In Michael Pye's book The Edge of the World - How the North Sea Made Us Who We Are, he has a chapter called Dealers rule, about the Hansa cities, and how the modern trade-off between politics and money began in 1180 with the signing of a treaty between a foreign prince and the Hanseatic League. This is the story of:
Money power versus political power
Feudalism and Balkanisation?
Balkanization, or Balkanisation, is a geopolitical term used to describe the process of fragmentation or division of a region or state into smaller regions or states that are often hostile or uncooperative with one another.
Feudal Fragmentation
Feudal fragmentation is stage in the development of certain feudal states, in which it is split into smaller regional state structures, each characterized by significant autonomy if not outright independence and ruled by a high-ranking noble such as a prince or a duke. Feudal fragmentation is usually associated with European history, particularly during the Middle Ages.
Feudal fragmentation occurs after the death of the legitimate ruler leaves no clear heirs, and rulers of various subdivisions of the original state fail at electing or agreeing on a new leader for the previous, larger entity. In some cases (for example, the Holy Roman Empire) such a leader may be elected, yet wield much lesser powers than those of his predecessor.
The Holy Roman Empire in the thirteenth century
Stadt luft macht frei
"City air makes you free", or Stadtluft macht frei nach Jahr und Tag ("city air makes you free after a year and a day"), is a German saying describing a principle of law in the Middle Ages. The period of a year and a day was a conventional period widely employed in Europe to represent a significant amount of time.
From the 11th century onwards, liberated serfs and other members of the Third Estate founded settlements alongside the old Roman or Germanic ones.It was customary law that a city resident was free after one year and one day. After this he could no longer be reclaimed by his employer and thus became bound to the city. Serfs could flee the feudal lands and gain freedom in this way, making cities a territory outside the feudal system to a certain extent. This created the conditions for the revolts such as the Münster Rebellion.
With the Statutum in favorem principum ("Statute in Favor of the Princes"), this regulation of customary law was officially abolished for the Holy Roman Empire in 1231/32. According to the statute, cities under royal jurisdiction were forbidden to protect serfs originally owned by the regional princes or their vassals. The statute is an example of power devolving from Imperial authority to that of territorial magnates during the drawn-out contest between the Hohenstaufen emperors and the Papacy.
The Holsten Gate
The"Holstein Tor", later "Holstentor", is a city gate marking off the western boundary of the old center of the Hanseatic city of Lübeck. Built in 1464, the Brick Gothic construction is one of the relics of Lübeck's medieval city fortifications and one of two remaining city gates, the other being the Citadel Gate. With its two-round towers and arched entrance, it is regarded today as a symbol of the city.
Together with the old city centre (Altstadt) of Lübeck it has been a UNESCO World Heritage Site since 1987.
The Holsten Gate has two inscriptions, one facing out to the fields and one facing the old city, and that were applied to this monument in modern times, and reflecting the emergence in nineteenth century Europe of the nation of Germany, as the German Empire (Deutsches Reich) in 187
The German nation state, that existed from the unification of Germany in 1871 until the abdication of Emperor Wilhelm II in 1918, subsuming three free Hanseatic cities, including Lübeck, into a new state dominated by Prussia.
It was founded on 1 January 1871 when the south German states, except for Austria, joined the North German Confederation and the new constitution came into force changing the name of the federal state to the German Empire and introduced the title of German Emperor for Wilhelm I, King of Prussia from the House of Hohenzollern. Berlin remained its capital, and Otto, Prince of Bismarck, Minister-President of Prussia became Chancellor, the head of government. As these events occurred, the Prussian-led North German Confederation and its southern German allies were still engaged in the Franco-Prussian War.
The German Empire consisted of 26 states, most of them ruled by royal families. They included four kingdoms, six grand duchies, five duchies (six before 1876), seven principalities, three free Hanseatic cities of Lübeck, Hamburg and Bremen, and one imperial territory. Although Prussia was one of several kingdoms in the realm, it contained about two thirds of Germany's population and territory. Prussian dominance had also been established constitutionally.
Where before in the Hansa city of medieval Europe the Holsten Gate marked a boundary between a countryside dominated by feudal law, and an urban centre where "City Air Makes You Free", these two inscriptions mark a moment when the state had come into existence to incorporate everything and everybody.
This image of the Holsten Gate from 1900 shows the inscription on the city side that reads, "SPQL" and is framed by the years 1477 and 1871, the former being the supposed date of construction (the correct date is, however, now known to be 1478), the latter being the date of the gate's restoration and the founding of the German Reich. This inscription was modeled on the Roman "SPQR" (Latin Senatus populusque Romanus - the Senate and People of Rome) and stands for Senatus populusque Lubecensis.
It was, however, affixed only in 1871.
There was previously no inscription at this location. It would also have been pointless, since the view of the lower parts of the Holsten Gate from the city side was obscured by high walls.
There is another inscription on the field side. The text is "concordia domi foris pax" ("harmony within, peace without"). This inscription is also from 1871 and is a shortened form of the text which had previously been on the foregate which has not survived: "Concordia domi et pax foris sane res est omnium pulcherrima" ("Harmony within and peace without are indeed the greatest good of all".
In medieval Europe, when somebody passed through the gates of the city of Lübeck, city air was different, it was a place full of trade and trading! As Michael Pye explains:
The merchants followed the logic of their trade all the way. They flourished in a time when nations were struggling to find their shapes and frontiers, when kings were trying to create a rule which was only as absolute as a well-fed army and an insistent faith could make it. The Hansa stood outside all that. It was a cartel of towns in the north, mostly on the Baltic, all more or less German-speaking, which banded together to keep their ships safe, make sure they were well treated in foreign ports, and get close as they could to the perfect state of traders: monopoly. They acquired power without the ceremony and pretence of kings and without any of the occasional royal sense of responsibility, or moments of weakness. kings and chancellors and politicians might have to concede things under pressure, liberties or land; they owned so much, ruled so much that they were always vulnerable. they might even change their minds about what was most important. The Hansa was townspeople with only two things in mind: trade and the profit to be made from it, and for most of the time everyone around them agreed; as long as ships were sailing on the Hansa's terms, there was no need for talk.
Kingdoms needed the philosophic kind of foundations: God or heredity or precedent or else God's favour as shown by battle victories. The power of a Hansa town like Lübeck rested on the fact of where it stood, at the head of the slow canal and river that cut across the neck of Denmark, where ships could be pulled across the inland route from the Baltic to the North Sea and avoid the challenging seas around Jutland. Controlling that route was enough to launch a group which made its first treaty with a foreign prince in the twelfth century and was still around almost five hundred years later to join the talks in 1648 that ended the wretchedly persistent war that had ruined Germany for thirty years.
Hansa towns lived from the water: sea ports like Bremen, Hamburg and especially Lübeck, and river ports like Cologne. Almost everywhere else power and title and position depended on land: estates or kingdoms, the income from rents, the service of serfs. In the water towns, on the edge of things, there was only one source of wealth: trading outwards. Their world was offshore. Even when they did choose to expand and set up new towns, they worked their way along the coasts: from Lübeck along to Gotland in Sweden and then all the way to Novgorod in Russia. These new towns were also all about trading, hardly connected with the land powers around them. No feudal lord had the ships to interfere with business at sea.
Something is beginning on the edge of the world: the kind of multinational power that does not depend on where it is based, which flirts or fights in the modern world with the obvious kinds of political and state power, which usually gets its own way.
"This is money at the start of its great war with nations."
Pages 223-224 The Edge of the World - How the North Sea Made Us Who We Are, by Michael Pye
In the same way that the merchants of Lübeck made offers to feudal lords and princes that they could not refuse, so Google is able to minimize its tax bill, by claiming to be operating from Bermuda and Ireland.
Google HQ, Dublin, Ireland.
Google in our time represents a new kind of "gateway" to an environment of information where the impulse, or need, to access this information, has been monetised through ads that are plugged into the history of our searches and researches.
Everytime an individual uses the Google search engine, the pattern of use itself, the private realm, of free thinking, ideas and association, becomes monetised, something to sell, and for others to use, for economic and political agendas quite removed from the individual, and the state.
Google says it has a duty to its shareholders to minimise its costs, maximise profits, regardless of social responsibilities and a progressive society. This is capitalism at work. With a feudal system, even though by virtue of custom rather than law, the power relations were clear, transparent. City air could make you free. Free use of a search engine is NOT free. Our entire user history, our "interface" with the information environment, has been monetised. We exchange our private selves for the service provider, but it is a hidden system. So are the profits!
Tax is a cost! But do Google and companies like Google pay their fair share of taxes in Europe, or not? And if not, how do they get around the rules? European sovereign countries, like hundreds of different nations and legal jurisdictions across the world, possess their own particular set of tax rules.
For multi-national corporations and their financial advisers, these differences present a financial and geographical challenge, but also present a brilliant opportunity. The question of geographical location for such a business as Google, making money from advertising on the world wide web where business and place are not connected anymore, results in decisions on where to locate the many different subsidiaries to best arrange business affairs to minimise the total tax bill. This kind of freedom for Google means that it is open for powerful players like Google to come to arrangements with sovereign authorities in a contemporary economic environment where open competition between nation states to attract companies like Google to base their businesses in their jurisdictions.
This competition between states and jurisdictions has become increasingly obvious over the 10 or 20 years leading up to the 2008 financial crisis, a period that saw the unprecedented spread and consolidation of global businesses across the planet.
Multinationals have more opportunities than purely domestic businesses to make locational decisions, and tax is one of the things they look at, but not the only, or even the most important factor. Equally important is the availability of local expertise and suppliers, which tends to lead businesses to cluster in particular locations. Nonetheless, tax is still an issue, and can be the defining issue for where a business cluster develops in the first place.
Using Google to find Starbucks in Lübeck . . .
Google map search . . .
Starbucks says that it sources its coffee from its wholesale trading subsidiary in Switzerland.
BRUSSELS—Starbucks Corp. is going through the grinder in Europe.
Tom Fairless, writing for The Wall Street Journal, reported April 7, 2015:
The world’s biggest coffee chain SBUX, -5.09% has raised suspicions among regulators and local governments by reporting losses in its biggest European markets for years despite recording hundreds of millions of dollars of annual sales.
Last year, as European Union regulators opened a formal investigation, a profit materialized: €407 million ($446.6 million), reported by the company’s European head office in Amsterdam. The coffee chain has since moved its headquarters to London.
The reason for the windfall: 502 million Swiss francs ($527.8 million) in dividends, transferred from the company’s coffee-buying unit in Switzerland, which has fewer than 40 employees, according to corporate filings.
This Starbucks arrangement may be sensible commercially - it's cheaper to have one team responsible for sourcing all of Starbucks' coffee, and Switzerland is apparently the centre of the world coffee-trading business. But it is hard to escape the conclusion that Switzerland would not be a major centre for coffee trading in the first place if it did not charge a lowly 12% tax rate on the trading profits.
It is not just the companies that are under competitive pressure to reduce their taxes. The tax jurisdictions themselves also compete with each other to attract more business. Ireland's sovereign government has consistently gone out and out to cut their corporate tax rate down to a level now of 12.5%, to attract more business.
Google was one business to take advantage of Ireland, locating its two data centres there, employing 3,000 people to co-ordinate marketing and sales of advertising space across Europe.
In the case of Starbucks, the Netherlands even went so far as to offer the coffee chain a special and secret tax deal to win its headquarters business.
Until recently, moves to impose a common corporate tax rate across Europe have so far come to nought, and most of the actors involved expect things to stay that way. Not only would it create winners and losers, but it also raises the hoary question of how to divide up the proceeds and would deprive countries of the option of offering a cheap tax rate to maintain their competitiveness when all else fails.
But in the absence of such agreements, there has been something of a race to the bottom over the last few decades, with most countries steadily cutting the tax rate that companies must pay on their profits.
During the boom years of the last decade, tax competition between countries was particularly intense, as many businesses were making decisions about where to invest. But now the boom is over, things look different. Cash-strapped governments are under pressure to squeeze out more tax revenues wherever they can.
That is why now sovereign governments and the European Commission are now re-calibrating their policies in this old story of money at war with nations.
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