In the commentary he wrote following his recent visit to Bermuda, Heritage Foundation fellow Daniel Mitchell regretted US presidential candidate John Kerry's ugly remarks about Bermuda and the "Benedict Arnold" companies he said were setting up here. But election years, Mr Mitchell said, are not the best time for rational discourse.

I was tickled pink when I read his piece, and I'm sure most people in Bermuda felt the same way. But I have to say that he is mistaken in his inference that Mr. Kerry made his remarks simply because of the overheated atmosphere of an election year. To suggest that understates just how pervasive the John Kerry view is, not just in the United States, but around the world.

In the minds of many people, all of us islands look the same. The picture we conjure up in the heads of people who are not familiar with us and our world is one of poverty, crime, corruption and an almost maniacally irresponsible desire to make money by doing business with the worst the global underworld has to offer. In that picture, we qualify for no mercy, no sympathy, no quarter. We are pirates who really ought to be hung at the nearest gibbet for being so unprincipled or, in the alternative, as lawyers say, for making too much money.

All right. Perhaps I'm exaggerating a little. The point I want to make is that I'm not exaggerating a lot ? people really do feel no compunction about giving in to their worst prejudices where islands are concerned, nor about concealing the very sleaziest of motives under the cover of dealing with the threat islands supposedly pose to them.

We were all terribly polite about it at the time, and perhaps it was wise that we should have been, but there is no excuse for being fooled by what happened a few years back when the Organisation for Economic Cooperation and Development suddenly started its campaign against unfair tax competition.

In simple terms, these were big kids bullying little kids into handing over their lunch money.

Unfair tax competition indeed! There is no international law that says a country has to tax capital income. There is no international law that gives one country the right to dictate to another what taxes to collect, in what amounts and how to collect them.

What the OECD is worried about is not unfair tax competition, but any competition at all! The ageing welfare states which throng the OECD's ranks have taken on mind-boggling obligations in their attempts to put into effect their vision of a state that provides for its citizens from the cradle to the grave. You don't need to be an economist to know that that is a flawed vision. Quite apart from the damage which must be done to the competitiveness of a state burdened in such way, the rise of globalisation in the last couple of decades has put a lot of writing up on the wall about the future of the classic welfare state.

It probably isn't going to be completely dismantled by globalisation, but it is going to have to make some pretty drastic adjustments to survive.

In a speech he made in Paris in 1998, when the world's understanding of these things was a great deal less well formed than it is now, the Managing Director of the International Monetary Fund, Michel Camdessus, said this on the subject of these adjustments:

"If it is to survive, the welfare state in the industrial economies will need important reforms. These reforms will be necessary for it to co-exist with a domestic market economy and an increasingly globalised world open to prevalent tax competition. I would hope that the policymakers in the welfare states can learn from the large inventory of possible reforms. By making appropriate choices they will improve the running of their economies, by reducing unproductive spending and improving the quality of tax systems. Not only is this consistent with their social goals; it is also more likely to be able to enable them to withstand the pressures of globalisation."

People in OECD nations obviously thought he had it backwards, and that it would be easier to bully the rest of the world into changing so they didn't have to.

One of the central facts of globalisation is that gains in trade liberalisation and technological advances mean that a rapidly increasing volume of economic transactions now transcend national borders. International financial transactions and capital flows are a striking reality of this new order.

OECD citizens who have managed to build up capital in one way or another are entitled to move it, quite legally, to a jurisdiction where it is taxed less. The income generated by their capital can be taxed when it is repatriated, of course, but if it is not repatriated it is more difficult for OECD countries to take what they think should be theirs. They have rules that enable them to work around that, but these tend to have little connection with reality, and often convince the person being taxed that his country's tax system is anything but fair.

The competition OECD countries are getting from low-tax jurisdictions may well make them concerned about their ability to satisfy their obligations. But the level of that concern really does not amount to an effective argument that the competition from low-tax jurisdictions they're getting is unfair. They should be concentrating on solving their problems in the ways M Camdessus outlined in his speech, not on trying to scare competition away.

Daniel Mitchell, in another essay he wrote for the Heritage Foundation in September, 2002, made this analogy to explain what the OECD and the EU are doing, in simple terms:

"As every Economics 101 student understands, competition is good. Imagine, for example, that a town has only one gas station. The owner of the gas station can charge high prices and offer poor service. But what happens if a couple of new gas stations open up? All of a sudden, the consumer is in charge. The gas stations must compete to attract business. Prices fall and services improve.

"The same thing happens with governments. If politicians know that taxpayers have no escape, they are much more likely to impose excessive tax burdens.

"Now imagine if new gas stations could enter a market, but customers still had to pay the monopoly prices of the gas station that used to control the market. Needless to say, there is no competition in this system. The original monopoly station would have no incentive to lower prices, and the new stations would have scant inventive to enter the market since they would have no ability to offer a more attractive pricing structure to customers. To make the analogy exact, they technically could charge lower prices, but they would be compelled to report customer purchases to the old monopoly station and that station would have a right to charge those customers the difference between the two prices.

"This sounds absurd, but this is what the OECD and the EU are trying to impose on the world economy."

Imperialism is defined as the policy of extending a nation's authority by territorial acquisition or by the establishment of economic and political hegemony over other nations. How can you define what the OECD nations are doing as other than economic imperialism?

But back to Mr. Kerry and his campaign against the businesses that he says are traitors to the US cause. What he may not realise ? I must say he doesn't sound like the brightest bulb in the chandelier ? is that the United States is itself a low-tax jurisdiction, engaging in classic tax haven behaviour. It imposes no tax on capital gains made by foreigners investing in the US, but it does tax its own citizens on such gains. It has been that way since the 1980s, and it was a smart move for the US to make, in that it has since attracted over US $1 trillion to US capital markets.

Mr. Kerry's charge against some American businesses, and the way he has made it, gives the impression that he is tackling some underhand business practice as low on the ethical scale as laundering drug money. But in fact, it is perfectly legal and above board for a company to move its headquarters offshore. A company's first duty is to make money for its shareholders, and if it can legally lower its costs, in this age of globalisation, by setting up in Bermuda, then it doesn't simply have a choice, it has an obligation to do so.

If that reality offends Mr Kerry, he should direct his efforts towards making the US tax system more competitive. Isn't that what the American business system is all about?

Note to Readers: Last week, I referred to the travel writer Jan Morris as a male. A sharp-eyed English reader has set me straight. Jan Morris had a sex-change operation in 1972 and is now a female. I apologise for the error.