Following the financial crisis and the publication of the book Capitalism by Thomas Piketty, a global discussion (see the recent Financial Times article “Corporate citizens of the world owe fealty to us all”) has emerged about the nature of capitalism and the possibilities of developing “responsible capitalism”. Normative arguments have dominated this debate. For instance, companies have been criticised for relocating, or considering relocating, their head offices. Have companies really become footloose, as some critics contend? No. The current debate risks overlooking structural drivers of companies’ decisions to locate their head offices.
First, the more important it is for the multinational corporation to be locally responsive, the more likely it is to show a commitment to its home base, but also to its other major markets. Nestlé and Unilever are good examples. The advertising group WPP faces weak local responsiveness pressures. No surprise that WPP shifted its head office from London to Dublin and back to London! What about Boeing, you might ask, don’t they face local responsiveness pressures? They do, which is why they won’t leave the U.S., but only switch states within the U.S.
Second, some tax competition amongst countries is not necessarily bad. Yes, governments need to be able to pay for social services, education and other public services. But moderate tax competition does help prevent the return of the bloated government bureaucracies we have seen in the past.
Third, people working at head offices typically have a choice where they want to live. These managers are not perfectly mobile. However, such people often prefer to work in environments offering good living conditions, good schools, reasonable personal tax conditions, and, crucially, safety. This is why e.g. Switzerland and the Netherlands have been, and will remain for some time, attractive locations.