Neoliberal Separatism. The catalan case


Catalan Flag after  1-O

Neoliberal Separatism , the catalan case

Natalie Sabanadze in hes book Globalization and Nationalism: The Cases of Georgia and the Basque Country, unlike the conventional explanation that argues that globalization and nationalisme are opposing and conflicting positions, argues that, at present, globalization and nationalism tend to become allied forces.

She recognizes that nationalism reacts against growing globalization and represents a form of resistance to globalizing influences, but when studying specific cases such as the cases of Georgia and the Basque Country, there is an apparent paradox. In the case of Georgia as well as in the Basque Country, there is little evidence to suggest the existence of strong politically organized nationalist opposition to globalization if not on the contrary, it is the nationalists who are most dazzled by globalization. These are pro-globalization nationalisms, which leads she to conclude that globalization and nationalism are complementary and non-contradictory forces.

Sabanadze's error is that although she recognize two kinds of nationalism, one anti-globalization and another pro-globalization, she is not capable of solving the apparent paradox since she does not go deeper into the analysis of the functionality of the second type.

In fact Sabanadze's approach is veiled because she does not thoroughly analyze the mechanism of capitalist globalization.

Capitalism needs nation-states, a precise institutional legal framework that strictly protects their property rights and regulates their markets. But this framework can turn against it as long as the power of the state falls into inadequate hands.

A democratic state, in which 99% of the losers of monopoly globalization can vote, is dangerous for multinationals, the more so the greater the state. Several big centralized nation-states can sign agreements to harmonize financial, industrial, fiscal, environmental, health, social, labor, etc. policies. which are detrimental to their interests.

To shield the interests of the 1%, a legion of economists (Friedrick von Hayek, Milton Friedman, Stephen Gills, James Buchanan, Barry Weingast, etc.) have for decades been designing strategies to neutralize democracy by subordinating political order to economic neoliberal order.

Globalizers design various types of strategies to discipline states and empty them of economic governance.

Monopolization and the "free" international mobility of capital (through liberalized financial markets and free trade enhance the disciplinary effect on democracies, and thus constitute the key element of neoliberal globalization. Capital momobility force states to practice democratic dumping to compete for transnational monopoly capital, providing the kind of neoliberal policies that investors and multinational corporations demand.

Globalizing strategies from above: International organizations and treaties

In order to ensure the submission of States and the international mobility of capital, supranational mechanisms such as the International Monetary Fund (liberalization of the capital market are a condition of membership), the World Trade Organization (WTO) , the North American Free Trade Agreement (NAFTA), the Single European Act, etc., have been created, all with specific clauses that ensure the free mobility of transnational direct investment.

Other examples of mechanisms to block the intervention of States are the provisions on intellectual property rights of investors contained in various trade agreements. The WTO Agreement on Trade-Related Aspects of Intellectual Property (TRIPS) and Chapter 11 of NAFTA are just two examples of provisions to set States on the bench where multinational corporations consider that government policies have violated their rights. The TPP and the TTIP would abound exponentially in this line.

Globalizing strategies from below: Federalism and neoliberal nationalism

Neoliberalism is perfecting two below strategies designed  to neutralize the capacity of government intervention in the economy and its possible anti-globalization reaction:  neoliberal federalism and neoliberal separatism.

Neoliberal Federalism, the USAID Handbook

Adam Hanieh: "Neoliberalism promotes decentralization to displace the resistance that the states can offer under the pressure of their citizens."

A Google search 'market-preserving federalism' and you have a long list of articles defending federalism as the best political weapon for the defense of the neoliberal monopoly market in the face of possible democratic reaction of the states. Wikipedia define "market preserving federalism" federalism as "federalism to preserve the market," it proposes to decentralize authority to formulate economic policies, this federalism reduces the ability of the central government to act arbitrarily (it has renounced these powers) and subnational governments face competition among them for scarce capital and labor. "

USAID (the leading agency in the promotion of global neoliberalism) has edited a manual titled Decentralization and Democratic Local Governance Programming (May 2000), which serves as a detailed recipe to promote decentralization in a variety of different national contexts where there may be resistance to neoliberal reforms.

A central theme of this manual is the shifting of responsibility for the provision of public services from the state to local governments. The manual provides for a situation where: "Local governments must do more than simply clean up the streets; they must assume a variety of responsibilities for non-traditional services such as securing primary health care, basic education, security public, public services, environmental protection, and building regulation."

In order to provide these services, local governments will be forced to increase their own incomes, and enter into competition to privatize, and borrow money on international capital markets. "They may employ new or innovative approaches, including public-private partnerships, proactive participation in development programs with national government or donors, and outsourcing of services."

"Build subnational administrative capacities to develop transparent and accountable budgets under the law of effectiveness and carry out local economic development .... and strengthen the capacity of local authorities to participate in discussions on appropriate devolution of responsibility at local levels of government. "

To ensure market discipline in the context of a country, a type of federalism is promoted where sub-national governments compete to attract capital in the context of a national economy.

Hayek argues that "the ideal outcome would be the transformation of local and even regional governments into quasi-commercial corporations competing with each other to attract investors."

The mobility of capital creates a kind of "market" for government policies in which firms demand to locate in those jurisdictions that offer them the most favorable mix of taxes and services.

The federal states (or the autonomies as in the case of Spain), for their part, will have a primary regulatory responsibility for the economy (fiscal, social, labor, health, environment, etc.) so that they should flexibilizar their political jurisdictions to compete among themselves, in a race to the bottom, in order to attract the elusive and capricious capital. The greater the degree of federalism or autonomy of the states (Spain, Germany, USA), better the respond  to the interests of the large neo-liberal monopolist groups.

It also promotes the autonomy and competition between "local communities" in terms of pro-globalization policies as well as a mechanism to compensate for market failures. This is another area in which cities or regions urban areas become important in the neoliberal project, since they are the main sites of the citizens' initiative, and where economic and social tensions are accumulated as a result of neoliberal projects.

Neo-liberal separatism

In 1992 the Dutch entrepreneur Freddy Heineken proposed a US of Europe. The book, Eurotopia,
proposed breaking the larger European countries into a number of smaller, more ethnically and linguistically homogeneous states.

Map of Europe proposed by Heineken / Van den Doel / Wesseling (1992)

Heineken with the advice of historians Henk Wesseling and Wim van den Doel designed a Europe composed of states with approximately 5 to 10 million citizens according to the map attached. Under the motto of the small is beautiful (evidently not referring to its brewing emporium), the administration in the mini states could be more efficient.
A more ambitious neoliberal option is the promotion of separatism. The large state entities (France, England, Spain, Italy, Germany, etc.) represent a danger to the advance of globalization since they are susceptible of deviation for the left or economic nationalism in the face of the neoliberal monopolistic multipolar crisis. Better than federated states or autonomous communities, why not small independent states competing to death each other to attract the investments of the elusive monopoly capital? The Scottish tiger, the Gaelic tiger, the Catalan tiger, the Piedmon tiger, etc. all ready to tear the skin off anyone who dares to confront neo-liberal monopolistic globalization. (The request of the Bavarian party for a secessionist referendum was rejected by the Federal Constitutional Court of Germany in January 2017)

The previous trials took place in Eastern Europe with the dismemberment of the USSR and the shredding of Yugoslavia and Czechoslovakia. All the new independent states came to compete with each other by privatizing their state assets and bursting their labor and social legislation to attract investment, thinking that neoliberal globalization would improve their lives. Today the most absolute failure of this dream is evident and a nationalist anti-globalization reaction is taking place in many of them (Hungary, Slovakia, Serbia, Poland, Czech Republic, etc.)

Catalan neoliberal separatism (catalexit)

The most paradigmatic and exemplary case of separatism promoted by globalized capital is that of Catalan separatism of the 21st century. Catalan wealthy classes have seen the possibility of enriching themselves on a global scale, separating the autonomous region from the rest of Spain with international support in face of the threat of a leftist escalation after 11M. From the outset they hope to quickly reintegrate the new independent state into the international agencies, mechanisms and forums of globalized capitalism.

Monopoly neoliberal system caught a death scare in 2011 when it burst the 15 M. The squares of Madrid and Barcelona full to brim with indignants against the system.

 Madrid and Barcelona 15M

Not a Spanish flag, no catalanista flag, and new budding political formations with ability to pass over corrupt Spanish and Catalan pro-business politics.

From then on, Catalan independence began to find support in neoliberal forums, especially Anglo-Saxon, while the EU mercilessly smashed the aspirations of the Greek nation, set in Syriza. It was necessary to replace the indignados against the system by separatist nationalists indignant with Spain.

The mechanism for the catalexit is of the purest neoliberal design. It takes advantage of a first "autonomous" phase in which the disaffected Catalan autonomous community takes advantage of all decentralized mechanisms and resources (autonomous government and parliament, autonomous legislation, assets and public companies, ceded taxes, press, radio and autonomic public television, police , etc.) to meticulously prepare for secession.

The experience of other "revolutionaryt" nationalist attempts, promoted, supported and often financed directly by globalized monopoly capital (Soros, and company), calls for the intervention of disenfranchised "leftists" (CUPs and elements from other leftist parties) as a nationalist clash force.

They convert the autonomic elections of September 27, 2015 to a supposedly "plebiscitarian" votation, uniting all the nationalist forces  in a unique candidacy denominated "Junts pel si" (All together  for the Yes"). The coalition, in spite of a lying campaign worthy of Goebbels (they control the TV3, the public autonomic TV), only got 48% of the votes thanks to the unexpected massive participation. However, the separatists, thanks to a favorable electoral law, gained more parlament seats and finally formed autonomic government thanks to the support of the CUP.

Changed foot timing

From then on all the autonomic machinery was readjusted to prepare the secession. The 2015 campaign was amplified over the next two years. The TV3 (Catalan public TV), became a kind of permanent selfie of the virtual reality of the separatist process.

But the accumulation of reality manipulation and/or information lies seems to have affected the heads of the process of secession more than the whole population, so that they began to set concrete dates, a rigid and inflexible strategy  with no other exit than the victimism before the predictable reaction of the Spanish state.


But the independence timing  do not corresponded with the neoliberal timing. All the promises of neoliberal forums and media vanished. Scotish separatism inducing brexit, defeated Syriza, Podemos in free fall and Rajoy as the best European adalit of drastic neoliberal reforms, the moment chosen for independence could not be worse.

Economic consequences of catalexit

Given the high specialization of Catalonia in the sale of products to the rest of Spain, it is estimated that in the middle scenario catalexit would mean a 44% drop in bilateral trade. Thus, Catalan GDP would fall by 14% and unemployment would increase by 16%.

The United Kingdom occupies the 9th position in the world ranking of competitiveness, Spain occupies the position 35º. By regions London ranks third in the ranking of competitiveness in European regions. Catalonia 142 (the most competitive is the Community of Madrid, which occupies the 57th position).

Should the secession succeed (without violence), the immediate expulsion of the EU would entail putting itself in the line of readmission with the sure threat of the Spanish veto. This long transition would lead to the departure of the European Monetary Union and the Single Mechanism of Financial Supervision.

For Catalonia, the euro would become a foreign currency whose use, if adopted as currency, could increase its exports and dangerously reduce its competitiveness. Outside the Monetary Union, it would be disconnected from the ECB, so that financial institutions domiciled in Catalan territory would lose access to their cheap financing lines.

European subsidies would also disappear from the Structural Funds (the European Regional Development Fund (ERDF), the European Social Fund (ESF), the European Agricultural Fund for Rural Development (EAFRD) and the European Maritime Fund. (FEMP).

Insecurity would lead to the risk premium at unassuming levels, as it no longer has the protection network of the Spanish State and the finance of the new republic would inevitably sink.

Outside Europe and Spain, exports to these areas are subject to tariffs, as they would no longer benefit from the advantages of belonging to an economic zone with free movement of goods. The payment of these extra costs would make Catalan exports much less competitive.

The separatist "process", if materialized, would reduce the rights, well-being and future of the majority of the Catalans to ashes. The economic impact, even excluding the terrible consequences of a more than possible violent drift of the secessionist processes (it does not seem that the Spaniards are going to let them leave), would be enormous and devastating.

Hence the misrepresentation, lying and systematic manipulation of information (amplified by the work of the public media in their hands: TV3, Radio, regional press, etc.) that are forced by the separatist leaders to hide the reality of the consequences on the population majority.

However, for the global interests of monopoly neoliberalism, the disaster for the majority of the Catalan population would be, as is often the case, a simple collateral effect (as in the case of Ukraine and many other picturesque neoliberal "revolutions").

For the globalized capital, the emergence of the new Catalan republic would mean the end of an ever-latent threat to its interests of a populist, leftist, or simply economic nationalism (such as the English or French case) of the Spanish nation that could drag other great european  nations. The separatists hope to reach a privileged position in the ladder of neoliberal globalization, erecting themselves as a strong bulwarks of globalization.

No wonder the Wall Street Journal controlled by Rupert Murdoch, the Washington Post owned by Jeffry Bezos of Amazon or the Financial Times, fervently applauds the ravages of the increasingly thundering Catalan fury.

Catelexit, a Win Win process for neoliberal monopoly capitalism

For the neoliberal monopoly capital, the secessionist strategy in Europe, and in particular in Spain, is proving beneficial in every way. The separatist threat in Spain, although it may prove to be a failure, is favoring the recovery of the corrupt and asocial neoliberal political class (PP - PSOE) to the detriment of the left, unable to understand the neoliberal character of the new separatism of the 21st century. (CUP) or defending it with more or less nuances (Podemos and their regional variants), which is losing a good part of the possible electoral base.

The neoliberal Macron would be delighted with a secessionist movement of French Catalonia to be able to strain his neoliberal labor reform in the path of Rajoy's. In fact, his predecessor, F. Holande, already initiated in 2014 an express reform of the French territorial scheme * in favor of a greater territorial "economic autonomy".

* The neoliberal pressure was already noted in France with the Constitutional Reform of 17 March 2003, with respect to Title XII of the Constitution, "Of territorial collectivities." The reform seeks to reduce state unitarism by deepening administrative decentralization. The reform enshrines in article 72.2 the financial autonomy of territorial communities, recognizing them in consequence the possibility of fixing the quota of certain taxes, as well as of setting the tax base. But the 2003 reform, although it represents a first step in breaking the classical unity principle of the French unitary state, found strong unitarian opposition and is far from being a political decentralization for the regions compared to the regional model adopted by Spain in the Second Republic (1931) and in 1978, and by Italy in the Constitution of 1947. In these countries the adopted model is the "political" region, that is based on the application of the elective principle to the holders of the governing bodies, the constitutional attribution of legislative powers to regional councils and assemblies, and economic power to the regional executive (participation in national taxes and regulation of certain tax matters). In practice, the Spanish Autonomous Communities have a political power very similar to that of the states in a federal organization, their differences are reduced to the degree of political decentralization.

 Anti-neoliberal Referendums

Bloomberg Businessweek 11-2017: Colombians Yank The Welcome Mat:

Small towns are exercising their constitutional right to block oil and mining projects. Coffee and fruit growers in the mountains around Arbeláez, a small farming town 35 miles from Bogotá, may have a significant amount of oil wealth under their feet. In July they defied the government and foreign investors and voted to leave it there.

In Arbeláez, Colombia, residents voted 4,312 to 38 against allowing Toronto-listed Canacol Energy Ltd. to carry out seismic testing or drill exploratory oil wells. Residents were concerned that the drilling could impact the water supply and would not provide jobs for local residents. The area produces tomatos, peas, blackberries, and other food for larger cities.

The chief executive officer of Canacol said “The worst investment signal for a foreign investor is to invest in a country where there’s no contractual stability”.

Local referendums are increasingly being used to block oil an mining projects, causing alarm among companies. More than 40 such votes are planned, threatening to paralyze exploration across the Andean nation.

There have been more than 40 similar referendums, or popular consultations, in Colombia. As this level of local democracy is enshrined in the national constitution, there is little the federal government can do, even though it could use the foreign direct investment and export earnings. While existing oil and mining operations can not be stopped, any new projects can rejected by local residents. This uncertainty whether a project will or will not go ahead increases the risk for foreign firms interested in investing in Colombia.

Finance Minister Mauricio Cárdenas has said the rules need to change to keep small communities from vetoing projects. But since Colombia’s grants citizens the right to hold these types of referendums and a simple law wouldn’t be sufficient. It is necessary to change the constitution.

In all five of the popular consultations held this year, locals voted overwhelmingly against letting oil and mining companies intro their communities.


Tax havens, location, how they operate

 In a few years the planet was populated by tiny "anti-state" where the wealth of nations of Adam Smith is suctioned with increasingly powerful and sophisticated forms of pumping.
Tax havens became inherent to Capitalism system in its last and final path. As in the Middle Ages, the rentier classes have been exonerated from paying taxes. Big business and the rich no longer contribute anything to the maintenance of public institutions that depend only on the VAT and income tax of those who can not evade.

A one day raid in Cayman Islands would produce a massive capture: bankers, oil men, famous showmans, corrupt politicians, ... amiably mixed with mobsters, thugs, kleptocrats, white slavers, arms dealers, dictators, torturers, ... the true elite of the planet.

Christian De Brie: "The offshore havens, like Dracula, fear the light ... Who will sent these "paradises" to hell? "

Dani Rodrik, Harvard political economist: "In a globalized world, the interest rate is set in New York, the real wage in Shanghai and income tax in the Cayman Islands."

A German police: "Organized crime is a capitalism more acute" (dossier ATTAC)

Tax haven are in the phone book

The offshore havens are absolutely legal and therefore maintain internet portals where they freely offer their services to customers. You type "offshore banking" in Google and the third entry is:

 "Panama Offshore Legal - Offshore Asset Protection Services
There are a number of factors one must look for when setting up a secure asset protection structure. The tax-free status of the jurisdiction being used is always a major consideration. The anonymity of the corporations and foundations is also important.

The availability of quality banks covered by bank secrecy laws is of paramount importance. Attorney client privilege is something to never be taken lightly and the protection must be tight.

Don't make the mistake of using jurisdictions that used to be good but in recent years have compromised their secrecy and privacy. Click here to read more about asset protection

A law firm will create a shell company (trust or trust). In exchange for a few hundred or thousands of euros, according to the paradise, a legal representation and a numbered account is achieved. Shipments to the ghost company account wil be made through financial gateways, country to country, from account to account, to clear the money trail. You have to complete an online form and soon you're anabled to evade taxes, hide black money, assets that could be jeopardized by insolvencies, real estate bites, etc.

In the Financial Times or the Wall Street Journal there are published ads such International Company Services or Scope International, for a few hundred pounds or $, offers registration in your name (ICS), or for your company in the Bahamas, Gibraltar , Jersey, ... They offer services such as "fictitious names of shareholders and directors of the company" or "proxies" - real people hired as managers or shareholders of the companies, just in case, sign an "internal" document that is up to the evader, which specified the date (blank) in which all business is transferred to their real masters - assistance to open bank accounts or "facilitate firms from third parties, the movements are registered in his name "and for a modest plus we provide a kind of complete "Comanche" set for the new company: stamps with the company name, stock certificates, certificates of incorporation, a manual ... entitled "Save your fortune from unfair taxes" credit cards that leave no trace and finally even a set of "camouflage passports"".

It would be difficult to locate your laundry in Jersey but if you are a dot.com can hardly will resist the succulent conditions offered by certain tax havens: online betting (in Costarrica NASA operates the largest online gambling center in the world), an online bank ( Luxembourg Lebanese Byblos Bank, Altamira International Bank of Barbados, the European Union Bank in Antigua & Barbuda, ...), online payment systems like First Atlantic Commerce in Bermuda, etc.

Amount of its operations: In 2007 the British Virgin Islands invested more in China than Japan or the US. Mauritius was by long the largest investor in India in the same year that 47% of foreign investment in France came from a tax haven.

Fortis, a multinational banking and insurance Company, based in the Benelux, holds about 300 establishments "offshore", Fortis Intertrusts (BVI), Fortis Investment Management (Cayman Islands), Fortis Private Wealth Managment (Netherlands Antilles) etc. and using camouflage names: JEB Ltd (Liberia), Comanche Ltd (Bahamas), Jasmette Valley Inc (Liechtenstein) Swilken Holdigns (Panama), ... and so on a ten pages list according to the Center for Reaserch on Multinational Corporations.

Multinationals turn to the strategy of the spinning top. This is the "corporate inversion" or to turn up down the company. The parent company is moved to a tax haven - which will not pay income taxes - and what remains in the original territory become mere "affiliates" with losses.  Accenture Ltd., Tyco International Ltd., Foster Wheeler Ltd., Inglesol Rand, McDermott International, Inc., are examples.

How a tax haven work?

Tax havens are a specially designed environment to deposit, save, invest or recover bad or evaded money by CEOs, dictators, drug dealers, organ traffickers, etc. They enjoy a sophisticated advisory service, tax lawyers, auditing firms and, of course, branches of the "legal" banking system specialized in this type of operations. They enjoy bank secrecy, commercial secrecy, administrative and registry secrecy while the administration of the tax haven rejects any kind of mutual assistance, cooperation or exchange of information with other administrations.

Companies or individuals constitute societies, "foundations", trusts, etc. with tax residence in one of those territories and proceed to move their money or financial assets.

The "trust" is a flagship of Jersey fiscal Paradise (called the rock of billionaires, 20 km off Normandy, as a "Crown Dependencie", it is not part of the UK or the EU). This status allows you to steal taxes, etc. by registering under a false name. Formally, the money does not belongs to you, but in practice it is all yours. The advantages of wealth without its drawbacks.

To send money to a tax haven, legally or illegally, the first step is to hire a lawyer in that country. If it all is just a "tax evasion" it is likely that the lowyer ask bank references and identity documents to avoid problems. In any case, the lawyer creates a society in the country and acts as head in front of the authorities to manage the money received by the society.

Should the client be a criminal, this company will be constituted as a 'front company', a false mirror to mislead police investigators. Most likely, this "company" will receive numerous cash deposits in small amounts. Thanks to internet, money can come from anywhere in the world from many accounts of bogus companies run by straw men.

Every day are becoming more common trusts designed to protect the founder against lawsuits from its own country  (Asset Protection Trust). They include the "escape clause" which involves the immediate transfer to other tax havens in case of threat of research or communication of opening a process.

The "proxies"

The "proxies" constitute a second layer of protection. If an inspection or a journalist gets to skip the traditional obstacles raised by the tax havens to conceal the identity of the real owner of the funds or the shell company they found that the "president" and the "owners" in the documents are " proxies ", ie, lawyers, agents, ... or companies created by" proxies ". The proxies signed an (internal) undated document by transferring the shares to their real owners. You can even "drive" the shell company through an empowerment by the proxy, without appear in any kind of document of the company.

A further guarantee is the signature, by the proxy, of a document of resignation with blank date according to which all acts from that date on are null.

Tax Havens for campanies: transfer pricing

Evaders are not just individuals. Most of evasion is carried out by companies through various techniques based on the system of "transfer prices"designed  to emerge profits in tax havens and losses in the country of origin. The company "sells" at low prices to an ad hoc intermediary company (so the profits of this operation are low or zero). Then the intermediary (a subsidiary in a tax haven) sells at full price pocketing the profits taxed at 0.01%.

Similar operations occur when companies attribute most of their earnings to service subsidiaries in tax havens.

Transactions related to transfer pricing to evade taxes accounts for half of all international trade. Grand Cayman, a transfer pricing center, turns out to be the second most important trading partner of Brazil.

Every major country has "its" own havens. India is being bled by Mauritius. Russian oligarchs operate through Cyprus, Switzerland, Jersey and the Isle of Man.

The oil company Repsol YPF has established twenty subsidiaries in tax havens (Bermuda, Cayman Islands, ...)

Specialized tax havens

. Andorra and Monaco are specialized in asset management for wealthy individuals. Numbered accounts and total secrecy.

. Bermuda specialize in reinsurance operations, and especially of called "captive insurers", because they provide services to a group of companies as subsidiaries of the parent company. Paradise lax legislation requires less reserves and insurance premiums are not taxed.

. Bahamas, Liberia, Malta and Panama formerly, specialize in the FOC to record oil tankers or cargo of toxic waste ships, with no controls on the safety of the ship and without labor standards for the crews.

. Cayman Islands: Specialized in CEOs accounts and shell companies. Zero taxes. Directors of companies registered there need not be residents and their accounts can not be audited. 544 international banks are home to some 420,000 million dollars in deposits, and have registered more than 30,000 companies. The minimum bank deposit required is around US $ 10,000 and five times more, if denominated in other currency. To establish a trust a minimum fund worth US $ 250,000 are required. The Cayman Islands are the home of 80% of hedge funds.

The Cayman Islands are not really a country but a financial company disguised as "country". More than 12,000 "companies" are operated from a single building known as Ugland House, headquarters of the firm Maples & Calder.

The "laws" of the Cayman Islands prevent these firms of any operation within its territory except, of course, accumulate assets and benefits without label. They hold the 5th worldwide in bank deposits with a figure of $ 2 trillion.

But overall the trend is to merge or grouping many services in offshore multiservice centers such as Singapore which has become the Asian Switzerland.

Competition between tax havens

They compete to attract capital. To see who offers better security, secrecy, taxes, etc. Jersey imposed a rate of "10%" to corporate profits and the Isle of Man reduced its rate to "0%". Jersey reacted by lowering its level of taxation to zero while maintaining 10% only for local financial services companies. The difference in revenue was offset by the creation of a kind of tax on consumption and the "non-financial" services of the island. He also created a new type of company (shell company) that allows, from $ 1 million to speculate in risky markets without control or supervision. An appropiate bait for hedge funds.

Round triiping

Capital that flees a country can then go back, honorably, in the form of foreign direct investment (IMF defines up to 12 different varieties), once it has been "restructured" (wash) in a specialized tax havens specialiced in this type of operations. The phenomenon has reached impressive dimensions in the case of China where 30 to 40% of foreign equity investments come from this traffic laundering and tax evasion. Chinese law allows its companies be filed  in Muricio Island, Bermuda, the British Virgin Islands or the Cayman Islands.

Global Financial Integrity estimated at more than $ 120 billion the annual "round-tripping" between Russia and Cyprus, through which Russian money is laundered as deposits in the Cyprus tax haven and then reinvested in Russia.

Tax Havens: How the illicit money is washed?

A series of successive operations are performed: placing, acumulation,  integration, centrifuging between each and the final bleaching.

1. Placement or prewashing is to move money and currency from acquisition place to financial establishments on different places, spread over multiple accounts.

This operation does not require suitcases full of bank notes; banks help move the funds to tax havens. According to Eduard Guroff, German tax fraud fical, in Liechtenstein evasion is done through simple transfers. "A bank, for example, collect in an account 10 million from several customers in Germany and sent it to Liechtenstein as if they were their own, without names. Months later, sends a note explaining who each part belongs. The bank in Liechtenstein then creates a numbered foundation for each customer . As only the bank and the client know who is the foundation owner, the system is easy, clean and opaque to the treasury. "

2. Stack, or mixture which makes it impossible to rewind the wire to the source of illicit profits: multiplication of transfers between accounts in various banks located in tax havens, .... and conversion of funds in investments securities  and channeled to various financial markets using clearing houses such as Clearstream in Luxembourg or Euroclear in Brussels.

3. Integration: Finally, the last stage, and again using Clearstream or Euroclear, integration and legal reappearance of blanched capital, regrouped in naw visible bank accounts, and prepared for use in a totally legal form.

That is, clearing firms act as centrifuge machines throughout the all the process to phase in various stages of washing the "dirt" of the badly earned money.

The same washing and bleaching techniques and the same circuits are also used for covert management of the fortunes of corrupt rulers, embezzlement of public funds, fortunes  achieved by insiders, the black money of sports or showbiz, fraud tax, illegal financing of political parties, payment of kickbacks on government contracts, money from the mafia, the drug, the business of trafficking, the trade in organs, newborns, slave, etc.

The deregulated financial system has become a global giant washing machine. A growing part of the funds managed by "markets" come from illegal, tax evasion and prevarication, which placed here and there will whiten in exchange for succulent bonus entering senior executives of financialization traffic.

Organized crime and financial centers press together and converge on the removal of regulations and controls. The synergies between the two groups intersect and overlap as "markets" become the arbiters of permanent global depression.

Financial services tax havens

The tax haven that want to attract this netherworld offers a range of shady appropriate "financial" services:

Plots in "technological parks"with equipment and perfect logistics, particularly in computer-electronic facilities allowing free access in real time to all world markets, and guaranteed correspondence with large banking networks, usually represented in the same place. Thus, the Spanish government had to grant some 100,000 fixed lines in 2002 to Gibraltar phone so he could be reconverted into a competitive tax haven  serving real estate and mafias of the Costa del Sol.

Facilities to attract a mass of unscrupulous lawyers, economists, financiers, brokers, accountants, auditors, tax advisers, ...  to offer assistance, expertise, arbitration, legal and accounting local management to customers.

Security and political stability; weak (or no) repression of financial crime, and weak (or no) international cooperation.

Banking secrecy against any criminal investigation, absence of exchange control, right to establish any form of society, real or fictional, with guaranteed anonymity for participants; tax exemption or symbolic imposition.

Virtual tax havens

The boom that have registered tax haven countries  as Luxembourg, Liechtenstein, Andorra, Panama, etc. has led to a proliferation. The ultimate in this field are tax havens located in virtual countries such as The Dominion de Melchizedek or the Kingdom of Enenkio, who claims to be located in Micronesian atolls, but thanks to its operations online it "work" with the same effectiveness or more than their material counterparts, in a world where virtuality is a rising star.

Tax havens and clearing houses: Clearstream, Euroclear.

In fact, if there would be the political will to do so, the control of capital movements is technically very simple.

Currently 99% of monetary transactions and securities (shares, bonds ...) are electronic records  that at the end the day involve balances in favor or against the owner. These adjustments of currency and securities are made through  SWIFT and CHPIS networks converge into two or three companies of international clearing:  CLEARSTREAM in Luxembourg and Euroclear in Belgium.

These companies keep a record of each and every one of the operations carried out and, contrary to popular belief, the vast majority of transactions in criminal funds also go through these records, ie, by the formal financial system.

Thus the financial system has simplified processes so that it works fine with very few and simple mechanisms.

But on the other hand under the 80s R.Reagan and M.Thatcher deregulation, a complex legal structures tangle (related to the new financial "products", trust companies and offshore havens) financial markets have become an opaque  landscape in which to navigate without worrying about the existing legal obligations in the parent country.

Denis Robert unmasked the shebang and suffered the consequences:

 "It requires that a Clearstream senior  be dismissed for that we learn about the operations of Banco Ambrosiano, Bank Menatep and Russian mafias, illegal commissions for sales of french ships or illegal CIA operations in Iran; it requires that someone pull out a DVD of Liechtenstein with data on billions of euros evaded from Germany, Italy, USA or Spain".

"All financial transactions are recorded and this information is centralized and stored in large fiancial stores. Clearstream, Euroclear and Swift, with branches and customers around the world, have become, thanks to the microchip and the progress of technology information, the essential tools of globalization.

Clearstream and Euroclear are the traffic managers in the global village, the transport companies of financial capitalism, their cash registers are their control towers. All banks in the world and multinational companies are permanently connected to their networks and use them to move, buy, sell, cheat, steal, hide and disappear. SWIFT records and transmits transfer orders from bank to bank. iIf you are in Italy as a tourist and rent a car, by using your credit card, the transaction is transmitted by SWIFT network who charges your account and credits the account of the rental company.

Clearstream and Euroclear, meanwhile, organize cross-border trade in stocks and bonds, guarantee the solvency of customers, offset exchanges, made cash transfers to pay operations and act as custodians of much of the titles."

Naw paying taxes is a voluntary matter for businesses and the wealthy

The ability of evasion is total. Today gains from property sales or stock trading, inheritances and legacies, ..., any kind of profit could be attributed to trusts or foundations subsidiaries located in offshore centers so that paying taxes is a voluntary matter for companies and the rich. The full weight of tax collection of states is via VAT or income tax only for those who can not evade.

To return dirty money to the legal circulation evaders and smugglers enjoy the invaluable assistance of bank clearing (Clearstream, Euroclear) that filter dirt from operations, and allow deposit accounts, ready to spend the money free of impurities.

Witn offshore havens large corporations enjoy a whole set of advantages: avoiding change control within the own country or evade currency convertibility. Other times, the aim is to centralize the financial management of the company (Enron). They are used for commercial brokerage operations and chargeback (transfer pricing) or to install captive insurance companies aimed to self-insurance operations. The most common operation however is the investment through holding companies so that profits are taxed in the tax haven.

Absolute freedom for capital movements worldwide, and electronic communication, allow operations to be performed from any office of a bank or a corporation. The isolation of Liechtenstein in the Alps, with no airport or railway station is not an obstacle to their operations. Transactions are simple electronic notes between different entities. The "paper" (securities or documents) are deposited at the source and "notarial" records in the clearing and settlement system (Clearstream).

 The tax haven of London

The main backer of the system of tax havens is the financial center of London.

With weak or no taxation for non-residents (200,000 non-residents are exempt from tax: City financiers, footballers, singers, ...), banking secrecy, professional secrecy, simplified registration procedure, complete freedom for capital movement, supported by a solid financial structure, good brand image and a dense network of bilateral agreements with other tax havens, London has become a key part of the financial derivatives industry  becoming the haven and operations base of hedge funds.

Tax havens and financial crisis

For decades it has been its existence that has generated a suicidal regulatory and tax competition between jurisdictions that has led most governments to cut taxes and deregulate at all costs. Lax or null "offshore"regulation  has created a systemic infection, poisoning "onshore" regulations  in a hasty run "down to the bottom" applauded by the neoliberal forums as the most important pillar of economic growth.

Contagion has spread from places like the Cayman Islands to places like Luxembourg, the Netherlands and Ireland. In the US, a state of the union, Delaware, provides foreign capital the same "profits" tax and regulatory that any tropical turtle island. Netherlands has become a haven for rock bands and record companies because Netherland do not taxe "royalties".

Actual complex corporate structures are opaque creatures that could not have been engendered anywhere else. They are artificially divided across multiple jurisdictions so that any notion is lost of where is rally parked the risk. This competition for capital has overheated speculation boilers so that everything has blown up.

The shadow banking system, permanent threat to the global financial system, would never have been possible without OFCs. All entities of some entity had and have hundreds of establishments in tax havens where they organize their undercapitalized and deleveraged operations , regardless of regulations and taxes, failed operations that are costing outrageous public bailouts.

Tax havens and tax regression

According to a Justice Network report (2005), private fortunes in tax havens amounted to a figure of $ 11.5 trillion that would generate an annual income of $ 0.86 trillion tax free. If these taxes were counted they would add $ 0.255 trillion.

This has resulted in an increasing tax reversal as governments are constrained to raise indirect taxes, taxes burden almost exclusively for the non-rich, and postponement of infrastructure investment and redistributive social spending .

Justice Network  for 2005

A powerful magnet that absorbs huge public funds and forces to lower taxation on companies and the wealhty. .They are true parasites that progressively weaken the health of nations.

Paradises "off world"

Dubai, on the Pirates Coast, former refuge for pirates, smugglers and traffickers, has become by the clever hand of emir Mohammed bin Rashid al-Maktoum a multifunctional tax haven. It is not only a center for money laundering on a large scale, but has become an international financial center, a tourist and residential paradise for wealthy people, a safe haven for gangsters, kleptocrats and terrorists, free  taxes and 100% foreign ownership processing zones,  ..., and the most impressive real state bubble ever dreamed.

Burj tower (buble?) Dubai and its tween of Saruman

The huge skyscrapers, artificial residential islands, airports, etc., build by forced labor immigrants deportable to the slightest complaint, and "invisible" to the wealthy elite public except for taxi drivers, maids or prostitutes.

It is the dream of neoliberalism come true, "the apotheosis of neo-liberal values ​​of contemporary capitalism." A world of luxury, waste and unbridled lust, speculation without limits, without taxes, without political parties, served by a proletariat without holidays, without pay, without consumption, no unions, no papers, no nights, invisible, in permanent debt bondage state, repatriable a whim, reproduced in another galaxy "... A perfect "off world " for the XXI century.

Tax havens, powerhouses of criminal-capitalism

In depressed economic conditions mafia business thrive. As entire sectors succumb to the crisis, the mafia control and their income grows exponentially.

Tax havens are a specially designed mechanisms to recycle short-term funds regardless of the source. In situations of lack of liquidity - liquidity trap - a desperate hunt for short-term capital occurs, wherever they come from. Banks and other businesses in distress come unabashedly in search of fresh money from the mafia, via tax havens.

Tax evasion, money laundering, drugs  and arms , human beings trafficking, extortion, production and marketing of counterfeit currency, theft, fraud and smuggling of all kinds, ... a volume of business that already around 40% of the world "legal" economy  thanks to tax havens.

Tax havens are at the root of corruption and the increasing poverty in poor countries. Oil revenues from Nigeria, Congo, Guinea, etc., is systematically diverted and attracted by these specialized in protecting deregulated fraud and illegal accumulation magnets , leaving the local population mired in abject misery.

Tax havens, hubs and catalysts of globalization

Tax havens are inherent in the system in its last and most destructive journey. They are their hubs. Any transaction, any business of a certain size pass through them. Today's globalized world, in advanced stages of criminal penetration, would not be understood without them. Suppress tax havens would mean literally terminate capitalism. Therefore all media or official talks against them is pure demagogic fallacy. Tax havens are here to stay.

Finally Capital in its pure form, detached from his dark and gruesome origins, washed the blood, exploitation, fraud, theft and extortion that generated it, can to roam and is welcomed and pampered everywhere. From Gibraltar to Isle of Man, Monaco to Liechtenstein, through Clearstream. Tax havens inflame and lubricate financial markets.

Tax havens and underdevelopment

About 50% of assets in Latin America are invested in tax havens. In the Middle East the percentage is 70%. The losses for developing countries are estimated at $ 500,000 million per year (5 times the total amount of development aid). Given the precarious tax system in many poor countries, tax evasion is especially severe.

The fight (sic!) Against tax havens

The European Commission looks away. The "European Constitution" could not be sneaked with a referendum but was imposed anywhere by force (simple Lisboa Treaty, without de bombastic "constitutional" title) abounds more and more on deregulation for capital while Luxembourg (Clearstream) and Belgium (Euroclear) have become the centrifuge laundering  machines of the world dirty money.

In Germany there have been many scandals for tax evasion but under the Treaty of Lisbon, the consent of all 27 member states of the EU is needed to change the actual  2005 EU Fiscal directive  on the protection of banking secrecy. (The directive is like "Swiss cheese, full of holes," say tax experts.)

After the outbreak of the Liechtenstein case, the European Commission criticized Spain measures against evasion of capital to Liechtenstein and recommended "avoiding disproportionate measures" in the investigation.

Rules governing taxation policy 2005 affect interests, but not dividends. In addition they apply to individuals, but not foundations (Klaus Zumwinkel, chairman of Deutsche Post in its recently discovered large-scale tax fraud used fundations). Tax havens quickly adapted to the soft policy. There are more than 50.000 Foundations (stieftung) in Liechtenstein  in a country of 35,000 inhabitants.

The Principality of Liechtenstein has more than twice companies than citizens. 35,000 citizens and 80,000 companies, many of which reported as address a post office box . Local law allows the establishment of foundations for private purposes. The tax on this capital is a derisory 0.1 percent upon capital less  than two million francs; if such amount is increased, the rate is reduced to 0.075 percent and if the amount exceeds 10 million francs, the tax burden almost disappears: is 0.005 percent (reverse tax progressivity).

A Spanish citizen instructs LGT Group  the creation of a foundation. A Spanish office will be the mediate agent. Liechtenstein LGT will place employees on the boards of the foundations to leave no trace of the transfers, LGT Group provides intermediary companies, Special Purpose Vehicles, etc.

Tax havens and actual capitalism

All this is no secret. This is not something marginal. What for the liberal capitalism of the 80s was a "necessary slip" that lubricated the functioning of the system has become a monstrous degeneration that determines the current operation of the system.

Faced with criticism everywhere the G7 created in 2000 the Financial Action Task Force against money laundering (FATF) which in practice was a real jinx, giving, after studies and various assessments, approval of "respectable financial centers" to real Turtle islands  as Cayman Islands, Jersey, etc. Later OECD joined the whitening process of offshore centers so that in 2004 only Andorra, Liberia, Liechtenstein and the Marshall Islands were "tax havens". The rest apparently were true prodigal sons returning to the law.

Spanish tax havens and spanish banking

Banking that one can find in tax havens is created, managed and continuously used by the big American  and European banks, and, of course,  the Spanish banks.

Large companies such as Telefonica, have installed holding companies in the British Virgin Islands. Santander and BBVA, have management investment funds firms in Bahamas, Jersey, Isle of Man, Cayman Islands, Virgin Islands and Netherlands Antilles.

La Caixa, Banco Popular, Sabadell, etc., all have their section of offshore companies, competition imposes. Caja Sur established in Cayman Eurocapital  Finance Ltd, which issued preferred stock whose dividends were exempt from taxes. Then Eurocapital  Finance Ltd "lent" to Caja Sur the money deposited so that it could continue adding fuel to the housing bubble.

In 2004, according to annual reports submitted to the Spanish shareholders, 11% of the companies in the BBVA group were based in tax havens, La Caixa group 10%, 15% Sabadell group. Santander and BBVA are among the 50 banks with more assets abroad (in positions 37 and 47 respectively).

The Financial Action Group reported in 2006 that the Spanish legislation does not establish any prohibition to have relations with screen societies. Neither the Spanish Government has an estimate on screen companies serving Spanish companies in tax havens.

If money is Barbuda, Bahamas or Cayman, banks are behind it. Santander (SCH) has more than  hundred "consolidated" societies (their accounts are added to the accounts of the parent) based in tax havens and can boast of having managed the funds of the Pinochet family during their most bitter days through the Coutts USA Internacional, owned by SCH.

Currently BBVA controls the second largest bank in Colombia and the first of Mexico and holds leading positions in 14 other countries in the region, where is the first group in insurance and pension plans. It is, by many accounts, one of the most efficient washing machines of American drug trafficking.

In May 2007, the magazine Capital noted a list of 27 BBVA known companies based in tax havens such as Jersey, the Cayman Islands, Luxembourg and Switzerland.

In 2002 the National Court and the Spanish anti-corruption prosecutor investigated dark transactions linked to the Expo 92 in Seville that would lead them to BBV Privanza and a vast international plot: Colombia, Puerto Rico, Panama, Jersey Islands, Grand Cayman, Switzerland, Mexico ( Probursa), Peru (Continental), Venezuela (Provincial), the United States (Bank of New York) and even to Chile and Cuba. In total a network in 13 countries. In 2007 the court  declared the nullity of the proceedings and filed the case because of  "absence of injured".

BBV operated a "B box", opened in 1987 in Jersey and expanded in 1991 to Liechtenstein, with 224 million euros invested in 22 pension funds on behalf of former directors of BBV, members of the country economic elite, among which was included the then President Emilio Ybarra. Bank CEOs where seeking freedom of action outside shareholders control to get exorbitant pensions for themselves. In the end the case was also filed.

Caja España, like other financial institutions exhibited their own company  "Caja España de Invbersiones Finance Limited", established in the offices of Maples And Calder, lawyers in the Cayman Islands (Ugland House, South Church Street, PO Box 309 ).

Gescartera (advised by BBVA?) Also used Jersey where he had installed the SPV Stock Selection for camouflaging the gains of their unfortunate clients.

More than half of companies in the IBEX-35 have subsidiaries in tax havens according to the ORSC.

The SICAVs, tax havens within Spain

They are investment funds so that the rich that do not want to pay taxes, do not have to "expatriated" their capitals. Here in Spain (in a Spanish bank) as a SICAV, you can legally avoid taxes. The Sicav are joint stock companies and its theoretical action field is the collective investment activity. Many Spanish SICAVs (Capital Variable Investment companies ) are domiciled in Luxembourg.

These are clearly schemes by the banks offered  to the rich to place their capital and "legally" evade taxes. To maintain the fallacy that it is a society of "collective" investment creating a Sicav legally requires a minimum of 100 participants and a minimum capital of € 2,400,000. Are the same banks that organized fraud by providing the 99 shareholders who are missing, the trick is based on bringing together different customers with the same interests according to the scheme: "I will help you to build your company, and you help me me to ride mine. " Of the 2.4 million evaded you must just spend a few thousands to participate as a shareholder of the "friends" Sicavs.

The authorization of a Sicav corresponds to the CNMV that usually turn a blind eye to such dealings. The profits obtained by these companies are taxed at 1% in corporation tax in front of the  35% or more to pay in the IRPF (Personal Income Tax).

Andorra, a tax haven

In Andorra, usual place of pilgrimage of athletes, jet set, and wealthy Spanish. The Spanish banks assets controlled up to five banks there Credit Andorrà, Banc Internacional d'Andorra, Caixa Bank and Banc Sabadell d'Andorra.


The transformation into a tax haven has been a boost for the business concentration. In 2001 Banca Reig and Banc Agrícol merged. A year later the company was born Andbanc, wholly owned by Andorran capital while Crèdit Andorrà announced the purchase of CaixaBank Andorra -the subsidiary of La Caixa- for 356 million euros.

In March 2006 Banco Internacional Banca Mora (BIBM) bought BBVA de Andorra for 395 million euros. In September of the same year La Caixa sold its stake in Credit Andorrà for € 927 million.

Integration in July 2007 of Banco Internacional Banca Mora (BIBM), Banc Agrícol Reig and Andbanc to form the Andbanc Group Mora, involved the largest corporate transaction ever made in Andorra and allowed the creation of the most powerful banking group in terms of resources managed, collaborators and results. With 500 employees the new group (data from 2006) has a volume of social assets of 5,480 million euros, a credit investment of 2,315 million and customer funds of 14,340 million.

With regard to business volumes, the bank has 16,655 million, of which 604 correspond to equity. The group has branches in Switzerland, Mexico, Panama, Brazil and the Bahamas and operates like a giant evasion funnel  of Catalan and northern Spain capital.

More information: Blog de Luis Ordóñez Gonçalves

Reporting Project (Crimen organizado países del este)

Celestino Olalla: Paraísos fiscales, economy black holes.
Javier González: Paraísos fiscales, escondrijos de una cuarta parte de la riqueza mundial


HUKOU, China miracle and Globalization


Du Runsheng: "For two decades since 1980 there has been almost no real increase in wages of rural migrant workers (Nong Gong Min) in coastal areas despite the rapid growth of China as a major economic linchpin of the global economy" 

David Coates (theoretical netizen new capitalism): "Modern globalization is a process based less on the proliferation of computers than in the proliferation of proletarians" 

Kam Wing Chan: "Alarmingly, the gap between the total population living in cities and the number of those with urban residence registration (urban Hukou) has increased as the country progressed. That gap represents the expansion of many people living in the city but not belonging to the city (Nong Min Gong)"

There are an estimated 274 million rural migrant workers in China, representing more than one third of the working population. Migrant workers have been the engine of spectacular economic growth in China over the past three decades.

Migrant rural workers - Nong Min Gong -, are workers with a rural Hukou (household registration) who are employed in a place of urban work. However, many of them have not even been born in rural areas. Many have grown or even born in the city but according to the Hukou system they retain the stigma of Nong Min Gong from their parents.

Chinese State and multinational capital have contributed to keeping this great mass of proletarians as marginalized persons subject to institutionalized discrimination, as if they were undocumented foreigners in their own country.

Chinese capitalism has created a system of production relations that is more efficient and brutal than most. The formidable escalation of China as the most competitive industrial power in the world, has been largely achieved thanks to a highly efficient exploitation of labor that would have been impossible without the Hukou system.

Unlike Japan, South Korea and Taiwan, China welcomed foreign direct investment with open arms, and capital began flowing into the country on a huge scale. With China's entry into the WTO in 2001, all companies were forced to reduce labor costs and social security contributions. The restructuring sealed the fate of hundreds of millions of farmers converted into the proletarians of globalization. The Hukou system would be refined to keep hundreds of millions of workers in absolute marginalization. The fuel of the China industrial revolution and neoliberal globalization has name: Nong Gong Min.

However, although the total number of Nong Min Gong has increased steadily over the past decades, the growth rate has declined significantly over the past five years (from 5.5% in 2010 to just 1.9% in 2014) as a result of their marginalization and growing rural poverty. The Nong Gong Min have no ability to self-reproduce.

And apparently, in the same way that there was a direct relationship between high rates of economic growth and the growth of Nong Min Gong, also seems to be a direct link between the Chinese loss of competitiveness (and economic slowdown)  and the exhaustion of Nong Min Gong suplay.

According to a weighted index that includes 7 key growth sectors (synthetic index), Chinese GDP, not only does not grow at the pace announce by Chinese state institutions but in 2015 it has been negative. That is, the Chinese giant has entered recession.


International capital and Chinese state have worked closely together to transform hundreds of millions of Chinese peasants in flexible, submissive, redundant and cheap proletariat, at a speed and on a scale unprecedented in world history. The resounding success of 'made in China "over the last two decades is the story of rural migrant workers exploited by a below subsistence wage to produce at the lowest price. The "China price"

From maoist Hukou to capitalist Hukou

The current system is a capitalist adaptation of the Hukou of  the Maoist era. The Hukou is a kind of family book or residence documentation. Originally the system was attempting to fix the rural population in their villages to avoid the cities overpopulation. Any inhabitant of a city without urban Hukou was immediately expedited by the authorities to their village of residence.

Broadly speaking, the history of the Hukou system can be conceptualized in three stages.

1. Records of residence had been used by the Chinese authorities for thousands of years to manage taxes and controlling migration. The origins of the Hukou system were in the registration system of the population (baojia) that began in the eleventh century. Its main objectives were compliance with the law and civilian control. Each BAO included ten JIAS, while each Jia brought together ten households. The Bao and Jia chiefs were responsible of local law enforcement, taxation, security and civil works. In more modern times, the population register was also used by the Kuomintang and the Japanese in the occupied areas.

2. The Hukou was formally introduced by the communist government in 1958 in response to the shortage of cereals, whose cause was attributed to rural-urban migration. The system was designed to facilitate three main programs: government welfare and resource distribution, internal migration control, and criminal surveillance. Every town and city issued its own internal passport or Hukou, giving residents access to welfare services in that jurisdiction. The Hukou was hereditary so children whose parents had a rural Hukou also had a rural Hukou no matter where they were born.

Between 1950 and 1970 the Communist Party used Hukou registration to implement the agricultural collectivism in rural areas of China, while it was rapidly industrializing urban China. Farmers had to sell their cereals and other crops at low prices to the state, which it rationed to urban workers. The peasant migration to the cities was tightly controlled by the Hukou system. Yet there was a considerable increase in urban population. The Communist Party responded by initiating several campaigns of relocation of urban workers who were sent to develop sparsely populated rural areas.

3. The transformation of the maoists Hukou to capitalist Hukou  began in 1985 when a new system of temporary residence permits introduced by the Ministry of Public Security was established. This allowed the rural Hukou holders to migrate to urban areas without having to formalize a previous employment contract which was required under the previous system. And so it began what is often described as one of the biggest human migrations of all time, as millions of young men and women from the countryside filled factories and construction sites under construction in the coastal cities of China. In many cities, such as Shenzhen and Dongguan, the population of migrant workers quickly outgrew the local urban population.

The Hukou has undergone a series of reforms or improvements to suit the precise needs of the industry. It has evolved into a finely tuned system of discrimination and institutional control. Reforms decentralized the Hukou to local governments to improve and better adapt the system to the interests of transnational capital investment. The improved Hukou system has been the linchpin of the enormous profits of Appel, Cisco, IBM, HP, Samsung, Adidas, Toyota, Microsoft, etc.

In Shenzhen, the Hukou system is specially designed to maintain absolute control of labor. When Nong Min Gong  are hired by companies they must be registered by the local labor office as temporary workers, after payment of a fee to the city. Companies must obtaine from the Public Security Bureau a certificate of temporary residence registration, and they must notify to the Local Police Office the registering of a temporary hukou. The temporary residence is only for one year and must be renewed annually.

In many cities, the rich or educated migrants can easily convert their residence Hukou. Since the mid-1990s, some local governments have the ability to sell local Hukou  to investors. In some cities it was possible to obtain a local Hukou buying a property from a certain value. Like everything in China, this discriminatory practice has been dubbed "talent exchange and investment for a Hukou" and is generalizing across China.

Some cities issue "blue stamp" Hukou (to distinguish from the official red stamp Hukou), a kind of transient urban Hukou  that needs special qualifications (entry conditions) in order to allow the entry of precise groups of people, a kind quasi-urban Hukou entitling to a sort of partial citizenship.

In Beijing, there is a "very competitive" Hukou system, which includes no less than eighteen different categories of transfer of Hukou based on what the applicant can offer to the city (workers in the field of science and technology, students returning after studying abroad, financial, experts, etc.)

In Shanghai, there are four types of cards that target different groups of migrants and grant different privileges. The "talent residence permit" is designed to attract highly skilled and educated professionals. There is a second type of card for foreigners or "overseas Chinese" working in Shanghai, while the third is for migrants who have a permanent job or running a local business and have a current address. For immigrants who do not meet the above criteria are given a renewable "temporary residence card" (Linshi juzhu Zheng)  issued from time to time, that usually grant legal residence for a period of six months and gives access to minimum social services.

Nong Min Gong

Nong Min Gong  (rural migrant worker) has a specific meaning in China; It refers to urban workers with rural Hukou. Although these workers are working in urban jobs legally they are not considered urban workers. The category of Nong Min Gong is not temporary but permanent and discriminatory. As "rural" they have not right to "urban" social services (education of their children, pensions, unemployment help, public housing, public health, disability insurance, etc.)  and any rights that are available for other urban residents. In legal terms, the Nong Min Gong are treated as part (or as an extension) of the population with rural Hukou, despite working and living in urban areas during most of the year, often for many years. They have to endure all kinds of discrimination, including discrimination in employment, wage discrimination, discrimination in social services, discrimination in education, etc.


Such social isolation drives to social discrimination. They are blamed as invaders and a long list of problems (responsible for traffic jams, high population density and crime in general) are attributed to them. The stereotype of Nong Min Gong is that they are "uneducated, ignorant, dirty and prone to crime".

The weight of the Nong Min Gong in Chinese economy is huge. They represent 79.8% of all  employed in urban construction, 68.2% of jobs in electronics manufacturing and 58% of the workers of the restoration sector.

The Nong Min Gong are the quintessence of job insecurity


Being Chinese the law consider them immigrants in their own country. But unlike immigrants in Europe or the US, they are treated without ateny contemplations since they are supposed a category of "tourists" temporarily in the city where they work. That is, they are undocumented workers in their own country. They have no right to housing since it is supposed they already have permanent residence in their village. They are always living "provisionally" in crowded dormitories  in the same factories or buildings where they work or in rental buildings. They can not educate their children as they are supposed to already have school places in their villages of origin, etc. In fact, the Hukou system divides Chinese society  into two classes. Few urban residents socialize with Nong Min Gong  (the term is pejorative) and intermarriage are considered unwise.

The Nong Min Gong are the quintessence of labor flexibility

They have no right to compensation , unemployment benefits, to severances insurance, sickness insurance, public health, etc. Their low wages are always below the subsistence level since it is assumed that their subsistence and reproduction takes place in their home villages.

When the financial crisis broke in 2008, export centers experienced a nosedive. This was accompanied by mass layoffs, widespread arrears or unpaid wages and factory closures. In late 2008, more than 62,000 factories in Guangdong province had closed and 26 million Nong Min Gong  were fired and forced by urban authorities to return to their villages of origin.

The Nong Min Gong are the quintessence of labor submission

 As a "paperless" they must avoid any conflict with their bosses to avoid being deported back to their home villages. Public discourse often refers to migrant workers as people who deviate from the "norm" and therefore need to be corrected and educated.

Political and social control and Custody Laws and Repatriation

 The Hukou system is also a sophisticated instrument of social and political control since it allows tracking people who are politically dubious to party standards. Technology has made it easier to apply the Hukou system because now the police have a national database of Hukou official records . This has been possible thanks to the computerization of the 1990s, as well as greater cooperation between the different regional police authorities.

In Shanghai and Shenzhen a new temporary residence card as mandatory identification  for all migrants to stay in Guangdong for more than a month was adopted in 2006. The card, which is the size of a credit card contains a chip that stores personal information of the subject, including the employment status, credit history, criminal records and even family planning folder. The system has spread to most Chinese cities.

In 2002, more than 30,000 police stations in the country had computerized the Hukou management and the Hukou records of 650 million people could be consulted through a single national computer network.

Based on the files of Hukou, police maintains a confidential list of suspected persons  (Zhongdian renkou 重点 人口) in each community (usually about five percent of the total population of the community) that are specially monitored and controlled.

Random and humiliating checks of identity documents in the street, especially near railway stations, or after midnight in residential units migrants, and detention and forced repatriation of people without permits, is a common police practice. Eventually though the raids are still done on a regular basis, they are done more discreetly in big cities like Beijing, Guangzhou, Shanghai, Wuhan, and in the smaller cities of the Pearl River Delta.

Undocumented migrants who are caught can be "fined, undergo a period of detention, be subject to forced repatriation, criminal prosecution and even prison sentences.

There was a set of laws on "Custody and Repatriation" establishing detention centers in different cities for the custody and repatriation of illegal immigrants Nong Gong Min. The administrative procedure of Custody and Repatriation was established in 1982. Under this procedure the police could detain any Chinese citizen without a residence permit (Hukou) or temporary housing permit  (Zanzhu Zheng) in a Custody and Repatriation Center, and return them forcibly to their place of origin. Conditions in Custody and Repatriation Centers were often worse than prisons or reeducation camps (including beatings and prolonged detentions without trial). Sometimes the police used the system to kidnap Nong Min Gong and extort their families arguing maintenance and repatriation expenses. The system was abolished in 2003 after the death of Sun Zhigang, a migrant worker who died of mistreatment during his detention in the Custody and Repatriation Center of Guangzhou. Sun Zhigang, the victim of 27 years turned out to be a college graduate from the University of Science and Technology, Wuhan and his case sparked a huge viral campaign on social networks (that would be the last), hence the gesture of the Chinese authorities.

Absence of contracts or temporary contracts

In thirty years of annual GDP growth averaging 10%, all employment growth has been outside the formal sector, which means that an increasing percentage of Chinese workers are not covered by the country labor laws, and their wages , benefits and working conditions are not caught by the Chinese official labor statistics. (Misleading Chinese Legal and Statistical Categories: Labor, Individual Entities, and Private Enterprises)

Employers often contract private employment agencies avoiding to directly hire Nong Min Gong   workers so that they are working without a contract most of the time or with very temporary contracts. Very rarely they obtain long term employment contracts.

According to the recommendations of  Human Resources Managers (HRM) the Nong Min Gong should be relegated to the three 'D' (difficult, dirty and dangerous). The same state-owned enterprises (SOEs) and the Chinese big transnational corporations often recruit (under subcontracts) many Nong Min Gong for hard, dirty and dangerous jobs.

The Nong Gong Min of the employment agencies are usually paid based on the minimum wage level in his native village and not on basis of the minimum wage of the city where they work. Some companies try to justify this by saying that rural workers need not be paid so much because they have other sources of income from the land in his native Hukou, and have fewer expenses because their families are in rural areas.

Much of migrants are illegal immigrants "undocumented" ie without Hukou or temporary residence card. Because of "paperless" nature there is no official estimate of the number of such migrants, although it is estimated that in several cities their number would be between 20 and 60% of the population, ie over 100 million of people.

In the Economic Survey of China 2010 of the OECD  it is noted that illegal immigrants are "probably" more than 40% of the total workforce in urban centers. These are the lowest paid of all. They are the real pariahs of globalization.

Impoverish the villages to encourage emigration

In many villages, only the elderly and children remain because the working agwie generations are in search of employment, providing much of the cheap labor that has made China the most formidable competitor of the export-oriented manufacturing worl, . With employers of migrant labor paying low wages that do not cover the cost of its reproduction.


In China remains a peculiar system of rural land tenure, established in the 1980s, which prevents the sale of land, which has prevented the mass expropriation of the means of livelihood of farmers. This system has so far avoided the social instability which would have meant the mass alignment of 600 million people from their traditional means of livelihood.

The post Maoist "household responsibility system" set aside the role of the Commune as organizer of agricultural production, making the peasant household the basic unit of production.
The abolition of the Maoist rural collectivism began with experiments in the allocation of land to small production households in Sichuan and Anhui in 1978 (the "household responsibility system"). It was a time of struggle between the pro-capitalist fraction and the Maoist fraction and the capitalist fraction seeking to win the peasant masses. The commune system was extinct in 1983; an increase of 50 percent grain prices (paid by the state) and a large increase in fertilizer subsidies led to an annual 9% increase in agricultural production which increased rural incomes by 98.4% in the same time span: it was "the highest rate of reduction of rural poverty in world history."

Achieved the political objective, the state turned to the economic objective. The path to rapid industrialization by China's opening to transnational capital. But to produce cheap labor willing to emigrate needed the re-impoverishment of peasantry. This was done in two stages. First, a fundamental change in the tax system freed the central government of funding the administrative costs of the authorities at lower levels. From now on local governments adjusted their spending and investment within the limits of the taxes and charges that they may apply to residents within its jurisdiction.

In a second stage, local administrative bodies now converted into monstrous bodies of corporate management, began to exploit the residents under its jurisdiction with a growing number of fees and charges to feed its own continuous expansion. Offices responsible for seed, fertilizer, electricity, irrigation and flood control, all raised the price of their services to an extent that in many cases the farms were ruined and lost the recent profits from the era of "household responsibility system".

Currently the land is still regarded as a public good and state prevents the sale of farmland, which has prevented, so far, the expropriation of livelihoods of farmers. The system of land tenure established in the 1980s has served the wider interests of capital because it has not only avoided the social instability associated with huge landless masses, but has subsidized capital employing Nong Min Gong which reproductive capacity is assumed to be produced in their hometowns.

Despite the rapid growth of the Chinese economy in recent decades, more than 482 million people - 36% of the total population - live on less than $ 2 a day. The 85% of China's poor live in rural areas. In many villages, only the elderly and children remain.

Nong Min Gong wages

Although they do the same work, the wages of Nong Min Gong are much lower than that of urban residents.

Moreover, wages of workers with urban Hukou increased year after year, while Nong Gong Min real wages declined. The Nong Min Gong  work much longer hours than workers with urban Hukou. In 2006, 48.2% of workers with urban Hukou worked 40 hours per week, while 47.4% of Nong Min Gong  worked more than 48 hours per week. In addition, the salaries of Nong Min Gong workers always suffer deductions and with any excuse payment is delayed without justification. Employers always make unequal treatment between workers with urban Hukou and Nong Min Gong . The total number of delayed payment of wages to Nong Min Gong in 2002 reached nearly 30 billion yuan.

All official statistics on wages Nong Min Gong are inflated because between 70 and 80% of them work in the informal sector where wage insecurity is absolute.
In addition, the Nong Min Gong  workers lack at all of the "invisible income" that benefit those with urban Hukou, including housing allowance, education allowance, health insurance, accident insurance, unemployment insurance, etc.

Official data from 2004 showed that 145 million workers had no formal contract (the figure should be much higher). The labor market in China is notorious for bad working conditions, unpaid wages, low wages, forced labor and other forms of abuse. All this is reflected in the unprecedented increase i n the Gini coefficient (which measures inequality from "0" - equality - to "100" - one person owns everything-) of 0.16 in 1978 to 47.3 in 2006 and 61 in 2010. The share of wages in China's GDP has been steadily declining, falling to 36.7% in 2005.

TNC, Nong Min Gong and employment agencies

For large transnational corporations one of the main attractions to settle in Chinese territory is the existence of Hukou. Multinational companies take advantage of the anti-union climate, lack of knoledge of workers of their rights and the unwillingness of the Chinese government to address the systematic abuse of Nong Min Gong.

CEOs and specialists and managers in human resources (HRM) of large transnational corporations soon realized the enormous possibilities of the Hukou system for your globalists plans. The Hukou would become the pivot of the monopolist globalization becoming a permanent forced filter for the diabolical proletarianization of  hundreds of millions of peasants. Rural migrant workers, the Nong Min Gong are not only the backbone of China's manufacturing sector, but also constitute the fundamental basis of the global supply chain and therefore the pace of the global economy and the Nong Min Gong labor are closely related.

Although slowing growth in China is related to the fall in global aggregate demand caused by the Monopoly Depression, loss of Chinese competitiveness is closely related to the exhaustion of its supply of Nong Min Gong. Less Nong Min Gong  less growth.

The School of Management at Royal Holloway University of London produce Working Papers edited with suggestive titles such as: "Prolonged Selection or Extended Flexibility? A case study of Japanese Subsidiaries in China"2012. The author of the paper is Dr. Yu Zheng, Lecturer in Asian Business and International Human Resource Management at that university.

The objective of the research (case study) is to explore the Chinese labor market institutions to improve employment practices of multinationals, particularly subsidiaries of two Japanese consumer electronics sector corporations. The document notes that the Hukou system has important implications for targeting groups of workers in the local labor market.

According to the analysis of the case, the firm hire technicians and specialized personnel "normally" ("internal employment system"), the other employees are recruited through employment agencies (this group is marginalized and excluded from the "internal employment system"of the firm).

The group of plant workers is constituted mainly by Nong Min Gong , with renewable 3 months contracts  without guarantees of permanence in the company. During peak season, more than 80% of plant workers were Nong Min Gong who were recruited through a large number of local employment agencies. They perform simplified tasks: welding, assembly, painting and packaging. These workers are imparted minimal training and salary is based largely on its daily production (piecework). After the period of three months of employment these Nong Min Gong  return to the labor agencies, the subsidiary of the Japanese multinational thus avoiding paying the social insurance of these workers and other labor costs.

The supply of Nong Min Gong and rotation control of their contracts are a key challenge for companies with foreign investment in China. Local temporary employment agencies play a key rol for recruitment of abundant, flexible and low-wage work. Local labor agencies have connection with  regional  abor agencies  and collect information of rural migrants. Employment agencies also provide specialized training for disciplining Nong Min Gong. These agencies also cover the basic insurance and are responsible for handling complaints of workers, all of which allows subsidiaries of Japanese multinationals outsource these costly management job functions.

As demand for workers increases, the Japanese subsidiary, following the recommendations of local managers, sign long-term contracts with various employment agencies in order to expand the range of origin of migrant workers and prevent the formation of alliances according to their hometown. In the Chinese context, native alliances are common and are a key source of solidarity and integration of workers, which must be avoided at all costs.

Inside the factory prevails personal network rooted in traditional society and this is exploited by manufacturers as a control strategy, taking advantage of the interaction between gender, place of origin and gangsterism.

Nong Min Gong number

Their number has continued to increase at the pace of China's industrialization but it seems that finally the goose that lays golden eggs is leaving to put on.

There were about 30 million in 1989. In 2007 it was estimated that they were 136 million. In 2008 there were about 225 million Nong Gong Min, of which more than 80% worked in the informal sector. In 2013 the number had increased to more than 270 million.

According to the annual survey conducted by the National Bureau of Statistics, in 2014 there were 274 million Nong Min Gong , representing about 36% of all workers in China (770 million).


Although the total number of Nong Min Gong has increased steadily over the past decades, the growth rate has declined significantly in the last five years (5.5% in 2010 to just 1.9% 2014). This slowdown is due to the contraction of the working age population in China. Restrictive family planning policies introduced in the 1980s, procreation difficulties  because of discrimination and increasing rural poverty, cause fewer and fewer people are entering the labor force and, therefore, it seems likely that the population of Nong Min Gong in China has already reached its zenith.

The gender balance of Nong Min Gong in 2014 was two-thirds of barons by one-third women. The trend is towards an older population. The proportion of workers aged 16 to 30 years old decreased from 42% in 2010 to 34% in 2014, while the proportion of workers over 40 years of age has risen from 34% in 2010 to 43% in 2014.

This slowing trend could be offset if the authorities end up putting into practice plans that aim to transform the Chinese countryside handing it over to large agro-industrial corporations, expelling from rural areas over a hundred million of peasant families (according to the Latin American model).

Nong Min Gong children

In most cities, the children of Nong Min Gong can not go to school because they do not have a local Hukou. The children of Nong Min Gong are not permitted to enroll in city schools, so they must be separated from their parents and live with grandparents or other relatives, in order to attend school in their hometowns. They are commonly known as "left at home children". There are about 130 million children living in villages without their parents. These rural schools suffer from a maddening lack of funds and consequently of educational quality. Chinese universities have a growing bias against the admission of students from these rural schools. In response to the resulting social problems, 13 newspapers from various regions of China issued a joint call for a campaign  for the abolition of the Hukou system (2 March 2010) , but it was silenced in a matter of days.

Public schools do not admit children of Nong Min Gong but they can do that charging high fees (Jiedu). Some have built Nong Min Gong  "private" schools for their children, low-cost schools known as "schools of migrant children". Researchers and journalists have found a lot of problems regarding the quality and safety of these schools.

Absence of slums or shantytowns

A mass emigration of hundreds of millions of peasants to the cities and the low wages they earn should have led to the emergence of slums and shanty towns on a large scale in the big cities as in India and in general throughout Southeast Asia. The Chinese government has done everything to erase the bad image of its economic miracle. However, the key instrument that has prevented the formation of shanty districts has been the Hukou system by which Nong Min Dong can only stay in cities provisionally. This forces them to reside in the same works or factories where they work, or pile up in rented temporary homes.

The Nong Min Dong not have the freedom to settle permanently any where. They are allowed to remain in dwellings provided by their employers (charging them rent or deductions of their wages) or by renting beds to local owners in dormitory neibourhood (chengzhongcun), provided they have employment and to register with local authorities as employees in transit ( the average living space of Nong Min Dong in Shanghai is 6m2). They must return to their county of origin after a prolonged period of unemployment or retirement - usually after 35 years -. Local authorities are well rid of Nong Min Dong when they are no longer profitable.






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