Politics of Poverty

How the world really works

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Forget what you learned in school, the Panama Papers are your new curriculum on how the world works.

Since the release, I’ve been glued to the ICIJ’s Panama Papers. Like a great film, there’s intrigue, star players, and an unbelievable magnitude of malfeasance.

With a box of popcorn by my side, I’ve delved into the meticulous journalism that’s confirmed to the world what many already suspected.

The mega rich, political elites, and unsavory characters like human and drug traffickers get to play by different rules than the rest of us. 

Lesson one: Politics is a rigged game, everywhere.

Where countries fall on Transparency International’s corruption indices is irrelevant. As Charles S. Piece put it in Esquire, the Panama Papers reveal “that every political system in the world—even the nakedly authoritarian ones—is hopelessly rigged, and that the marvelous new world of the miraculous global economy is an even bigger thieves’ paradise than you, me, or even Jamie Dimon thought it was.”

Panama, along with at least 50 other countries, are tax havens (a concept you never learned in your freshman International Relations course). This means the governments of these jurisdictions turn a blind eye to the flows of money coming in and out of the banks on their sovereign soil. They also levy no, or very low taxes.

Both of these are ways of attracting customers, like wealthy folks and corporations seeking to hide their wealth from the authorities where they live or do business, or those engaged in explicitly illegal activities, like sex and drug traffickers, who also need to hide their money.

Governments are active conspirators in this elaborately rigged system. For instance, in the U.S., every state permits the creation of shell companies that do not require identifying the real owners of those entities. Shell companies are essentially empty vessels for holding financial assets anonymously. This is a key tool for avoiding taxes, and for criminals to launder illicit money and gain access to banks.

Embarrassingly, my home state Delaware is the global epicenter for shell companies. In fact, there are more shell companies incorporated in Delaware than Delawareans. An applicant has to give more personal information to get a library card in Delaware than to set up a shell company, and it only takes about an hour to be ‘in business.’

Governor Markell and the legislature stomach offering our state to tax dodgers and criminals because of the tax revenue it brings in for the state. This is a point of contention with other states who claim Delaware’s tax haven status robs them of revenues. For instance, the “Delaware loophole” enabled corporations to reduce the tax bill owed to other states by $9.5 billion over the last decade. How bad is it in Delaware? Get this, officials in the Cayman Islands – the world’s most emblematic tax haven – point to Delaware as playing faster and looser with the rules.

Delaware’s role as a tax haven is inexcusable. Not only does it permit corporations, wealthy foreigners, and criminals to hide their money, it facilitates the misery that results from tax avoidance. Your Comparative Politics course, or the one you took on African politics, likely never examined how tax havens are accessories to the robbery of developing countries’ tax revenues, stunting their ability to achieve poverty reduction and development progress. Without tax dollars, governments cannot build schools, hospitals, or the infrastructure to create dynamic and inclusive economies that bring jobs and fight poverty.

The lesson we should be learning from the release of the Panama papers is that today’s global inequality problem, along with other severe miseries, are linked.

They are symptoms of a failed system of global governance. There is essentially no global tax regime to mitigate the scourge of tax evasion and avoidance. This absence of international cooperation, and the ease in which it permits the movement of financial assets from where taxes are due to tax havens, drives the obscene levels of extreme wealth we see today. As my colleagues and I have pointed out, we live in a world where 62 people have the same wealth as the bottom half of humanity. And trust me, this isn’t because those 62 people work harder than the rest of us. They just have better accountants.

Lesson two: “All animals are equal, but some animals are more equal than others.”

Truer words have never been spoken, and the Panama Papers put that into stark relief.

When it comes to taxes, the mantra should be ‘we pay, they play;’ because for the ultra wealthy, corporations, and criminals, paying taxes is optional. Of course, you and I have no option.

UC Berkley professor Gabriel Zucman, whose book The Hidden Wealth of Nations: The Scourge of Tax Havens, calculates that government’s lose about $200 billion annually in revenue to tax havens. All together, he estimates nearly 8 percent of the world’s wealth – $7.6 trillion – sits in tax havens.

Of course, governments don’t do less because they can’t collect taxes from the rich. They simply increase the tax burden on the rest of us. As Zucman put it:

You know, if billionaires pay very little in taxes, it means that the rest of us – we have to pay more. So it means more taxes for the middle class, and so we all pay the cost of tax evasion by the wealthiest individuals.

Maybe we did learn this lesson in school? If you read Thucydides, you’ll recall his conclusion that “the strong do what they can and the weak suffer what they must.”

Of course, we’re not that weak!

A glimmer of how the world can work

The events surrounding the Panama papers aren’t all doom and gloom. I mean, it’s pretty bad, given that Mossack Fonseca is one firm in one tax haven, suggesting the magnitude of illicit financial flows and tax avoidance is massive beyond belief.

Still, the impressive coordination among hundreds of journalists, the release of the Papers and the excellent reporting, are extremely encouraging.

This experience demonstrates the power of whistle-blowers, dedicated journalists, and civil society activists to reveal the inner architecture of how wealth is hidden.

More than 7 percent of the people in Iceland came out to call for their Prime Minister to resign because of the revelations exposed in the Papers (and he did). That is a real testament to the power of information as a driver of social change and accountability. And we’re seeing similar outbursts across the world. In the UK, thousands are in the streets calling for PM David Cameron to resign and nearly 400 activists were arrested in front of the U.S. capitol on Monday protesting corruption.

The ICIJ should take a bow, and the hundreds of journalists who collaborated on this project deserve acknowledgement. As someone who works on the links between tax avoidance, global illicit flows and extreme economic inequality, this work is both validating and evidentially powerful. So, thank you profusely.

Putting an end to double standards

Oxfam calls on Congress and the President to pass the Stop Tax Haven Abuse Act and implement aggressive public Country by Country Reporting requirements for all multinational companies headquartered in the United States. Both of which will help address the secrecy surrounding shell companies.

We also urge the US to be a leader in creating a multilateral global rule system that emphasizes information sharing, transparency, and global accountability.

The Panama Papers reveals the extreme, yet largely legal, political rigging that let’s wealthy individuals, corporations and criminals play by different rules than you and me. They also offer a perfect opportunity for citizens to seize on the shock and outrage they are spurring to demand governments create a more level playing field.

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