The Finance Curse. Nicholas Shaxson

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СКАЧАТЬ great trade arteries. Communities of American financial toads soon became happily ensconced there, with the flies and spiders of Veblen’s imagination replaced by giant ships. In 1919, as Panama was taking the first steps in setting up its deregulated, ask-no-questions shipping registry, Veblen summarized the game, where the wealth extractors got their government to support them as if it were its patriotic duty:

      In this international competition the machinery and policy of the state are in a peculiar degree drawn into the service of the larger business interests; so that, both in commerce and industrial enterprise, the business men of one nation are pitted against those of another and swing the forces of the state, legislative, diplomatic, and military, against one another in the strategic game of pecuniary advantage.¹⁷

      This was sabotage, he said, appealingly wrapped in the flag. To help the national champions “compete” on a global stage, the common man must shoulder the burden and, in doing so, should be made to swell with patriotic pride.

      Veblen wasn’t talking about Panama, but he might as well have been. And he identified what was then and remains today one of the most important and misunderstood themes of international finance: the “competitiveness” of nations. This term could mean many things, but Veblen understood that big banks and businesses loved to promote a particular meaning of the term, which I call the “competitiveness agenda.” Under this view, America is in some sort of giant global economic race, in which our biggest international firms must constantly be given subsidies—corporate tax cuts, deregulation, a free pass to let them build monopolies or abuse their American suppliers or employees, or whatever—in order that they can better compete in this race. If we don’t give them these handouts, these interests warn, they’ll run away to more “competitive” places like London, Hong Kong, or Geneva. I will show how this competitiveness agenda goes a long way toward explaining why some modern banks are too big to fail, why big bankers are too important to jail, why our schools aren’t getting funded, why your favorite local bookshop closed down, and why tax havens seem so hard to tackle. I’ll expose the fallacies, misunderstandings, and hypocrisies that underpin the competitiveness agenda and reveal it to be one of the most confused and dangerous economic myths of all time.

      Veblen understood these fallacies clearly, even if he couldn’t anticipate all the various schemes that financialized capitalism would create. One of these was the world of offshore tax havens, a tool of sabotage that was in its infancy in Veblen’s day. There’s no general agreement as to what a tax haven is, though the concept can usefully be boiled down to “escape” and “elsewhere.” You take your money or your business elsewhere—offshore—to escape the rules and laws at home that you don’t like. These laws may involve taxes, disclosure, financial or labor regulations, shipping requirements, or whatever, so “tax haven” is a misnomer; these places are about so much more than tax.

      Let’s take tax and a classic tax haven trick that had already begun to emerge in Veblen’s day called “transfer pricing.” Imagine it costs a Spanish multinational $1,000 to produce a container of bananas in Ecuador, and a supermarket in Santa Barbara, California, will buy that container for $3,000. Somewhere in this system lies $2,000 in profit. Now who gets to tax that profit? Well, the multinational sets up three subsidiaries: EcuadorCo in Ecuador, which produces the bananas; USACo in the United States, which sells the bananas to the supermarket; and PanamaCo, a shell company with no employees and based in a tax haven. These companies inside the same multinational sell the container to each other: first, EcuadorCo sells it to PanamaCo for $1,000, then PanamaCo sells it to USACo for $3,000. Where does the $2,000 profit end up? Well, it cost EcuadorCo $1,000 to produce the container, but it sold the container for $1,000 to PanamaCo, so there’s zero profit—hence no tax—in Ecuador. Similarly, USACo bought the bananas from PanamaCo for $3,000 but sold them to the supermarket for $3,000, so there’s no profit or tax in the United States either. PanamaCo is where the action is. It bought the container for $1,000 and sold it for $3,000, making $2,000 profit. But because it’s in a tax haven, the tax is zero. Presto! No tax anywhere!

      In the real world it’s obviously much more complicated than this, but this is the basic concept, and indeed Panama was one of the pioneers in this game in Veblen’s lifetime. It’s clear that nobody anywhere in this financial game has produced a better, more efficient way to grow, transport, or sell bananas. This is simply wealth extraction: a shift of wealth away from taxpayers in both rich and poor countries toward the businesses and some lawyers’ and accountants’ fees. But it’s also sabotage, because it rigs markets in favor of the large multinationals who can afford to set up these expensive international schemes, at the expense of their smaller domestic competitors who can’t.

      Two brothers who became pioneers of this kind of multinational tax strategy were Edmund and William Vestey, who founded the Union Cold Storage Company in Liverpool, England, in 1897. Meat monopolists extraordinaire, the Vesteys ran cattle operations in South America at one end, where they crushed the unions on their extensive holdings. At the other end, in Britain, they crushed rival meat traders—including one of my great-great-uncles¹⁸—and monopolized the retail trade. In between, they dominated certain shipping lines, not least through their Panama Shipping Company Inc., and rigged the international tax system in their favor. “If I kill a beast in the Argentine and sell the product of that beast in Spain,” William Vestey taunted a British royal commission in 1920, “this country can get no tax on that business. You may do what you like, but you cannot have it.”¹⁹

      From those early beginnings in the 1920s, tax havens would grow to offer a wider ecosystem of market-cornering possibilities. And with the growth of mobile global finance, particularly after the 1970s, the possibilities for sabotage would multiply, in the United States and around the globe.

      As the twentieth century progressed, Veblen’s views that sabotage and wealth extraction were central organizing principles of capitalism would be vindicated again and again. Take, for instance, the great American streetcar scandal, when a consortium of oil, bus, car, and tire companies came together in a loose arrangement to buy up streetcars and electric mass-transit rail systems in forty-five major US cities, then kill them off. (The scandal inspired the Hollywood film Who Framed Roger Rabbit.) Antitrust lawyers argued that the ensuing destruction of rail-based urban transport was part of a “deliberate concerted action” to push America into dependency on cars, buses, tires, and oil. To the extent that they were right, this helped pave the way for, among other things, massive climate change.

      Financial players also sabotage markets where we buy and sell stuff all the time. The less regulated these markets are, and the less attention regulators pay, the more rigging. That helps explain why, when regulators’ attention was elsewhere engaged during the financial crisis, crude oil prices rose from $65 a barrel in June 2007 to nearly $150 in July 2008. Yet this happened amid falling demand and a world oil glut, exactly the opposite of what the textbooks tell us ought to happen. On September 22 alone, the price rose over $18 a barrel, then dropped nearly $15 the next day. By December, it was down to $30, then back up over $70 by the following June. An internal Goldman Sachs memo in 2011 suggested that speculation accounted for about a third of the price of oil—equivalent to $10 extra on every American driver’s fill-up. The speculators weren’t buying up actual barrels of oil to sell them later at a profit, not least because there are physical limits on just how much oil there is available to buy. Instead they were employing financial instruments, which can be used to bet without limit: one bet piled upon another, upon another. Each bet tends to push the oil price either up or down. This created unreasonably large price swings, which were then worsened by herd behavior: if Goldman Sachs was buying, people reasoned, then they ought to as well. As hedge fund officials and other market watchers noted, the mayhem—which ricocheted to oil consumers around the world—greatly benefited large financial players, who had the best information to buy and sell ahead of everyone else: they made out like bank robbers.

      Meanwhile, in the aluminum market, Goldman Sachs indulged in some bizarre market sabotage when in 2010 it bought up Metro, a metals storage company regulated by the London Metal Exchange, СКАЧАТЬ