Global elites beware: ‘Panama Papers’ won’t be the last revelation

April 6, 2016
People demonstrate against Iceland's Prime Minister Sigmundur David Gunnlaugsson in Reykjavik, Iceland April 5, 2016. Gunnlaugsson became the first major casualty of the Panama Papers revelations, stepping down on Tuesday after leaked files showed his wife owned an offshore firm with big claims on the country's collapsed banks.  REUTERS/Stigtryggur Johannsson - RTSDQ33

People demonstrate against Iceland’s Prime Minister Sigmundur David Gunnlaugsson in Reykjavik, Iceland, April 5, 2016. REUTERS/Stigtryggur Johannsson

On the surface, the release of 11 million documents from Panamanian law firm Mossack Fonseca tells us relatively little that was not already known — or at least, broadly suspected. Ever since the 2008 financial crisis, there has been a steady drip of information and evidence pointing to the worldwide network of tax havens, front companies and other financial vehicles that allow powerful individuals and corporations to avoid taxes and conceal ownership, often entirely legally.

The release, though, is the largest so far — and almost certainly not the last. Gradually, the opaque networks that helped a whole generation of the world’s most influential people amass their power and wealth — in both authoritarian and democratic states — are becoming more transparent. It’s a gradual process, for sure, but it may now be unstoppable.

That transparency is now intertwined with — and will most certainly further fuel — a much wider anti-elite backlash. It can be seen in the political process in almost every country, from the U.S. election to mounting political instability in Europe to the internal machinations of China, Saudi Arabia and 50 other nations.

The implications of that may be widespread — and perhaps far from entirely positive. The 2011 “Arab Spring,” after all, was in part produced by anger at just these trends — and it hasn’t turned out particularly well. From the rise of Donald Trump to far-right policies in Europe, we’re already seen what to many feel like worrying political shifts in the West as well.

There may be more beneficial consequences, too, however — a shaking up of political and other systems that is badly needed. With luck, it should bring in new blood while challenging and diluting some of the assumptions of the overlapping political, business and intellectual elites that gather at the World Economic Forum in Davos At the very least, it should provide new impetus to fix the worldwide tax system and make it harder for individuals and institutions to dodge their obligations.

In Iceland, still scarred by its 2008 banking crisis, the revelations have already brought down a prime minister. Elsewhere, however, the consequences may be more complex.

In some cases — most notably in linking Russian President Vladimir Putin to roughly $2 billion in assets run by one of his friends — the latest release simply provides more of a paper trail for something many people have long believed. Rightly or wrongly, many in government and financial circles have always believed Putin is amongst the world’s richest men, although they also believe much of that money is quickly passed on to others as part of the system of patronage that keeps him in power.

The more interesting lessons from the papers, I think, lies in the other cases — the many other members of the world’s rich and powerful using these tools. In these cases, they seem much less likely to cause outright resignations or seismic political change. British Prime Minister David Cameron will survive the revelation that his stockbroker father was heavily involved in legal offshore tax avoidance strategies — if anything, he is more threatened by the upcoming Brexit referendum. Similarly, I suspect political elites in Argentina, Ghana, Egypt and many of the other countries mentioned will also ride out the storm.

That does not mean, however, that the release will have no effect.

What many of those involved clearly counted on was safety in numbers. They did not feel bad about using these various offshore locations and other tax saving measures because so many others in the global economic and political elite were doing so. In fact, the opposite is turning out to be true.

If anything, I suspect this will supercharge a trend that is already becoming visible — the emergence of a new generation of political leaders from slightly different backgrounds. In this environment, wealth and elite educations and careers may actually be a hindrance rather than a help.

That may not stop those bent on wealth alone from using tax havens — but it might well be a deterrent to those that also want political power.

It’s a trend already discernible in British politics, where three relatively mainstream candidates for the opposition Labour party leadership were beaten by Jeremy Corbyn, a 66-year-old socialist. His unexpected victory in many ways presaged the rise of Bernie Sanders. The other three candidates were longtime political operatives who had been making their way up within the profession since leaving university.

Corbyn himself is now somewhat struggling, accused by many within his own party of being too left-wing to be electable. If he falls, however, the MP considered to be his most likely successor is Dan Jarvis, a former officer in the notoriously tough Parachute Regiment who would himself be a departure from the relatively narrow elites that have dominated British politics in recent years. (Jarvis, meanwhile, has faced criticism of his own for accepting donations from hedge fund bosses.)

David Cameron’s Conservative cabinet has been amongst the least representative in recent history — several top figures, including the prime minister, went to Eton, most have several million pounds in the bank at least, many from careers in consultancy or financial services. Until recently, the two most likely figures to replace Cameron were seen as Chancellor of the Exchequer George Osborne and London Mayor Boris Johnson, both clearly cut from the same cloth.

More recently, though, that has begun to change. There is growing talk of new Work and Pensions Secretary Stephen Crabb — a working-class Welsh MP raised by a single mother on a council estate who later worked on building sites — as a potential Tory leader.

Such candidates have yet to seriously penetrate the U.S. political system — although that may only be a matter of time. Despite his recent primary wins, Sanders looks to have rallied too late to take the Democratic nomination. Clinton and Trump have long been members of the elite mainstream, for all the latter’s claims to outsider status.

Riding the anti-establishment bandwagon, however, will only achieve so much. Even if the next crop of politicians can avoid being implicated in some of the morally uncomfortable dealings revealed by the Panama papers, that will not itself fix the system. For all its deficiencies, the current globalized financial and trading system has helped lift hundreds of millions from poverty in the developing world even as the wealth gap in almost every individual country has grown. Taming its worst excesses without breaking it entirely will be no easy task.

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4 comments

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The big mistake is for people to act as if tax avoidance is a *bad* thing. It isn’t. It is more like not giving whiskey and the keys to a Ferrari to a feckless teenager.

Posted by evilhippo | Report as abusive

Sure, don’t allow other comments.

Posted by brotherkenny4 | Report as abusive

If you have whiskey, a Ferrari and a feckless teenager, you are a terrible parent. But that has no relationship to being a greedy person who hates to support their own country.

Posted by brotherkenny4 | Report as abusive

Do business in America, pay taxes in America.

Posted by Solidar | Report as abusive