Raymond Baker, the founder and head of Global Financial Integrity (GFI is the authoritative source internationally on capital flight), whose study of India since Independence remains unchallenged argues in his new book Invisible Trillions that it is the wealth billionaires have withheld from the tax authorities in different jurisdictions that inhibits plans for welfare and threatens democracy identically everywhere.
This is the second part of his classic study Capitalism’s Achilles Heel (John Wiley and Sons, 2005).
‘Invisible Trillions: How Financial Secrecy Is Imperiling Capitalism and Democracy and the Way to Renew Our Broken System,’ Raymond W. Baker, Berrett-Koehler Publishers, distributed by Penguin Random House, 2023.
Born to Southern gentry in the US, he was to discover early in his career in 1962, how British colonial custom had enabled the corruption of post-colonial Nigeria.
“I’m not trying to make a profit!” the local manager of John Holt, a British trading firm founded in the 19th century explained to him when Baker expressed his bewilderment. Indeed, it never had made a profit throughout its venerable history.
“John Holt was using artificially high import pricing as a mechanism for transferring all its profits out of Nigeria and back to Britain…most foreign-owned companies were doing…the same,” Baker writes.
Corrupt practice was of course inherent in colonial business.
Champdany Jute that employed 5,000 Bengali spinners and weavers at two mills had only British shareholders, incorporated as it was as a Glasgow based limited liability company; yet even they were appalled to discover they had been looted by their own company director Sir James Finlay who had paid Finlay Muir the managing agency he personally owned, vast commissions (roughly £41,000 from 1897-1900) even when Champdany had paid no dividends to them (Jones and Wales, The Business History Review, Autumn 1998).
Baker was soon to learn that “most wealthy Africans involved in foreign trade were illegally moving money abroad by the same means,” employed by John Holt and other colonial businesses, which of course mirrors the very continuity that enabled Indian money laundering at the very independence of our country and have been carrying on ever since.
Baker’s original contribution has been to show that most “money laundering” represents the profits of legitimate business hidden from the fiscal authorities of host countries. For it is the general trend of international trade that enables surplus to be sent out of the jurisdiction far from the furious gaze of the labour that generated it. The prevailing non-cooperation between states enables a culture of permissiveness whereby tax evasion by foreigners in their own countries provides many western countries with the capital inflows that finance their trade deficit. Since criminal money is so easily hidden in the rush of cash, foreign policy then tolerates such crime all over the world as long as the proceeds land up in that country.
Baker offers us a hypothetical conversation of a prospective customer of a US bank:
“I make my money by smuggling aliens – men, women, and children – out of western China and southern Russia and putting them into the sex trade…”
Looking “over the list of prohibited sources of funds coming into the United States, the American banker sees that alien smuggling out of and into foreign countries is not on the list” and warmly replies, “Of course, sir; we would be delighted to receive and manage your money.”
As Baker shows, that most exclusive American private bank, “founded in 1836, Riggs, catered to the elite of Washington, serving 17 presidents including Abraham Lincoln, generals and admirals including Sherman and Grant from the Civil War and MacArthur and Nimitz from World War II”. Yet different standards applied when it came to dealing with Pinochet of Chile or Obiang of Equatorial Guinea; it “grovelled before some of the dirtiest money on Earth… KYC meant “Kleptocrats, You, and Crooks…”.
But this long-standing policy now threatens democracy everywhere, including the US itself. The Supreme Court decided that the wealthy had more votes, by enabling companies to be treated as individuals for the purpose of election finance. This enabled the seizure of power by the plutocracy, that brought in Donald Trump. The very rich were rewarded with the largest upward transfer of wealth in the shortest period in US history.
Autocrats and oligarchs enable each other. Thus when the energy of the crowd was channelled into to paranoia, people became oblivious to the theft conducted in plain sight, as in Germany when the Jews were held responsible for every disaster while people ignored the state’s enrichment of Krupp & Goering. Many Indians were deceived into believing that “Swiss banks” would disgorge the hidden wealth of the Nehru-Gandhi family, enabling the transfer of Rs 417 trillion to 278 million people. Today, favoured billionaires gain extraordinary benefits.
Inspired by Adam Smith’s Theory of Moral Sentiments (1759), Baker maintains that corruption is no necessary feature of free markets but has subverted them. It is true that free markets have a historic connection to democracy. Peasant marketplaces enabled free trade without obligation to oppressive landlords or the Church. The Industrial Revolution needed free labour in advanced countries, which fought for the expansion of the franchise to all adults.
Yet the value labour creates with nature has long been appropriated, degrading both. Modern capitalism was itself enabled by the expropriation of the European peasantry, genocides of Antipodean aborigine, Atlantic slave trade and colonial drain. Surely, reparations might be more relevant than the status quo ante?
Yet Baker is entirely right when he says there is now a difference not only of degree but of kind. As we have seen with the rise of authoritarians all over the world, no longer is it merely the rich from traditionally weak states who impoverish their own countries. Indeed, as the planet warms, the very rich do the same everywhere, since they are now beyond the reach even of powerful Western states. Seeking desperately to protect themselves from the consequences of their own actions, they accumulate more and demand cuts in the very taxes that pay for measures to combat climate change, hoping to insulate themselves from the rest of the human race and their own folly – even as the intensity of their extraction destroys nature all the more rapidly.
Clearly these multi-billionaires cannot be trusted to serve their own best interests, let alone the interests of all. Like Keynes, Baker would therefore like to euthanise the rentier or, in other words, to render capitalism which is unfettered at present, answerable to democracy, to save humanity and the planet and incidentally, capitalism from itself.
Kannan Srinivasan is a journalist and writer based in New York.
