Treasury Secretary Janet Yellen dropped a bomb on the future of capitalism today. According to a report in the New York Times, she wants the nations of the world to organize a global corporate tax.
If you think this is a minor issue and not important to you, then you need to get your head checked right away. A global tax on corporations would radically change the character of the very thing the Battle of Seattle was about, globalization, which has had three major phases in the 400-year history of capitalism.
The first occurred in the 17th century and involved the continental transportation of humans, domestic animals, and plants. The second was in the second half of the 19th century, and this version was similar in nature to that of the third one, which began in the 1970s with containerization (a Vietnam War innovation) and the floating of currencies initiated by Nixon closing the US's gold window.
If I may be allowed some liberty with Dani Rodrik's famous periodization (noting that he does not identify the slave trade as a key moment in capitalist globalization), there are two important differences between globalization 2.0 and 3.0. Globalism 2.0 operated in the context of small governments (the British moment), while 3.0 has done so in the context of big governments (the US moment).
That's one. This is two: 2.0 permitted, at least for European labor, a freedom of movement that was comparable to that of capital and its wares. This didn't happen with 3.0. In this system, which we are still in, only goods and capital are given free rein. Labor has to stay put. And with good reason.
For years, economists such as James Tobin have tried to address this asymmetry of globalization 3.0, and to integrate capital with labor at a global scale. All efforts have ended with nothing but dust in their mouths. Those at the top don't want to hear about regulations on global capital flows. The shocking thing is that Janet Yellen has placed on the table a globally coordinated tax on corporate profits, and it has to be taken seriously because she is the head of one of the three key institutions of the global capitalist order, the US Treasury.
Ms. Yellen, in a speech to the Chicago Council on Global Affairs, called for global coordination on an international tax rate that would apply to multinational corporations regardless of where they locate their headquarters. Such a global tax could help prevent the type of “race to the bottom” that has been underway, Ms. Yellen said, referring to countries trying to outdo one another by lowering tax rates in order to attract business.
“Competitiveness is about more than how U.S.-headquartered companies fare against other companies in global merger and acquisition bids,” Ms. Yellen said. “It is about making sure that governments have stable tax systems that raise sufficient revenue to invest in essential public goods and respond to crises, and that all citizens fairly share the burden of financing government.”
If you are on the left, this is the kind of globalization you have been dreaming about for way too long. Brexit, for example, was a poor man's political response to asymmetrical globalization—the type where capital is not only free to flee a home country's tax regime but also free to enjoy the benefits/profits of what Seattle's top heterodox economist, Alan Harvey, described in his book, Demand Side Economics: Demand Side Minds, as "wage arbitrage."
Now, the description of arbitrage in the literature of business pictures an investor taking advantage of a price difference within or between markets. (Meaning, the investor buys something that he or she knows is undervalued, and then takes advantage of the difference between its mistaken price and its actual price.) This is what corporations, in essence, do with labor at the international level. They manufacture goods in places where wages are not so much cheap (get that idea out of your head) but seriously undervalued, and then they sell the goods in markets where the price of labor holds a value closer to its actual value.
And so what we have with globalization is a system of nations that are forced to “race to the bottom,” as Yellen and other economists call it. In the end, only the corporations win because of tax havens and wage arbitrage. This was the problem that Brexit failed miserably to address as it turned to nativist solutions. The same can be said of Trump's bogus America First trade policies.
But by making global corporate tax a real possibility, Yellen is opening a new door to the chapter of capitalism. The unification of the global states in this manner would, if effective, kill tax havens and reduce the socially negative impact of wage arbitrage.
A capitalism with a planetary tax system is something we have never seen before.