Free Ports – a Modern Pirate Tortuga

THE UK (and Scotland with it) has entered a radically new political conjuncture. The December General Election ended a two-year parliamentary stasis and handed the populist, libertarian wing of the Tories a hefty majority. Meanwhile, Brexit is now an accomplished fact, cooling (but not entirely eliminating) the sharp political confrontation between different parts of the British ruling class over economic strategy. My worry is that the SNP leadership has not grasped it is no longer business as usual.

To sum up the new Boris administration: political power has passed into the hands of elements based on new, high-risk domestic capital (e.g. Jim Ratcliffe, Tim Martin and James Dyson) and non-Establishment financial pirates who made their original pile from Thatcher’s deregulation and privatisation policies (basically the hedge fund mafia). These groups are responding to the post-2008 secular downturn in the global economy which has seen falling rates of profit, rock bottom interest rates, lower commodity prices, and a precarious asset bubble in shares and bonds (thanks only to central banks printing money).

In a desperate hunt for scarce returns, Britain’s new class of industrial buccaneers have ditched the EU – which is essentially a protectionist wall behind which German and French (what’s left of it) industrial capital is hiding from hegemonic US advanced technology and China’s low cost export base. The Del Boy Brexiteers want to forge their own trade deals, slash costs through further deregulation and (if possible) turn the UK into a giant Singapore export hub anchored off continental Europe. This is not an irrational strategy – especially if the Chinese decide they can use the UK as a giant freeport to smash their way into European markets. Which might explain Boris Johnson’s odd reluctance to kowtow to Trump over Huawei.

Meantime, what’s left of the UK’s heavy manufacturing base has been bought out and incorporated into European supply chains by German, Dutch, Japanese and Indian capital focused on selling into EU markets. These are the elements who have resisted Brexit. They are now toast. True, we might see UK Japanese and German car manufacturers relocate production to the continent (a.k.a. a hard Brexit). But Europe is miles behind America and China in the race to produce electric and self-driving vehicles, so this sector is doomed to implode anyway. Which is why Boris famously quipped “fuck business”.

What about traditional City banking – which has dominated the UK economy? Back in the 1970s, the City actually opposed joining the Common Market because it was frightened of heavy European financial regulation. Then the City came to love the EU as it meant free movement of capital, which allowed the City to pulverise stuffy, inefficient German and French banking and insurance. This in turn made the City reticent to back Brexit. However, the past two years has seen City retail and investment banks (which includes offshore US institutions) begin to warm to quitting the EU. Partly, they sniff a new wave of profitable deregulation, thanks to Chancellor Javid (an ex-banker himself). And party because European finance capital is so weak, that continental industrial capital needs the City of London.

All of which suggests that the political left and the Scottish independence movement should not get too gleeful at the prospect of an imminent Tory economic meltdown. In particular, the SNP Government needs to face up to the fact that the new Tory ruling bloc wants to transform the entire UK economy through deregulation and state-funded reinvestment (which domestic capital and finance need to shore up their profits). This thrust will start with the introduction of Free Ports.

BEWARE STRANGERS OFFERING FREE PORTS

Free Ports are designated zones which, although inside the geographic boundary of a state, are considered legally outside for customs and other purposes. This means goods and raw materials can enter and exit the port without incurring usual red tape or tariffs. It also means that companies creating manufacturing plants inside the zone can receive preferential tax breaks.

In essence, Free Ports are pirate economic enclaves that could turn the UK into precisely the offshore version of Singapore our new Del Boy capitalist are so keen to create. Welcome to our own modern version of Tortuga, the 17th century pirate port in Hispaniola.

To date, EU law has restricted the use of Free Ports under state aid rules. Which is one reason why our libertarian Del Boys are so keen on Brexit. They include Tory MP Rishi Sunak, who wrote a major study on Free Ports in 2016, published by the Centre for Policy Studies, a right-wing think tank.

At that point, Sunak was a new Tory backbencher. Before that he was an investment banker at Goldman Sachs before joining a hedge fund. Then he and colleges set up their own hedge fund with a cool $700m in capital. Yes, Mr Sunak is your archetypal Del Boy, libertarian New Tory. He is also now also the Chief Secretary to the Treasury and busy helping fellow banker Sajid Javid prepare the March Budget. Any bets this includes and announcement about Free Ports?

Mr Sunak is particularly enamoured of Chinese Free Ports – so-called Special Economic Zones. These have lower tax, less regulation and “easier” planning (i.e. they pollute) than the domestic Chinese economy. According to Sunak: “Local property taxes, corporate income taxes and employment taxes were all lowered, as well as customs duties, in order to attract Foreign Direct Investment… the Zones account for 20% of China’s GDP, 30 million jobs and around half of all FDI”.

(By the way, most of these jobs were filled by herding millions of young female peasants off the land in central China and decanting them into dreary dormitories in the coastal Free Ports. Meanwhile, uncompetitive state-owned firms were downsized, casting millions of existing (and bolshie) industrial workers into unemployment. You have been warmed.)

Sunak is particularly keen to use UK Free Ports to slash taxes. He suggests “lower VAT rates on goods brought in through the Zone, reduced rates of corporation tax for companies located within it, tax credits for local R&D activity, and lower rates of employment tax for new employment created”. He thinks this strategy could create more 86,000 jobs in the UK economy, especially in the deprived English northern ports.

WHAT’S WRONG WITH FREE PORTS?

All the historical evidence shows that Free Ports – there are many models – do not create jobs or investment in any net sense. Rather, by slashing taxes, labour protection and environmental standards, they merely succeed in moving jobs and investment from existing areas. Thus, the Chinese Special Economic Zones took jobs from America. In like manner, UK Free Ports are designed to take jobs from the EU. And also, from existing manufacturing areas in the UK itself. At the same time, by pitting coastal ports against urban manufacturing zones, the UK work force can be disciplined, and local authorities forced into another round of rate cuts, in an attempt to keep competitive.

Free Ports are the thin edge of a very long wedge of deregulation. It is imperative that Scottish local authorities do not get persuaded to compete for Free Port status if this is dangled in front of them – especially on Clydeside, Leith, Dundee or Aberdeen. Assuming, of course, that the Scotland Office does not simply parachute them in without consulting the Scottish Government.

Comments (10)

Join the Discussion

Your email address will not be published. Required fields are marked *

  1. Donald McNicol says:

    Another interesting and informative article from George. While passion and literary erudition are always good to read, it is even more savoury with a salting of real economic numbers and consequences. My only quibble (and there had to be one) as an engineer is that it would be a brave and maybe foolhardy to write off the ability of German carmakers to get up to speed with electric car technology. German carmakers are typically cautious, maybe because they are controlled by CEOs that are almost exclusively engineers but eventually they will produce a better product.
    Who would have predicted in 1960 that VW would become the biggest carmaker on the planet?

    1. Charles L. Gallagher says:

      Don,

      You could also have asked who in 1945 could have predicted that it would be still be in existence let alone in such a dominant position in 2020?

      1. Bill Ramsay says:

        The probable simple answer is, the then, US State Department under leadership of George Marshal. Subsequent deliberate geopolitical power projection by the Bundesbank ( better that than a German General Staff) appears to done the rest. And no I’m most certainly ain’t a Brexiteer.

  2. John S Warren says:

    Richard Murphy has just blogged on the same subject on TaxResearchUK. I amde the same comment there, so forgive me, but I think the more information and reflection we give this, the better. Brexit is taking us into a dog-eat-dog world of the most rebarbative, repellent and dangerous kind. The UK has lost the plot.

    Freeports, as a concept cover a wide territory (special economic zones, free trade zones and a multitude of nomenclatures that no doubt cover different regimes). They exist within the EU, and in the UK there were seven freeports, 1984-2012 (including Liverpool, Tilbury, Sheerness and Prestwick Airport). In effect companies operating in the freeport could manufacture, import, re-export goods free of all tariffs. Conventional taxes would however be paid on goods sold within the UK (as I understand the rules).

    The EU has been highly critical of freeports, as opening the door to potential money-laundering, and produced a report, ‘Money laundering and evasion risks in freeports’, October 2018; see link: (http://www.europarl.europa.eu/cmsdata/155721/EPRS_STUD_627114_Money%20laundering-FINAL.pdf). The Report’s summary conclusions begin as follows: “Free ports are conducive to secrecy. In their preferential treatment, they resemble offshore financial centres, offering both high security and discretion and allowing transactions to be made without attracting the attention of regulators and direct tax authorities” (page38). The report goes on to comment that: “Currently, apart from Luxembourg, there is not one country in the world that has made free port operators subject to AML(Anti-Money Laundering) legislation. As UBO (Ultimate Beneficial Owner) data are not required it is relatively simple to hide the UBO’s identity behind another layer of secrecy, which can be an offshore firm, a trust or foundation, a lawyer or a gallery, or a combination of these” (page 38).

    Britain, it appears, is now intent on joining a squalid race to be the ‘Big Noise’ at the bottom of the trading and economic gutter.

    1. Wul says:

      Ahhh…so that’s how our “unleashed potential” will materialise.

      Plenty of work for my children as underpaid, casually-employed serfs in a poisonous, unregulated and dangerous money-laundering “hub”. Sunny uplands await.

      1. David Allan says:

        i wonder how many “serfs” (i.e. everyone north of the English Midlands) will survive to the pension age in a future ” Tortuga” . How many will then survive on what it might be?

        Dickensian times ahead.

  3. Graeme McCormick says:

    This is an opportunity to turn the whole of Scotland into a de facto free port by replacing all taxes with Annual Ground Rent.

    Globotics will address secrecy and AML concerns

  4. SleepingDog says:

    When I was a pirate once I wooed, won and wed the Governor of Tortuga’s daughter. I still sometimes get my duel and dancing steps mixed up. Of course back then, state-sponsored terrorists carried and displayed their privateer letters of marque, although flags as today were often a matter of convenience or deception. The seas were blue and plastic free, and your transportation was wind-powered. Now, however, mercenaries are everywhere: assassins, ravagers, slavers, torturers, poisoners, jailers, cutpurses, spies, rumour-mongers, double agents, blackguards, all state-supported by your contributed coin. The recently-unleashed British Empire employs mercenaries for its military propaganda:
    https://www.opendemocracy.net/en/dark-money-investigations/cambridge-analytica-is-what-happens-when-you-privatise-military-propaganda/
    even though it employs thousands of people already to do this.

    Back then, the only democrats were pirates, and a woman could rise to be elected pirate captain on merit. So ‘pirate’ is probably too nice a term for ego-driven hedge-fund parasites. Meanwhile the rule of law was so absent then that it was common occurence for your entire family to be abducted, scattered, possibly sold into slavery, although tolerance for slavery was not nearly so common then as it is now.

  5. Anarcho says:

    Will you stop calling these rightists “libertarians” — they are not, they are propertarians. The word “libertarian” was coined by the left, by people who think property is theft:

    http://anarchism.pageabode.com/afaq/160-years-libertarian

    The American free-market right stole the term in the 1950s — don’t let them steal it here to!

    1. I think that process is complete – i think most people would no assume that a ‘libertarian’ was wright wing

Keep our Journalism Independent

We don’t take any advertising, we don’t hide behind a pay wall and we don’t keep harassing you for crowd-funding. We’re entirely dependent on our readers to support us.

Subscribe

Don’t miss a single article. Enter your email address to subscribe for free here and receive Bella direct to your inbox.

 
Bella Caledonia