- 'In a Nutshell' - 12: The present-day global states system under which our Constitution has to survive, and our courts are to work

'In a Nutshell' - 12

In the Vodafone Context

The present-day global states system under which our Constitution has to survive, and our courts are to work1

By Shiva Kant Jha

April 7, 2012


All that I have written in the context of the Vodafone Case, and all that I shall be writing about corporation, corporate structures, the international arbitral disputes cannot be comprehended without appreciating the present-day global states system. To tell my readers of the new political realm in the world, I think worthwhile to quote a long extract from my Autobiographical Memoir, On the Loom of Time (Chapter 26: ‘The Realm of Darkness: The Triumph of Corporatocracy’) : to quote in extenso---

The global state system: classical state system yielded to the ‘neoliberal’ State system

“Fisher aptly said that for many generations the public law of Europe was settled through the terms of the Peace of Westphalia (1648)2 recognizing the principles of ‘territorial sovereignty of states’, and ‘equality inter se the States’. But things happened, as they are always made to happen in international politics: a wide hiatus set in between the precepts and practice amongst the states. The Concert of Europe, set up after the Congress of Vienna (1815), continued to lead the Eurocentric world politics almost till the World War I (1914), nay it continued, at its basics, till the global lunacy expressed itself in the World War II posing challenging problems for creative responses from the statesmen. E. Lipson observed: “In the nineteenth century the destinies of Europe were in the hands of five or six States, which arrogated to themselves a preponderant influence in all matters of general concern3”. The equality of the sovereign states could not work in the world where the states were grossly unequal because of their gross differences in wealth and power: in short, in their capacity to shape the Realpolitik. This brought about a dichotomy between political sovereignty and legal sovereignty of the international actors. The post-World War II has borne an analogous pattern. The USA became most dominant. ‘The Big Business’, represented by the corporations, mainly MNCs ( Multinational corporations) and TNCs (Transnational corporation ) called the shots. It may not be far from truth if we say that the political sovereignty has yielded, in effect, place to the corporate sovereignty, establishing what we can call ‘corporate imperium’.

But this is an outcome of radical changes in the international states system brought about by the changes so aggressively manifest after the World War II. Prof. Sol Picciotto has insightfully observed:

“The emergence of `offshore' statehood acted as a catalyst for the undermining of the classic liberal international system, which was reinstated within a framework of multilateral institutions after 1945. `Offshore' statehood was created by international investors (especially TNCs) and their advisers, responding to and exploiting the elastic scope of state sovereignty based on regulatory jurisdiction and legal fictions of residence and incorporation4.”.

Prof Picciotto explains what led to the changes after 1945 thus:

“The phenomenon of ‘offshore’ statehood has been an important catalyst in the transformation of the international system. By providing a channel for routing global flows through the use of artificial persons and transactions, ‘offshore’ has helped to dislocate the international state system, and induce its substantial reconstruction. Any project for the reconstruction of the public sphere must begin from a fuller understanding of the ways in which statehood has been transformed than is provided by most discussions of the state. Commonly 'the state' is reified and personified, which makes it hard to understand statehood as a way of organizing society, a set of social relationships involving specific, historically-developed institutional forms and cultural practices.”

I am in agreement with Prof Picciotto that statehood is only a way of organizing society, a set of social relationships. History has shown how the post-1945 political societies have been organized on ideas starkly different from those in the Westphalian states system. Philip G. Cerny is only partly correct in saying that the present-day “global governance”…continues to rest on a Westphalian bargain”, though he is wholly right in pointing out that we have not succeeded in building up “an authoritative, effectively supranational superstructure5”. We may call what has emerged as the ‘post-modern’ states system. The observation of Judge Manfred Lachs of the ICJ in In the North Se Continental Shelf Case6 is very relevant:

“Whenever law is confronted with facts of nature or technology, its solution must rely on criteria derived from them. For law is intended to resolve problems posed by such facts and it is herein that the link between law and the realities of life is manifest. It is not legal theory which provides answers to such problems; all it does is to select and adapt the one which best serves its purposes, and integrate it within the framework of law.”

The post-modernist states system has been choreographed on neoliberal assumptions in order to facilitate the global agenda of extractive capitalism. It becomes difficult to evaluate the importance of ‘democracy’, ‘social justice’, and ‘public welfare’ in such states. Their PR industries subject us to deceptive logic and insincere words through high pressure propaganda conducted by hired intellectuals and institutions. They say that the world is getting ‘globalised’ but we find mind-boggling divisions between the haves and have-nots; they say we have a global fraternity, but we find how even the billionaires are stealing from the beggars’ bowl.

They say that the ‘government’ has gone yielding place to ‘governance’. Dr. Picciotto defines this term thus:

“At the same time, the term ‘governance’ is also used to signify the provision of public order, protection of private property, but not necessarily liberal democracy, to required global standards by countries, especially in eastern Europe and Africa, as a condition of political support and economic investment from the West7.’

To my mind, ‘governance’, so understood, means a system which protects property, and enhances the neoliberal agenda which rejects both ‘democracy’ (as we read this concept within the meaning of our Constitution), and ‘social justice’. Outright rejection of ‘democracy’ is not made as they fear that that course would bring about a revolution in many countries.

The classical India had organized our complex society as a rashtra in which all the power-wielders were subject to Dharma. The Islamic society believes in Pan-Islamic values with sovereign power resting only with Allah. On the other hand, the states systems in the West have always been to protect dominant social and economic interests. The way the Western states system has evolved is accurately described by Bertrand Russell:

“Glorification of the State begins, so far as modern times are concerned, with the Reformation. In Roman Empire, the Emperor was deified, and the State thereby acquired a sacred character; but the philosophers of the Middle Ages, with few exceptions, were ecclesiastics, and therefore put the Church above the State. Luther , finding support in Protestant princes, began the opposite practice; the Lutherian Church, on the whole, was Erastian. Hobbes, who was politically a Protestant, developed the doctrine of the supremacy of the State, and Spinoza, on the whole, agreed with Rousseau, as we have seen, thought the State should not tolerate other political organizations. Hegel was vehemently Protestant, of the Lutheran section; the Prussian State was an Erastian absolute monarchy. These reasons would make one expect to find the State highly valued by Hegel. But, even so, he goes to the lengths which are astonishing8.”

The history of the West shows one point clearly: the states have functioned to protect and promote economic interests of the dominant class.

The factors, which altered the ‘global states system’, can be briefly stated thus:

Even till the 19th century we had on our planet many areas on land and in the oceans which were terra incognita (unknown land) and mare incognitum (unknown sea ). Many areas, before the intrusion of the colonial powers, were without human habitation, or were under the occupation of exiles, pirates, looters, criminals and nomadic tribes. But they were soon trapped under the imperial authority of the dominant European powers. With the decline of colonial powers, and their adoption of the alternate strategies for maintaining control over those areas, they were turned into tiny states, dependencies, overseas dependencies, defacto recognised and specified territories9.

The development of science and technology in the second half of the last century helped people to get access to all the areas on the globe. Thousands of islands in the Pacific, the Indian Ocean, and the Caribbean became easily accessible: and convenient network was established on our planet and in the cyberspace. Most of these places were suitable for hiding things. And by manipulating the elastic concepts of ‘territorial sovereignty’, ‘residence’ and ‘incorporation’, many of them turned themselves into effective and inviting centres for fast growing international finance. I had occasions to witness how this game was being played. Something about that I have mentioned in Chapter 23.

Such exclusive and remote areas were found most suitable for the operations as the offshore centres for finance. There the financial experts could operate under legal regime tailor-made for them. In most situations the arrangements showed the operation of the entete cordiale of fraud and collusion between governments and corporations. Their operated mostly in the virtual world. Their computers, by indulging in the creation of illusionary money, enabled the big capitalists to steal from the Poor’s petty resources10. This strange architecture of finance created illusory wealth without creating goods and services for people to live as human beings.

(d) The international investors (especially TNCs), and their advisers exploited “the elastic scope of state ‘sovereignty’ based on regulatory jurisdiction and legal fictions of ‘residence’ and ‘incorporation’11. The two aspects of ‘sovereignty’, internal and external, were creatively utilized to set up regimes for tax havens. ‘Internal sovereignty’ was utilized as a justification to set up an opaque system inside the domestic sphere. The aspect of the ‘external sovereignty’ was invoked to ward off foreign intrusion in the domestic sovereign space. The grant of the Certificate of Residency by Mauritius, or the grant of Carte de Sejour by Monaco was considered enough to preclude any investigation into the questions of residency of the entities, or the beneficial ownership of income, or wealth. The MNCs float their subsidiaries integral to their corporate structures. When such companies are incorporated under the laws of a country, they become ‘residents’ of that country. We know that thousands of ‘shell’ companies were formed in tax havens. We hear that thousands of such corporations pullulate only in the hip-pockets of certain professionals operating from the same building, perhaps the same table without even tentacles outside that hole! It is suggestive to mention that, when the Paris-based Financial Action Task Force subjected the banking system of the Bahamas to a close scrutiny, in one go the Bahamas, it is said, banned the “ anonymous ownership of more than 100,000 international business companies registered in the country12.”

(e) Most of such centres were developed, in their early phase, by the wealthy persons in America and Britain. Dr. Picciotto has noted this point when he says:

“It was initially encouraged by the authorities in the main capitalist countries, within tolerated limits, for competitive advantage, and to manage the growing contradictions engendered by the commitments to liberalisation under the Bretton Woods system.”

(f) Even Mauritius was helped to develop as a tax haven by the interested persons. mostly from India. America and the UK developed the numerous tiny-tots in the Caribbean and the Pacific as tax havens or secrecy jurisdictions for their purposes of the Big Business. The major western countries and their apex organization, OECD, reacted against the tax havens by taking some steps to stop abuse through those jurisdictions and areas. As these areas cannot afford to annoy the great powers, they can take to their course only to the extent tolerated by these two countries. There are good reasons to believe that the superrich and the MNCs of those countries are much interested in promoting tax havens. So every effort is being made by them and their professionals to let the tax havens have their way. ….”



1 Extracted from Chap. 26 of On the Loom of Time by Shiva Kant Jha (Taxmann, 2011) pp. 412-416

2 H. A. L. Fisher, A History of Europe p.636

3E. Lipson, Europe in the 19th & 20th Centuries 211

4 Sol Picciotto of Lancaster University, UK

5 Philip G. Cerny, Rethinking World Politics P.214

6 ICJ 1969, 3 at 222.


8 Russell, History of Western Philosophy p. 709

9 The world has about 200 states out of which 193 are the members of the United Nations. Most of the tiny states were recognized sovereign without realizing that time would soon come when their jurisdiction would become secrecy jurisdictions for tax avoidance, amassing illicit wealth, become alsatias for criminals and fugitives.. I would refer only to one by way of illustrations: :Saint Kitts and Nevis . Saints Kitts is in the Caribbean so tiny that even on a big map you would not be able to place it. But we heard about it in the alleged scandal in which Mr Narasimha Rao’s name had been dragged for wrong reasons. Its area is just 104 sq. miles, and its population comes to about 51300. Its per capita GDP (PPP) comes to 13429. It has rich offshore-banking sectors, and grants citizenship to those who invest there in real estates. (Information drawn from Wikipedia).

10 ‘This growth depends on the ability of the system to endlessly increase the amount of money circulating in the financial economy, independent of any increase in the output of real goods and services. As this growth occurs, the financial or buying power of those who control the newly created money expands, compared with other members of society who are creating value but whose real and relative compensation is declining.’ David C. Korten, When Corporations Rule the World p 189.

11 Sol Picciotto of Lancaster University, UK

12 2002 Britannica Book of the Year p. 392 - Links on Shivakantjha - Links on Shivakantjha

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