by Tim Di Muzio
Offshore secrecy jurisdictions (tax havens) The offshore system of finance is indispensable to the 1% and the corporations they own. Commonly known as ‘tax havens’, they are more appropriately called ‘secrecy jurisdictions’ for the services they provide to wealthy clients and multinational corporations (Shaxson 2011). Overall, there are about 80 such jurisdictions around the world (Henry 2012: 5). The IMF defines ‘offshore financial centres’ as jurisdictions that provide financial services ‘by banks and other agents to non-residents’ and noted that services such as ‘low or zero taxation’ and ‘banking secrecy and anonymity’ had rapidly expanded since the 1970s (IMF 2000). Shaxson argues that true offshore jurisdictions are politically stable because local politicians are largely controlled by outside financial interests in the major financial centres of the world such as New York and London:
But there is one feature of a secrecy jurisdiction that stands out above all: that local politics is captured by financial interests from elsewhere (sometimes these financial interests are criminal interests). This is why I include ‘politically stable’ in my definition: Meaningful opposition to the offshore business model will have been neutered in a serious tax haven, so that such irritants as local politics cannot interrupt the business of making money (Shaxson 2011: 9–10).
Using data from international financial institutions, the UN and central banks, a former tax expert from McKinsey, commissioned by the Tax Justice Network, estimated that in excess of US$21 trillion to US$32 trillion is squirrelled away offshore. A considerable portion is held by corrupt dictators and their families who accepted loans from Western banks and then deposited these same loans, or a significant portion of them, into a private account. The dictator’s accountants would then record the loan as the ‘national’ debt of the country (George 1988; Henry 2003). It became impossible to service most of these loans – whether for corrupt governments or not – when US central banker Paul Volcker raised the interest rates to supposedly stamp out inflation in the United States. After saddling countries – many of them newly decolonised – with growing ‘national’ debts, the private bankers called on the IMF to coordinate how the political economy of entire communities could be reconfigured to service those debts. The result was a bevy of initiatives originally called ‘structural adjustment programmes’. Three initiatives were particularly important for enriching the 1% of banking families while creating misery, poverty and unemployment for those in the lower quintiles of the 99%. The first initiative saw countries liberalise their foreign direct and portfolio accounts, which made it easier for Western creditors and corporations to invest and operate in the now financially subjugated countries (Perkins 2005). When it came to discipline and order, debt was a more effective technology of power than the sword. The second was a rash wave of privatisations that saw hundreds of millions in state assets sold to existing and newly minted dominant owners. Instead of these public assets being used as revenue-generating assets (or being run at cost) for the public, they now enrich a coterie of the 1%. And last but not least, the third initiative was to slash public spending on goods and services such as health and education (Chossudovsky 2003; George 1988). The 1% should know that these initiatives particularly affect women and children who tend to suffer most when austerity strikes (Sparr 1994). Thus, through the ‘national’ debt of foreign countries, the 1% in the Global North came to capitalise much of the labour force of the Global South, who were compelled to work for low wages in special economic zones producing exports for sale on the global market. Some of the proceeds of these exports go to service the ‘national’ debt. So while the families of the banking 1% have their yachts, designer clothes and soirées to celebrate their power, countless women and children will essentially be working a large portion of their lives servicing the debt owed to them and their class. Legalised chattel slavery did not die out because it was an abhorrent system but because the system of wage labour and debt money offered a more effective and useful economy of power for dominant owners.27
The offshore system has also been wonderful for the dominant owners of transnational corporations. Corporate tax avoidance is considered a serious issue of tax fairness and goes against the notion that members of a political community should contribute to the public spending priorities that help create better and stronger communities of healthy, safe and educated workers. Yet many pro-tax haven advocates stress that high taxes simply get passed on to consumers and so they argue for ‘tax’ competition (Shaxson 2011: 194ff). What this means is that political communities should be forced to compete with one another to offer the lowest possible taxes in order to attract investment and grow jobs. Such policies can lead to lower government revenues, increases in debt and ultimately cutbacks in services. There is already mounting evidence that US cities such as Stockton and Detroit are slashing services in light of insufficient taxes and mounting debt burdens. The social and economic consequences have been dire – particularly for the most vulnerable, typically women and children.
Illicit arms traders and drug runners also benefit from the offshore system, often getting their money ‘cleaned’ or laundered as it travels from one bank to another before ending up in government bonds, corporate bonds or even the stock markets of the world. As a US Senate investigation uncovered in 2001:
U.S. banks, through the correspondent accounts they provide to foreign banks, have become conduits for dirty money flowing into the American financial system and have, as a result, facilitated illicit enterprises, including drug trafficking and financial frauds. Correspondent banking occurs when one bank provides services to another bank to move funds, exchange currencies, or carry out other financial transactions. Correspondent accounts in U.S. banks give the owners and clients of poorly regulated, poorly managed, sometimes corrupt, foreign banks with weak or no anti-money laundering controls direct access to the U.S. financial system and the freedom to move money within the United States and around the world … The failure of U.S. banks to take adequate steps to prevent money laundering through their correspondent bank accounts is not a new or isolated problem. It is longstanding, widespread and ongoing (Minority Staff of the Permanent Subcommittee on Investigations 2001: 1–2, my emphasis).
There is also evidence that a significant amount of drug money propped up the financial system with needed liquidity during the global financial crisis. Antonio Maria Costa, head of the UN Office on Drugs and Crime, noted that there was evidence to suggest that US$352 billion in drug profits ‘is now a part of the official system and had been effectively laundered’ (Syal 2009). For its part, HSBC was caught laundering at least US$881 million in drug trafficking money and forced to pay hefty fines (Treanor and Rushe 2012). So the offshore system cannot work without the help of an onshore system – a group of powerful and politically connected Western banks. But given the fact that the system promotes tax avoidance and transaction secrecy, we might wonder why it exists. A Nobel Laureate provided the obvious answer:
You ask why, if you believe there’s an important role for a regulated banking system, do you allow a non-regulated banking system to continue? The answer is, it’s in the interests of some of the moneyed interests to allow this to occur. It’s not an accident; it could have been shut down at any time (Stiglitz quoted in Komisar 2003).
Or, put in another way, the offshore system is the private economy of the 1%, the corporations they own and the illicit traffickers in arms and drugs. With our overview of the architecture of capital as power conducted, we are now in a position to discuss the links between wealth, money and power.
3 | WEALTH, MONEY AND POWER
The only wheels which political economy sets in motion are greed, and the war amongst the greedy – competition. (Karl Marx)1
For some time after the discovery of America, the first inquiry of the Spaniards, when they arrived upon any unknown coast, used to be, if there was any gold or silver to be found in the neighbourhood? (Adam Smith 2005: 342)
Every tool is a weapon if you ho
ld it right. (Ani DiFranco ‘My I.Q.’)
In this chapter I use the ‘capital as power’ approach to discuss wealth, money and power. The chapter begins by offering a brief history of wealth before the birth of political economy and the fossil fuel revolution. Some readers may find my concern with highlighting the role of energy out of place, but, as I hope to make clear, it is impossible to explain the explosion in wealth and capitalisation in any comprehensive way without recognising the surplus energy provided by the uneven consumption of fossil fuels. With this established, I then explore how wealth was understood by mercantilists, classical political economists and the more radical Karl Marx. In the final section of this chapter, I sketch a general theory of money, energy and power to demonstrate their interconnections. The chief argument here is that until we understand the capitalisation of the money supply and how this is connected to surplus energy, we will understand very little about the global economy, let alone about how we might transform it.
A brief history of wealth before political economy
Before the mass exploitation of coal, oil and natural gas, what we today call ‘economic growth’ was never sustained (Wrigley 2010). From time to time communities could generate surpluses and grow, but since they were inevitably chained to the rhythms of photosynthesis, strict limits were imposed on what could be achieved. Moreover, as Jared Diamond (2005) and others have pointed out, some earlier societies were often prone to collapse chiefly due to their cultural and environmental practices (Tainter 1988). As Marx noted, reflecting on the entirety of human history, for most of it humans struggled for survival and social reproduction. The struggle involved not only an existential condition whereby nature had to be dealt with in some way but also a struggle against other groups trying to do the same. Violence and conflict were common in the human past, but mutual aid both within and between groups was also a part of the struggle for survival and social reproduction. But whether violent or working in cooperation, what remains a constant, argued Marx, was the social nature of human beings: they are always and everywhere to be found in groups, and it is this sociality – combined with our biology – that has allowed humanity to develop language, consciousness, technology and a conceptual apparatus for recognising patterns and solving problems (Ehrlich and Ehrlich 2008).
After the dawn of anatomically modern humans 200,000 years ago and their subsequent migration out of Africa to other continents 60,000 years ago, the first major transformation in human sociality after the mastery of fire was the Neolithic or Agricultural Revolution (Mellars 2006). Dating to 10,000 to 12,000 years ago, this transition involved humans domesticating animals and plants for use. Such practices led to more permanent human settlements and the rise of cities. This demographic shift away from hunting and gathering is believed to have first occurred in the Fertile Crescent and later spread by way of colonisation as hunting and gathering populations were devastated by settler violence and, in some cases, new diseases. There is an ongoing debate in the literature about this transition: why do hunters and gatherers transform into settled farmers (Weisdorf 2005)? Some believe that this shift was beneficial for the flourishing of human civilisation. In this view, farming must have been better than hunting and gathering for food and nutrition. But there is an alternative and more convincing hypothesis that emerges from the historical record: that the shift to agriculture and farming was the product of a struggle for power by elites. Richard Manning put it this way:
For most of human history, we lived by gathering or killing a broad variety of nature’s offerings. Why humans might have traded this approach for the complexities of agriculture is an interesting and long-debated question, especially because the skeletal evidence clearly indicates that early farmers were more poorly nourished, more disease-ridden and deformed, than their hunter-gatherer contemporaries. Farming did not improve most lives. The evidence that best points to the answer, I think, lies in the difference between early agricultural villages and their pre-agricultural counterparts – the presence not just of grain but of granaries and, more tellingly, of just a few houses significantly larger and more ornate than all the others attached to those granaries. Agriculture was not so much about food as it was about the accumulation of wealth. It benefited some humans, and those people have been in charge ever since (Manning 2004: 38).
Could the human need for food energy and the accumulation of grain be the origin of the drive to accumulate money without concern for others or the planet? Was the first form of organised political power based on the control of the food supply derived from a defensive possession of the land? While they are interesting questions to ponder, we cannot say for sure. However, what does seem to be clear from the historical record is the fact that the transition to farming required the appropriation of ever more land – particularly as populations burgeoned and the soil was eroded by tillage. This appears to have occurred in two main ways: the deforestation of the earth (to convert forest to arable land) and the taking of it from others (Banner 2005; Weaver 2006; Williams 2006). As long as economic growth was chained to insolation and photosynthesis, as well as to some use of wind and water energy, having wealth above the norm of subsistence and basic shelter largely meant: 1) controlling the labour power of other human beings through force and/or custom; 2) monopolising trade and/or managing to acquire legal protection for an idea; 3) confiscating resources from others through wars and plunder; 4) acquiring some title or position that entitled the holder to a steady income from the taxation of others; and 5) gaining strategic control over necessary resources such as water, wood, food and later coal. For example, in 1066 the Norman conquest of England was achieved at the Battle of Hastings. Some years later, the Norman leader William the Conqueror instructed surveyors to roam the newly acquired land with the goal of creating a register of the population and the known stock of material wealth in the country. The register came to be known as the Domesday Book – which meant the Day of Judgment, a reference to the Christian God’s final Day of Judgment on which there could be no appeal.2 But the book was much more than a register. William’s purpose was not simply to collect data on his newly conquered land and population. His real purpose was to find out how much his subjects possessed and therefore how much they could be taxed by royal authorities. And by what right did William now rule England as his own kingdom? The right of conquest – a rule imposed by the powerful in various legal and forceful gradations throughout the era of European colonialism. Today, such acts of conquest would be deemed wars of aggression in international law. Yet even today the politically powerful and the 1% they belong to or largely serve are often able to get away with wars of aggression. The fact that the entire Bush Jr. administration is not serving lengthy prison sentences for war crimes in Iraq is only the most recent example of how the powerful can politely ignore international law when it suits their interests.
But the complete conquest of the population of England was an overwhelmingly violent affair (Garnett 2009). The Normans slaughtered or exiled the old nobility and other rebellious sectors of the population. With a pacified populace, the conquering Normans gained a new kingdom of riches they could exploit for their personal benefit. To fortify this rule, William ordered a series of castles to be built in his new domain. The medieval 1% consisted of royals, nobles and church officials who held massive estates and taxed the population in one way or another. The violent power of war was transformed into the ceaseless structural power of the taxman and his punishments for failing to pay. The more prominent merchants and bankers would eventually join the ranks of the wealthy landholders. By the 1640s, increasingly capitalist landlords and some members of the merchant class would finance a war to advance and protect their interests against what they viewed as an encroaching monarchy (Braddick 2009; Brenner 2003). Out of this struggle between royal authority and the interests of lesser subjects would emerge the modern concepts of private property and individual ownership. With victory declared by parliament and institutionalised after 1688’s Gl
orious Revolution, the Crown became subordinate to parliament. Those who held estates in land (largely descendants of the Norman conquest) by grant or pleasure of the monarch were now (for all practical purposes) owners of absolute private property (Pipes 1999: 30ff, 137). Land, which could be sold – and often was by English monarchs to raise funds for war – could now freely develop as the commodified private power of individual owners.
Up until this point, there were few if any theoretical accounts of the sources of wealth; life, to most, was spent exerting energy for the powerful few who controlled the land through conquest, land grants, purchase or custom (Engerman 1999). Indeed, Arthur Young, a British writer on agriculture and social statistics, thought that ‘in 1772 only 33 million of the world’s 775 million people actually lived in freedom. Servitude under monarchies remained the global norm’ (Nikiforuk 2012: 12). But the fact that there was little thinking about what we would today call economic growth is perhaps hardly surprising when we discover that there was little conceptualisation of historical progress until about the mid-fifteenth century (Davies 2003). Even by the time of 1798, the fear of a lack of subsistence appeared to be very real to men such as the political economist and cleric Thomas Robert Malthus. Malthus, of course, is well known for his An Essay on the Principle of Population, in which he argued that food increases at an arithmetic rate (1, 2, 3, 4, etc.) while the population increases at a geometric rate (1, 2, 4, 8, etc.). Left unchecked, argued Malthus, the amount of mouths would outstrip the food available and lead to mass misery and death. Consider one of Malthus’ passages in the second edition of the essay – a passage removed from later editions because of the considerable controversy it generated: