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.
Filed under: climate change Tagged: | business, coffee, decent cup of coffee, econmic entropy, economic entropy, economic growth, economic recession, economy, gourmet coffee shop, starbucks, tax, tax havens