CHAPTER 5
Governments THE
PUBLIC IS A DEBTOR, WHOM NO MAN CAN OBLIGE
TO PAY.
— D A V I D H U M E , 17 5 5
derives from the Latin word gubernare meaning “to steer,” with many governments and their leaders taking this definition quite literally (e.g., Mao was referred to as the “Great Helmsman,” while deficient economies are often deemed “rudderless”). There is little doubt that politics in general and the brand of politics a nation subscribes to in particular can greatly impact economic growth. International clashes of political ideologies such as the Cold War, or politically inspired embargoes such as that used against apartheid-era South Africa can have both macro- and microeconomic effects on a nation. Even internal political and bureaucratic mechanisms can have a direct impact on a nation’s international economic standing. This chapter will review the various ways in which governments consciously and unconsciously affect the economic standing of their nations.
THE ENGLISH WORD GOVERNMENT
Domestic Taxes, Global Ramifications A tax is a compulsory payment collected from individuals or businesses by a government and it is one of the first rights a government, democratic or otherwise, claims for itself. Governments, like all ancient and modern organizations, need money to perform their functions and taxation is the source of that funding. For many centuries, being a tax collector was one of the most odious and dangerous jobs a person could pursue, as populations rarely saw a connection between taxes and the services rendered by the government. Even today, large nations such as Russia and China have a very difficult time collecting the majority of the taxes owed to them, the net result being a declining infrastructure and inefficient, underpaid bureaucracies prone to accepting bribes. TAX EVASION INVASION
A nation’s domestic tax system can have a very serious impact on its ability to compete internationally. High taxes can even keep a country from being able to hold onto the money made within its borders. The G-7 (Japan, Germany, France, Italy, Great Britain, Canada, the U.S.) has often formulated plans to stop what it calls “international tax evasion,” which is defined as the movement of domestically taxable profits into other countries with little or no taxation. Such “tax havens” (though not the only suspect countries involved, Andorra, Austria, Belize, Liechtenstein, Panama, St. Kitts-Nevis and Switzerland have been nicknamed the “T-7”) have attracted hundreds of billions of dollars to their banks. The G-7 members, especially those like France and Germany with expensive social
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