6.1.2 Threats to Political and Economic Sovereignty Notes

Challenges to State Control and Governance

1. In an interconnected world, states face mounting challenges to governance and political as well as economic sovereignty.
2. These include tax avoidance, disruptive technologies, and more.

Perceived Loss of Control and Loss of Sovereignty

1. Multi-governmental organizations like the EU or Mercosur have gained power over certain aspects of life like trade and migration rules traditionally depending solely on national governments.
2. This combined with the "Shrinking World" and unchecked, or perceived as such, flows of people, goods and ideas have amplified the perception of losing control among certain societies.
3. This in turn has led to renewed political, cultural, and economic nationalism.

Tax Avoidance and Profit Repatriation

How TNCs Use Tax Havens

1. Tax havens are jurisdictions with low or zero tax rates, attracting TNCs seeking to minimize tax liabilities. They are mostly small island states (e.g. in the Caribbean), but also countries like Ireland, Panama or Switzerland are considered to be tax havens.
2. Strategies include:
   1. Transfer Pricing: Manipulating prices of goods or services traded within subsidiaries to shift profits to low-tax regions.
   2. Profit Repatriation: Moving profits from high-tax countries to tax havens.

Impacts on Governments

1. Reduced Revenues: Tax avoidance deprives governments of funds for public services like healthcare and education.
2. Inequality: TNCs gain advantages over local businesses, widening economic disparities.
3. Erosion of Trust: Citizens lose faith in governance when TNCs exploit loopholes.

Disruptive Technologies Altering Institutions and Everyday Live

Unmanned Aerial Vehicles (UAV, Drones): Challenge to Traditional Governance Practices and Individual Privacy