The front page story in today’s Financial Times makes interesting reading. “One-third of biggest businesses pays no tax” runs the headline. The article itself points out various ways in which large companies might avoid paying corporation tax – by claiming capital allowances for investment, for example – and also mentions the fact even if not paying corporation tax, they nevertheless pay tax in other ways, but this blog couldn’t help noticing one particularly interesting comment from Bill Dodwell, of Deloitte:

“That 700 of the largest companies and groups are only paying 54 per cent of the corporation tax shows the giant contribution of small companies. It is probably because many are less international and so have different planning opportunities.”

Think about what is meant by those small words “different planning opportunities”. It means ways of avoiding tax that would otherwise legitimately be due. Companies operating in more than one country can play off one tax jurisdiction against another and so duck out of paying their fair share of tax. That’s what it means to have “different planning opportunities”.

It is a long-standing principle of this blog that international should make no difference. National borders are not an excuse for evading the criminal law – read about extradition here – nor should they be an excuse for failing to pay tax.

John Maynard Keynes described taxation as “the membership fee we pay for living in a decent society" and it is wrong that the biggest companies and the richest people can avoid paying their share. As long as taxation is seen as purely a national matter, though, this is a situation likely to continue. Maybe that explains why so many of the super-rich are against supranational institutions and federalism.

The National Film Theatre in London is showing a season of films by Laurence Olivier, and I went to see his performance of Henry V. Knowing that the film was made in 1944 as a piece of war propaganda, it was impossible not to be reminded throughout of the trials of that period, even though the play itself was written nearly 350 years earlier. (Read the play here.)

The film opens with the challenge to the English: their historical rights in France are denied; their reputation insulted; their courage and determination doubted. Slow to anger, but furious when roused. The French try to avert the coming storm, but to no avail if they will not cede to the justice of the English case. The parallels with the second world war are unavoidable.

Then, as war follows, the English leaders ostentatiously share the concerns of the common man. Or rather, not quite so ostentatiously, as Harry goes in disguise among the soldiers in their camps on the night before battle, eerily waiting what will surely come next. And then, next morning, as the soldiers assemble for battle, Laurence Olivier leaps on to a wagon to give oratorical force to the case, recalling nothing so much as the inspiration Winston Churchill gave during those dark years.

But, happily, the film ends with the promise of reconciliation, in the form of marriage between the English king and the French princess. Such a solution is foreshadowed on the French side earlier in the film, but it proves that the English have the right motives after all.

I mentioned the impression that this whole film left on me and I was referred back to the last part of “The economic causes of war” by Lionel Robbins, which was published in 1939 and concluded that:

“Somehow of other we must create a framework in which the German Geist can give its best, not its worst, to Europe. A draconian peace will do nothing. The Nazis must be extirpated; but we have neither the strength nor the will to keep Germans in subjection for ever. What more appropriate outcome of our present agonies, therefore, what more fitting consecration of the blood which is being shed, than a peace in which this great people, purged of its devils, shall be coerced into free and equal citizenship of the United States of Europe?”

So, even at the outset of the war, federalists were spelling out the only terms on which it could be satisfactorily concluded.

Lots in the newspapers today about the failure of the government’s attempt to deport an Italian citizen back to Italy when his prison sentence for murder is completed. The government appears to have assumed that its powers to expel undesirables extends to Italians, but thanks to the EU, the government’s powers are constrained by law.

Italians are EU citizens and have the right freely to come to the UK. Even when they live in Italy, they can cast votes and elect politicians who have a direct say in the law that affects the UK. The traditional notion of absolute separation between countries doesn’t quite apply any more.

There is still a residual power for EU member states to expel each other’s nationals, but a European directive (the Citizens Directive) spells out the circumstances in which they might do this and thus limits their ability to do so. Specifically, an individual would have to be a “genuine present and sufficiently serious threat affecting one of the fundamental interests of society”, namely “public policy, public security or public health.”

In the case of our Italian, if he were any of those, he wouldn’t be let out of prison in the first place. If he is an anti-social danger in the UK, how much more of a danger would he be in Italy where he has no family and does not speak the language? A problem shared may be a problem halved, but not a problem simply deported.

Now that I have finished reading Paul Collier’s excellent book on poverty, “The Bottom Billion”, I can write down my thoughts about it. The central theme of the book is about how to stimulate the economic development of the world’s poorest countries, and so is out of the scope of this website (although anyone interested in federalism will surely be interested in poverty reduction, too), but there are some aspects of the book that merit being commented on here. (I have mentioned the cross-border implications of civil war and economic policy in a previous blog entry, which you can read here.)

One of the concerns of the book is that poor countries are blighted by bad governance that in turn deters international investors. A very large proportion of even the private wealth of people who live in those countries is held abroad, because of the dearth of investment opportunities domestically. What happens when reform starts? How can a new government convince the world, and its own people, that it is serious? This is a problem that reformers face.

One solution is to overcompensate. The need to appear tough requires more actual toughness than would otherwise be sensible. Sometimes reform programmes run into trouble precisely because they are too tough.

A better solution is to establish international norms to which reformers can adhere. That way, governments are assisted in making it clear what their intentions are. The international norms themselves have to include mechanisms to make it harder for national governments to drop out again afterwards. Paul Collier explains all this very clearly, although he tries to insist that it is consistent with the preservation of national sovereignty. That is a pity, because plainly it’s not. Ultimately it is open to any country to withdraw from these international norms, but were this to happen, these norms have failed. The aim should be to limit national sovereignty, not enthrone it. Let’s not apologise for that.

This blog has remarked before on the problems caused by ambiguity rather than clarity within international relations. Economic reform is another example.

Another interesting point that Paul Collier raises is the particular problem faced by landlocked countries with bad neighbours. To enter the global marketplace, they are dependent on transport links that are out of their direct control. He notes that it was probably a mistake for economically unviable units to have achieved independence on their own, but it is too late now: the deed is done. For federalists, this is a matter of subsidiarity. The whole point of transport links is to connect together different territories. They are therefore of interest to places at each end as well as to the places through which they go. A world of sovereign states cannot cope with this reality.

W B Curry, in a memorable passage in “The case for federal union”, wrote this (he was writing in 1939 at the time of the dispute between Germany and Poland over Danzig and the so-called "Polish corridor"):

“Do Northumberland and Durham squabble about who shall control the mouth of the Tyne? Does Wiltshire want a corridor through Hampshire to Southampton in order to have free access to the sea? Do we hear of the sad fate of such inland States as Illinois, Kentucky, and Kansas, depending as they must for access to the sea upon routes assign through other States? How is it possible that Connecticut and New Jersey tolerate the fact that New York dominates the mouth of the Hudson? Surely the States of Missouri, Tennessee, and Mississippi find it altogether intolerable that Louisiana should control the delta of their great river? All these are situations that would give rise to “tension” (diplomatic language for intention to provoke a quarrel) if the areas concerned were sovereign States. When they are not sovereign States, and do not therefore menace each other, either immediately or potentially, the problem simply does not arise.”

We are better off if borders matter less.

It was the question of humanitarian intervention that attracted most attention when the book was first published. Paul Collier recognises that the case for such interventions is much reduced as a result of the experience of Iraq, but nevertheless he sees a role for them. The cost of a civil war is so great that a targeted military action to stifle such a war and restore order might very well be worth it. Again, there is the problem of ambiguity: how to prove that an intervention is truly humanitarian and not simply a grab for resources? He sees a role here for the African Union and the European Union in respectively endorsing and carrying out such operations. The necessity of regional integration is more and more clear as a result of reading this book.

Paul Collier’s view is very practical. He addresses the arguments for world government very simply, by noting that the problems of the world’s poorest countries are much too urgent: they cannot wait for the construction of new global institutions and so have to be dealt with by the ones we’ve already got. The European Union is a potential vehicle for enunciating and exporting the international norms that I referred to earlier; the Commonwealth, and notably India, is another.

He draws a very interesting contrast between two different aspects of democracy: electoral competition; and the checks and balances provided by civil society. Too often, democracy is mistaken for the former alone. That way, one finds, lies corruption and economic stagnation, and a malfunctioning society. If Iraq is a democracy, it is in that sense. The checks and balances, on the other hand, compel governments to be open and accountable, and enable power to be dispersed rather than concentrated. Federalists will recognise the sense in this.

Lastly, this is not merely a work of explanation but also a work of advocacy. The political and economic issues he describes are real and current and serious. In dealing with them, Paul Collier remarks that:

“Although the reformers have truth on their side, truth is just another special interest, and not a particularly powerful one.”

It is not enough to be right, it is also necessary to be successful. Being ready to rethink national sovereignty is fundamental to that success.

Charles Grant of the CER writes, in today’s Financial Times, that

“Federalism”, in the sense of centralisation for centralisation’s sake, is a declining force that is relevant in no more than a handful of member states.

He should go further. Federalism, in that sense, is not relevant in any member state, because federalism in that sense does not exist. Federalism argues for centralisation when it is necessary for effective policies, and only then.

It is a bit absurd that Charles Grant should repeat the old nonsense about federalism in the middle of an article explaining how important it is that Europe is properly understood in Britain.

Margaret Thatcher famously remarked that there is no such thing as society, only people and their families. Of course, she was wrong, as this blog remarked in the context of violence and pacifism. Read it here.

(For another criticism, think about the point Steven Pinker makes in "The Blank Slate" that the children of immigrants learn the language of their adopted homeland with the local accent, not that of their parents.)

New light on the similar argument sometimes made about international society – that it is made up of sovereign states – is shed in a book by Paul Collier, “The Bottom Billion”. This book has attracted attention for its recommendations on trade, aid and humanitarian interventionism, and I will probably post a comment on that subject here in due course (when I have finished reading the book). But in the meantime I couldn’t resist rushing into the blog with a couple of observations Paul Collier reports.

Strikingly there is the impact of civil wars on the spread of diseases. Civil war in a country is terrible and expensive (he comes up with an estimate of $64 billion as the cost of the average civil war) – but these costs are borne not only by the country concerned but by its neighbours. For example, one of the major consequences of any war is the displacement of non-combatants. This is particularly true of wars based on competing ethnic claims for territory – this is where the term ethnic cleansing came from. And when peoples are on the move, disease spreads too. This is for two reasons.

First, the destitute and the displaced are more vulnerable to outbreaks of the serious, and usually eradicated or at least suppressed, diseases such as cholera and typhoid. A population on the move with poor sanitation and hygiene will be at risk, and should such a disease break out, it will spread from the moving population to the static peoples through which they are passing.

The second reason for the spread of disease is that any population will carry a set of diseases to which they have established immunity, either through evolution or through prior exposure. The arrival of a new population in the midst of an existing one will provoke exposure of each community to the other’s diseases. Small children back at school are prone to picking up all kinds of infections for exactly this reason.

So, the displacement of people from one country to another is a problem for the second country and not only for the first. The build-up of refugees from Bangladesh in India was a major reason for the latter’s intervention in the Pakistan civil war in 1971. A civil war is not only a problem for the country in which it takes place, but it is a problem for the region.

In addition to disease, there is also economic growth. A prosperous country is also a good trading partner. Paul Collier reports data to suggest that for every percentage point of growth among its neighbours, a country will on average experience 0.4 per cent growth itself as a result. This is a very powerful finding. The economic policies of a country are not merely a domestic concern but also an international concern. You see why federalists are interested in improving the way in which international considerations are factored into economic policy-making.

The famous principle of subsidiarity suggests that matters should be centralised if and only if they cannot be dealt with effectively at a lower level of government. We start to see that economic policy is not so obviously a national competence after all. The world shouldn’t be purely made up of states because it is not purely made up of states’ interests.