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ABSTRACT
The flags of convenience (FOCs) shipping system promotes laissez-faire global capitalist development and has become dominant in providing the legal framework for ocean commerce in recent decades, as it has largely replaced the national flag shipping system. FOCs reduce the powers of nation-states in taxing, owning, and regulating property; controlling competition; setting wage rates and working conditions; and providing environmental protection. The growing use of FOCs arises from ship owners’ worldwide shopping for laws that they are willing to pay for—to ensure the strongest private property rights and neo-liberal capitalist conceptions of efficiency. FOCs are offered to foreigners by tax havens or offshore financial centres in small states such as Panama, Liberia, and the Marshall Islands. Flags from these open registers have a crucial role in drastically reducing transportation costs, vastly increasing the scale of maritime trade, and providing viability to globally integrated systems of production, distribution and consumption, as well as shifting power away from traditional centres of influence. FOCs push for a low tax, low wage, libertarian system of global capitalism, yet they unintentionally contribute to chronic instability—bubbles, over-capacity, and severe downturns in shipping and the wider global political economy.
Acknowledgements
An earlier version of this paper was presented at the Conference of the Network for the Critical Study of Global Capitalism, Charles University of Prague, on September 26–27, 2015.
Disclosure statement
No potential conflict of interest was reported by the author.
Notes on contributor
Anthony van Fossen is Adjunct Research Fellow in the social sciences at Griffith University in Brisbane, Australia. He has written extensively on tax havens, global capitalism, and politics, economy, and society in the Pacific Islands. His latest book is Tax Havens and Sovereignty in the Pacific Islands.
Notes
1 Libertarianism is laissez-faire liberalism, which limits proper governmental activity to (at most) police protection, national defence, and the enforcement of contracts.
2 Standard textbooks, handbooks and encyclopedias accurately reflect widely accepted views in an area of research and study.
3 Academic attention to tariff reduction is disproportionately great in comparison.
4 Dicken (2015, 86–87) only briefly considers container shipping, but he suggests that it is greatly underrated and it is one of the most important businesses of the last three decades.
5 Since 1965, transoceanic maritime trade has grown at more than twice the general world economic growth rate (Dicken Citation2015; Stopford Citation2009) and the percentage of world tonnage flying FOCs has grown by a factor of more than five (see ).
6 Although these laws have general application, there are conflicts between laws and even internal contradictions within them. In addition, powerful economic, political and social forces benefit from or are disadvantaged by laws and influence how they are interpreted and (not) applied. The result of this situation is that, whatever general applicability the laws may have, the actual outcome of the application of these laws in any particular legal case may be indeterminate, contradictory and somewhat incoherent (Kennedy Citation1997).
7 In the United States, for example, international trade made up a smaller proportion of the national economy in 1960 than it did in 1930. In 1961 ocean freight expenses constituted 10% and 12% of the value of American imports and exports, respectively. Costs were so high in some ports as to make almost all forms of international trade virtually impossible (Levinson Citation2006, 8–10).
8 The flag of convenience institution has even had a significant impact on outer space, notably Tonga's flag of convenience for satellites (van Fossen 1999). Offshore tax havens, but not yet FOCs per se, are becoming increasingly important in aviation. 3,500 airplanes or 50% of the global fleet of leased aircraft, are managed in the OFC of Ireland, with the OFCs of Malta, Singapore and the Cayman Islands rising as challengers (Keaveny and Murray Citation2013).
9 Authors such as Levinson (Citation2006) and Cudahy (Citation2006) emphasise the extraordinary impact of container shipping on the world economy. While this is true, they do not consider that container shipping copied many of the techniques of de-unionisation, intermodalism, unitisation, and fast loading/unloading of massive cargoes in new specialised, mechanised ports. Containerisation merely took up these processes from the long-distance oil and dry bulk shipping sectors. Oil and dry bulk shipping were at the vanguard and base of the remarkable growth of flag of convenience shipping and neo-liberal globalisation that containerisation later built upon (Broeze Citation2002, 9–11).
10 The FOC system has been steadily reducing ocean shipping costs. They accounted for only 3.6% of the value of the world's imports in 2004, despite the substantial increase over the previous three decades in the distance that goods travel by sea (Stopford Citation2009, 89).
11 “Flags of convenience” are more likely to be called “open registries” or “flags of necessity” by their supporters.
12 FOCs have been generally neglected in the academic literature on OFCs. Hampton (1996, 23; 1999, 417, 427) and Palan, Murphy and Chavagneux (2010, 23, 127), for example, mention FOCs as important OFC activities, but like many other accounts of OFCs devote very little attention to them.
13 Union problems are most likely to come from the International Transport Workers Federation, which for decades attempted to stop the transition to FOCs. Today it principally tries to improve wages and working conditions for crews aboard flag of convenience vessels.
14 The terms “structuralist” and “regulationist” are from Robinson and Harris (2000, 42) and Harris (2013, 743). I use the term “libertarian” rather than their phrase “free market conservative” for the sake of clarity (e.g. some conservative organisations such as the Roman Catholic Church may be critical of free markets).
15 “The cost of sea transport fell by 80% between 1970 and 2000 . . . The transfer of ownership to Flags of Convenience is arguably the most important contributor to cost reduction” (Mitchell Citation2004, 8).
16 This was true of all major sectors. Between 2005 and 2010, for example, the percentage of gross tons under FOCs went from 69.0% to 71.3% of crude oil tankers, from 77.1% to 77.6% of offshore (mostly oil and gas) structures, from 72.8% to 75.9% of dry bulk ships, and from 59.1% to 68.3% of container ships (Lloyd's Shipping Register 2005–2011).