Panama Papers Reveal How the 1% Operate

By Mel Gurtov

One of the many tools at the disposal of multinational corporations (MNCs) for maximizing profits and undermining state sovereignty is moving operations to low-tax countries.  Global companies do not simply “go abroad”; they shift capital, as well as labor and technology, to wherever the advantages are greatest.  This reality of globalization is well known, and it is matched by the similar behavior of powerful, wealthy individuals, including present and former top government officials.  Like the MNCs, wealthy individuals are not content to make tons of money at home if they can make even more by finding tax shelters abroad, where their money is completely hidden from public view.  It’s what the One Percent do.

Thus, the revelations of the so-called Panama Papers are hardly surprising.  The Papers, leaked by a consortium of investigative journalists from the records of the Mossack Fonseca law firm in Panama City, merely expose standard operating procedures for multinationals and the super-wealthy.  (More than 200,000 corporations and 14,000 clients of the law firm are mentioned in the documents.)  As explained by Max Bearak of the Washington Post (April 8, 2016) in one of the few articles that goes to the heart of this large-scale deceit, corporate investments are driven at least as much by the lure of “offshore” tax havens as by revenue from production.  Foreign direct investment (FDI) is always touted as being a boon to the receiving country’s economy—and, for developing countries, a savior—but the Panama Papers remind us that FDI is often meant to evade tax collection of both the home and host countries, to the tune of hundreds of billions (perhaps trillions) of dollars.

Mainstream media have had little to say about the tax evasions of global corporations, choosing instead to focus on world leaders who, personally or via family and cronies, have moved funds into companies abroad to avoid paying taxes—for instance, Vladimir Putin, Xi Jinping, David Cameron, Nawaz Sharif, and Iceland’s Sigmundur Davíð Gunnlaugsson (the only one to step down).  Naturally, they all reject criticism, saying that what they did isn’t illegal (Britain, Pakistan, and Iceland), or the leaks are a Western attempt to undermine their rule (Russia), or the news isn’t fit to print (China).  Largely missing from the discussion is the consequences of tax avoidance: it robs the poor—countries and people—to further enrich the wealthy.  Unpaid taxes skew government budgets, reduce spending on social well being, and, for a poor country, force reliance on foreign loans that typically come with strings attached.  In countries with widespread official corruption, the poor are doubly cheated.

The European Union may soon vote on a proposal to force MNCs based in Europe, such as Apple and Starbucks, to report their tax information—their pre-tax profits, taxes paid, and transactions between branch plants.  The presumption is that this information would shed light on shell companies and other tax shelters.  As critics are already charging, the EU proposal would leave untouched the activities of these same MNCs in countries outside the EU—all those developing countries that lack the legal and political punch of the EU.

What the Panama Papers really do is to buttress the argument on the urgent need to reduce the stark and growing inequality within and between countries—“An Economy for the 1%,” as an Oxfam study puts it.  Closing tax loopholes is just one element; compelling tax payments by corporations that pay little or nothing is another; and preventing government officials, celebrities, and others among the super-rich from hiding their money in offshore accounts is a third.  For even as reduction of extreme poverty worldwide has made some progress, Oxfam reports, “just 62 individuals had the same wealth as 3.6 billion people—the bottom half of humanity”; and “since the turn of the century, the poorest half of the world’s population has received just 1% of the total increase in global wealth, while half of that increase has gone to the top 1%”.  The distortions of the global distribution of wealth are, in a word, obscene.

Even the One-Percenters who meet annually at Davos recognize that growing inequality is one of the leading threats to the global order that overwhelmingly benefits them.  But how many of them would be willing to end tax havens, secret overseas accounts, and corporate tax evasion practices?  How many would acknowledge that tax evasion by the super-rich is a tax on the poor? Very few, of course; those who attend the Davos meetings are concerned about economic “growth,” not social equity.  Gandhi’s words are worth remembering: “There is enough for every person’s need, but not enough for every person’s greed.”Φ

Mel Gurtov, syndicated by PeaceVoice, is Professor Emeritus of Political Science at Portland State University and blogs at In the Human Interest.