Politics and Networks May Not Mix

I’ve just been involved with a discussion around how the EU is trying to put in place various directives and regulations around cloud computing, and the issues that could arise.

As well as the obvious question around whether any central political body can drive anything in the technology sphere, rather than just follow it, other issues were apparent.

On both sides of the Atlantic, governments are struggling with the same issues — massive financial deficits overshadowed by poor economic performance.  Their first response is to try and maximize public sector receipts — not a bad idea, in theory.

However, there is this notion within political circles that the lines that they draw on maps will be followed not just by people, but also by data.  This is not so, and the global village — never mind global country or city — is now upon us.

What does this mean to our glorious leaders?  In the UK, a government Public Accounts Committee (PAC) pulled in Starbucks, Amazon, and Google to explain why they paid so little tax in the UK.  The simple answer should have been that they paid what they legally had to, but the politicians may not be that bothered by the laws that they have put in place — they wanted to know why these companies did not pay more on “moral” grounds.

The real issue is not whether the companies involved should pay more; it comes down to how networks, along with cloud computing, have changed the way that they can — and do — carry out business.  Way back before global communications were in place, shuffling money around was a little bit more difficult;  it required agreements between banks and promissory notes to be carried around, or for wads of folding notes or weights of gold to be physically moved.

Now it’s all done by the movement of a few billion — electrons, that is — across the networks and the cloud systems that enable global business-to-business commerce.  Therefore, a business can set up a base in a low-tax center and run those businesses in the high-tax areas as subsidiaries that have to pay loans, fees, and even buy their stock from the low tax country base.  All the money involved is kept moving through networks and bank automation systems — the physical side of it is never really seen.  Therefore, the subsidiaries run at low profit, break even or even a loss in the high tax countries, whereas all the profit is made in a country with a few per cent corporation tax rate, rather than tens of per cent.

It is time for our politicians to get real over this — they set up the laws, and they are unworkable.  Modern networks and cloud computing have created globalization of a kind that transcends country borders and makes it easy for organizations to avoid corporation taxes.

It is unlikely that any country, or even any group of countries such as the EU, will agree to drop their physical borders in a technical manner.  All countries already have multitudinous laws on data storage and management which contradict one another.

This leaves little room for maneuver for the politicians.  They could try and live with the status quo — a situation that their citizens are not happy with.  Or, they can move a bit more away from free market economics and tax the organizations on revenues within each country, rather than on profit.

A tough choice — one which I doubt politicians will really wish to make.

But it is one solid sign of how technology — and relatively simple technology such as global networks — has an impact on all of us well beyond the world wide web.

Image credit: Images_of_Money (flickr) – CC-BY-2.0