Public discontent with multinational corporations avoiding tax by playing off jurisdictions against each other is growing. An international solution should be found if protectionism and nationalism are to be avoided, says Martin Kaspar.

While politics is, to a large extent, still a national concept, business is well and truly globalised. Except for a few international organisations, the rule-setting is done by nation states on a national basis, with the interests of the individual nation in mind.

But this has effectively resulted in a world in which companies enjoy a far greater space to manoeuvre and for decades have played off countries and their rules against each other.

During the past few years, however, due to growing public discontent with some corporations stretching this game to its limit, a countermove has started to set in. Either national political elites seeking to curry favour with the electorate, unilaterally battening down the hatches in a knee-jerk protectionist reflex, or in more gradual, concerted efforts (such as the OECD's base erosion and profit shifting framework to tackle tax avoidance).

Compared with the size of the remaining corporate playground, this is still relatively small fry. But given growing public anger, it is not hard to see even more threatening thunder clouds on the horizon. And listening to the political discourse from India to the US, this is not merely a European phenomenon.

To avoid the mood turning ugly, we urgently need to find a new equilibrium between politics and economics. But how would such a new equilibrium look? To jam business back into the box and reduce business-activities to national boundaries?

Attempting to reassert political dominance in regulation is a process that would probably lead to state-on-state conflict (whose law trumps whose?) and massive economic friction losses. Elevating the political sphere and rule-setting to a global level, on the other hand, is somewhere between unlikely and naïve. But then, letting things run their course could, in the current political climate, also lead to disaster as some corporations continue to avoid paying taxes and circumventing labour and environment protection laws.

If we do not want to 'nation-size' business, we need to globalise politics. The best template we have to date is the EU. A body in which nations have voluntarily shed sovereignty for being part of a greater idea (warts-and-all of its current incarnation aside).  

The results of the May EU elections seem to be a sign of a resurgent 'European idea' – but also, of a growing Eurosceptic bloc. Whether they acted as a pressure valve to vent anger about national political elites or a genuine disenchantment is hard to tell – but it is a question we need to answer quickly.

Martin G Kaspar is head of business development at a German mittelstand company within the automotive industry. E-mail: martin.georg.kaspar@gmail.com

This article is sourced from fDi Magazine
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