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By Root 262 0

“Someone comes up with a new idea but onshore regulation blocks it,” he said. “You can lobby onshore but there are lots of stakeholders: you have to get past them all, and it takes a long time. In Jersey, you can bash this thing through fast. We got the leading edge years ago. We can change our company laws and our regulations so much faster than you can in, say, the UK, France or Germany.” Talking in March 2009, in the depths of the financial crisis provoked by reckless deregulation, Kirkby lauded Jersey’s new unregulated funds regime specializing in securitization—the pooling and repackaging of mortgages and other assets into securities to sell on to investors that has caused such mayhem.

Here in these deregulated offshore zones our democratic controls on finance and business are being hollowed out, year after year, around the world, out of sight.

I have no objection to deregulation in principle, as long as it is a process of genuine—and I mean genuine—democratic bargaining that considers the needs of all affected stakeholders, at home and overseas. What we have in Jersey and Delaware, by contrast, is rampant, uncontrolled deregulation, harnessed to the interests of a few insiders and large corporate players.

Just as European nobles used to consolidate their unaccountable powers in fortified castles, to better subjugate and extract tribute from the surrounding peasantry, so financial capital has coalesced in offshore’s fortified nodes of unaccountable political and economic power, capturing local politics in these jurisdictions and turning them into fast and flexible private law-making machines, defended against outside interference and protected by establishment consensus and the suppression of dissent.

Offshore is not just a place, an idea, a way of doing things, or even a weapon for the finance industries. It is also a process: a race to the bottom where regulations—laws and trappings of democracy—are steadily degraded, as one arrangement ricochets from these fortified redoubts of finance to the next jurisdiction, and the offshore system pushes steadily, further, deeper, onshore. The tax havens have become the battering rams of financial deregulation.

Most people have not yet understood these deep truths about offshore, because of two related confusions.

The first stems from efforts to use technical criteria to define secrecy jurisdictions: tax rates, forms of secrecy, and so on. But these are just outcomes of the deeper truths. Our maps of offshore need to identify, first of all, these strongholds of financial power. A definition like my loose one—that secrecy jurisdictions are places that seek to attract money by offering politically stable facilities to help people or entities get around the rules, laws, and regulations of jurisdictions elsewhere—helps us see what we are looking for.

A second confusion is to think that this is about physical geography, when it is really about political jurisdiction and trust-based networks. The future that the offshore system promises has a distinctly medieval quality: In a world still nominally run by democratic nation-states, the offshore system is more like a network of guilds in the service of unaccountable and often criminal elites.

These stories of Delaware and Jersey should serve as a warning to larger economies about what happens when the offshore ethic isn’t challenged.

The Delaware story is one part of an explanation of how offshore contributed to the latest financial crisis, and the Jersey example helps explain why nobody saw it coming. Both of these jurisdictions got rich by eroding standards in the service of financial capital. The consequences are not just insidious but devastating.

In considering how the offshore system contributed to the financial and economic crisis, it’s useful to look at the issue of debt. Why has so much debt built up in the world’s richest economies? An article in the Financial Times in June 2009 (“Debt Is Capitalism’s Dirty Little Secret”) provides one answer. “The benefits of economic growth have gone into the pockets of plutocrats