March 31, 2006

Flat Tax (published – Warwick Economics Journal)

Economic Holy Grail or Potential Failure in Disguise?

The flat tax is, to most fiscal conservatives, the Holy Grail of public policy and the future. The simplicity of such a system is undeniable: one low income tax rate that would be paid by all but the poorest wage earners. In such an economic ‘nirvana’ there would be no loopholes for the rich to exploit and certainly no graduated rates of taxation that would take a higher percentage of income from those that work hard to earn more. Ultimately, the minimalism of such a system lies at the heart of its desirability and stands in stark contrasts to the complex and multifarious maze that is today’s tax regulations.

The Epic Adventures of the Flat Tax

Under the current Labour Party, the government handbook on tax regulations has roughly doubled in volume since 1997. In France, the current taxation system offers a bewildering, yet humorous, 560 different types of tax breaks – ranging from a special exemption for journalists to a deduction for taxpayers who happen to employ household help. Clearly, in the face of such profound complexities and inefficiencies, is it not time for the western world to wake up to the golden opportunity of the flat tax?

In fact, the governments of the west should look eastwards for a clear example of the potentials of a single universal tax rate. In 2004, in an attempt to create an investor-friendly economic environment, Slovakia simply swept away its 21 categories of personal income taxes, five tax brackets, and scores of exemptions and deductions, replacing them instead with a flat 19% rate. In turn, the country has secured a $1.3 billion investment in 2005 by Hyundai Corp., the Korean automakers – which is now building a factory for its Kia brand cars in the Slovak city of Zilina. Even more impressive, the total foreign direct investment in Slovakia last year was $13.6 billion which constitutes a massive six-fold increase since 1998.

Yet, the beauty of the flat tax extends far beyond the mere ability to attract sizeable foreign investments, rather, it includes a whole foray of benefits that would advantage any country – developed or developing.

The US tax code is currently some 9 million words long and contains innumerable loopholes, deductions, and exemptions that create inefficiencies in tax collection. It is argued by proponents of the flat-tax that the system in its current form actually stifles economic growth by distorting economic incentives and allowing, indeed in some ways encouraging, tax evasion. However, if a flat tax was to be installed in the United States of America, then the transparency that would naturally ensue would guarantee a huge reduction in the incentives for the wealthy to create tax shelters.

Further, a flat tax system would actually result in higher revenues for the government involved. The simplification of the tax code would remove certain loopholes that are currently frequently used by corporations and the rich to pay fewer taxes. Again, western governments need only look over to the Russian Federation to see how this could take effect. Russia, after its introduction of a 13% flat tax rate, saw real tax revenues from ‘Personal Income Tax’ rise by 25.2% in the first year of its new system, followed by a 24.6% increase in the second year and a 15.2% increase in the third year.
It is also argued that the government’s cost of processing tax – a cost which is often unknown or ignored by the population at large – would become significantly smaller with a flat tax since the relevant tax bodies could be abolished or enormously downsized. Germany, for example, spends 3.7 billion euros or 0.14% of its GDP a year on tax collection and processing – a sum that could otherwise be used to build schools and hospital.

However, there is, understandably, no guarantee that flat taxes would work as well in Western Europe as they have in the countries to the east. In the former Soviet bloc, most of the countries that have enacted flat taxes gained an increase in revenue as people who had been previously working in the shadow economy began reporting their income and finally paying their taxes. The former tax dodgers simply figured that with rates so low, there was no longer any point in running the risk of breaking the law. However, unlike their compatriots behind the Iron Curtain, relatively few Western Europeans and Americans work in the shadow economy.

Critics of a single flat taxation rate have also claimed that making the income tax flat would actually make the overall tax structure regressive – in that lower-income people will pay a higher proportion of their income in total taxes compared with the affluent.

Still, in spite of such criticisms, a flat or streamlined tax code would go a long way towards restoring the public’s trust in the tax system – a trust that has long since been lost in the face of a multiplicity of loopholes and mounds of bureaucratic red-tape.

Ultimately, the simplicity of the flat tax may remain but a dream for some time, but, the realities of its incredible potential will continue to remain a force for its future implementation.


March 01, 2005

An Oxymoronic Legal System (published in Obiter Dicta – Univ. of Warwick's Law Journal

An Oxymoronic Legal System
By Guled Yusuf and Kasit Rochanakorn

The Common Law system, considered to be one of Britain’s greatest gifts to the world; has struck an oxymoronic rut. The essence of common law is that it is made by judges sitting in courts, applying their common sense and knowledge of legal precedent to the facts before them in accordance with society’s current needs as well as its trends. Ironically enough english law seems to be restrained. Reform seems to be a slow process in areas of great importance such as murder, the jury system, human rights, and the essentials of contract law. The legal system is appropriately lax to certain aspects of the law yet in other aspects reform is virtually impossible despite its immediate requirement.

Unlike codified systems, the system of precedent does not provide law enforcers with a definite, and straightforward reply to legal trials, rather, it is heavily interpretive. Precedent is meant to be shapeless, in the sense that laws are meant to constantly evolve in accordance with societal attitudes and developments. Yet, the evolution of law seems to have slowed down, and precedent seems to be falsely perceived as concrete, as well as unquestionable. The concept of precedent is meant to enhance the law’s evolutionary nature, yet its misuse has made it an anchor on numerous occasions binding the future to the past due to the legal systems traditionalism. A firm intent to live in the past as well as a fear of change in certain areas of law has prevented the english legal system from ameliorating.

Murder is widely considered the gravest crime, yet it remains a gray area in criminal law. Under present law one may be held liable for murder with an intent to cause death or grievous bodily harm. Lord Mustill in the Attorney General’s Reference states that “one could expect a developed system to embody a law of murder clear enough to yield an unequivocal result on a given set of facts, a result which conforms with apparent justice and has a sound intellectual base. This is not so in England, where the law of homicide is permeated by anomaly, fiction, misnomer and obsolete reasoning.” It is argued that people who intend to cause grievous bodily harm have chosen to run a risk of endangering life, thus the conviction of murder in our legal system lies in chance, which is disconcerting. It contradicts the commonly understood concept of murder that one must intend to kill. Also an individual should not be considered a murderer if they intend to injure sommeone, and a primary requirement for murder should be a complete disregard for murder rather than a partial, or possible one. The current law on murder should be reformed, and should most likely be modeled after the American system. The latter consists of different degrees of murder so that individuals with an intent to kill are not classified with individuals who are less liable. The law of murder is a great example of the legal systems antiquated thinking, as argued by William Wilson in “Rethinking English Homicide Law”, murder and manslaughter should be understood as two distinct wrongs rather than different degrees of the same wrong.
In contract law certain requirements must be fulfilled to make a transaction qualify as a true contract. One of which is consideration, Lush J. in Currie v Misa (1875) LR 10 Exch 153 defined consideration as:
"… Some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other."
Consideration though is nonexistent in numerous legal systems, since the doctrine of intention to create legal relations does suffice. It is a superfluous doctrine which is simply a remnant of the past. Lack of consideration is rarely a problem for promises made in the context of business relationships, due to the existence of an intention to create legal relations which legitimizes a contract. In most business contracts, there is consideration for both parties. Civil law systems do not require consideration, and numerous common law systems have abolished it as a requirement. In “Consideration Reconsidered”, K.C.T Sutton speaking of consideration states that “the main criticisms made are that the doctrine is not logically and uniformly applied but results in absurdity, inconsistency, and injustice, that its development is to be traced in fictions and evasions, that its technicalities and irrationalities are explicable only on historical grounds and it is in fact an anachronism, that it is out of touch with the market place and is disregarded in the business world….in short that it is unsatisfactory and unnecessary”.

Trial by jury, the participation of the common man in the administration of justice, represents the force that has established the habit of obedience to the law that we take for granted today. Yet, this fundamental legal mechanism is inherently flawed in numerous ways and has been the subject of various attempts at reform. After the first world war, the english legal system witnessed a virtual dissapearance of trial by jury in civil cases (a transformation that was later embedded in the legal system by the case of Ward v. James in 1965). Later attempts at reforming this vital apparatus included the abrogation of the unanimity rule and the Juries Act of 1974 which created the opportunity for a wider spectrum of the population to engage in jury duty. The need for reform essentially emerges from the five, but arguably more, issues of complication: the concept of jury-vetting, the problems of peremptory challenge, jury packing and the possible inability of the jury to fully comprehend the facts and circumstances of the case (which tends to be explicitly true in cases involving fraud). A major reform of this crucial component of the legal system should, and indeed must, include the abolishment of peremptory challenge since its origins can be traced to the earlier days when the death penalty was inflicted for many offences (unquestionably such a system was previously justifiable in favorem vitae – in favour of life – but currently, it only leads to discrimination on grounds of sex, race, class or youth), the introduction of special jurors for cases involving the complexities of fraud and the establishment of a new way of selecting juries. Realistically, the ordinary man is no longer suitable for the rigours of the complexities of the legal system and a new qualification of service is urgently required. Ideally, the jury list should be selected in a similar manner as the magistrates: with applications, recommendations, references and interviews to assess suitability.

The concept of a flawless legal system is nothing more than a concept, since every legal system has its flaws. Yet the English legal system has numerous fundamental frailties in areas such as; murder, the basics of contract law, and trial by jury. All of the latter are gravely important laws, which affect anything from day to day business, to the way defendants are judged in a court of law. There have been a multitude of attempts at reforming paramount laws, the true issue is the establishment of an effective medium. Lord Denning said it best in his work “What next in the Law”; “there have been Royal Commisions, Departmental Committees and Blue Books – all recommending reforms. But each turned down by the Government for one reason or another – or for no reason – just for lack of parliamentary time”. The core values of the english legal system namely its evolutive nature must be reinstated through a third chamber, or other means so that the legal system can return to its intended purpose rather than continuing in its current stagnant, and dormant state thus being an oxymoronic legal system.


London: Tommorow's Las Vegas (published in The Assumption – Univ. of Warwick's economic journal)

The Las Vegas Invasion
By: Kasit Rochanakorn (K.Rochanakorn@warwick.ac.uk)

A look at the future political and economic implications of the government’s Gambling Bill

The global gambling industry, from the sands of Las Vegas to the shores of Macao, is a ₤600 billion economic sector. The UK market for betting and gaming alone is currently valued at ₤30 billion, making it the largest in Europe – an economic fact not truly recognised or embraced by the British public. Furthermore, the UK’s gambling industry is rapidly expanding and investment is heavily driven by the imminent prospect of deregulation and the inevitable arrival of off-shore players such as MGM Mirage and Las Vegas Sands with very deep pockets.

In 2000 the British government established an independent review body, chaired by former chief Treasury advisor Sir Alan Budd, to examine the gambling industry in the UK and the laws, dating as far back as the 1960s, which govern the operation of the industry. One year later, a report which included a total of 176 recommendations was published in July 2001. The report was also accompanied by the general appeal of the industry and, as such, the prospect of a deregulated gambling industry acting as a vehicle for new tax revenues and regional developments. The allure of the gambling sector was further strengthened by the confidence of both banks and investors in the growth of the sector. This latter point was especially highlighted by two private equity-backed acquisitions of betting businesses in 1999, both of which were realizes and concluded in late 2002, which sparked massive interests in the UK gambling industry. Cinven and CVC Partners acquired the well-known high street betting franchise William Hill from Nomura for ₤825 million and Ladbrokes sold Coral Eurobet to Morgan Grenfell Private Equity (MGPE) for ₤390 million.

The excitement generated by the evidence that the industry was rapidly expanding was coupled by both the imminent changed in regulation, the simple economics of the sector, namely, its ability to generate rapid short-term revenues on investments. This latter point can be easily observed through the model that the American gambling industry has provided for the world to follow. Simply, the annual revenue of a US destination casino can easily exceed ₤100 million. When this figure is compared with the construction costs of just ₤6 million and the initial ₤28 million fit-out, the lure for developers and investors becomes very apparent.

The government’s Gambling Bill, which has been slowly making its way through the legislative labyrinth and passed its third reading in the House of Commons in early 2005, aims to modernise and consolidate the currently stagnant, outdated and diverse legislation governing the various forms of gambling within the UK. The Gambling Bill has social responsibility at its core but is, at the same time, prepared to treat gambling as a mainstream leisure product and remove the former moralist tone of the law.

Deregulation, to the joy of casino developers and investors, will include: abolition of the membership rule which currently requires punters to join a casino 24 hours before they are allowed to even place a bet, casinos with be allowed to offer any legal form of gambling (including betting, bingo and linked gaming machines with unlimited prizes) as well as live entertainment and alcoholic drinks on the gaming floor. The government has also planned to remove the current legal requirement that bookmakers, casinos and bingo operators must demonstrate a local demand for their activities. Advertising restrictions could also be relaxed and online gambling (a recent and ever growing trend), via the internet or interactive TV, could be licensed for the very first time. The establishment of a single regulatory body for the industry, the Gambling Commission, has also been proposed. Lastly, and arguably the most important, the Gambling Bill will signal the dawn of new Las Vegas style regional casinos.

Already, before the Gambling Bill has even yet to reach the final step of the legislative process, developers and casino operators have already embarked on plans to transform the regional capitals of Britain – from London, Birmingham and Manchester to Liverpool, Newcastle and Sheffield – into internationally renowned centres of leisure and gambling pleasure. In short: mini ‘Las Vegases’.

Sheffield, a city with a population of 500,000 earning an average of ₤400 a week, already managed to attract proposals for three major casinos by the year end of 2004. MGM Mirage, Las Vegas Sands and Sun International have all launched proposals for future casinos at Sheffield United’s ground, British Land’s MeadowHall scheme and Don Valley Stadium respectively.

Manchester will witness a massive ₤260 million development adjacent to Manchester stadium. The project will boast 1,250 slot machines and 50 gaming tables in conjunction with a 2,750 seat sports arena and ice rink, a hotel, office space and 500 flats over a marina, and more.

The Gambling Bill, with its wide-reaching proposals and forward thinking, will inevitably be realised. After 35 years of waiting, the question is no longer if but when – whether the bill will become law by the upcoming election or by the next parliamentary session is still up to speculation. Whether in the name of regional regeneration, industrial growth or simple tax revenues, the bill will have major political, societal and economic implication – for better or worst will be the question with only the future holding the answer. Nonetheless, the bill will introduce a brand new world of leisure and gambling to the traditionally wet countryside of Britain and bring joy to those who, for years, have only dreamt of driving to their own Vegas style casino rather than make the 5200 miles journey to the Las Vegas Strip.


February 10, 2005

Asian Tensions (published in The Footnote – University of Warwick's political journal)

Asian Tensions: The Implications of Religious Violence on the Future of GLobal Politics

A look at the Buddhist-Muslim violence that has engulfed southern Thailand and the future implications of religious-based conflicts on global politics.

The population of the southern provinces of Thailand, a predominantly Buddhist country, have recently suffered a dramatic spree of religious violence sparked by the local Muslim minority. The attacks, which have claimed twenty lives in the same number of days, have re-ignited religious tensions across south-east Asia. Could they perhaps be interpreted as a glimpse of future world conflicts to come? Are we once again witnessing a trend away from wars between nations and towards a more religiously-orientated order whose genesis was watched by the world on the 11th of September 2001?

On the 26th of October 2004, some 2,000 Muslim men in the southern Thai province of Pattani protested in front of a local police station in response to the detention of 6 men accused of supplying weapons to Islamic separatists. Though the protest initially appeared to be peaceful, it quickly developed into a skirmish between government security forces and a number of armed Muslim men hiding within the ranks of protestors. In the violence that erupted, six men died of bullet wounds, and a further 1,300 were rounded up and sent to a military detention centre. The spiral of fatalities that was to be triggered may not yet have run its course.

During the course of the six hour transit of the arrested protestors to the military establishment, 78 Muslim men died of asphyxiation. Autopsies later performed by Thai forensic scientists showed that the majority of the dead had suffered fatal injuries to their necks and chests. The men had been so tightly packed into the military trucks that over the course of the six hours transportation they had suffocated. In 24 hours, 85 people had died. Not since April, when 107 suspected militants were killed in a failed attempt to seize arms from a local police station, had such a horrendous death-toll been registered in a single day.

Initially, the central government led by Prime Minister Thaksin Shinawatra was quick to attribute the deaths to the dawn-to-dusk fasting of the Muslim holy month of Ramadan. However, under intense pressure from both the international community and the King of Thailand, the government offered a formal apology for the outcome of the protest and promised an official investigation into the handling of the incident. So too did the international community voice their sorrow for the death of so many Muslims at the hands of the Thai army. Neighbouring countries in particular also expressed their deepening concern over the possibility, indeed likelihood, of future violence. Such fears can hardly have been alleviated as the local Muslim population vowed to take revenge against the government. Abdulraman Abdulsamad, chairman of the Islamic Council of the local province, informed the Thai press that “I cannot say what is going to happen, but I believe that hell will break out”.

And so, unsurprisingly, revenge attacks by the Muslim population swiftly followed. Two days after the deaths of the Muslim men, 2 bombs devastated a local marketplace in a provincial town in the south wounding some 20 people. The following week, the decapitated head of a 58 year old Buddhist village chief was left in a polythene bag, accompanied by a chilling note: “This was less than what has been done to the innocent”. Two days afterwards, 9 more Buddhist locals were killed by armed Muslims in a local village near to the location of the original protest. Then, on the 5th of November, some ten days after the initial incident, a group of Islamic insurgents attacked a Buddhist monastery, murdering a soldier on duty guarding the local Buddhist monks.

The two week orgy of violence caused few shockwaves through the global community. However, perhaps it should be recognized as part of an ever-growing trend of religiously orientated hostility that can be seen all over the world. The Beslan school siege in September 2004, for example, left 344 civilians dead – at least 172 of them children – and countless more wounded. It should not be forgotten that the terrorists that took the school were all Muslims from the neighbouring region of Chechnya and Ingushetia, a fact confirmed by both the Russian media and government.

The ghastly massacre happened three years after the attacks launched by a handful of Muslim extremists on the 11th of September 2001, perhaps the starkest example of this developing and alarming trend. With a death toll nearing 3,000 the attacks on the World Trade Center and the Pentagon by these Islamic terrorists dealt more damage and caused a greater number of deaths than the 2400 victims of the bombing at Pearl Harbour in 1941. Perhaps this shows that not only does this new form of religiously driven violence have a potential to cause large scale damage but that it also has the ability to inflict even greater destruction than the military efforts of an entire country.

Are these deaths, be they in Thailand, Beslan, or New York, indicative then of a ‘clash of civilisations’? In his 1996 book, “The Clash of Civilization and the Remaking of World Order”, Samuel P. Huntington, formerly a foreign policy aide to the Clinton administration, theorizes that the world is witnessing a change in its structure. The future of global politics, he argues, will rest upon ‘civilizations’ rather than nation states. Huntington explained that since the end of the Cold War people have begun to identify themselves by blood, belief, faith and family rather than by nation, ideologies or economics. While nation states remain the principle actors in world politics, the most important division or grouping between the people of the world are the major civilizations (Western, Latin American, African, Islamic, Sinic, Hindu, Orthodox, Buddhist and Japanese). He points out that the crucial and defining characteristics of these civilizations are the fact that they do not have any clear-cut boundaries, they lack a precise beginning or end (unlike many countries and empires in the past) and are constantly evolving and adapting.

New ‘hotspots’ of tensions can, and will, erupt along the fault lines between civilizations, whether they be found in Chechnya, Central Asia, Kashmir, the Middle East or Tibet. This provides an explanation of the points made earlier in this article about the new trend of religious violence, and also helps to explain the location of these new areas of tensions and hostilities. It should however be noted that since terrorism, as executed by religious fanatics, knows no international boundaries the acts of violence do not always occur at the ‘fault lines’, they do however often, if not always, originate from such places.

Nevertheless, it should be noted that Huntington’s line of thought has, in the past, come under attack from political commentators who have labelled him as an alarmist, ‘Islam-phobic’ and neglectful of the unipolar view of America as the dominant state on the world stage. Indeed many critics of the Huntington theory has turned towards Francis Fukuyama, the acclaimed writer of the ‘End of History’, who offers the opposing view that mankind’s global conflict that has spanned over the ages has finally arrived at an end. Fukuyama argues that the global development, of all people regardless of international borders, towards liberal democratic capitalism has been the main cause for the conclusion of worldwide hostilities. However, since the attacks of September 11th, Huntington’s thesis of an imminent clash of civilizations has becoming increasingly and even more widely received and accepted.

Interestingly, the Huntington theory, when applied to the current violence in South-eastern Asia, offers a coherent and logical explanation for the reason and causes of the hostilities. It should not be forgotten that South-east Asia is, if one continues to adopt the Huntington line of thought, a potential hotspot for religious tension and destructiveness. Thailand, as an obvious constituent of the Buddhist civilization, lies directly above an area heavily populated by the Muslims of Malaysia and Indonesia. The country is also situated within close proximity to the Hindu civilization of India and, as the military and economic powers of China continues to increase, within the sphere of influence of the Sinic grouping. As a result, if the government of Thailand aspires to avoid future bloodshed, it must seek to address the Buddhist-Muslim dilemma with careful consideration for the religious fragility involved. Unquestionably, if the world is truly witnessing a destructive trend towards religiously driven violence, then Thailand may well provide a distinct model for peace and success or a formula for imminent disaster.

If, as Huntington suggested, the future of world politics does indeed rest upon the division of man into these civilisational tribes (in which religion forms a fundamental component) over and above the nation state, then we, as citizens of the world, must address the evolving and imminent problems of religiously based violence. If a peaceful solution or consensus between two religious groupings cannot be achieved in small scale conflicts of interests such as those of Thailand and Russia (which both ended in tragedy) then the future will indeed be bleak and we may very well be witnessing the dawn of an imminent clash of civilizations. In the view of this particular author, if a peaceful resolution can truly not be found then a conflict between the civilizations of the West and Islam will indeed be imminent and can only have one possible conclusion. Due to the military and economic superiority of the Western world, Islam will be devastated in a war that it will have no realistic prospect of winning and would then be rebuilt, even if against its will, along Western lines (as happened in Japan after the conclusion of the Second World War). Nevertheless, this forced transformation would only occur after the loss of thousands if not hundred of thousands of lives. As a result, though we, as members of the global community, must hope for a future of peaceful co-existence between the many civilisational tribes of the world, we must also plan and prepare for a pessimistic eventuality even if we seek to avoid it.


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