3 The birth of the IPE
4.1 Structural theories of offshore finance
After a decade of relative inaction during the 1980s and early 1990s (with some exceptions such as Johns, 1983; Murray, 1981), the societal and political power of MNEs started to make a gradual comeback in the IPE literature toward the end of the 1990s. However, the new wave of scholars approached this issue from a slightly different angle. Instead of taking MNEs as such as their focal point of analysis, the new body of research focused more on the structures of the world economy and its governance as it enables corporate tax planning and related phenomena. The Offshore Interface by Mark Hampton (1996) and Offshore Finance Centers and Tax Havens: The Rise of Global Capital (Abbott & Hampton, 1999) were two key early attempts to (re)introduce these themes into GPE. In particular, Hampton (1996, p. 69) laid the foundation for later conceptual advances by arguing that quasi-independent tax havens “are
‘within and yet without’ the mainland, having autonomy in some domestic areas but maintaining close ties in other areas such as monetary union, external affairs, education, language and culture, and, perhaps equally importantly, being seen by the rest of the world as regulated by a competent and honest jurisdiction.” “The ambiguity of these relationships,” Hampton and Levi (1999, p. 651) argued, “provides the offshore interface, which renders these micro-states extremely useful to international financial capital.”
In addition to these publications, Ronen Palan made seminal advances in the theoretical understanding of this “offshore interface,” which facilitated a
studies rely on seldom have comprehensive information from tax havens, whose entire operational logic relies on maintaining high levels of secrecy. Moreover, aggressive corporate tax avoidance strategies often rely on jurisdictions that do not feature in the most common lists of tax havens, such as the Netherlands.
strand of studies that aim to understand and analyze offshore finance as a central feature of contemporary capitalism. Palan had published about the political economy of offshore finance in the late 1990s (Palan, 1998), but his most important contribution was the book Offshore World (2003). In this book, Palan expanded the scope of inquiry by analyzing the historical development of offshore finance as a symptom and consequence of broader developments of capitalism. Moreover, he argued that the existing research on offshore finance aimed “to isolate the subject at hand from a complex and confusing mass of extraneous information, to delineate its boundaries, and to work within those boundaries in order to understand the essential characteristics and processes at work.” Instead of this, offshore finance should be analyzed “within the context of a changing capitalist world economy”
(Palan, 2003, p. 9).
Palan’s most important theoretical contribution was the introduction of the concept of commercialized sovereignty, in which states routinely employ their sovereign right to make laws and issue citizenships for commercial purposes (Palan, 2003, p. 148). Theoretically, Offshore World drew mostly on the French post-structuralist tradition, with limited engagement with the earlier IPE theories, mainstream or not. I comment on and extend Palan’s concept on the “Panama and the WTO” article, which discusses how the commercialization of sovereignty impacted another significant phenomenon in the world economy, namely neo-constitutionalism in economic governance (see below).
After Palan’s groundbreaking book, the scholarly focus of social scientific studies shifted from systemic-theoretical considerations to matters related to more specific issues of global tax governance and, to a lesser extent, development and taxation. Major theoretical advances in understanding the offshore interface or commercialized sovereignty have been rare. Recently, however, the Global Wealth Chain (GWC) framework developed by Seabrooke and Wigan (Seabrooke & Wigan, 2014b, 2017) has emerged as a potential building block for a more comprehensive research agenda. Building on the well-established concepts of global value chains (Gereffi, Humphrey, &
Sturgeon, 2005; Gereffi, Korzeniewicz, & Korzeniewicz, 1994) and global production networks (Henderson, Dicken, Hess, Coe, & Yeung, 2002), the GWC approach calls attention to how “wealth chains hide, obscure and relocate wealth to the extent that they break loose from the location of value creation” (Seabrooke & Wigan, 2014a, p. 257). This also reflects the notion by Sikka and Willmot (2010, p. 353) of how accounting techniques “alter the statistics that governments use to manage economies.”
Seabrooke and Wigan called wealth chains “the yin to the yang of value chains” (2014a, p. 257). While value chains and production networks are characterized by relative transparency and coordination, actors in wealth chains thrive on the secrecy of the arrangements. Therefore, Seabrooke and Wigan argue for a need for “a clearer picture of how wealth chains have an impact on developed and developing countries” and on the role of financial
innovations in these wealth chains (2014a, p. 261). Noting how value chain research has focused on the disaggregation of production processes across space, Seabrooke and Wigan (2017) have suggested that in the era of the
“decentred corporation” (Desai, 2009), the legal and financial disaggregation of the firm merits more attention. In contrast to Palan’s commercialized sovereignty framework, which relied more on post-structuralist researchers, the GWC concept can be seen as part of the continuum of world systems and dependency theories that influenced the early development of IPE.
I contribute to these studies first by providing a historical background to many of these ideas, and second by engaging with two different theoretical frameworks that are relevant for understanding the offshore economy: global wealth chains and neo-constitutionalism. Regarding the historical background, the first of my articles is titled “Back from Oblivion? The Rise and Fall of the Early Initiatives against Corporate Tax Avoidance” from the 1960s to the 1980s. The article focuses on the aforementioned analytical and policy work on corporate tax avoidance and tax havens conducted within the United Nations and the UNCTC primarily during the 1970s. Many analyses of corporate tax avoidance and tax havens have much older roots than is commonly understood. Based on a content analysis of the relevant reports UNCTC published between its inception and closure, I demonstrate how the weakening policy community in the UN and the failure of the OECD to take into account the earlier discussions on corporate power and tax avoidance contributed to the neglect of these discussions. Other factors were the reframing of the UN’s work on multinational enterprises to address human rights abuses instead of tax avoidance and the transformation of the academic theories of the firm.
Even though these developments took place during the formative years of GPE, the GPE literature published in this era largely omitted these developments apart from occasional references to some UNCTC reports (e.g.
Strange, 1994, p. 247). This is unfortunate, not least because UNCTC’s analyses were surprisingly mature for their time, often bearing a striking resemblance to today’s discussions on tax avoidance and corporate power within the GPE and world politics literature. However, the key authors of these reports were typically not scholars of IR or mainstream economics. Many of them were practitioners and those with an academic background often seemed to associate themselves with international business, accounting or similar orientations. I believe that the heterogeneity of orientations and the consequent lack of a coherent theoretical school contributed to the limited interest and understanding of the issues discussed in the UN (and partially also in the OECD and within the U.S. government) among economists and IR scholars. Even though evolutionary economics has recently made some inroads into the GPE literature (Palan, 2013), the long-neglected status of this tradition is apparent in review that Denemark and O’Brien published on the development of the IPE studies within the IR scholarship. They mention only
the imperialism studies of the early 20th century as an example of early studies on IPE (Denemark & O’Brien, 1997, p. 231).
This first historical article is followed by a paper titled “Tax-driven wealth chains: A multiple case study of tax avoidance in the Finnish mining sector,”
which enriches many of the discussions introduced in the previous article with more empirics and a broader conceptual framework. Written together with Lauri Finér, the article begins with a review of the tax practices of 10 companies mining metal ores in Finland. The setting is then narrowed down to three mines operated by two Canadian mining companies. The article makes theoretical inroads in a discussion of how the global wealth chains framework could be utilized in the studies of corporate power and global capitalism.
My third article, “Panama and the WTO: New constitutionalism of trade policy and global tax governance,” written together with Teppo Eskelinen, analyzes how the conceptual framework of commercialized sovereignty can be combined with the long-standing research orientation of new constitutionalism. The new constitutionalism framework has been popular, especially in the research of international trade and investment policies.
Specifically, we demonstrate how the tax haven Panama has effectively resisted attempts to sanction secrecy structures by invoking World Trade Organization (WTO) rules. Consequently, we argue that the way trade treaties
“lock in” policies can thus have a far-reaching impact on tax regulation: trade policy not only restricts the policy space but also provides tools for commercialized sovereignty (Palan, 2003) to maneuver against anti-tax evasion measures. We point out that any future trade agreements or revisions of old agreements could pose a threat to ongoing attempts to improve global tax governance. Effective global tax governance often requires the use of means that are not foreseeable when stipulating exceptions to trade agreements with typically rather wide policy scopes.
Another area in which interesting theoretical developments have taken place in recent years is in the study of MNEs as societal or political actors through facilitators and enablers of offshore finance. In the next section, I discuss some of the key studies in this field and my contribution to them.