The Paradise Papers, Latin America’s Globalized Elites, and Inequality

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     The recently released Paradise Papers, named for the idyllic settings of many of the world’s tax havens, are a collection of nearly 13 million files detailing the financial affairs of the world’s global elites (politicians, corporate executives, and celebrities). This release follows on the heels of the Panama papers, released in 2015, and 3 earlier similar disclosures. Nearly one-half of the Paradise papers consists of documents from the offshore law firm, Appleby, headquartered in Bermuda. The remainder come from corporate registries in 19 jurisdictions mostly in the Caribbean. The papers provide insights into a global industry engaged in moving around big money to evade taxes and hide assets. 

Tax Havens and Inequality

     A perusal of most reports on the Papers leads to the conclusion that minimizing or escaping taxation has been the major objective of the world’s global elite in using these financial services. While in most cases channeling your money into offshore companies out of the reach of domestic tax regulations is not illegal, it arguably should be. It is certainly unfair. The amount involved is staggering: According to one estimate, $10 trillion is held in offshore financial centres. If taxed based on domestic taxation rates, these funds would generate millions in additional government revenue, making possible improved or new social services and the reduction in taxation for less-well-off citizens. Tax havens and the failure of governments to take measures to mitigate the practices associated with them are major contributors to intra-country inequality, which has been increasing almost everywhere in the world in the last few decades. 

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     Tax avoidance by the mega rich, of course, is nothing new. However, it has increased over the last several decades. Whereas in the past, transporting your funds secretly across borders might have involved suitcases full of cash, now the process is much easier. First the fax machine and then the internet facilitated the process; both have been linked to a marked upsurge in the use of such services. While the majority of the global elite using off-shore financial services are citizens of Global North countries, there are also significant numbers of mega-rich located in Global South countries. The Paradise Papers revealed the financial dealings (some of which were illegal) of family members of the Turkish prime minister, of at least 100 Indian citizens including politicians, and the rich and powerful of Democratic Republic of the Congo. Latin America’s rich and powerful also count among the global elite tax avoiders. 

Latin America’s Globalized Elite

Businessman Carlos Slim and President Enrique Peña Nieto

Businessman Carlos Slim and President Enrique Peña Nieto

     Among those Latin American high-level government officials and businessmen named in the Paradise Papers are Argentine Finance Minister Luis Caputo, Colombian President Juan Manuel Santos, Mexican business tycoon Carlos Slim, and now deceased Mexican Trade Union leader, Joaquin Gamboa Pascoe. There is also a long list of Latin American companies (both public and private) involved in questionable practices. We should not be surprised by these revelations. The Panama Papers exposed the large-scale off-shore activities of Bolivian politicians and businessmen, a practice that increased following the election of left-wing (and anti-neoliberal) President Evo Morales in 2005. In addition, Argentine President Mauricio Macri hid wealth in tax havens as did the Brazilian leader who led the impeachment of Dilma Rousseff and who received bribes from off-shore sources.

     It is abundantly clear (in case anyone had any doubt) that Latin America’s political/ economic elites have joined the mega-wealthy global elite. The greed of global elites, and the rising inequality that has been its offshoot, has been creating political problems everywhere—we need only be reminded of the way in which the Trump phenomenon has played on a wide swath of public anxieties, easily fostered by economic insecurity and intensifying feelings of exclusion. In Global South regions, like Latin America, however, there are additional troublesome implications. For one thing, taxation and social spending were regressive in nature long before the onset of neoliberalism and economic globalization—hence the region’s long standing high levels of socio-economic inequality. While there was some mitigation of regressive social spending practices during the tenure of left wing governments in the early to mid-2000s, the drop in commodity prices and the rise to power of the political right means that further progress in the near future is unlikely. Furthermore, Latin America has the highest crime and homicide rate in the world, a phenomenon that is at least partially linked the region’s continuing high levels of deprivation, chronic and high levels of underemployment, and high levels of inequality.  

Winners Beware: There will be Consequences

Slum near Sao Paulo Brazil

Slum near Sao Paulo Brazil

     Latin America’s globalized economic elites have been the big winners in the process of economic globalization. Benefitting from generous state support in the form of tax reductions and other incentives, they have made unprecedented profits, moving aggressively into investments and exports abroad. The Brazilian construction company Odebrecht is a case in point. The Paradise Papers link Odebrecht to 17 companies registered in tax havens. Executives of the company have omitted that the company used off-shore companies to launder money and to hide amounts paid out in bribes to politicians. Grupo Carso, founded by Mexican Carlos Slim (named in the Papers), is one of Mexico’s top ten exporters. 

Latin American citizens have one more reason to mistrust their globalized elites. Latin America’s big export/investment conglomerates have not generated many jobs (most employment is provided by small and medium forms that do not export). Nor do they contribute to improved social services and public welfare by paying their fair share of taxes. What is even more troubling is the fact that the globalized economic elite remain strong supporters of a neoliberal model primarily concerned with fostering international competitiveness and neglecting the domestic market and popular welfare. Moreover, given the tight integration among economic and political elites, these globalized economic elites have become almost insurmountable obstacle to change. In this context, there is little likelihood that the political leaders of Latin America  (even the few remaining left-leaning ones) will have much success in redistribution through progressive and effective taxation. 

     Wealth continues to be heavily concentrated in Latin America. Mitigating the region’s high level of inequality is essential to social peace and economic growth. However, those with the greatest wealth have both the ability and inclination to hide that wealth in ways that lesson the state’s ability to redistribute. The release of documents highlighting the inside workings of off-shore financial dealings is yet another step in exposing the relentless appetite of globalized elites for ever more wealth. There will be political consequences either in the form of a re-invigorated left or an anti-establishment populist right. Either way, there will be more political turmoil.