Tuvalu takes moolah from the mullahs

In a shocking abuse of its financial dependence on Australia, New Zealand and the UK, Tuvalu is also taking money from one of the West’s deadliest enemies.

Not content with revenues from fishing licences and its “tv” internet domain name, which it sold for $55 million and makes $A2.2 million a year in royalties, Tuvalu has registered half of Iran’s oil fleet.

In a largely unreported development, former Wall Street Journal editor Claudia Rosett has revealed Iran’s main tanker company, NITC, reflagged 22 of its 40 tankers through companies sharing a post box in Vaiaku (a Tuvaluan village), though the official ship registry is based in Singapore.

The vessels show up on Lloyd’s as owned by companies based in the Seychelles and the British Virgin Islands, a tax haven.

Ms Rosett, who is journalist-in-residence at the Foundation for Defense of Democracies, says these tankers, worth billions of dollars, have also been renamed from the Persian to names such as Truth, Blossom and Glory.

She also reports this is all above board, as the NITC is not on the list of European Union and US sanctions imposed to stall Iran’s nuclear weapons programme, which has Israel as a target.

However, the US is planning legislation to close the loophole against the NITC, which previously flagged its fleet in Malta and Cyprus, both members of the EU. NITC escaped sanctions imposed on Iran's state-owned merchant fleet because of nominal privatisation in 2000.

Foreign Minister Murray McCully announced in June, at the Otago Foreign Policy School, that New Zealand fully backed the sanctions and no longer allowed the importation of Iranian oil.

New Zealand is a generous donor to Tuvalu, formerly part of the UK-colonised Gilbert and Ellice Islands in the northern Pacific, and provides an annual immigration quota of 75 out of a total population of just over 12,000 (equivalent to 1.2 million Chinese).

Taxing rich makes everyone poorer
The release each year of the NBR Rich List always prompts media reaction that the rich are getting richer and the poor poorer.

It’s a refrain that is trotted out each, year despite much evidence to the contrary. The fact is that the poor are getting richer – mainly because they are getting a bigger share of what everyone else earns.

It may be that some of the rich are getting richer, too, but more often their fortunes fall faster than anyone else’s if the economic climate is unfavourable to business.

This is certainly the case with many on this year’s Rich List. It is also a fact that high earners dislike being taxed heavily for their success, whether for salaries or other forms of income.

The Treasury has just published research revealing how Labour’s lifting of the top rate from 33c in the dollar to 39c in 2001 actually resulted in more avoidance and a reduction in the overall take.

There’s no mystery about this – it’s known as the Laffer Curve  – and was clearly signalled at the time. The only problem being that socialists don’t worry about the figures; they just like higher taxes in principle.

The Treasury concludes:

The implications of the findings are that the disincentive effects of high top marginal rates can be substantial even when labour supply responses are small; the welfare costs of increases in top marginal tax rates can be high and; announcement effects of tax policy changes can lead to considerable income shifting between time periods.

IMF weighs in on inequality
The IMF has provided a survey of recent research on income inequality. Available in the June issue of the IMF Research Bulletin (pdf), it states that income inequality rises when economies are in takeoff, as they were before the GFC. The main cause: skilled-based technological change that disadvantages workers whose jobs have been replaced by machines or cheaper workers in other countries.

“[As a result] the replaced workers must face a decision of increasing their education to obtain higher-paying jobs or to move to lower-paying jobs,” economist Laura Feiveson says.

Other causes are a decline in union power and real minimum income levels, as well as rising incomes in the financial sector.

While Feiveson’s paper covers predictable grounds, and emphasises the difficulty of measuring the available data, it also makes a few other interesting observations, such as greater prosperity leads to some giving up potential income for more leisure; that hitting the rich doesn’t help the poor; and that the only countries achieving more equality in an OECD chart covering 20 years are also those that have been in economic decline (France, Greece, Ireland and Spain being the only ones out of 25).

Microsoft’s ‘lost decade’
The best study of business misfortune I’ve come across lately is in the latest Vanity Fair, which makes my subscription more valuable than those to Forbes or Fortune.

In his editorial, Graydon Carter somewhat undersells the article by Kurt Eichenwald, who is best known for his book The Informant, which was turned into an excellent little movie with an added exclamation mark and starring Mark Damon with ginger hair.

"[Microsoft CEO Steve] Balmer missed the smartphone, the table computer, the search engine, the touch screen, and just about every other computer innovation you can think of – despite having had technological leads of several years in crucial areas, and mountains of cash," Carter writes.

In other words, as Eichenwald spells out in astounding detail, Microsoft staff had discovered or knew about the iPhone, the iPad, Google, Facebook, Twitter, e-readers and the rest well before they surfaced but were told not to develop them because they could undermine the Windows and Office software cash cows.

Those, of course, have now reduced to a trickle in comparison with Microsoft’s heyday. Eichenwald states that Apple’s revenue in the March quarter of this year from the iPhone alone exceeded all of Microsoft’s income.

The value of the two companies is also a striking contrast to earlier times. Apple is now worth around $US540 billion – about what Microsoft was worth in December 2000. Today Microsoft is worth less than half that at around $US250 billion.

The main reason Eichenwald gives for Microsoft’s decline is that it became too bloated and too committed to the cashflow to protect its share price – which mainly benefited the wealth of its original shareholders, many of whom still work for the company.

It was in their interest – until the options price collapsed – to stop any innovation and product development that couldn’t immediately produce financial returns. This article, available online, could be the most important one you read this year.