Friday, July 27, 2012

Inequality: You Don't Know the Half of it


Majia here: There is a new report out on the amount of capital in tax havens. The report, produced by James Henry former chief economist at consultancy McKinsey, is titled The Price of Offshore Revisited.

A summary and discussion of the findings in that report are available here: 

Inequality: You Don't Know the Half of It by Nicholas Shaxson, John Christensen, and and Nick Mathiason


Majia here: I don't have time this morning to summarize findings.  

So, here is an excerpt from a summary provided by one of the "Inequality" essay authors:

The World's Super-Rich Have Stashed $21 Trillion in Offshore Accounts. By Nick Mathiason,

[Excerpted] Henry’s Price of Offshore Revisted report, commissioned by Tax Justice Network, shows:

- between $21 trillion and $32 trillion of financial assets is owned by High Net Worth Individuals in tax havens. This does not include real estate, art or jewels.

- the top 50 private banks collectively managed more than $12.1tn in cross-border invested assets for private clients, including their trusts. This is up from $5.4tn in 2005.

- fewer than 10 million members of the global super-rich have amassed a $21tn offshore fortune. Of these, less than 100,000 people worldwide own $9.8tn of wealth held offshore.

Accompanying the Price of Offshore Revisited is a separate paper (which I co-wrote). It reveals that data used by individual countries to assess the gap between rich and poor is inaccurate. And as a result, inequality is far more extreme than policymakers realise.

This is because economists calculating inequality fail to include the vast majority of offshore cash in their findings. So the wealthy are far better off than the studies suggest....

[end excerpt]
Majia here: The Guardian also has a summary:

21 Trillion Hoard Hidden From Taxman by Global Elite By Heather Stewart, Guardian UK 23 July 12 

[excerpted] The global super-rich elite has exploited gaps in cross-border tax rules to hide an extraordinary £13 trillion ($21tn) of wealth offshore - as much as the American and Japanese GDPs put together - according to research commissioned by the campaign group Tax Justice Network.

James Henry, former chief economist at consultancy McKinsey and an expert on tax havens, has compiled the most detailed estimates yet of the size of the offshore economy in a new report, The Price of Offshore Revisited, released exclusively to the Observer.

He shows that at least £13tn - perhaps up to £20tn - has leaked out of scores of countries into secretive jurisdictions such as Switzerland and the Cayman Islands with the help of private banks, which vie to attract the assets of so-called high net-worth individuals. 

Their wealth is, as Henry puts it, "protected by a highly paid, industrious bevy of professional enablers in the private banking, legal, accounting and investment industries taking advantage of the increasingly borderless, frictionless global economy". 

According to Henry's research, the top 10 private banks, which include UBS and Credit Suisse in Switzerland, as well as the US investment bank Goldman Sachs, managed more than £4tn in 2010, a sharp rise from £1.5tn five years earlier.

...."The problem here is that the assets of these countries are held by a small number of wealthy individuals while the debts are shouldered by the ordinary people of these countries through their governments," the report says.
[end excerpt]

Majia here: I'm going to re-post a previous discussion I wrote a year ago about the US being a plutonomy:

Plutonomy Defined: a society characterized by a small, wealthy elite and a large, disenfranchized group with marginal economic power.

The first use of the term “plutonomy” to describe the evolving economic distribution was, I believe, a 2005 Citigroup document dated October 16, 2005 titled, “Equity Strategy: Plutonomy: Buying Luxury, Explaining Global Imbalances.” The document describes a world “dividing into two blocs—the plutonomies, where economic growth is powered by and largely consumed by the wealthy few, and the rest” (p. 1). The U.S. is a “key” plutonomy characterized by 
"disruptive technology-driven productivity gains, creative financial innovation, capitalist-friendly cooperative governments, an international dimension of immigrants and overseas conquests invigorating wealth creation, the rule of law, and patenting inventions." (Citigroup, 2005, pp. 1-2)

Within the plutonomy, the productive and consumptive capabilities of populaces lessen in significance compared to the wealth accumulated by the few through technology that replaces workers, financial “innovations” capable of accumulating wealth outside of production (e.g., through securities transactions), and through overseas colonial exploitation of resources and labor.

The International Forum on Globalization (IFG) issued a report in 2011 describing the evolving “plutonomy” characterized by corporate power and the unfettered influence of “a new dangerous class of politically dominant billionaires”:
Plutonomy: A newer threat cited for the first time by the board was the astonishing emergence of a new dangerous class of politically dominant billionaires. Operating on a global scale, as well as within countries, these oligarchs are increasingly able to relate to the world nearly as if it was their own feudal enterprise, generally out of view, and with few controls. Recognizing the realities of resources limits, many of these individuals now see their profit opportunities as no longer solely dependent on corporate economic growth, but equally on systemic control of vital resources, including food and water." (IFG, 2001)

In a world of dwindling resources, the elites seek to control not just money but also fertile land and fresh water.

Plutonomies are funtamentally antithetical to democratic political processes. 
Plutonomies are birthing a new system of global neo-feudalism where elite corporations and individuals control the vast majority of global resources and the rest of us will be forced to pledge our allegiance, and give up our liberal rights, to these new feudal lords or be left with nothing at all....

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