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Flat tax or flat tyre?

“Flat tax is like a flat tyre,” complained Professor Lord Richard Layard, founder of the LSE Centre for Economic Performance, at last week’s Westminster Fringe Debate, sponsored by the Stockholm Network and The Economist. “It won’t help Britain to move forward. It’s just a disguised tax cut for the rich.”

A total of nine European countries have already successfully switched to a flat-tax regime, pioneered by Estonia in 1994 and followed by Latvia, Lithuania, Russia, Serbia, Ukraine, Slovakia, Georgia and Romania.

Should the more mature economies of Western Europe now follow suit? Could a flat-tax system be introduced here in Britain or would it, as Lord Layard pointed out, exact a lot of pain on middle-earners and create a gaping hole in public finance? Does the flat-tax system only work in smaller, less developed or transitional economies? Or will there be huge competitive advantages to the first of the advanced European economies to follow this route?

We’re going to be debating this issue in the summer edition of European Business Forum. Comments, please.

Should corporations bear the burden of education?

You’ve got to feel sorry for British businesses. Not only do they face higher tax bills, energy costs and pensions contributions, but they are now being told to fill the £10bn-a-year skills gap by providing staff with lessons in literacy and numeracy. Businesses should be encouraged to provide better training for their workforce – but surely it’s not up to corporations to compensate for shortfalls in basic education?

New lands of opportunity

If companies are paying little heed to the marketing and advertising opportunities of the over-50s (see Pete Curtis' recent post, "An age-old problem"), they are also blindly ignoring another huge market: the developing world.

Most global businesses focus nearly all their efforts on selling to the wealthiest 14 per cent of the world's population. But it's getting more and more tricky to make a profit that way: these markets are over-saturated and over-competitive. According to Vijay Mahajan, former dean of the Indian School of Business, and Kamini Banga, managing director of Dimensions Consultancy PVT (read their paper in the next issue of European Business Forum), the biggest growth opportunities lie in the developing economies – the 86 per cent of the world's population with a per capita gross national product of less than $10,000 a year.

The big question, of course, is how on earth you go about selling to the developing world when it encompasses such a patchwork of different markets. While approximately 400 million Chinese live on less than $2 a day, it is also estimated that 50,000 Chinese have fortunes of more than $10m. In 2004, a Beijing man paid a whopping $215,000 at auction for the ultimate lucky mobile phone number (133-3333-3333). Clearly, even the developing world has people with money to burn.

Sure, developing countries lack infrastructure and media. They have poor distribution and transportation systems. Technology is undeveloped. Their consumers react in unconventional ways. Yet for the companies that can meet these challenges, these markets represent staggering potential. As Mahajan and Banga put it, “Do you want to be in this market? Can you afford not to be?”

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