Economic Growth Coffee and Taxes

Germany has announced that it expects its economic growth next year to be very small; it will probably be at the same level as that of the United Kingdom. These are difficult times and although economic growth is one measure of difficulty, it is not the only measure. Much depends on what the growth is and which sector is affected.

Some economic growth is merely the adoption of a new fashion or a new technology. When I first travelled to the United States it was impossible to get a decent cup of coffee anywhere. Coffee was served as merely a slightly flavoured and weakly coloured hot water. It was something that you had to accept and understand that this weak brew was how the Americans liked their coffee.

Later the concept of what Americans called “gourmet” coffee” (proper coffee to Europeans) caught on and the fashion grew.

Chains of aggressively marketed coffee shops grew up, led by Starbucks, out of Seattle. They carried out their business aggressively, swallowing competition by securing the best sites and using their wealth to market their products. They drove out of business many small family run coffee shops, so that the economic growth that arose as a result of the gourmet coffee shop chains was to a large extent illusory, because it came at the cost of economic recession caused by the small family run businesses being closed by the competition. Having grown a successful business Starbucks franchised coffee shops and ensured that they arranged their affair using devices such as transfer pricing and royalty payments to their own associated companies located in tax havens to avoid paying corporation tax in places like the United Kingdom.

That made the UK branch of Starbucks unprofitable, so that the profits were made in places that had very low rates of tax.

We were told that despite billions of turnover in the United Kingdom Starbucks did not pay any corporation tax, and the folk of the United Kingdom thought this unfair and improper. They started to boycott Starbucks and Starbucks as a result saw that they were losing business. Starbucks announced that they would voluntarily pay small amounts of corporation tax, even though they were not liable for it.

That announcement sums up the attitude of international businesses to tax. Tax for them is just an expense and if they can avoid the expense by various accounting devices, which some would consider as nefarious, they would do so. If bad publicity affects their business they would pay a tiny amount to try to persuade the public that they are paying their share.

I suppose that in many ways the rise of Starbucks and perhaps its future fall shows us that economic growth is more than mere statistics or percentages. It has to be sustained and economies should try to move towards economic entropy, instead of towards monopoly. That is the challenge that politicians must address; of course people that risk must be rewarded, because they are certainly penalised if things go wrong., but the rewards should not include a free ride at the expense of ordinary folk who pay more tax as a result of international businesses paying no tax, which is what Starbucks, banks and many others international businesses enjoy not just in the good economic times but also when times turn bad.

3 Responses

  1. Whilst I agree with what you say there is a big misconception that somehow running coffee shops creates wealth.

    Unfortunately, just like tax and selling imported goods, coffee shops ‘eat’ wealth.

    1. Whilst staff are employed, premises leased, insurance paid, VAT paid etc etc the coffee shop income to pay these costs is taken from customers within the relevant country. There is no wealth creation as might happen if raw materials were transformed into (preferably) exported goods, or professional services sold to extra terrestrial purchasers. So coffee shops transfer wealth from other parts of the economy.

    2. By fair means or foul profit is allocated to a tax haven using artifical accountancy. Therefore, part of the wealth transferred from other parts of the economy is then transferred out of the economy.

    3. If the coffee shop profit is notionally zero (or as little as the company can get away with to fool HMRC) other coffee shops will be forced out of business due their tax liability.

    4. As a result the coffee shops which transfer the least profit out of the country will be penalised and perhaps go out of business leaving the global coffee brand a virtual monopoly.

    5. HMRC then does a deal (like with Vodaphone) and agrees to reduce the global coffee shop’s potential tax liability.

    6. The government spends the tax take on employing civil servants, quangos, quasi charities, overseas aid and welfare benefits etc etc. And because it isn’t enough the government borrows what it failed to secure as tax.

    7. This is how the country is impoverished minute by minute and the country’s wealth is eaten away.

    • Good post and a true estimation of the reality of how everyone is being battered by the corporations, who are now completely owning countries, their leaders, armies and uneducated hero’s who line up lemming like to die for this rhythm.

      The caffination and profits are made long before the raw materials, “In this case, the beans that make the drink”, for pennies, before they enter the different tax or corporate zones around the planet. I call this corporo-policy, saltwater in the blood of any falsely free nation.

      I can proudly say, I have never bought any corporate logo, paper or pot-O-pollitical theft product for longer than I can remember, this is how the whole needs to deal with these theives amongst men, who are stealing from everyone elses whole by feeding these monsters.

      All those who go with the flow and encourage this paradigm, will shortly wake up and smell that coffee.

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