Why people don’t want to be managers
any more – and what to do about it
The general decline in workers’ keenness to take
the conventional career path has profound
implications. HR chiefs must rethink
their strategies in areas ranging
from employee retention to
succession planning
The world war for talent
As myopic states take more and more
from their most successful citizens,
others aspire to attract the best and
brightest in a quest for intellectual edge
Christopher JoyeColumnistWhile the world deglobalises and cleaves into the Western liberal-democratic and Sino-led authoritarian trading blocs that this column has forecast, there is a revolution afoot when it comes to the emerging battle for intellectual and human capital.
The best and brightest minds globally are fleeing relatively confiscatory tax regimes in search of jurisdictions in which they pay little-to-no income tax on their valuable labour exertions. Since intellectual edge is paramount in a knowledge-driven global economy, smart states are recognising that they can capture a larger share of this fluid talent pool with compelling financial incentives.
There is also a case that the supranational nature of the internet tends to dilute individual fidelities to their country of origin, creating a true global commons, perhaps best exemplified by the anarcho-libertarianism that is characteristic of the cryptocurrency movement that aspires to transcend the tax and regulatory reach of conventional nation-states. Hence, the advent of a universal, digital citizenry that is not resident of any particular domain.
‘Confiscatory’
Rather than prudently paring back ever-growing public spending, many governments are electing for the easier option of continuing to run large structural budget deficits that are propagating long-term fiscal imbalances. An easy response is to simply appropriate more and more of the earnings and wealth of that oft-despised minority: the top 10 per cent.
In an interview with The Australian Financial Review to mark his 80th birthday, former Labor prime minister Paul Keating argued that a top marginal income tax rate higher than 39 per cent was “confiscatory” and backed indexation of the personal tax scales to inflation or wage rises. Australians face a top income tax rate of 47 per cent at an internationally low threshold of $180,000.
“There’s an issue that all societies should have of how much a person’s conscientious efforts and wealth should be delivered to the state,” Keating said. That’s particularly pointed when politicians tend to spend our money very poorly. Witness Victoria’s systematic waste, most recently highlighted by the more than $500 million lost on the failed Commonwealth Games.
One of the first signs of these post-pandemic talent shifts has been in the world’s most creative and sophisticated economy, the United States. There has been a mass exodus of businesses and leaders out of California and New York, where top income tax burdens can approximate 50 per cent or more, to alternatives such as Florida and Texas that charge no state income tax at all (leaving a maximum federal rate of 37 per cent). Texas also levies no corporate tax.
It is estimated that hundreds of firms with trillions in assets have fled New York for Miami and Palm Beach, including Cathie Wood’s Ark Investment Management, Carl Icahn’s Icahn Capital Management and Paul Singer’s Elliott Management. Two of the most successful entrepreneurs of our age, billionaires Jeff Bezos, founder of Amazon, and Ken Griffin, boss of hedge fund Citadel and market-maker Citadel Securities, recently exited Seattle and Chicago, respectively, for Florida. In 2022, AllianceBernstein, which manages US$700 billion, shifted its headquarters from New York to Nashville.
Texas calling
With rampant crime and a budget deficit projected to be US$73 billion in 2024-25, California resembles a failed state, compelling many high value-added residents to seek out alternatives. Venture investors talk of the centre-of-gravity in tech shifting away from Silicon Valley to Texas, which also charges no corporate income tax, and Florida, which is ranked as the fourth most tax friendly state for firms in the US.
Hewlett Packard Enterprise, Oracle and SpaceX have moved their headquarters to Texas, where the inimitable Elon Musk has purchased vast amounts of real estate and is building a new gigafactory for Tesla.
Florida and Texas are now the third and fourth fastest growing states in the US in population terms and both unsurprisingly report strong budget surpluses.
The battle for the best talent is spreading globally. Italy recently introduced a special visa program to attract world-class human and financial capital under which individuals pay a maximum of EUR100,000 in annual tax on their total global income, which has led to a significant influx of successful European companies, investment firms and individuals.
Dubai has likewise capitalised on this opportunity, offering zero income taxes and a favourable regulatory environment. The recruiter Aventus comments that there has been “a significant surge in the relocation of hedge fund powerhouses to the Dubai International Financial Centre, with industry giants like Millennium Management and Exodus Point establishing a formidable presence in the Emirati landscape”.
Hedge fund exodus
The DIFC reports that in 2022 there was a 54 per cent increase in the number of hedge funds establishing operations in the city, with approximately two-thirds originating from the UK and US.
Recent regulatory approvals have been granted to Asia Research & Capital Management, Balyasny Asset Management, Blue Owl Capital, Brevan Howard, Carrhae Capital, Cresen Capital, Hudson Bay Capital, King Street, Lighthouse Partners, Merlyn Advisors, Noventa Capital Management, Qube Research & Technologies, Verition Fund Management LLC and Walleye Capital.
My brother runs an interest rate futures broking business in London, Archr, and six of his executives have established an outpost in Dubai to service their ever-expanding clientele. Another catalyst was the ability to retain 100 per cent of their labour income.
As the global economy becomes more knowledge-driven, and intellectual edge is recognised as a key to countries’ competitive advantage, ambitious states will continue to seek to secure differentiated human capital by furnishing superior economic incentives, including low taxes and favourable operating environments.
Australia’s providential endowments of iron ore, gas, and coal grossly flatter our public finances and engender considerable complacency in respect to fostering real innovation and productivity, which are essential to safeguarding and expanding our well-being in a digitised world that relies less and less on exploiting dwindling natural resources.
We plough our planet to enrich current generations without properly accounting for the long-term costs that traditional economic growth inflicts on our natural world. We don’t quantify the opportunity cost of lost resources when we send them overseas. And we don’t quantify the long-term damage done to our economic welfare when we exhaust our physical environment.
Australia is gifted with extraordinary physical amenities that make it an exceptionally attractive location to live and work. There is merit in initiating a national conversation around how we can galvanise durable intellectual edge in an increasingly networked and competitive world defined by mobile human capital that has the luxurious of choice regarding where it resides, and which is likely to gravitate to jurisdictions that offer the best rewards for its efforts.
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Christopher Joye is a contributing editor who has previously worked at Goldman Sachs and the RBA. He is a portfolio manager with Coolabah Capital, which invests in fixed-income securities including those discussed in his column. Connect with Christopher on Twitter.
