Ever since my original post on Flights of Knowledge I have been receiving emails from people who wish to remain anonymous regarding other examples, aspects, and potential reasons for the phenomenom. Nicolas Sarkozy’s win in today’s French presidential election sparked some additional thought, as it may have an impact on one of the largest such "knowledge migrations."
The original post from three months ago described several examples of global knowledge migration. Briefly paraphrased from that post:
- Professionals Exit Venezuela As Chavez transforms Venezuela from a democracy to a dictatorship, experienced professionals are fleeing the country, ironically to the United States.
- Germany’s Brain Drain "Doctors, engineers, architects, and scientists" are fleeing the country due to "a stifling bureaucracy, high taxes, rigid labor market, and plodding economy."
- Rich and Successful Flee France "On the one hand, France is portrayed as a strong and confident country, whose people, unlike the Americans, are committed to ‘social solidarity.’ On the other hand, there is the reality of high taxes, high unemployment, uncertainty, and a general feeling of malaise. As more of the young, educated, and successful French move abroad, the welfare state will grow more unsustainable."
- Canadian Doctor Brain Drain Although it has slowed slightly in the last couple years, the number of medical professionals fleeing the constraints of single-payer government healthcare in Canada to move to the U.S. equals 30% of the output its medical schools.
- Foreign Scholars Returning to India and China Perhaps balancing the flow of professionals to the U.S., foreign students at U.S. universities who previously would try to stay in the U.S. to work are now returning to their countries of origin due to the growing and globalized nature of those emergent economies creating new opportunities.
The situation in France, or at least those that used to live in France, is particularly interesting today. Over 2 million French have left, predominantly for new homes in the old archrival, the United Kingdom. This is serious, as they are generally the most creative and the most entrepreneurial, the ones that grow economies.
Standing in the heart of London’s financial district, Sarkozy heaped compliments upon his country’s historic enemy. The British capital was, he said, a “town that seems more and more prosperous and dynamic every time I come here.” More important, it had become “one of the great French cities.” He understood, furthermore, that hundreds of thousands of Frenchmen had moved to Britain because “they are risk-takers, and risk is a bad word” in France.
Sarkozy could make a difference. He has already proposed a 25 percent corporate tax rate, which would ironically make it even less than that of the United States. He has also proposed significant changes to work rules to create more hiring and scheduling flexibility, which could help reduce one of the highest unemployment rates in the industrialized world. Such changes to the beloved French welfare state won’t be easy however.
But how is the UK absorbing so many French professionals? Because many of their citizens are also fleeing for even more business-friendly countries. Not measured in the millions, but predominantly skilled professionals.
The UK is suffering a significant brain drain as skilled professionals and managers leave the country to be replaced by low-skilled workers from Eastern Europe. Official figures suggest that some 272,000 Britons emigrated between 2000 and 2005, 42 per cent of whom were professionals or managers.
France isn’t the only country realizing that high taxes create knowledge migrations. Sweden, the poster child of welfare utopia created by high taxes, is throttling back.
Sweden plans to scrap a decades-old "wealth" tax that imposes levies on assets – not just on income. The move underscores the country’s efforts to keep successful Swedes and their capital at home by changing its fabled but costly welfare state. Sweden’s wealth tax is one of many levies [that] add up to the world’s highest taxes – more than 50 per cent of Sweden’s gross domestic product. Not surprisingly, the wealthiest Swedes have fled the country, including IKEA founder Ingvar Kamprad, No. 4 on Forbes magazine’s list of the world’s richest people. He lives in Switzerland.
There’s probably a good reason why Mr. Kamprad lives in Switzerland. The country is currently embroiled in a battle with the European Union over corporate and wealth taxes. Lower Swiss taxes are making it difficult for the EU to compete and retain companies. Or I guess another way of saying it is that higher EU taxes are making it difficult for EU companies to compete with less incentive to stay in the EU… instead of moving to Switzerland. But something else is happening… "tax competition" is forcing lower rates throughout Europe, and much of the continent now enjoys lower rates than the United States.
Smaller European nations — including Ireland and the former Soviet-bloc nations of Eastern Europe — have slashed corporate-tax rates to as low as zero, as part of their economic-growth strategies, and have succeeded in attracting investment from multinational corporations. That success has put pressure on Europe’s larger economies to cut their taxes.Europe’s major economies are competing with one another to cut corporate taxes as they fight to attract and keep investment, fueling a trend that has taken Europe’s corporate-tax rates below those of other regions. Nominal tax rates on corporate income in the European Union average 26%, compared with 30% in the Asian-Pacific region and nearly 40% in the U.S.
The "tax competition" isn’t just within Europe. Others are getting in on the action, such as Singapore.
Politicians fret that America is losing manufacturing jobs and they complain when American companies build plants overseas. Contrast the short-sighted behavior of U.S. lawmakers with those in Singapore. In his Budget Statement for the Financial Year (FY) 2007, Second Minister for Finance, Tharman Shanmugaratnam announced a two percentage point reduction in the corporate income tax rate to 18% to sharpen Singapore’s competitive edge.
As NAM likes to say, tax success and you get less success. It’s hard to build a world class enterprise when the knowledge workers you need are on the run.