Parag Khanna has frequently discussed the rise of a neo-feudal age, with power devolving from nation-states to cities. Why are nation-states losing relevance?
One important reason is that tax havens are diverting ever more revenue away from social needs. Powerless to confront the wealthy or powerful corporations which take advantage of them, states must tax their middle classes more or cut services. Many authors have noted the proliferation of tax havens in recent years. But one rarely sees the literal trappings of feudalism re-emerge, as Nicholas Shaxson describes in his provocative account of the “City of London Corporation:”
The term “tax haven” is a bit of a misnomer, because such places aren’t just about tax. What they sell is escape: from the laws, rules and taxes of jurisdictions elsewhere, usually with secrecy as their prime offering. The notion of elsewhere (hence the term “offshore”) is central. The Cayman Islands’ tax and secrecy laws are not designed for the benefit of the 50,000-odd Caymanians, but help wealthy people and corporations, mostly in the US and Europe, get around the rules of their own democratic societies. The outcome is one set of rules for a rich elite and another for the rest of us....
According to US PIRG, in 2009, citizens of Wisconsin saw $1.6 billion in taxes shifted to them because “many of the largest corporations in our country hide profits made in the United States in offshore shell companies and sham headquarters in order to avoid paying billions in federal taxes.” Given that environment, cuts in pay and benefits for teachers, janitors, and other public workers are a foregone conclusion.