Treasure Islands - Nicholas Shaxson [20]
Language itself encourages the blindness. In September 2009, the G20 group of countries pledged in a communiqué to “clamp down on illicit outflows.” Now consider the word outflows. Like the term capital flight, it points the finger at the victim countries like Congo or Nigeria or Mexico—which, this language subtly insists, must be the focus of the cleanup. But each flight of capital out of a poor country must have a corresponding inflow somewhere else. Imagine how different that pledge would be if the G20 had promised to tackle “illicit inflows.”
Bad tax systems are pushing some nations toward becoming failed states. “Countries that will not tax their elites but expect us to come in and help them serve their people are just not going to get the kind of help from us that they have been getting,” Hillary Clinton said in September 2010, to widespread and bipartisan applause. “Pakistan cannot have a tax rate of 9 percent of GDP when land owners and all of the other elites do not pay anything or pay so little it’s laughable, and then when there’s a problem everybody expects the United States and others to come in and help.”48 Leave aside for a moment the hypocrisy involved when the United States preaches to developing countries about abusive tax systems while welcoming tides of their illicit money and wrapping it in secrecy. Clinton’s basic point is still valid. Wealthy Pakistanis are as enthusiastic about tax havens as elites in any other poor country, and their ability to escape from any responsibility to their societies while leaving everyone else to pick up the tab is one of the great factors corrupting the state and undermining its citizens’ confidence in their rulers. This is a security issue as much as anything else.
Even this is not all. The global offshore system was one of the central factors that helped generate the latest financial and economic crisis since 2007. Offshore did not exactly cause the financial crisis: It created the enabling environment for the conditions underlying the crisis to develop. “Trying to understand the role that offshore secrecy and regulatory havens have in the crisis,” Jack Blum explains, “is like the problem a doctor has treating a metabolic disease with multiple symptoms. You can treat several symptoms and still not cure the disease. Diabetes, for instance, causes high cholesterol, high blood pressure, and all sorts of other problems. There are plenty of discrete aspects of the meltdown to talk about and many possible treatments for symptoms, but offshore is at the heart of this metabolic disorder. Its roots reach back decades, in bankers’ attempts to escape regulation and taxation and make banking a highly profitable growth business that mimics the industrial economy.”49
I will explore this in more detail later—but here is a very short summary of some basic reasons why offshore is implicit in the latest economic crisis.
President Roosevelt’s New Deal in the 1930s inflicted a lasting defeat on financial capital, blaming it for the horrors of the Great Depression and tying it down with constraints that would ensure that the financial services sector would contribute to economic development, not undermine it. The New Deal was a great success, but it began to unravel properly just before the 1960s, when Wall Street found its offshore escape route from taxes and domestic regulations: first in London (the subject of chapter 4) then further afield in the British spiderweb and beyond. The offshore system provided Wall Street with a “get out of regulation free” card that enabled it to rebuild its powers overseas and then, as the United States turned itself in stages into a tax haven in its own right, at home. The end result was that the biggest banks were able to grow large enough to attain “too big to fail” status—which helped them in turn to become increasingly influential in the bastions of political power in Washington, eventually getting a grip on both main political parties, Democrat and Republican—a grip that is so strong that it