Economist Jeffrey Sachs argues that while the release of the Panama Papers has brought welcome attention to the existence of these off-shore tax havens, we should not forget that the roots of the problem lie much closer to home.
The tentacles of corruption reach deep into the UK (and US) financial systems. Banks in the City of London and Wall Street have paid tens of billions of dollars of fines for insider trading, financial fraud, price rigging and other financial crimes in recent years. Yet almost no leading bankers have taken a hit for their organization’s malfeasance. It’s hard to escape the conclusion that the major financial firms are part of a global network of organized financial crime.
…The UK and the US are at center of the system of global abuse. Britain created the modern world of global finance in the 19th and early 20th centuries, and Wall Street became co-leader with the City of London after the second world war. In both countries, hundreds of thousands of lawyers, bankers, hedge fund operators, politicians, accountants and regulators have consciously built a system of global tax havens of the rich, by the rich, and for the rich that now hosts more than $20tn (yes, trillion) of funds hiding from taxes, law authorities, environmental regulation and accountability.
In the excellent documentary Requiem for the American Dream that I reviewed here, Noam Chomsky discussed what he calls the financialization of the economy, how over time the financial sector has rapidly grown in size at the expense of manufacturing. In 1950, the manufacturing sector contributed 28% to the US GDP while the financial sector had 11%. By 2010, the former had dropped to 11% while the latter had risen to 21%. By 2007, just before the last crash, the financial sector had 40% of corporate profits whereas before 1970, it had been in the 15% region.
This has made the banks, investment firms, and insurance companies the most powerful economic players in politics. For all Hillary Clinton’s claims that she will be tough on the big banks, the financial industry from continuing to shower cash on her, suggesting that they believe her stance has been forced on her because of how much resonance Bernie Sanders’s’ attacks on the banks have resonated with people, and that her heart is not really in it.
Considering that the US was founded as a tax revolt by a group of smugglers, slavers, drug growers and land speculators -- what do you expect? (And within a decade of the colonies breaking away from England, their taxes were higher but the tax system didn’t fall on smugglers, slavers, drug growers, or land speculators, coincidentally to be sure)
The financial sector did leveraged buyouts of everything left in the rest of the economy in the 1980s and has been monetizing services (education, corrections, road taxation) wherever they can be privatized for sale. The manchu dynasty and the roman empires pulled similar tricks before they collapsed. Coincidentally. The US’ military industrial complex, and the new surveillance state, are privatization of political control -- the last bastion. Make sure your mercenaries are skilled but unambitious, oligarchs!
In The Long Twentieth Century: Money, Power and the Origins of our Times (2nd edition 2009) Giovanni Arrighi argued that similar episodes of financialization have occurred several times over the past few centuries, and in the past have heralded the passage of economic power to a new global hegemon (the first of these, somewhat dubiously, is Genoa, followed by Portugal, the Dutch Republic, the United Kingdom and the United States -- each with a greater global predominance than its predecessor). Arrighi marked out China as the next hegemon. I’m somewhat duubtful -- for one thing, it’s easier to find such patterns than to successfully predict their continuation, for another, I don’t think the planet can support another capitalist hegemonic cycle, and for a third, Arrighi himself notes that previous hegemons tended to invest heavily in their successors, while China has invested heavily in the USA, suggesting at least a change in the pattern. But it’s a fascinating and deeply erudite read.
Nice bit of news dropped today. Apparently back in the 70s when Trump was “only” worth a couple hundred million bucks, he paid $0 taxes. Of course the Clinton Foundation is a tax shelter and Bill and Hillary (and Chelsea, presumably) only pay taxes on whatever they charge the foundation for “management fees” -- so one thing we can be sure that both candidates have in common is that they’re tax cheats. I bet it’s all perfectly legal. But it’s still cheating if you’re worth hundreds of millions of dollars and pay no tax at all.