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Making the Best of a Bad Situation: Russia and the Energy Crisis

photograph of electric power pylons in winter landscape

Europe is facing a crisis (I know, another one?!). This crisis, however, isn’t viral, ecological, economic, or migratory – although it is influenced by, and influences, these phenomena. No, I’m referring to the European energy crisis. Since the beginning of this year, the wholesale price of gas has increased by 250%. This, in turn, has caused similar price rises down the energy production and consumption chain. As a result, businesses and domestic consumers have seen their energy bills rise phenomenally, increasing the numbers of people facing fuel poverty and forcing EU leaders to call emergency meetings.

The reason for this price rise is hard to pin down because it isn’t attributable to any single cause. Instead, multiple factors – such as a shortfall in renewable energy production, an increase in demand as the global economy resurges post-COVID, and a steady phasing out of energy from coal production – have led to the crisis. However, to oversimplify it, there’s not enough energy to meet demand, causing prices to rise. And, while the situation is at its worst in Europe, there’s no reason to think that it will not eventually spread. Indeed, prices have already begun to rise in other parts of the globe.

While this is a dilemma for those countries who import all or some of their energy (be that gas, coal, oil, or electricity), it is also an opportunity for exporters. Higher prices mean greater profits as individuals, institutions, and even states become increasingly willing to part with funds to secure essential resources. On a small scale, prices being dictated by supply and demand isn’t too much of an issue (provided you’re onboard with capitalism). It’s how your local shop decides how much to charge for toilet roll – the more people want it, the more that shop can charge. But, when it comes to nation-states’ selling and purchasing power, things can become tricky as scarcity confers additional political power to those resource-rich countries, which they can leverage against the resource-poor.

It is precisely this politicization, and even weaponization, of energy supplies that several countries fear will take place within Europe. More specifically, concerns are being raised that Russia, one of Europe’s largest natural gas suppliers, is going to capitalize on the European energy crisis, using it as an opportunity to solidify its already significant bargaining position or even refuse to export energy as a means of weakening its (perceived) rivals. Of course, this is something that Russian authorities have denied, with Vladamir Putin going so far as to not only deny Russian involvement but also blame Europe for the whole affair.

This concern raises an interesting point, however. While fears have been expressed about Russia’s intentions during the crisis, it’s not entirely clear what would be wrong with them making the best of it. Why shouldn’t Russia, as one of Europe’s largest gas suppliers, take advantage of the crisis to better its fortunes, even if this does lead to an increase in gas prices?

Now, the answer might seem obvious – people are going to suffer without gas. If people can’t afford to heat their homes during winter, this will cause suffering and even death – things which we typically class as undesirable. Thus, one can argue, from a moral and political cosmopolitanism, that Russia shouldn’t act in a manner that causes harm to people regardless of their nationality. Consequentially, it should do what it can to help minimize gas prices and thus minimize harm.

Yet, it’s not entirely clear why Russia should care about the suffering of individuals beyond its borders, or at least, what it owes those people. After all, pretty much every person already has a political entity that exists to protect their interests – their own nation-state. Why should Russia pass up an opportunity to better its fortunes and act in a way that benefits the well-being of individuals for whom it holds little to no responsibility? What concern is it of Putin’s if people in the U.K. are cold because they can’t pay their gas bills? After all, those people have the U.K. government to care for them. Why should the Russian government miss out on an opportunity to better its standing and that of its citizens?

This attitude may seem callous or even cruel (indeed, I would be inclined to say it is). But a failure of a government to act in the best interests of those to whom it holds no obvious bond is arguably not a dereliction of duty. After all, it would seem uncontroversial to claim that the purpose of government is to secure the well-being of its citizens. If it fails in this purpose, that is when its legitimacy can be called into question. But to disregard the well-being of citizens of other member states, while potentially distasteful and even unethical, doesn’t seem to contradict a government’s function. For the Russian government then, if it can act in a manner that solidifies its positioning and thereby (in)directly betters the lives of its citizens, it would seem acceptable, even necessary, that it takes advantage of the unfolding crisis. The Russian government should look out for the Russian people, and passing up an opportunity to do this, simply for the benefit of those whom it holds no duty of protection, would seem antithetical to its very purpose.

Now, that is not to say that Russia would be off the hook if it did take advantage of the current situation. There is still plenty of scope for condemnation if it did drive up energy prices, resulting in suffering, simply as a means of increasing its political power (cosmopolitanism has already been alluded to as a potential basis for such criticism). But, to find fault with Russia for taking advantage of the crisis simply because it’s acting in a way that will give it political leverage over its peers or competitors seems to criticize the nation for doing its job, one which every government holds. After all, if the positions were reversed, how do you think your government would act? In the best interests of its citizens or the interests of others?

The Ethics of a Global Corporate Tax

photograph of unequal columns of stacked coins

The Biden administration has recently proposed a global minimum corporate tax, but what is at stake in such a policy? When debating public financial matters, it can be easy to get so focused on economics and politics that basic ethical considerations fade into the background. David Scheffer, for example, notes that when it comes to corporate tax avoidance “much of the ensuing debate has centered on how to tax corporate profits fairly and more efficiently…but there has been little effort to associate tax avoidance schemes with corporate abdication of responsibility for advancing critical societal goals.”

Scheffer was writing in 2013, when Starbucks paid only £8.6 million in British taxes over a 14-year period, and paid no UK corporate taxes in 2011 despite over $400 million in sales. U.S. corporations had $1.7 trillion in overseas accounts to avoid taxes. Apple, for example, held about $100 billion in tax haven accounts to avoid taxation in the U.S. In 2020, despite record-breaking profits, Amazon only paid an effective tax rate of 9.4% rather than the actual 21% rate, avoiding over 2 billion dollars in taxes. (Prior to that, Amazon had avoided paying taxes altogether for several years.) As a result of these trends, Scheffer points out that the percentage of tax revenue collected from wage-earners and consumers has increased dramatically, while the percentage of corporate taxation has dropped precipitously.

Unfortunately, figuring out what to do about the situation is no small task. While a nation can try to close loopholes and raise taxes, a corporation can simply move their corporate headquarters to a different nation with a lower corporate tax rate. These tax havens allow companies to minimize their tax liabilities through profit-shifting; companies register their headquarters in an alternative jurisdiction rather than the country where its sales took place.

To crack down on corporate tax avoidance, the Biden administration is now calling for a global minimum corporate tax rate of at least 15%. As Treasury Secretary Janet Yellen recently stated, a global minimum would “stop what’s been essentially a race to the bottom, so that it’s competitive attractions of different countries that influence location decisions, not tax competition.” The idea is that a country could require a corporation to pay the difference between its minimum tax rate and the rate it pays on earnings in foreign countries.

So far, several nations have signaled their agreement with the proposal. Canada, Germany, France, and many others have indicated their interest, while nations like Ireland and Hungary have registered vocal opposition. (Ireland has only a 12.5% corporate tax rate and has encouraged numerous businesses to create subsidiaries there for years to take advantage of this.) Many developing nations have also expressed misgivings about the proposal due to fears a crackdown will discourage foreign investments.

While a global minimum rate may be important for issues of trade and economic development, the issue of tax competition has received comparatively little attention when it comes to issues of ethics and justice. But Peter Dietsch and Thomas Rixen have argued that tax competition undermines the de facto sovereignty of states. Without the ability to effectively set the size of the state budget and the extent of redistribution, states have no fiscal self-determination.

Likewise, Scheffer argues that taxes are a moral issue because the future of human rights depends on a state which is capable of protecting and securing them (and has the funds to do so). Further, while Milton Friedman and others have argued that corporations are primarily only responsible to their shareholders, Scheffer notes that given climate change, rising income disparity, and the backsliding to authoritarianism, there is no such neat division between capitalist pursuits and societal imperatives. He argues:

“The fact that major multinational corporations are paying such comparatively miserly taxes in their home or operating jurisdictions, and doing so legally, means they are minimizing their contributions to social priorities in education, infrastructure, public health care, law enforcement, and even the military defense of countries that provide them with the security and stability that allows them to earn their profit. Societies where these government services are properly financed stand a much better chance of protecting the human rights of the populace.”

Overall, tax avoidance by corporations contributes to the overall decline of government services, which “degrades the operating environment and the very markets within which corporations seek to thrive.” These considerations suggest important moral issues at stake in addressing corporate tax avoidance.

On the other hand, critics of the global minimum corporate rate argue that the move is unfair. While the move would equalize tax rates across the globe, it would also benefit richer nations at the expense of smaller and developing economies who would no longer be able to set lower, more competitive rates to attract foreign investment. Foreign investment represents an integral part of the development plans for lower-income countries, and so the move threatens to reduce the overall welfare of lower-income countries. Even Ireland has managed to dramatically increase living standards after once having one of the worst living standards in Europe, largely thanks to foreign investment. Nations like Mauritius, Paraguay, Uzbekistan, and Kosovo would likely suffer from a decline in tax revenue as well, while a global standard would help nations like the U.S. and France.

But of course, that doesn’t mean that steps couldn’t be taken to mitigate some of these concerns such as direct redistribution of financial means into education and public infrastructure of developing nations. Besides, perhaps taxes should be applied more where economic activity and value creation occurs rather than the location of corporate headquarters. But beyond these practical considerations, Scheffer argues that “the higher ethical perspective” demands that corporations look past minimal standards of compliance and embrace a stronger sense of social corporate responsibility. In order to address the larger problem of which tax competition is merely symptomatic, it’s important to stress the ethical role that corporations have to play in advancing our shared societal goals.

US Exceptionalism, Foreign and Domestic

photograph of American flag painted on side of brick wall with barb wire strung on top

The Trump administration continues to reduce the US’s participation in cooperation and coordination schemes at home and abroad. Pursuing collective interests often satisfies private interests, especially in cases where what happens to someone else will have an impact on the interests of all individuals in the collective. That is the case with highly contagious and dangerous viruses like COVID-19. But coordinated action by the federal government has been in line with the American exceptionalism that has defined Trump’s presidency. During this crisis, however, it has been directed inward rather than outward.

During his tenure, Trump has removed human rights oversight from the UN despite clearly voiced concerns over the treatment of many groups of people under government care and jurisdiction. His administration has removed the country from treaties aimed to avoid military escalation with nations like Iran that we have historically tense relations with, and imposed sanctions that, during the current health crisis, have clearly caused more unnecessary suffering. He has also removed the US from agreements that represent the best chance of saving our planet from devastating environmental collapse.

The United States has now cut funding to the WHO during a global pandemic. Many analysts are attributing this move as a strategy for redirecting blame for horrible outcomes after months of federal inaction.

There are times that collaboration is necessary to improve individual well-being, but this fact is lost on the Trump administration. By having treaties, agreements, and collective procedures that may restrict individual latitude in decision-making for particular areas of life and government, this not only raises the welfare of the worst off, but ensures the welfare of the best off as well. In other words, collective bargaining is not charity. It is not supported merely by liberal principles of justice. We can see that it is in the best interest of all, as the suffering of the pandemic and the stakes of these other exceptionalist policies brings out.

Consider arms treaties. The US can consider it in our own best interests to pursue dangerous weaponry and balk at the constraints of collective treaties that curtail our production and economic interests that result. However, our interests are in fact undermined by avoiding such treaties because now we have created an arms race where everyone is put in more danger.

Further, we may balk at restrictions like international agreements that limit behavior causing damage to the environment. However, in pursuing our conception of our private interests, we actually are undermining the good that comes from the collective action – by having a common agreement, we recognize that the actions of all individuals do, in fact, affect each other: we are all jointly affected by the environment on earth. The air in Morocco doesn’t stay in Morocco. The water in the North Atlantic doesn’t stay in the North Atlantic. All of our interests are served by joint commitments to restrictions.

A final example is space exploration. An individual country may consider their best interests to go it alone and take advantage of the private or corporate pursuit of gathering resources or claiming land. Trump in fact issued an executive order to this effect on April 7th: “Americans should have the right to engage in commercial exploration, recovery, and use of resources in outer space.” However, conceiving of space exploration in single-country terms is impractical and undermines the individual state’s interests. The Center for Strategic and International Studies and NASA both argue that international cooperation is crucial for pursuing space exploration. As one expert states, “When there’s a hurricane, earthquake or other disaster, […] multiple countries with remote-sensing satellites — including the U.S., Japan, South Africa, Russia and the European Union — are part of a disaster charter. Whomever had a satellite passing over the disaster-ridden region before, after and during the event has agreed to share data to mitigate damage, saving lives and property.” Thus it is in the interest of each individual state to cooperate with the many.

In the last few years, Trump has removed federal regulations in a variety of domains that have effects in social welfare such as the EPA, education, and civil rights protections.

By distancing the federal government from regulating standards for environmental protection, this allows varying interventions depending on more local government interests and resources. The same goes for states. This results in public goods such as health and education—cornerstones of a democratic country that lead to democratic legitimacy—being denied to some and ensured to others. Democracy is served by a healthy and educated electorate. Social mobility is possible when residents are educated and healthy, and this promotes the welfare of everyone, not just the underserved. Trump’s removal of these different restrictions has made it unclear how we are distributing public resources, an ominous forecast of the mishandling of the pandemic now.

There are now three consortiums of states that are coordinating the pursuit of medical supplies and their strategies for policies regarding isolation and lifting of isolation policies. These groups make up about half of the population of the country, with one comprising the three West Coast states, one in the Northeast, and one in the Midwest. The impetus for these groups of states being formed was the obstruction that the federal government introduced to the “free market” for necessary lifesaving medical supplies. Governors found themselves bidding against each other, effectively driving up the price during a period when time and money were at a premium with lives at stake. The groups have coordinated to various degrees regarding developing criteria for when and how to lift isolation measures, given the lack of leadership from the federal government. Having consistent measures in place under the conditions of a medical crisis that is contagious has clear benefits. If, in one state, movement is unrestricted and businesses are widely open, the next state over is impacted.

Trump has actively promoted “liberating” the states with stay-at-home policies, despite all medical and expert advice. Actually, to the point of possibly inciting insurrections in some cases.  We could interpret this as a lack of value for human life because of the complacency being shown to the dire situations the states find themselves in. The administration has been willing to sacrifice millions of people for the nebulous “economic” value of folks returning to work (without acknowledging the impact on the economy of the millions of people impacted by the spread of disease). The brute neglect or rejection of the estimates of death and severe illness by medical experts will have lasting effects on the public health and faith in government long after the isolation policies are lifted.

A Call for the Reform of Diplomatic Immunity

Embassies in Washington, DC

Codified through international law at the Vienna Convention on Diplomatic Relations in 1961, diplomatic immunity grants foreign diplomats legal immunity to ensure safe passage and prevent lawsuit or prosecution based on the host country’s laws. The tradition behind diplomatic immunity dates back thousands of years, traced through Indian epics and accounts by Roman and Greek officials. Despite this, the invocation of diplomatic immunity has not been constrained by many governments and has allowed cases of rape, sexual exploitation, human trafficking, driving while under the influence, and many other crimes to go without prosecution.  This calls into question whether or not the international community should consider constraints on when diplomatic immunity—or diplomatic protection as an extent—can be invoked in certain crimes.

Continue reading “A Call for the Reform of Diplomatic Immunity”