Dateline: Langkawi, Malaysia
In the fourteenth century, a young girl is said to have moved to Langkawi Island with her parents, in search of greater economic prosperity and a better life.
The girl’s name was Mahsuri, and as she got older, she turned out to be a great beauty. In fact, she was believed to be the most beautiful on all of Langkawi.
With her newfound status, he married a top warrior in the kingdom and was destined for great things.
Of course, until he got sent off to battle.
Left at home alone, Mahsuri befriended a young man on the island. As time went on, jealous village leaders spread rumors that she was committing adultery, and Mahsuri was eventually sentenced to death by stabbing.
Accordingly to folklore, Mahsuri bled white blood as a symbol of her innocence and cursed Langkawi to have seven generations of bad luck and a lack of prosperity.
Shortly thereafter, Langkawi was annexed by Siam, and the bad luck seemingly began.
It wasn’t until just a few decades ago that Langkawi once again experienced prosperity.
Yet, as interesting as the monkeys are here… as majestic as the waterfalls are… as fascinating as the virgin jungle trails are… most people aren’t coming to Langkawi for those reasons.
Nor is some lifting of the so-called “Mahsuri Curse” the reason prosperity returned to Langkawi.
Up until about thirty years ago, Langkawi was just another sleepy backwater – a random island off the coast of northern Malaysia.
This part of the world is one of the top tourist regions in Asia. Malaysia, Myanmar, and even Thailand have some of the most beautiful coast line in the world here, and lush islands abound. There are few better places for a romantic getaway.
In 1987, the Malaysian government realized what we already knew: killing taxes would bring prosperity to their island.
Today, not only is hooch cheap, but industries like ship builders have the ability to run their operations essentially tax-free. Jobs for the locals followed and Langkawi became a top tourist destination on radars as far away as Russia.
Turning Langkawi into a tax-free zone saved the place. And it just so happened to coincide with the end of an ancient curse.
Today, Langkawi is a duty-free zone for Malaysia, selling everything from liquor to bedsheets at prices far cheaper than they are available in the rest of Malaysia or much of Asia.
While the east Malaysian island of Labuan provides its own offshore corporation with ultra-low taxes, Langkawi was set up to be a special economic zone for trade.
Up until a few decades ago, life here was rather difficult and isolated. Yet for as much as western governments love to tell you how higher taxes will make everything all better, the more forward thinking among them realize that it is slashing taxes that does the trick.
Today, a ten-minute taxi ride from the airport to the city’s luxurious Danna hotel is $12. A hotel room there itself is up to $400.
While not exactly out of line for luxury prices in Los Angeles or London, prices in Langkawi are rather high for Malaysian standards, and certainly high for the region in general.
Heck, I stayed at a luxury villa with practically my own personal butler in Cambodia two weeks ago for well under $100 a night.
Malaysia figured out that creating a place for tourists to come and spend a bunch of money tax-free would be the perfect incentive to bring people to just another island in the sea.
As a result, people on this isolated rock are doing rather well.
The same goes for Labuan on the other side of Malaysia.
We’ve seen the same in other special economic zones set up around the world. Three years ago, I spent time in Shenzhen, China, which was China’s pilot run for somewhat unfettered capitalism.
It didn’t take long for Shenzhen to become the economic pearl of south China and for the practice of capitalism to spread throughout other parts of the country.
Today, the entire Guangzhou province where Shenzhen is located is bustling. Shenzhen was what started the Chinese manufacturing revolution and is a big part of the reason why most of the stuff you buy is made in China.
Additionally, Shenzhen’s success allowed Hong Kong to elevate itself from a country that was still engaged in manufacturing into a world-class financial center devoted to serving the needs of exporters on the Mainland.
It was so successful, that even “evil China” as the “real capitalists” in The Land of the Free are fond of calling it, opened up several more SEZs.
Now, the Chinese have also opened up two tax-favorable centers in Nigeria.
While I don’t trust any government that wants to steal my money and restrict my freedoms, there is a pragmatic balance worth accepting as a capitalist. You want prosperity and governments aren’t going away tomorrow.
The countries that “get it” are the ones that will continue to be successful.
It’s the same reason that took tax-free Dubai from a dusty sand patch to a sprawling metropolis in just a few short years. The same goes for Cancun, which only a few decades ago was totally isolated.
I’ve been making plans for our next Passport to Freedom conference in Cancun in January 2015, and the place isn’t exactly cheap. In fact, a taxi from the airport can cost $60 – more than you’d pay in New York City. So much for “poor Mexicans”.
Today, the special economic zone concept is spreading throughout the world, with tax-free and low-tax zones cropping up to attract business and capital.
In addition to countries that offer offshore services like offshore companies, special economic zones have opened up everywhere from Honduras to Jamaica to Indonesia.
Even the book cookers in Greece, where property taxes just exploded, have admitted that they may need to turn to tax-free zones in order to shoot their struggling economy in the arm.
Those who believe you ought to ship more and more of your money to some government to dole out as it pleases call this kind of thing a “race to the bottom”.
They claim that governments actually having to compete for your business is a bad idea. In their system, you would be a slave carrying a ball and chain, unable to leave whatever plot you were born on.
However, we know that that socialist utopia is not the case. You have a choice where to live, shop, and do business.
Just as competition caused cell phones to go from Brobdingnagian monstrosities to tiny devices more powerful than the first space shuttle, governments creating tax-free opportunities for business can only help bring prosperity to those who take part in their experiment.
That is why I am bullish on global prosperity as a whole.
However, more important is the impact that living and investing in a country that DOESN’T support such capitalistic efforts will have.
Countries like the United States, United Kingdom, Spain, and Japan are actively fighting free market forces.
I call this the Paris Hilton Effect because countries forget what made them rich in the first place. No one remembers how the money was made.
US persons used to point and laugh at Canada’s weak currency and socialist policies, but now US companies like Burger King are seeking to leave the sunny beaches of Miami – among other places – for Canada, all in a bid to save taxes.
The United States and much of the developed western world forget what buttered their bread in the first place. And now they are turning their back on what worked as they watch countries around the world steal their businesses and eat their lunch.
You already know that you should start and run your next business from a high-growth, business-friendly emerging market. We talk about that frequently.
However, if you have capital deployed in one of those unfriendly countries, I believe the impact will be severe and more businesses and investors flee to the exits.
Your banks will continue to suffer from poor capitalization, opportunities will decline, and tax revenues will decline as politicians seek to squeeze money out of anyone they can.
Wealth grabs happen when governments can’t steal enough money from people and companies by the normal means of standard taxation.
The doors are closing on the old guard of the western world. As more and more people wake up and see this, the state of economic malaise currently plaguing the west will only get worse.
In The Land of the Free, for instance, prices of everyday goods have quadrupled in the last twenty-five years while real wages have increased only about 50%.
It’s getting harder for the average person to even pay their mortgage, let alone start a business. Meanwhile, business owners and investors are getting socked with higher fees.
I have a friend who is about to close a deal on a business that will put nearly $1 million is high pocket and was pretty excited until I reminded him of the new Obamacare taxes he’ll pay for daring to make a profit on his foresight.
While it’s true that I don’t have faith in a lot of westerners waking up to the reality that they’re being fleeced, economies run on margins. A change of just a few percentage points can create huge shock waves throughout a market, just as a few percent points in the homeownership rate helped spur an economic meltdown a few years ago.
Beyond the economic disaster coming to countries that don’t respect capital will be protests, riots, and Molotov cocktails being thrown through windows.
The question is, do you want to be sitting where you are now, watching the mayhem out your front door? Or sitting with your money some place where it is safe and well protected?