Market-Dominant Small Jurisdictions in a Globalizing Financial World
Christopher M. Bruner
Washington and Lee University School of Law
October 21, 2013
Washington & Lee Legal Studies Paper No. 2013-19
Over recent decades small jurisdictions have become big players in cross-border corporate and financial services. To date, however, their nature, legal status, and market roles remain under-theorized. Lacking a coherent vocabulary to describe the functions that such jurisdictions perform -- and the peculiar strengths of those small jurisdictions actually achieving substantial success in the global financial marketplace -- we find ourselves unable to evaluate their social and economic impacts in a nuanced and rigorous manner. Accordingly, this article proposes a new conceptual framework with the dual aim of refining the debate regarding the legitimacy and desirability of their activities, and reorienting that debate toward more productive inquiries.
Part II canvasses extant conceptual frameworks used to describe and evaluate the roles of small jurisdictions in cross-border corporate and financial services. These include literatures exploring globalization and the impact of English legal origins, as well as literatures variously characterizing such jurisdictions as "tax havens," "offshore financial centers," "micro-states," and "global cities." Finding each paradigm incapable of accounting for the range of small jurisdictions that have achieved substantial success, Part III proposes a new concept that better captures their market roles and salient characteristics -- the "market-dominant small jurisdiction" (MDSJ).
I first set out an ideal type, identifying the central, consequential features giving rise to their competitive strengths and fueling their substantial successes. Notably, MDSJs (1) are small in both population and land area; (2) are poorly endowed in natural resources, limiting their economic development options; (3) possess legislative autonomy (if not full sovereignty); (4) are culturally proximate to major economic powers, and favorably situated geographically vis-à-vis those powers, often performing critical "bridging" functions among them; (5) heavily invest in human capital, professional networks, and related institutional structures; (6) consciously balance close collaboration with and robust oversight of the financial professional community, at once conveying flexibility, stability, and credibility; (7) exhibit low levels of perceived public corruption; and (8) actively seek to minimize the political and diplomatic salience of cross-border corporate and financial services.
The foregoing ideal type provides a benchmark against which to evaluate four jurisdictions that have achieved global dominance in particular areas of cross-border corporate and financial services: Bermuda, well established among the world's preeminent insurance markets; Singapore, a rising power in wealth management; Switzerland, the long-standing global leader in private banking; and Delaware, the predominant jurisdiction for the incorporation of U.S. publicly traded companies and a globally prominent competitor in the organization of various forms of business entities.
Part IV concludes, suggesting that notwithstanding MDSJs' apparent vulnerability to exertions of economic and diplomatic pressure by major markets, the practical significance of MDSJs will likely continue to grow - as will the practical need for a more effective means of theorizing the roles they play in cross-border corporate and financial services, and the global dynamics their ascendance reveals. Accordingly, we should not remain content with flawed conceptual frameworks and vocabularies that lack sufficient nuance and all too often facilitate glib -- and even hypocritical -- generalizations about their social and economic impacts.
Number of Pages in PDF File: 74
Keywords: market-dominant small jurisdictions (MDSJs), globalization, tax havens, offshore financial centers, micro-states, global cities, Bermuda, Singapore, Switzerland, Delaware, captive insurance, wealth management, private banking, business entity registration
JEL Classification: K22, K23, K29, K33, K34, K39, N20, O16
Date posted: October 22, 2013 ; Last revised: October 30, 2013