CRONY-CAPITALISM CONTROLS GOVERNMENT
I have recently commented on inequality of income among different classes of society and the extent of corruption of public officials dealing with the mega- rich. These are the politicians who represent the mega-rich as a payoff for campaign funding. That is just another form of corruption that has infiltrated politics and the economy of nearly every developed country. Now I am writing about the combination of these two blights that thwart honest democracy.
My incentive to update this combined topic came from The Economist news magazine that published an article in May defining the crony-capitalism index based on studies of international industries that often involve cozy relations with the government. At the top of the list are casinos, oil and construction which have leapt ahead of global GDP and constitute a big share of the total billionaire wealth.
This year’s crony-capitalism index shrank by 16% since 2014 now showing crony-billionaire wealth of $1.75 trillion. The economic climate was tough on cronies since commodity prices tanked cutting the value of mines, steel mills and oilfield concessions. Add to this Asia’s long- term property boom that sputtered, according to The Economist.
A large portion of these crony-billionaires are foreign businessmen and cartels, including an Indian tycoon, Brazil’s largest construction firm and a Malaysian investment fund. These are among the major politically- connected tycoons who are being investigated by their country’s justice departments. The extent of crony-capitalism opened up when the so-called Panama Papers were made public recently.
This might be a good time to define “crony.” My computer thesaurus said only “a friend.” I think it goes much further. Here is the Oxford Dictionary definition: A person or group that benefits from association with a person or group of influence (think lobbyist). The object is access to resources or affiliation not available without some financial support or exchange of influence.
For most of the 20th century Swiss bank accounts with only a number and no individual identification were the hiding places for undeclared wealth. When legal actions broke the Swiss secrecy barrier, offshore banking and shell companies became an industry for clever legal firms. The Panamanian law firm that assisted drug lords and heads of state to conceal their ill-gotten wealth insist that their work for clients is completely legal.
The Economist crony-capitalism index for 2016 ranks Russia as the worst followed closely by Malaysia.; China is number 11, Britain is 14 and the United States checks in as 16 among the 22 developed countries surveyed.
These developed economies account for 43% of global GDP but 65% of crony wealth. China (including Hong Kong) has the biggest concentration of billionaires in the world worth a collective $360 billion, according to the news magazine study.
After reading about this potential illegal manipulation of wealth and failure to pay taxes, it’s refreshing to know that two of the richest capitalists in the world use their wealth to improve the lives of mankind. Bill Gates of Microsoft and Warren Buffett of Berkshire -Hathaway reportedly pay their fair share of taxes while distributing billions of dollars to charities and other welfare projects under totally transparent accounting for their wealth.
Despite the slowdown in crony capitalism, it is hardly over. America is about to elect a billionaire president whose dealings in casinos and Manhattan properties earn him the 104th spot on The Economist individual crony-capitalist ranking. That’s food for thought concerning any advance in Justice Department and Securities and Exchange Commission efforts to regulate off-shore industry operations. Presumptive-candidate Donald Trump has already declared he will dismantle the Dodd Frank Act which was legislated after the banking industry meltdown of 2007.
Prospects for indictments or control of crony capitalism are dim. Political parties and candidates rely on illicit funding, courts have huge backlogs that take years to clear and state-run banks are stuck in time warps, in the opinion of the news magazine. A major barrier to convict individuals is the policy of fining only corporations responsible for illegal business, not the executives that planned the scam.
There is one organization campaigning against tax evasion. The information provided by Tax Justice Network provided a decade ago fell on deaf ears. Now that the Panama Papers leak exposes the tax invaders, the organization is besieged for assistance in tracking down the culprits.
Exposure of hidden off-shore wealth generated by tax evasion angers voters who face austerity. Cracking open shell companies is the goal of Tax Justice Network as depicted in a cartoon of a hammer about to come down on an island clam shell with two eyes peeking out. Without transparency identifying off-shore wealth, how can a CPA firm issue an opinion on a company’s financials?
That leaves many loop holes and uncertainty in the commercial and political realm of power. When are the regulators going to do something?