Panama City to the World: “It Should Be Called the Mossack Fonseca Papers, Not the Panama Papers”
Why are the Panama Papers such a big deal? They do not reveal anything out of the ordinary. They only expose what everyone can see and has seen without exposure. Indeed, why do Panamanians feel that the name of their beloved country is being dragged through the mud by this sordid affair? Much of what is in the leak is perfectly legal. What’s the problem with being identified as a popular destination for cash that wants to not be taxed?
In fact, soon after the first data dump, Panamanian politicians began “damage control.” Bloomberg reports that Panama’s president, Juan Carlos Varela, toured the world with this message: “Panama’s success does not depend on irregular flows of money into our financial system.” And there was this:
Some Panamanian Twitter users have even tried—and failed—to wipe the country’s name from the scandal by rebranding it as #mossackfonsecapapers. Far from outrage at the corrupt financial system, the initial reaction by Panamanians was a nationalist outburst that united even the most acerbic of enemies.
But why aren’t Panamanians proud of their world-class financial system? Why isn’t the president using this affair as an opportunity to promote the stashing services offered in the capital and largest city of the Republic of Panama? Why isn’t he also offering things like vacation packages to those who open new accounts in the country of his birth?
Clearly, something has changed in the world to make tax havens so unseemly. In the way the stock market has been described as a casino, tax havens have become the whorehouses of our times. And the source of this sleaze is not limited to their association with such criminal practices as money laundering and fraud. This association is old. There is instead a new factor at play in all of this. It has to do, I think, with the crisis of legitimacy triggered by the crash of 2008. We now live in a world that is run by an economic system that has lost much of its justification. It operates without the aura of usefulness. It has the aspect of a zombie. What do I mean by this? The explanation requires a little economic history.
Here is something that’s important to understand: The world we live in is dominated by financial institutions. This form of domination is called neoliberalism. The structure of this kind of economy actually first appeared after the crisis of 1870, but it was toppled by two devastating world wars and the economic crash of 1929. The period between 1945 and 1975, also known as theTrente Glorieuses (“Glorious Thirty”) of capitalism, was in essence about the containment of finance. In fact, you can see the Glorious Thirty as an alliance between management and workers (for more on this, read Gérard Duménil’s and Dominique Lévy’s The Crisis of Neoliberalism). The first moment (before the crash of 1929 and the world wars) was simply the period of finance (read Rudolf Hilferding’s Finance Capital). Before that, it was the age of entrepreneurs and big family businesses.
After 1975, however, finance, which is the ideal manner or mode of accumulation for those in the highest parts of a capitalist economy, staged a comeback by forming an alliance with management. Management got unprecedented wage increases and bonuses (this took the form of a movement called shareholder value maximization) and abandoned its alliance with workers, and workers, in turn, saw their welfare state cut, wages stagnate, and debts increase. The New Deal came under massive attack. Regulations that once protected society from the excesses of finance were either lifted or eroded. And levels of inequality that had characterized the first age of finance (1870 to 1945) were reestablished (read Thomas Piketty’s Capital in the Twenty-First Century).
Also after the 1970s, surplus labor was increasingly absorbed by the prison system or dumped onto the streets of cities. Though this period got its proper start with Ronald Reagan (US) and Margaret Thatcher (UK), the first neoliberal president of the free world is in fact Jimmy Carter, who appointed Paul Volcker as chairman of the Federal Reserve Board in 1979. Before Volcker, the government’s macroeconomic policy was defined by a commitment to full employment; after (and because of) Volcker, price stability became the core concern. As a consequence, the manager/labor unit of the New Deal period was replaced by the creditor/debtor unit of the neoliberal one.
The Volcker Shock (a sharp increase in interest rates that killed inflation at the high cost of full employment in the early 1980s) instigated the political enervation of labor and normalization of neoliberalism. (For more on Volcker, I recommend reading Yanis Varoufakis’s And the Weak Suffer What They Must?—the book, which was written after Varoufakis lost his job as Greece’s finance minister, gives Volcker not only an important role in the transition to neoliberalism in the 1980s but also in the unification Europe’s currencies, the euro, which has its roots in the US’s delinking of the dollar from gold in the early 1970s—Volcker was there for that too.)
If Bernie Sanders were elected in November, he would be the first non-neoliberal president the United States had seen since Nixon (I’m ignoring Ford). Nixon was still a New Deal president. Jeremy Corbyn is to the UK what Sanders is to the US—a post-neoliberal politician. The presence and popularity of these politicians in the most advanced neoliberal states on the planet begs the question: What has changed to make this possible? In the 1990s, class struggle was nonexistent as an idea or accepted as an explanation for poverty or inequality. The economic policies of the left barely differed from those on the right. Both agreed that financial profits and the inflation of asset values were not socially harmful but beneficial. That the egoism of the banker, like the self-interest of Adam Smith’s butcher, was useful to all, including the poor. If an economist or politician said otherwise, they were ignored or simply unpersoned from mainstream media and leading universities. Now Sanders is saying very loudly and repeatedly the obvious (poverty and inequality are linked to bankers and their obscene bonuses) in a mainstream that had for 30 years successfully banished terms like inequality and class struggle.
What happened? What brought about this strange sea change?
Neoliberalism suffered a crisis of legitimacy after the 2008 Wall Street crash for three main reasons. One, orthodox economists (also known as neoclassical economists) and Wall Street investors failed to predict the biggest market crash since 1929. They had no idea it was coming or what hit them (was it a black swan?). Their mighty mathematical models were saying only one thing (prosperity until the end of all time), but reality was saying something completely different (the end is here). Indeed, they had to turn to a post-Keynesian (meaning, an economist who is not mentioned at all in undergraduate and graduate programs) to explain what had just happened—a Minsky moment.
Two: The US government did exactly what it told governments in low- and middle-income countries not to do, namely intervene in an economic crisis. This and other like policy prescriptions are categorized as the Washington Consensus (the IMF, the US Treasury Department, the World Bank are all based in Washington, DC). The heyday of this kind of economic programming, which globalized the world in neoliberal terms, was between 1987 and 2007. It required recipients of IMF loans to shrink their budgets (austerity), open markets to capital flows, privatize as much as possible, and, of course, keep the government out of the market. Then Wall Street crashed, then the US government bailed out its financial sector and basically nationalized banking in front of the whole watching world. (For details on the Washington Consensus, read Ha-Joon Chang’s Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism.)
Third, many white Americans (voters) have been taught to be stupid, but not enough of them were taught well enough to believe that the spike of their government’s post-bailout deficits were caused by ghetto queens with fatherless children and lots of food stamps. You could have cut every dollar of support to poor black Americans across this here land and made no dent on the trillion that was added to the government’s budget immediately after the crash ($458 billion in 2007 to $1.4 trillion in 2009). It was really hard to hide the hard facts of the matter.
The consequence of the collapse in legitimacy is the age of zombie neoliberalism. We are run by banks that are insolvent without state support and by policies that block rather than stimulate economic growth (for more details on this, read John Quiggin’s Zombie Economics:How Dead Ideas Still Walk among Us). It is at this stage, zombie economics, that the Panama Papers made their appearance.
If this massive leak of information had happened in the 1990s, neoliberalism’s moment in the sun, it would have been ignored. Back then, orthodox economists convinced millions of Americans that finance really did something important, that efficient equity and bond markets and rational investors advanced an economy to a higher stage of development. If progress and job creation meant hiding your cash from taxes, then what was wrong with that? In our post-crash moment, such illusions are much harder to maintain. Hiding money from the government does not appear to improve the economy, a point made by a class of economists, called heterodox, who reentered the mainstream with the surprising success of Piketty’s academic work and best-selling book on the causes of income inequality. theGuardian :
More than 300 economists, including Thomas Piketty, are urging world leaders at a London summit this week to recognise that there is no economic benefit to tax havens, demanding that the veil of secrecy that surrounds them be lifted.
The Panama Papers, or the Mossack Fonseca Papers (as Panamanians want to call them), are not going away anytime soon. Nor is Bernie Sanders.