Thursday, September 11, 2008

Tax justice and the superclass

Superclass, a fairly authoritative book about the world's wealthiest and most powerful élites, contains a number of interesting nuggets (packed densely with large quantities of rather banal observations.) In general, the book identifies how some people are aggressively exploiting the most important fault lines in the global economic system:

"Like the robber barons who recognised and capitalised on the opportunities of interstate commerce before lawmakers and regulators knew what was happening and had a chance to react, networks of globalisers are defining the times by working around the edges of the old world."

Correct, although the book largely steers clear of tax, which is a fatal weakness in its overall analysis. Nevertheless, this blog will focus on just one nugget in the book. Page 154 of the hardback version notes the top ten donors to George W. Bush's 2004 re-election campaign:

"Morgan Stanley, Merrill Lynch, PricewaterhouseCoopers, UBS-Americas, Goldman Sachs, MBN Corp. (a big bank), Credit Suisse Group, Lehman Brothers, Citigroup, and Bear Stearns."

Now it's no news that big business was a major contributor. It's the class of companies that are interesting, for two reasons.

First, this group could be categorised into three overlapping categories: banking and finance; accountancy; and tax dodging. These are the quintissential tax justice domains. It illustrates that what we are focusing on is the very heart of global finance, plugged into the wellsprings of political power. Look at this new report that has just come out from the US Senate on how big Wall Street investment banks designed and marketed schemes enabling non-U.S. taxpayers, including offshore hedge funds, to evade millions of dollars in taxes each year on U.S. stock dividends. As the Associated Press story said:

"They developed case histories involving six major investment banks: Citigroup Inc., Deutsche Bank, Lehman Brothers, Merrill Lynch & Co. Inc., Morgan Stanley and UBS."

Just look at the overlap with the big-donors' list.

Second, it is notable how many of these corporations are at the centre of the current economic crisis. Bear Stearns has already collapsed. At the time of writing, Lehman Brothers is currently on what has been called Lehman Death Watch: serious people see this bank failing very soon. UBS-Americas: a Swiss bank at the centre of a current storm over large-scale tax evasion. Credit Suisse: another culprit over the years. Citigroup: a permanent member of the TJN rogues' gallery. As for its analysts: this short blog, and especially its table, is rather amusing, in light of the recent effective nationalisation of the US mortgage giants Fannie Mae and Freddie Mac.

Something big is happening in global finance which will add a forest's worth of fuel to the already nicely blazing global tax justice agenda. We have already demonstrated the central role that tax havens play in this unfolding global economic crisis, and we will push forwards with this. We invite others to push this particular research forwards, as a matter of urgency.

We end this blog with a question raised in "Superclass":

"Every era of elites has been marked by over-reach on their part and a consequent backlash. The question many are now asking is whether our own time will see the same, whether current efforts to rein in CEO salaries and trim tax advantages for private equity companies are the extent of that backlash or whether, given the global scope of the the activities of the current élites, it will take a different form, perhaps a further institutionalisation of the reaction against globalisation, or perhaps something new, unexpected, more sweeping, and even more disruptive in its implications."


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