What the World Cup tells us about multiple flags

June 21, 2010
London, UK

While I have been traveling around Latin America and Europe for the last few weeks, there has been one constant in my travels: World Cup football.

I’m not a huge fan of the sport, but as an amateur athlete I appreciate the excitement and spectacle of international competition, particularly one that draws billions of eyeballs. Watching Brazil’s victory in Rio was definitely an amazing experience, as was watching the UK’s draw in London over the weekend.

In case you haven’t seen the games, one of the things that has been so interesting about this particular World Cup is how most of the European teams which usually dominate the FIFA world rankings– Italy, Spain, Portugal, France, UK, Greece, etc.– have really been struggling on the field.

Ironically, these are also the same countries struggling with disastrous balance sheets and bloated entitlement programs.

At the same time, young upstart teams like Paraguay, South Korea, New Zealand, and Uruguay have proven themselves to be extremely effective against these legendary, once-dominant opponents of Old Europe.

I feel like this sports metaphor, which is being consistently played out on the field during the World Cup tournament, represents the changing of the guard that is taking place in global economics and geopolitics– the rise of the developing nation, and the decline of the developed.

If you’d indulge me a bit more leeway with the sports metaphor, one could argue that this tournament’s lackluster teams of old Europe are well-endowed with enormous assets– great players, goodwill, training programs.

Just like governments which rely on the same tax and spend playbook year after year, Europe’s great football teams are being rendered ineffective by sticking to the same old tired tactics of the past.

The more effective teams from developing nations, however, are experimenting with innovative approaches, such as extreme conditioning regimens, or Chile’s unique 3-3-1-3 formation, and even North Korea’s massed defense approach.

Overall, the results are clear, both on and off the field.

Here in London, where the national team has been suffering from anemic performance thus far, the population is simultaneous gripped with a severe economic crisis. With a new political party at the helm, England’s leadership is now tasked with the mission of doing *something* to stem the crisis.

Needless to say, this will unfortunately rely on the old, ineffective playbook of drastically higher taxes. The government has already announced increasing capital gains tax from 18% to 40%, and yet another VAT increase from 17.5% to 20% is also expected.

By comparison, South Korea charges a 0.3% tax on capital gains for small investors, and 11% in other instances.  In Paraguay, the rate is 10%, as is the income tax rate. (in Singapore, UAE, Labuan, and Hong Kong, there is no capital gains tax at all)

Tomorrow, the UK’s new Chancellor of Exchequer, George Osborne, will unveil the kingdom’s “emergency budget,” which should provide more details on the tax increases. The government has been vocal about its intention to curb spending, though most cuts are paltry line items like a $6 million swim program for kids.

How about taking a look at the millions upon millions of government workers who add no value to vital production in the economy? With their bright reflective vests, they’re ubiquitous in England, yet they have less authority, responsibility, and productive value than your average high school hall monitor.

It’s difficult (but possible) to fathom a greater waste of taxpayer money.

I would suggest that for countries like the UK, both their politicians and football coaches should take a few pages from the playbooks smaller, developing countries.

For us, I think this rather interesting sports metaphor highlights the importance of selecting the right jurisdictions to plant multiple flags– focus on cities and countries that have a bright future of strong economic growth, a stable balance sheet, and politicians who don’t belong in prison.

If you do happen to be drawn to a country with less than stellar fundamentals, be very careful about which flags you intend to plant, and ensure that you have properly protected yourself with the right structures if you do decide to invest time and money there.

I’ll talk more about these steps later this week when I examine the UK in more detail.