States no longer monopolise citizens

Allister Heath
In a modern, global and open world, states have to compete for people. Weirdly, that is something that a large number of commentators have failed to recognise; they continue to argue as if Britain remained stuck in a pre-globalised world. They assume implicitly that governments remain quasi-monopolies, as was the case throughout most of human history, with citizens mere subjects forced to put up with poor public services, high taxes, crime, misgovernment and a poor quality of life. Yet the reality is that there is now more competition than ever between governments for human capital, with people – especially the highly skilled and the successful – more footloose and mobile than ever before. This is true both within the EU, where freedom of movement reins, and globally. Even the coalition, which is tightening restrictions on non-EU migrants, has made it easier for companies to move foreign nationals to the UK if they earn £150,000 a year.

As long at it remains within a liberal, free-trade framework, competition between governments is as good for individuals as competition between firms is for consumers. It keeps down tax rates, especially on labour and capital, which is good for growth and job creation; states need to produce better services at the cheapest possible cost. And if governments become too irritating or incompetent, it allows an exit strategy. It is strange how pundits who claim to want greater competition in the domestic economy – for example, in banking – are so afraid of competition for people between states, decrying it as a race to the bottom. Yet monopolies are always bad, in every sphere of human endeavour, breeding complacency, curtailing innovation and throttling progress.

Contrary to what has repeatedly been claimed by the monopolists, the City is losing out to other jurisdictions in the race for people. Even though there is very little office space, housing or vacancies in schools in Switzerland – the Swiss are reluctant to expand – there has been a relatively large influx of London financiers to that country, especially from hedge funds and energy and commodity trading firms. It is the wealthiest, most senior individuals who are leaving. Figures from the Swiss Federal Migration Office tracked down by Channel Four reveal 383 UK citizens working in banking and financial services moved to Switzerland in 2010, up 28 per cent on the previous year. Taking the overall banking, insurance and consulting sectors, including IT, 1,379 Britons were given permission to work long-term in Switzerland in 2010, up 29 per cent. This compares to a rise of 14 per cent for non-UK citizens, though a chunk of the latter will also have moved from London.

The Swiss Funds Association estimates that 20-25 UK hedge funds have set up offices in Switzerland over the past year alone. Switzerland has also witnessed an inflow of Russian oil traders, including Rosneft and Bashneft; several other teams have recently left London for Geneva or Zurich. TNK-BP is opening a trading arm in Geneva; it will be based a short walk away from the third, fourth and fifth largest trading firms in the world. This is a blow for London, which for the first time since the late 1980s is losing its lead in the trading of physical crude and oil products.

Globalisation is not just about buying cheap Chinese goods: it also limits the state’s powers to over-tax or over-control its citizens. Britain needs to wake up to this new reality, and fast.
Follow me on Twitter: @allisterheath