Sovereign Individual Versus The Welfare State

sovereign individual

Sovereign Individual

Versus The Welfare State: Becoming Unchained

We have heard this new world order thing for some time now.  It has been used in conjunction with a large number of topics: globalization, the fight against terrorism, multinational trade agreements, etc., etc.  However, I will give you a few more topics never mentioned, which will be the basis of some ideas in this article.

What is a sovereign individual?  Some might say it is a person that is a citizen of the world.  In other words, a man or woman that defines him or herself as being truly free to live and work where and how he or she wishes.  This idea probably sounds odd to anyone indoctrinated with the idea that a nation or country defines you rather than the other way around.  Meaning, we are often taught to believe that love it or hate it, we are British or Canadian or Mexican or German, American, Japanese, what ever.  But the truth is, especially when you consider people currently living in any part of North or South America (what was the so-called new world 500 years ago) or Australia - your grand-parents, great-grand-parents, or someone before them, most certainly came from someplace else.  So it is safe to say that somewhere in your family tree, some previous person decided to live somewhere else to seek a better life (whatever that might have entailed for them personally).  It could have been to escape war, religious persecution, famine, a poor economy, lack of opportunity and a whole list of other possibilities.  In short, someone in your family lineage probably thought of them-selves as a sovereign individual and acted upon it.

In other words, they were motivated to go where they wished, to affiliate with whatever nation or land more suited to them-selves (politically or otherwise), or that offered opportunities, which did not exist in their previous home country at the time.  But let us now flash forward to the present time.  Let us imagine that there are people today who do not want to live someplace else to seek fortune necessarily, or escape war, famine or the like - but rather to hold onto what they already have.  In this regard, perhaps we can say, to escape another form of government persecution, albeit different from before.  This baits the question: What has changed in the last 100 years or so?  Is the sovereign individual something new, or just a new word for someone that existed before? If so, who are the new sovereign individuals and how are they different from their predecessors?

Immigration of poor people to wealthy countries is nothing new.  Urban dwellers migrating to the wealthy and opportunity filled city is nothing new either, on a local or domestic scale.  Our article is about something else. Meaning, what is a fairly new idea (or twist to a very old idea) however, are the middle-classes, who are motivated to migrate some place less taxing, less costly and even less restrictive.  We have seen this before to some extent on a local level.  Which is to say, city dwellers or urban inhabitants wishing to move to the suburbs (or even more rural areas) for a slower and less expensive lifestyle.  Now it has gone international.  This is a growing and very real trend, born out of necessity, born out of survival to escape the out of control welfare state.

technology that cuts both ways

One very important change over the past 100 years has been new technologies, but it does truly cut both ways, which is both the benefit and the problem.  The famous book 1984 by George Orwell warned of a government in an industrialized nation that turned to technology as a way to control and monitor the masses and to maintain its dictatorial form of government.  James Dale Davidson and Lord William Rees-Mogg who authored a book titled, The Sovereign Individual, argues that it is technology that is freeing citizens, allowing them to live and work anywhere because of it (technology).  Perhaps it is safe to say, a bit of both these ideas have come true.

For sure it is very possible for a single person with a relatively small investment (the purchase of a computer and internet access) to invest or do business anywhere in the world.  This being the case, the argument is, as long as you have your computer and reliable telephone access, why not live in Tahiti (for example) while you work on architectural blueprints for a client in Belgium?   Why not live in the Caribbean while you offer your skills as a medical consultant via teleconference to a hospital in Canada?  In other words, a large number of work or job functions can be accomplished with the employee living where he or she wants to be, with the employer or client possibly a continent away.  Obviously there are some limitations as to who can do this or better said, the types of jobs (or work) that can be transported in this manner.  There will always be jobs that cannot be outsourced away and of course the people that continue to do them.  However, it is very interesting to note the differences in salary earnings between these two classes (or more correctly the amount of disposable income each one has after the application of taxes) and what would seem to be the signs of strain between these two groups - those that CAN leave, and those that cannot.  In other words, the people that can go and gain the benefits of going, and those that must stay because they do not have the financial resources or education to do something different.

Again, as we already said, technology does cut both ways.  The same technology that allows the truly free and independent individual to live where ever in the world that they wish also is the same that allows government to keep tighter tabs on its citizenry.  Perhaps in some cases, to even stop them from leaving (or stop their money from leaving), if you can believe it.  So perhaps we can say then that government, in trying to maintain its current power and income stream (from the middle class paying taxes), by using technology in many of the ways George Orwell predicted, although of course a more watered down version of it.  Of course the welfare state has never considered spending less nor ever considered to resolve the reason why so many bright, productive and self-sufficient citizens are leaving in the first place.   On the contrary, they are becoming more repressive rather than more responsive to the problems and needs of their own productive citizens.  This is one of the major problems at hand today for the sovereign or free individuals.

Government And Class Warfare
The State Versus The Middle Class

Class warfare: an old catch phrase that probably invokes images of rich versus poor, no?  Maybe even to an extreme, with images of Marie Antoinette telling the poor to go eat cake if they cannot afford or find any bread.  But that was then, and this is now.  Which is to say, there is a new kind of class warfare, but it does not involve the super wealthy versus the very poor - but rather the middle-class versus everyone else.  Why the middle class?  Well, for starters, they always pay most of the bills, or more correctly most of the taxes.  The poor pay nothing and get quite a bit in the modern democratic social welfare state.  The wealthy are, well, they are just plain wealthy.  I mean, who cares if you have 20 Million Dollars and the government takes 50 per-cent of it.  You are still left with 10 Million Dollars, which is an amount of money you can live on, and very well I might add.  If you have 50 Thousand Dollars and the government takes half, well, it may mean the difference between sending your kids to university - or not.  It may mean the difference of paying off your mortgage so you can retire debt free - or not.

Granted, in our example, 10 Million Dollars is a heck of a lot more than 25 Thousand, but that is not real difference.  The real difference is how you are affected afterwards as a result.  Sin other words, the wealthy citizen will complain and certainly will not be happy.  In addition, it is also true that the reality is, this top 1 percent of the wealthy indeed make up about 25 to 30 percent of government revenue from income tax.  However, even though these persons are paying a large share, it is doubtful the event will prevent him (or her) from sending their children onto higher education, or buying a new car, or whatever else.  For the middle class, it hurts a whole lot more because of the changes in plans or lifestyle that comes about as a result.  The middle class are now close to paying the very same marginal tax rates as the super wealthy, but without the additional resources or other assets to back them up.

So, what is the point?  In our new future society, some of the wealthy might fly the coop, but chances are the vast majority may not unless it truly starts to crimp their lifestyle (or they already have high priced lawyers, accountants, financial planners and so on to assist with some solutions, if they have not already).  We see this to some extent in the Scandinavian countries, where even though the very wealthy are taxed at rates up to 70 percent, most continue to stay and pay out of nationalism, out of believe that they are getting their monies worth, or what ever else the reason.  Such a concept of participating in such a way for the supposed better good of society is indoctrinated in the school systems, etc., so the decision is an emotional one.   However, there are some in these countries that are indeed fed up and see no logic in supporting non-productive members of society, and especially social welfare payments to an increasing amount of new immigrants as well.

What will the likely long-term scenario look like?  The poor will do nothing but clamor for more of the social services that feel they are entitled to by society - or more correctly by the government.  The middle class however will either fight for survival or face some severe reduction in lifestyle if they do not (if they stay and pay in other words).  This is the real conflict.  The increased squeeze on the middle class and what they will end up doing as a result.  Many have decided to go, and it would seem the government has taken notice (increased efforts on tax collection, special new taxes and restrictions on foreign transfers of funds, etc.).  Which is to say, that in part due to inflation (and taxation rates that never have been adjusted for inflation) the middle class are now paying onerous tax rates simply because their income has crept up, even though that very same supposed high income just about allows them to survive.

All in all, one cannot blame them from deciding to leave.  Consider that in the US, the median household income in 1958 was about US$18,000.  In 2005, AFTER you adjust for inflation and taxes, the median household income is also about US$18,000 in terms of purchasing power, etc.  Ever ask yourself why it took only one income to maintain a comfortable middle class lifestyle during the year 1950 yet some fifty years later a two-income household is a necessity (and even with that many feel like they are just getting by)?  If you feel that even though you earn more, that in reality you have less - you are not crazy and are not alone.  Inflation over time is one culprit to blame, increased taxation in the social welfare state yet another.

In summary, we see the middle-class as being the primary economic group inside the so-called high tax or industrialized nations that are migrating to other lower tax and lower cost jurisdictions (such as Ecuador, Dominican Republic, Thailand, Brazil, etc.) simply because this is the group being hurt the most.  In addition we also see increased aggression on the part of government to restrict this flight of both capital and citizens.  Obviously as government starts to see a reduction in tax revenue income (corporations already have moved manufacturing away and also enjoy some of the lowest tax payments in history due to tax loop holes that allow it, so their overall tax contribution has gone down, not up) and as more and more opt out, this places even more pressure on government to maintain the social welfare state with even greater difficulty and less resources.  Again, those left behind will obviously complain as well, claiming that the expatriate migrants are unpatriotic and ungrateful (plus such critics will probably see their own taxation burdens increase to make up for this shortfall, not helping matters).  All in all, a vicious cycle of reduced government social welfare benefits for whom ever remains plus even higher taxation - resulting in perhaps an even increased exodus as well.

In the book we mentioned earlier, THE SOVEREIGN INDIVIDUAL, the authors claim that technology will set the masses free and that government will change a great deal in as much the current state of politics as we know it.  The argument is that as citizens start to look for what ever new country that will give them the best deal, that such competition will eventually force a change into smaller, more regional government, catering to rather than terrorizing its members (its citizens) least they should loose them to another country.  All well and good, but not something that will take place overnight, if at all.  In addition, we do not believe there will be a massive number of these new enclaves for the wealthy that is insinuated (the book discusses the idea of new special tax free zones and tax free communities popping up for the super wealthy).  On the contrary, those very traditional tax havens discussed are coming under fire for this very reason.  In other words, they asked the famous banker robber, Willy Sutton, why he robbed banks.  He responded - because that is where the money is.  And so it goes with tax havens such as the Bahamas, St. Vincent and a whole slew of others that have felt the pressures of the high tax industrialized nations.  Some have rebelled to some extent, such as Panama and Nevis, because they felt these efforts as an affront to their own sovereignty, but many others have capitulated (and no longer offer the protection, privacy and security they once did).  So, in short, we do not see the expatriation movement being spear headed by the very wealthy nor do we see the future countries receiving such persons as being the traditional tax havens either.  After all, what is the financial definition of whom is wealthy these days really?  Most homes in US suburban enclaves outside of cities like Chicago, Boston, and Detroit cost at least US$500,000 or more.  Add on pension account savings and other investments and presto - you have someone that on paper is supposedly worth close to one million dollars, but in reality is someone defined as living a middle class or upper middle class lifestyle in terms of how they are living or kind of lifestyle.  Wealthy in the industrialized nations therefore is NOT someone with US$1 Million Dollars anymore.  It is someone with US$20 Million.   Someone with between $200,000 Dollars and 1 Million of net worth these days is middle class, even thought the US Government classifies any liquid net worth in excess of US$600,000 as being super wealthy (and subject to special inheritance taxes, expatriation taxes, etc.,).

So who really can and will benefit from relocation?  Roughly anyone that can be called middle class in most industrialized nations, or those that have about US$200,000 or more in assets (if you count home equity, investments, etc.) This applies to a very large segment of the population, and is a social group that is really just getting by or struggling to live comfortably.  Not super wealthy, not someone jetting off to exotic locations every month, not someone with a personal trainer or personal chef, just the average middle income family trying to have the things they strive for (a safe and comfortable home, the ability to afford university education for children, etc.).  In any event, in terms of the existing democratic welfare states in Europe and North America, no existing political system in history has ever gone down without putting up a fight.  The people currently in power have a lot to loose.  Why should they sit back and allow themselves to give up power and prestige so easily?  The authors of the Sovereign Individual do acknowledge a crackdown before any crackup, but it is difficult to imagine any sort of smooth transition if in fact this new user-friendly government ever does come about.

So, what will the resulting new world order be like?  It can be hard to say, but in the least, or in the meantime, many of the conventional politics and systems will remain in place for some time going forward.  What that means is one must work within what exists today as the reality and not what one thinks or hopes will be the case in the future.  This being the premise, identity with one or more nations still is the order of the day (and having relevant identification, such as a passport, etc. equally important to travel or conduct business).  As such, if you want to opt of the country and its system where you currently are living, you still have to go somewhere.  This means finding a new place to live and the relating procedures to obtain citizenship someplace else.  However that is not so daunting a task as it might sound.  There are a number of countries that do not tax its citizens for local and or foreign source income, inheritance, or even have the outrageous tax rates for whatever income is taxed. With that said, it is very interesting to note that these countries we speak of are not considered to be traditional tax haves, or are not listed on the special OECD so-called bad country list.  In addition, passive income, such as bank account interest may be tax-free as well.  So, there are places to go whereby cost of living is lower, taxation less burdensome and overall higher degrees of personal freedom. Where are these places?

Believe it or not, usually the nations that are called emerging markets, or perhaps even third world by some.  This is the real irony of it all.  Which is to say, locations that are often presented as backwards, dangerous or extremely poor by the industrialized nations.  However, these are the countries getting all the transplanted jobs (because of lower wages), and that have some of the fastest growing economies as well.  In addition, these are the same places with a growing middle class that now has many of the products, services and conveniences that were not available in the past, but are today.  In short, some of our clients have made the comment that it would seem that many of the industrialized or so-called first world nations are going backwards and the third world countries are starting to look more and more like the wealthier nations those clients originally came from (although in the good ways, the way things used to be about 50 years ago, and not the negative situation of present).   This is a process getting to that point to be sure, but a very truthful statement or observation just the same.

new world order

The question of course then is - where are these new countries?  Well, they can be clearly defined by a number of parameters.  Taking a cue from the comments mentioned in the Sovereign Individual, it seems very apparent to us that the so-called customer friendly governments (customer friendly for the wealthier segments of society of course) already exist (as opposed to the believe that they will come into existence for the benefit of the wealthy escaping North America and Europe).  Specifically, many of the nations in Latin America and elsewhere whereby you have a small wealthy social group that controls the majority of wealth and business inside these respective countries. Meaning, such countries that have very little, if any, sort of benefits or wealth transfer programs in place by the government (and such programs will not be instituted either).  Explained further, you already have a group, and a very powerful group I might add, that are treated as customers rather than property by the government (and these people want to keep it that way).  This is a good thing in the sense that it has and still continues to keep the government in check (as these people never had and do not want a repressive social welfare tax system in place).  It probably is not a good thing, in that perhaps many of these people can and often do abuse their privilege in regards to business transactions (making it very difficult for foreign firms to invade their turf) or in other ways as well (maybe getting away with things the average person would not).  However, it is not a perfect world and chances are, you will not be doing something to threaten these people anyway (meaning you are probably not planning on trying to move in to take away their local monopoly for petroleum distribution, pharmaceutical manufacture, or whatever else).  In summary, regarding these other countries and with this particular theme, the concept that it is a good idea for the government to act as a modern day Robin Hood, taking money from the productive or those that have it, and give it to those that do not is clearly a European and North American phenomenon.  Not only that, this great social experiment has failed miserably, just as full blown socialism managed by a dictatorial government, has failed as well (Soviet Union, Vietnam, and China have all gone capitalist).

In regards to many of such countries, the blatant comment I often hears is - Oh, there is such poverty there or Oh, all the poor people are exploited with lower wages (meaning lower wages than what are paid for the same work in the industrialized countries).  However, it is interesting to note that after 50 or more years of socialism elsewhere, you still have poverty (in 2005, today, it has been estimated that 25 percent of the US working population are still classified as working poor - never mind the roughly 15 percent that are indeed truly poor) and not only that, you have a large segment of society that believes they are entitled to something for nothing.  When I make this comment, I am not necessarily speaking of people that are on the dole (as they say in Ireland or the UK) but rather workers as well that believe they are entitled to high wages for low skill or low knowledge level work, or people that wish to believe someone other than themselves is always to blame (frivolous lawsuits against supermarkets because someone slipped on a tomato or bumped into a display of canned peaches, etc., etc.).  Sadly enough, this is what the welfare state has created.  A nation of individuals indoctrinated with the belief that they are entitled simply because they exist - a mob if you will that is demanding nothing more than extortion, and a government in place to back them up.  This is not the case, nor the belief, elsewhere in the world.  Which is to say, government should exist to guarantee the smooth functioning of society (that also does include law, order, legitimate fairness, and so on), but what one defines are being fair or correct may certainly differ around the globe (and thank goodness for that).

So, who and where are these emerging markets with low costs for housing and labor, lower income and little or no government sponsored entitlements, and perhaps even low or no tax incentives for investment, business and or banking?    Here is the list of the countries that fit at least some, if not all of the above criteria:  Brazil, Dominican Republic, Cambodia, Ecuador, India, Mauritius, Panama, Paraguay, Peru, Philippines, South Africa, Thailand, Uruguay and  Vietnam.  Obviously this is not a perfect list, which to say each country listed here may have some attractive attributes but none are of course perfect, as no country every can be.  However, it probably will be the case that you can make up a list of what attributes are most important or attractive for you personally and then see which of these places scores highest on your personal criteria list.  In addition, it could also be the case that you may choose to live in one, bank or invest in another and so on, electing to pick and choose the best benefits of each.  There are some nations we have left off the list simply because while they might fit some of the ideals we discussed, at the same time they might have become too expensive in terms of cost of living in comparison with the others, or they simply might be too dangerous for a foreigner in general (civil war, kidnappings, or other kind of safety issues).

In short, you can truly elect to live, do business and associate with whatever country or jurisdiction you like.  For many, this will be a new idea or new way of thinking.  Some, for example, will have a difficult time with this concept as feelings of nationalism creeps in or maybe feelings of separation anxiety comes into play as well.  But the truth of the matter is, we are all victims of accident in terms of where we are born and which political system we are born into, which is something we can change.  The real question is - Are you happy and are you able to live the lifestyle you want where you are living right now?  If you answer yes, then look no further and be content with the way things are.  If not, you do have other options.

About The Author: This article was written by John Schroder of Ascot Advisory Services.  John's firm has been helping clients in the Dominican Republic for the last 17 years with residency application services, naturalized citizenship filing, banking assistance and legal services pertaining to real estate (title transfers, legal representation at closing, sales contract review).  You can contact him by telephone at 809-756-1917 or click the about the author link above to reach a contact page to send an email directly.

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