John Christensen and Mark Hampton

Abstract :

Many small island economies (SIEs) and micro-states host offshore finance
centres (OFCs).  Their low tax, minimalist regulatory regimes and bank
secrecy make these OFCs highly attractive to global financial capitalism.
The uneven relationship between the transnational financial institutions
operating offshore and their SIE / micro-state hosts results in the latter
competing to accommodate their fiscal and regulatory structures to the
interests of financial capital.  The rapid growth of 'offshore' has led to
transnational companies restructuring their affairs to avoid tax in most of
the jurisdictions within which they operate.  Financial capital -
encouraged by the relative weakness of many nation states to develop
effective political responses to this threat of fiscal and regulatory
degradation - uses its presence in OFCs to exert leverage on larger
economies to obtain conditions more favourable to its interests.

Jersey was amongst the first SIEs to develop an OFC and by the 1980s was
heavilty dependent upon the foreign earnings of its OFC.  The island's
advantages (fiscal independence; proximity to London; political stability;
and effective bank secrecy) make it highly attractive to financial capital.
However, whereas during the early stages of the development of its OFC
Jersey appeared to be successfully managing its dependence upon offshore
finance, this paper argues that the OFC - acting as a 'cuckoo in the nest'
- has not only become the ascendant industrial sector, but has also become
the dominant partner in its relatioship with the island's state,
significantly transforming the local political economy.

September 1998
 

Discussion paper number 119
Department of Economics
University of Portsmouth

copies of this discussion paper can be obtained (free) from the Department
- e-mail shirley.patrick@port.ac.uk