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The Man Who Foretold the Panama Papers

Thomas Piketty noted years ago the world is losing money. Now we may know why.

By Crawford Kilian 5 Apr 2016 |

Crawford Kilian is a contributing editor of The Tyee.

At first glance, this book by the famous author of Capital in the Twenty-First Century looked like a disappointment. Instead of the vast sweep of that epic work, it's a cut-and-paste job -- monthly articles first published in the French newspaper Libération between 2008 and 2015.

I've written such books myself, cobbling newspaper columns together just by dragging files around my computer screen. If you had a keen interest in British Columbian school politics in the 1980s and '90s, my books might still interest you. Otherwise, forget them.

Similarly, in this compilation Piketty is fussing about the crash of 2008 from a European perspective, and most of us have tried our best to forget that unfortunate era. It's mildly titillating to learn that the octogenarian heiress to the L'Oréal fortune is the richest woman in France, with a fortune of 15 billion euros while declaring only one billion.

And here and there you can catch themes that Piketty will turn into majestic symphonies in his magnum opus, like the inevitability of "patrimonial capitalism" -- that is, wealth will accumulate in the families of the already rich, not in the families of the toiling masses, and it will continue to do so until the very rich are taxed according to their means. He also mentions "tax dumping," whereby countries like Ireland attract a few jobs by charging almost no tax on giant corporations doing business elsewhere.

But why bother to buy a scrapbook of ancient columns when you can read Capital in the Twenty-First Century? For one very good reason.

The world's greatest economic detective

Because Thomas Piketty follows the money. He goes into the tax archives of the last two centuries, and he has become the greatest economic detective the world has ever known. He has tracked the wealth of the rentier class since Napoleon -- the families of the "independently wealthy" who live off the income paid them because they own moneymaking enterprises and land.

In one column, published five years ago on April 5, 2011, Piketty offers what is almost a throw-away line: "... at the world level, the net financial position is negative over-all, which is logically impossible unless we assume that on average we're owned by the planet Mars. More likely, this contradiction suggests that a nonnegligible share of financial assets held in tax havens and by nonresidents is not correctly reported as such."

In other words, every country in the world is losing money, and therefore losing tax revenue. The implication is that every country is making up for the loss either by taxing its poorer residents more than they should be, or by cutting social services.

Five years later, almost to the day, the Guardian and the German newspaper Süddeutsche Zeitung broke a major global scandal: the Panama Papers.

It may have been the best-kept secret since the first atomic bomb: media all over the world, including CBC and the Toronto Star, were involved in a year-long investigation of an enormous mass of data. No one breathed a word until Sunday, April 3.

Süddeutsche Zeitung a year ago received an anonymous batch of over 11.5 million financial and legal records from a Panamanian company, Mossack Fonseca, covering 38 years from 1977 to 2015. Those records reportedly suggest that just the one company, among several, had created hundreds of "shell companies" whose purpose was to stash money away from taxes in offshore accounts.

The world's richest cellist

The Guardian and others have named a wide range of world leaders and their friends as involved in the offshore schemes, which the newspaper notes are not inherently illegal.

They include Russian cellist (and Vladimir Putin's best pal) Sergei Roldugin, whose musical and other talents have apparently earned him $100 million.

Other national leaders linked to Mossack Fonseca, according to the Guardian, include Pakistan's prime minister Nawaz Sharif; Ayad Allawi, formerly interim prime minister of Iraq; Petro Poroshenko, president of Ukraine; Alaa Mubarak, son of Egypt's ex-president; and Sigmundur Gunnlaugsson, prime minister of Iceland.

As well, the Panama Papers reportedly suggest the families of at least eight current and former members of China politburo have hidden money offshore, not to mention, the Guardian tells us, "Six members of the House of Lords, three former Conservative MPs and dozens of donors to U.K. political parties."

It gets worse. If anything unites a fractious world, it's love of football. But FIFA has also been drawn in.

Blowback for Canada

So far, no famous Canadians have appeared in the Panama Papers, though the Toronto Star says it has the names of 350 persons with "offshore tax haven investments." But Liberal Minister of International Trade Chrystia Freeland is a staunch supporter of Ukraine. Working with its president, Petro Poroshenko, could now be difficult.

Foreign Minister Stéphane Dion came up with some doublespeak about "responsible conviction" to justify the sale of light-armoured vehicles to Saudi Arabia. Now he faces a new challenge: Saudi King Salman has allegedly stashed some of his billions offshore with Mossack Fonseca, perhaps including Canadian revenues.

In his Capital in the Twenty-First Century, Thomas Piketty argues that the wealth amassed by the rentiers in the 19th century was consumed in the world wars of the 20th. For three golden decades after 1945, the people who fought those wars enjoyed decent jobs and incomes, and could send their children to school with a hope of their doing even better.

But beginning in the 1970s, the rentiers have restored and added to their wealth, taking it from the rest of us, and stored it safely out of sight. Like Sherlock Holmes noting the dog that did not bark in the night, Piketty has noted the negative bottom lines around the world, and drawn the appropriate conclusions.

Like all the other rentier-ruled countries, Canada had better brace itself for the coming shocks.  [Tyee]

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