Freeports: PM Johnson’s “free self storage” for the rich and powerful
The largest art collection in the world is currently collecting dust in Geneva Freeport, a fenced-off warehouse near Geneva airport, beyond the view of the public and outside the reach of law enforcement agencies and tax authorities. British PM Johnson has recently proposed establishing similar freeports in the UK, which he says will boost a post-Brexit economy despite plenty of evidence showing that freeports don’t boost economies. Since freeports don’t tend to produce significant net benefits, who then benefits when a collection of cultural heritage that dwarfs that of the Museum of Modern Art in New York and the National Gallery in London is cordoned off from society and its billions-worth of assets change hands in total secrecy?
Freeports are not a new idea. There’s a long history and wide pool of evidence showing that freeports don’t increase economic investment or activity, they just move it around. Even Margaret Thatcher recognised that her experiment with freeports, egged on by the Adam Smith Institute, resulted in comprehensive failure. On average, one additional job in Thatcher’s “enterprise zones” cost the public purse over £31,000 in today’s prices. “Free market” lobbyists loved the idea of freeports, not because it develops a free market (quite the opposite, it creates a deliberate obstacle), but because it offers a way both to circumvent regulation, including those which safeguard the well-being and human rights of workers, and taxation in the rest of the economy, and to undermine it.
Ironically, one of the main reasons freeports don’t yield any significant benefits to a country’s economy is because they don’t operate as ‘ports’ at all. Whereas the term freeports may conjure images of bustling seaside towns brimming with commercial cargo ships and towering stacks of containers full of goods ready to be traded free from the oppression of bureaucrats and tax collectors, in reality freeports take the form of large, fortress-like warehouses with long, eerily quiet rows of unlabelled storage units holding unknown assets belonging to unnamed individuals. It would be more accurate to refer to freeports as “free self storage” for the ultra rich.
Compare the image used in the Telegraph article below of China’s Qingdao Port – one of the world’s 10 busiest ports – to what the Geneva Freeport and ARCIS freeport in New York actually look like (left to right).
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The easiest way to illustrate how freeports lock economic assets out of the economy and create security risks is to return to our opening question: who benefits from locking off the largest art collection in the world in a warehouse? Nearly 6 million people physically visited the National Gallery in London during the 2018 to 2019 financial year. For comparison, Scotland has a population of 5.4 million. Among those who visited, nearly 4 million where overseas visitors.
These free self-storage units for the ultra-rich transfer economic value from the economy into warehouses that jurisdictionally sit outside of the legal system and the market forces that apply to the rest of society.
Not only are high-value assets parked outside of the economy, the tax contributions that would otherwise have been made to the public on these assets are also negated. This often exacerbates regional economic inequalities by further extracting wealth from struggling areas and creates competitive distortions and opportunities for rent-seeking. Moreover, freeports categorically do not reduce border friction – by definition, they create an additional border.
The economic value of the National Gallery extends far beyond ticket admissions. The Gallery provides 279 jobs. It boosts domestic and international tourism, which in turn boosts local service industries – food, travel, accommodation, etc. It raises the UK’s cultural profile and engagement on the global stage and enriches the public’s understanding of and access to cultural heritage. The National Gallery had over 170,000 school visits during the 2018 to 2019 financial year – research shows that cultural learning, including school visits to museums, has a positive effect on children’s development and life chances. The Cultural Learning Alliance found that students from low-income families who engage in the arts at school, including visiting museums, are 20% more likely to vote as young adults.
Now let’s imagine the National Gallery as a freeport – fenced-off, fully equipped with iris scanners and inaccessible to the public. The building effectively becomes a wealth crypt where nameless individuals collect and trade Picassos – all the while dodging tax contributions on the assets they’ve locked out of the economy. The 6 million visits to the Gallery, including the 4 million overseas visits, never happen. The gains to local industries, the cultural benefits to the public, the boosts to children’s life chances and Britain’s reputation as a cultural leader dry up. Now, a new, far smaller clientele of visitors starts to arrive. A different profile of Britain spreads and the billions-worth of assets held in the building begin to exert a very different, opaque and unaccounted type of influence on the public and the shape of society. As our Financial Secrecy Index shows, by enabling the anonymous ownership of assets, freeports facilitate money laundering, major corruption and tax abuse. A decade ago drug lords, media moguls, corrupt politicians and mafia heads used bearer bonds to launder their money: now they exchange Van Gogh’s hidden away in freeports.
A new study from Stanford has examined one impact of the US Foreign Account Tax Compliance Act (FATCA), which made it much harder for US citizens to hold offshore financial accounts without declaring them to the tax authorities. In Switzerland, which tops our Financial Secrecy Index, the research shows that FATCA was followed by quite disproportionate growth of art held in the Geneva canton which is home to one of the world’s largest freeports: “This evidence suggests that some U.S. investors shift wealth from foreign financial accounts into this asset class and hold artwork – otherwise intended to be displayed – in a private and secure Swiss warehouse, possibly to escape U.S. income tax.”
PM Johnson’s free self-storage for the ultra-rich promises little to address inequalities between rich and poor, or between struggling regions in the UK.
Given that freeports in the UK would likely be most appealing to companies that prioritise “no tax or low tax” over other factors like the education and training levels of the local workforce, state infrastructure or political stability, British workers who have seen their rights and protection go unprotected in recent decades and hoping to see jobs come in from freeports will most likely find themselves working in a “take it or leave it” employment environment. So long as the logic of the race to the bottom reigns supreme, freeports as an answer to regional disparities will offer little more than a no-choice to work in a highly unregulated environment, ununionized and without rights to safe working conditions.
The new UK government’s insistence on promoting freeports in the face of comprehensive evidence, would in normal times be completely baffling. But look at the track record of so many of the special advisers who have been recruited after working for the most opaquely funded, far-right lobbyist groups, and at the financial support PM Johnson’s operation has received from people who stand directly to benefit from the policy, and things begin to become clearer.
The continuing pursuit of freeports can only be understood as a measure of just how deeply this UK government has been captured. For this to be any kind of focus of attention, for a government that risks leading its country into what may well prove to be the biggest self-inflicted economic shock of all time – with all the human costs that will follow – is simply unconscionable.
For more on freeports, listen to the latest Taxcast episode
Read this interview with Ana Gomes MEP on freeports.