The development of new states and the reasons why it can occur

1. New States

2. Starter
• Can you name any New states in the world
• What do you understand by the term tax
havens
• What issues exist within tax havens

3. Learning Objectives:
• Understand there is growing number of
new states forming
• Assess the reasons for the growth in these
new states
• Evaluate the issues associated with tax
havens and why they exist

4. Independence meant issues
• Not only was there the potential for conflict but now new
countries could hold sway over the newly independent
states especially if they had resources or wealth to exploit.
• 1960 saw the UN pass a declaration on Granting
impendence for these new countries
• 1961 saw the Non-Aligned movement being created in
Belgrade to give these nations a forum for resisting influence
of the USA and USSR
• 1964 UN conference on trade and development promoted a
New International Economic Order.
• This was opposed to the Bretton Woods agreement
(1947)because emerging economies needed fairer
international policies to allow for development

5. New International Economic
Order
• Entitled to regulate and control activities of
MNC operating within their territory
• Free to nationalise or expropriate foreign
property on conditions favourable to them
• Free to set up associations of primary
commodities producers similar to OPEC
others should respect this right and not
challenge it
• Able to benefit from stable and equitable
prices for raw materials, tariffs and transfer
of technology and Economic assistance
should be free from conditions.

6. This sounds great….
• It wasn’t implemented
• The superpowers opposed these and
socio-economic inequalities developed
and the issues we see today can be traced
back to this

7. Post Colonial Migration
• Conflicts and economic struggles created
strong push factors for migration to the old
imperial powers
• The economic boom in many of these
developed countries in the 1960s was also
a strong pull
• The same flows are still with us today
• They have changed the ethnic composition
and cultural homogeneity of some former
colonial powers and also their identities.

8. The Emergence of New States
• Globalisation has increased the movement
of capital between countries including FDI
• This means companies move to countries
with low tax regimes and this act as
havens for their profits.
• Most tax havens offer services for the
wealthy
– Permit business transactions to take place in
secret
– Encourage tax avoidance
– Evasion of financial regulations

9. British Virgin Islands
• Specialise in incorporating offshore companies
• This means companies can set up offshore
companies and they can reinvest profit in
these as subsidiaries and therefore defer tax
payments indefinitely
• Ireland offers 12.5% corporation tax (20% in
UK)
• Switzerland offer secure banking, corporate
tax avoidance and a range of offshore
services
• The UK also offers a range of Offshore
banking services

10. The UK
• Though the UK consider them
independent many of these tax havens
have links with the UK and are ex-colonial
states:
Tax Havens with UK links
Anguilla Bermuda
British Virgin Islands Cayman Islands
Guernsey Monserrat
Turks and Caicos Islands
All these are British territories

11. Issues
• Though most governments and IGOs are
sympathetic towards tax havens it
presents a problem
• As companies actively avoid paying tax it
means countries have less to spend on
services
• Collectively these offshore havens account
for around $13 trillion of personal wealth
• This is about equal to the USA annual
GDP

12. Case Study: Impact on
Developing countries
• A 2014 report by Christian Aid highlighted that
Africa has the highest proportion of assets
held abroad of any world region
• Illicit Flows out of the continent accounted for
about $1.3 trillion a year
• This is more than they receive in foreign aid at
around $50 billion a year.
• FDI is about the same
• These outflows mean there is less money to
reinvest
• Studies suggest poverty rates would reduce by
around 5% a year more had the money stayed
• Untaxed wealth means less is available for
public services and healthcare

14. Growing Inequality
• In 2014 it was estimated that the worlds 62 richest
people combined owned about $1.76 trillion about the
same of the poorest 3.6 billion
• What issues does this create?

15. Access
• Education
• Reinforces inequality and reduces social mobility
• Chronic diseases (Heart disease and diabetes)
• Linked to poor diet and food deserts so people eat low
nutrient food high in calories
• Its also been noted that people aged between 25-29 in
the eight richest countries have also become poorer
due to the stockpiling of wealth by others
• House prices for the unattached are often prohibitive

16. Inevitable – where the rich live….

17. Capitalism 3 key principles
• Land resources and capital are privately
owned
• The majority of people work for a wage
• Markets mediate between producers and
consumers
• There are other systems in operation
where workers have a share such as:
– Co-op
– John Lewis Partnership
– Spain’s Mondragon Co-op

18. Explain how globalisation processes
have influenced the emergence of
new forms of nation state (8)
• Put these into a graph
• Describe and explain the pattern of
inequality
Country GNI GINI
Argentina 18,429 42.67
Brazil 15,076 51.48
France 37,876 33.1
Germany 43,769 30.13
India 4,595 35.15
Italy 4,771 35.16
Japan 37,233 32.11
Mexico 16,330 48.21
Russia 24,094 41.59
Spain 30,885 35.89
Switzerland 57,157 31.64
Turkey 20,128 40.17
United Kingdom 36,632 32.57
United States 51,883 41.06

19. Explain how globalisation processes have
influenced the emergence of new forms of nation
state (8)
• As manufacturing began to move to emerging countries like China and
India countries like the UK changed its focus in terms of business and
looking at finance as a major income earner it began to use many of its
crown dependencies like Bermuda, Barbados and the Cayman islands as
offshoring banking to attract the wealth generated by global business.
• Smaller states like Switzerland which didn’t have industry have used
reduced tax regulations to benefit from globalisation by making themselves
the global capital of low tax banking, meaning many wealthy countries and
individuals deposit large sums of money for a small fee which benefits the
country through growth in business and transactions that can be done in
secret.
• Other countries like Ireland offer low tax or the possibility of tax avoidance
for global companies, they attract more business in as money can be
channelled through them to offshore accounts without being liable to tax.