Not quite the end of history, but getting there

Posted by Marc Hodak on April 17, 2007 under Futurama | Read the First Comment

You might not have seen the article. It was on page 12 of the WSJ.

Until recently, Germany condemned the low-tax competition from Poland and others as ���tax dumping.��� But after failing to win support within the EU, Germany has joined in�Ķ Others in Western Europe have reacted to the tax cut in Germany.

Most of the media presents globalization as the result of a political intent to liberalize. Uh-uh. Globalization is less an effect than a driver of government policy. The illusion that governments trump markets is based on the immediate, visible effects of new laws. The unseen, long-term effects include a market reaction that ultimately undermines laws that don’t make economic sense. Ultimately, we see a change in the laws–the government responding to market realities when its alternatives look worse. Chinese communists and Indian bureaucrats aren’t letting go because they like economic freedom.

Markets are aided by transparency. The impact of government policy on economic outcomes is becoming easier to see (or harder to hide). People are seeing through the collectivist excuses for limiting their ability to invest in or accept investment from anywhere, to sell to or buy from anyone. People are taking advantage of their ability to hire anyone anywhere to do a job. They’re having more trouble justifying denying anyone the right to live or work anywhere. Eventually, we may even begin to insist on the freedom to adopt a governmental jurisdiction of our own choosing, possibly even regardless of where we happen to reside, like American corporations choosing among states. Sovereignty will become commoditized. That���s what this article is illustrating in its infancy.

This process will, of course, take time to play out. As the article points out:

A European-style tax cut is unlikely in the U.S. anytime soon. The Democratic majority in Congress has other fiscal priorities. More fundamentally, the U.S. isn���t feeling the same pressure as Europe���s smaller countries.

That numbness is why most of my own portfolio has been invested outside of the U.S. for years, but it won���t last. It’s not Europe’s smaller countries that are being affected, it’s their largest. Even the U.S. won���t escape the need to compete. We’re just not that dominant, anymore.