when the companies are defecting.
Companies have a duty to shareholders which in the short term and when you do not expect there to be a repeat of the circumstances means that defection is the preferred strategy and politicians often think the same way. This is sib-optimal capitalism. It is sub-optimal because in reality we have longer term interactions and repeat business which are undermined by defection. Axelrod has shown that the best strategy as proposed by Rappaport is Tit-for-tat. You respond to defection by defecting and then you go back to a position of trust. Trust is the essential feature that makes the system optimal. You have to maximise the trust to reduce the costs of regulation and defection.
At a national level a defecting country is one that offers a lower level of regulation and taxation compared to all the other countries as business will move to that country and not pay taxes where they actually are active. This is how the Swiss canton of Zugg has become the European HQ of many multi-nationals. Zugg has a tax rate of 5% which is very attractive to global business. Given the size of the canton this minimal amount of tax from a large number of corporations raises more than enough for the infra-structure and services that the canton has to pay for. In fact they should be making a considerable profit. Levels of taxation elsewhere have to be larger because nations are expensive and levels of tax are set to avoid a deficit. This is why Zugg is beggaring its neighbours and why Ireland with its Apple tax deal was also beggaring its neighbours by removing tax revenues from other countries where Apple was doing business. Apple was unlucky enough to be the first company that was brought to court but it will not be the last and Google and Amazon are two more big names that stand out.
Ireland with a much smaller economy can survive without all the tax that is owed but this deficit is pushed onto all the other EU nations. That is why this sort of tax deal is illegal and why the UK deal with Vodafone also needs to be investigated. Governments do this because they want to keep the jobs in their countries but if I did this as a small business or as an individual even if I did not do my duty well enough only in the expectation of a future benefit I would be in jail for up to 12 years and face an unlimited fine under UK law. In fact the recent report about the possible dropping of the investigation of BHS in return for Sir Philip Green paying a large sum to the pension fund is also bordering on illegal under the Bribery Act 2010. I begin to see why an Italian mafia judge called the UK the most corrupt country in Europe.
Ireland has been caught cheating but both Ireland and Apple are going to seek to contest the judgement. The only way that you can prevent beggar my neighbour is if we go beyond short term interests or if we promote supra-national agreements. We call these trade deals and although TTIP is a dirty word at the minute there are many others that we rely on everyday. The WTO is the largest agreement to make sure that nations do not deliberately cause economic hardship for each other. But the most successful is the European Union and that is why Ireland and Apple in the end have to lose if we are to have any faith in nations and democracies and if we want to live in a world which has not been taken over by corporations.
So why does not being able to beggar your neighbour matter? History shows that wars are usually about resources and as a response to internal economic challenges. Harming another countries economy has political and social consequences and not just economic ones. If we want a more peaceful and equal world we have to get beyond Brexit and Beggar my Neighbour and start understanding the long term benefits of working together.
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