Thank you, Mossack Fonseca, for a textbook case study

Franziska Mager Economics, Inequality


In light of the Panama Papers, tax havens have come under more scrutiny than ever before. Here Franziska Mager, Research Assistant at Oxfam, delves into why these leaks show the links between inequality and tax havens.

The Panama Papers, like previous leaks, have had an almost movielike quality. If you are reading this, you have probably found yourself glued to a news ticker over the past weeks, bringing you the latest in defiant, defensive and apathetic reactions from some of the most powerful people in the world in real time.  Following the lead up to the resignation of the Prime Minister of Iceland for instance felt almost voyeuristic. 

For the last few weeks, many of my peers in different places on the political spectrum have been commenting on the Panama Papers. Irrespectively of how you engage with the evidence and the stories, and whether you think tax havens are inherently problematic, it’s hard to ignore the issue. The fact that there seems to be more of a momentum against tax abuse now than a decade (or even just another leak) ago makes it all the more important for Oxfam to connect the dots between tax abuse and other injustices we work to reduce.

I say this because at Oxfam, there was no sense of disbelief or surprise. There was instead a rush of anticipation for real life examples for some of our central campaign themes: tax, obviously, but also inequality. This is because even if we had tried to conjure it up ourselves, we couldn’t have asked for a better case study for our inequality work. 

We campaign to sensitize the public to inequality not just because of its extent, dynamics, or the shape of a given distribution, but because of what it comes with. Even if you consider an economic definition of inequality alone (income or wealth), it has disastrous ripple effects: eroding social cohesion, slowing down the progress made in poverty reduction around the world and slowing down growth overall. The richest also contribute most to global emissions, whilst the poorest pay the price. 

People just as corporations use tax havens not because they are more malicious or irresponsible than others, but because they can. But for some, inequality comes with enormous privilege, and tax dodging is a powerful illustration. People just as corporations use tax havens not because they are more malicious or irresponsible than others, but because they can. They can capitalize on a system that puts a small minority actively at an advantage. Everyone else feels the costs of this in some way: individuals and companies that do pay their taxes but
can’t compete, or find themselves with less disposable resources. This also includes states grappling with financing their public services. And while we know that nowhere wealth stashed in tax havens is by any means the only culprit for strained budgets (and that disclosing and taxing such wealth won’t suddenly fill state piggy banks, make spending more progressive and narrow inequality gaps overnight); the sums uncovered make fervently bargained public school financing look grotesque.

So when we talk about inequality, we deliberately point to disproportionate means of opportunity, influence and a healthy dose of entitlement – power – just as much as stark, growing gaps in actual numeric wealth

The people at the very top of the distribution have gone beyond just taking advantage of the system, but also use their power shape it to work even better for them, ‘capturing’ the direct engines of economic growth. In a country like the Congo for instance, where the treasury is heavily reliant on natural resources and extractives, multitalented Bruno Jean-Richard Itoua, minister turned energy adviser and presidential confidant used Mossack Fonseca for setting up offshore companies suspected to stash money from the
national Congolese oil company. Incidentally, the papers name the nephew of South African president Jacob Zuma as a representative of an offshore company that acquired oilfields in the neighbouring Democratic Republic of Congo in 2010. 

Of course, insiders within the executive are particularly well positioned to use their wealth and power to capture decision-making to their advantage, but the leak has exposed assets from wide-ranging origins. This suggests that be it through being a chief justice (Kenya), an intelligence official (Chile) or just associated to those in power, wealth fosters entitlement, and vice versa. Even if you are only a world-famous soccer player of kung fu actor (and might
make relatively harmless use of offshore banking), it has triggered your opportunism. That opportunism always makes someone worse off. This cobweb between power players we have is so intricate; it could have originated in the imagination of a very talented soap opera writer. 

This cobweb between power players we have is so intricate; it could have originated in the imagination of a very talented soap opera writer. But like our colleague Nick said, the Panama Papers are your new curriculum for seeing how the world really works. And Mossack Fonseca only provides us with a glimpse into the massive offshore sector. Never has the quote “all animals are equal, but some are
more equal than others” seemed more appropriate. Below the abuse of entitlement at the top, millions of poor people don’t even entertain the thought of reliance on the basic services they are in need of for survival. 

There have been more than 11 million files leaked, telling us stories about deals and relationships that help us to understand privilege and power, networks and loopholes. Let’s just hope the resignation of Prime Ministers and public apologies are not the only falls, but that we learn truly enough from this leak to make a concerted effort to change the system. For starters, recognizing how intimately linked tax havens and inequality are, and ending them for good. Thanks, Mossack Fonseca, for a textbook inequality case study.

Read more

Read a conversation between Mark Goldring, CEO of Oxfam, and Tony Shorrocks of Credit Suisse on income and poverty.

Read The income of the world’s poor is going up, but they’re $1 trillion poorer. What’s going on? on the From Poverty to Power blog

Download An Economy for the 1%

Author: Franziska Mager
Archive blog. Originally posted on Oxfam Policy & Practice.