Also, and I apologize for nit-picking, I did want to comment on this paragraph:
--------quote----------
Conversely, it is not an accident that the most successful jurisdictions in the world had no natural resources. Hong Kong and Singapore both went from African-level poverty in 1960 to greater prosperity than the UK today (on a per caita basis), and both had no natural resources. Dubai’s rapid growth began largely after they realized they were running out of oil—their brilliant special economic zone strategy was deliberately developed as an economic development pathway so that they wouldn’t collapse after their oil ran out. Mauritius, the most economically successful African nation, now approaching the prosperity of the poorer European nations, is a small island with no natural resources. The Bahamas and Cayman Islands began to compete without having natural resources, and so forth. For all of these jurisdictions, it has been a blessing NOT to have natural resources because it drove them to develop some of the best business environments in the world.
--------end quote----------
There is a bit of a question of how well that model scales. The total population of the countries mentioned is 17.8M (of which Hong Kong is almost half of that number). The total population of Africa is 1.2 billion, so a very different size.
The ‘Mauritius route’ was famed as a channel used by foreign investments into India. Capital gains accruing to foreign investments coming through Mauritius were exempt in India due to the India-Mauritius DTAA. As a result, many foreign investors used to incorporate conduit companies in Mauritius and bring their money into India through the conduits. Between 2004 and 2014, about 39 percent of total Foreign Direct Investment into India was from Mauritius.
So you take your money out of India to another country, in this case Mauritius, then you bring it back into India and now it’s suddenly dressed up as foreign money, foreign investment. What’s the point of this disguise? Well, many countries try to attract foreign investment by providing all sorts of special incentives, tax breaks, tax holidays, and these aren’t offered to local investors. So domestic investors get away with dodging tax and exploiting rules that are not meant for them. And eventually this ends up harming the very government systems and public infrastructure that they are relying on to make their money and do business. And of course, another reason for the disguise is the good old fashioned money laundering, trying to clean dirty money.”
Whistleblower: “All these structures, or all these investments that were flowing into India through the Mauritius route were actually structured by Nishith Desai associates. Almost like, you know, I would say 99% of these investments were structured by Mr Nishith Desai and his firm Nishith Desai Associates.”
--------end quote----------
None of that is to deny that Mauritius has made good decisions in terms of development, and the reason I describe this as nit-picking is that you have to start somewhere, and it may turn out that Startup Cities are a good way to start. HOWEVER, it's also worth being clear that if we are looking to Mauritius as a model, it would be a good idea to NOT copy the strategy of drawing in capital by offering favorable tax treatment, which ends up creating a subsidy on the part of taxpayers from the larger country who pay more because they can not collect taxes on that money.
Edit: I mis-typed the difference in dividend tax rates between India and Mauritius, it should have been a max of 88% not 78%.
I also realized that another way to think about the question of scale is to imagine if London were a separate country from the rest of the UK -- in that case it would also look like a rich, small country (larger than Hong Kong and almost 3 times the population of Dubai) which was wealthy based on cultivating a business-friendly environment. But with London not being a separate country we can see that there is a natural concentration of, in this case, financial business, and even though the rest of the UK has the same laws and regulations, money remains concentrated.
I appreciate the call to look forward in a way that is more realistic than a comic book vision.
I'm curious; I have not been following news about Prospera closely, but it appears to be a deeply controversial project. Are you aware of plans for models of startup cities that avoid some of the political concerns (in particular, this article makes it sound like there's been a move away from the current model for investor-state dispute settlement (ISDS)): https://foreignpolicy.com/2024/01/24/honduras-zedes-us-prospera-world-bank-biden-castro/
Interesting look at the wealth of nations. Nice job!
Also, and I apologize for nit-picking, I did want to comment on this paragraph:
--------quote----------
Conversely, it is not an accident that the most successful jurisdictions in the world had no natural resources. Hong Kong and Singapore both went from African-level poverty in 1960 to greater prosperity than the UK today (on a per caita basis), and both had no natural resources. Dubai’s rapid growth began largely after they realized they were running out of oil—their brilliant special economic zone strategy was deliberately developed as an economic development pathway so that they wouldn’t collapse after their oil ran out. Mauritius, the most economically successful African nation, now approaching the prosperity of the poorer European nations, is a small island with no natural resources. The Bahamas and Cayman Islands began to compete without having natural resources, and so forth. For all of these jurisdictions, it has been a blessing NOT to have natural resources because it drove them to develop some of the best business environments in the world.
--------end quote----------
There is a bit of a question of how well that model scales. The total population of the countries mentioned is 17.8M (of which Hong Kong is almost half of that number). The total population of Africa is 1.2 billion, so a very different size.
In the case of Mauritius, I am not at all an expert, but part of their development has been serving as a tax haven for India. This article notes that, in some cases, taxes on dividend income is 88% lower if taxed as being paid in Mauritius rather than India which lead to: https://www.cnbctv18.com/views/how-the-misuse-of-indias-treaty-with-mauritius-is-leading-to-tax-revenue-loss-5344541.htm
--------quote----------
The ‘Mauritius route’ was famed as a channel used by foreign investments into India. Capital gains accruing to foreign investments coming through Mauritius were exempt in India due to the India-Mauritius DTAA. As a result, many foreign investors used to incorporate conduit companies in Mauritius and bring their money into India through the conduits. Between 2004 and 2014, about 39 percent of total Foreign Direct Investment into India was from Mauritius.
-------- end quote----------
This says much of that money was coming from India and was being transferred through Mauritius purely as a tax dodge: https://taxjustice.net/2023/02/01/tax-haven-mauritius/
--------quote----------
So you take your money out of India to another country, in this case Mauritius, then you bring it back into India and now it’s suddenly dressed up as foreign money, foreign investment. What’s the point of this disguise? Well, many countries try to attract foreign investment by providing all sorts of special incentives, tax breaks, tax holidays, and these aren’t offered to local investors. So domestic investors get away with dodging tax and exploiting rules that are not meant for them. And eventually this ends up harming the very government systems and public infrastructure that they are relying on to make their money and do business. And of course, another reason for the disguise is the good old fashioned money laundering, trying to clean dirty money.”
Whistleblower: “All these structures, or all these investments that were flowing into India through the Mauritius route were actually structured by Nishith Desai associates. Almost like, you know, I would say 99% of these investments were structured by Mr Nishith Desai and his firm Nishith Desai Associates.”
--------end quote----------
None of that is to deny that Mauritius has made good decisions in terms of development, and the reason I describe this as nit-picking is that you have to start somewhere, and it may turn out that Startup Cities are a good way to start. HOWEVER, it's also worth being clear that if we are looking to Mauritius as a model, it would be a good idea to NOT copy the strategy of drawing in capital by offering favorable tax treatment, which ends up creating a subsidy on the part of taxpayers from the larger country who pay more because they can not collect taxes on that money.
Edit: I mis-typed the difference in dividend tax rates between India and Mauritius, it should have been a max of 88% not 78%.
I also realized that another way to think about the question of scale is to imagine if London were a separate country from the rest of the UK -- in that case it would also look like a rich, small country (larger than Hong Kong and almost 3 times the population of Dubai) which was wealthy based on cultivating a business-friendly environment. But with London not being a separate country we can see that there is a natural concentration of, in this case, financial business, and even though the rest of the UK has the same laws and regulations, money remains concentrated.
I appreciate the call to look forward in a way that is more realistic than a comic book vision.
I'm curious; I have not been following news about Prospera closely, but it appears to be a deeply controversial project. Are you aware of plans for models of startup cities that avoid some of the political concerns (in particular, this article makes it sound like there's been a move away from the current model for investor-state dispute settlement (ISDS)): https://foreignpolicy.com/2024/01/24/honduras-zedes-us-prospera-world-bank-biden-castro/