Out to sea, out of mind

The secret offshore world of the superrich

January 4, 2014 7:00AM ET
Pedestrians walk past the stone columns of a UBS AG bank branch in Lausanne, Switzerland
Gianluca Colla/Bloomberg/Getty Images

Warren Buffett once remarked that we were in the midst of a new class war. “There is class warfare, all right,” he said, “but it’s my class, the rich class, that’s making war, and we’re winning.”

One of the ways the rich have waged this war has been through offshoring: moving resources, practices, people and money from one national territory to another and hiding them within secrecy jurisdictions.

Offshoring involves evading rules, laws, taxes, regulations or norms in ways that are either illegal or against the spirit of the law. Offshore worlds developed because of mobility systems that transport people, money, information and objects across the oceans. These include not only physical infrastructure to move cargo ships, planes, cars and trucks but also virtual infrastructure like electronic money-transfer systems and taxation, legal and financial expertise for avoiding national regulations.

This offshoring world is dynamic, reorganizing economic, social, political and material relations among societies and also within them. Above all, it is secretive. This makes it a paradise for the rich, a vision of the world almost without government, taxes and laws, where only the powerful, their ships and their companies survive and everyone else is left — sometimes literally — to sink to the bottom.

Secret paradises

Offshoring is a key part of globalization. Throughout the 1990s, it was a widely held belief that the global movement of money, people, ideas, images, information and objects was economically, politically and culturally beneficial. Most aspects of contemporary societies were thought to have been positively transformed through increased borderlessness.

But the ’90s did not turn out to be the harbinger of an optimistic and borderless future. It turns out that there’s a dark side to constant movement. Moving across borders are many new risks, trafficked men and women, drug runners, terrorists, criminals, slave traders, smuggled workers, waste, financial risks and untaxed trillions — to name just a few downsides. They inhabit various secret spheres designed to enable movement out of sight. Central to these offshore worlds are the vast oceans.

Since some 7 billion humans are crowded onto just one-quarter of the earth’s surface, oceans provide ways to obscure what would otherwise be onshore and therefore visible. There are ships flying flags of convenience where work conditions for seafarers are driven to rock bottom. There are places in the sea where many poor migrants have lost their lives in transit to what they hoped would be a better life. Oceans are a global rubbish dump, with the great Pacific garbage patch twice the size of France.

This new global order is thus the opposite of open and transparent. It is a world of concealment, of secret gardens mainly orchestrated in and for the rich class. Tax havens are places of escape and freedom, often with nice beaches. But it’s not the sun and sand that have recalibrated the entire global economy in a few short decades. That shift is to blame on another kind of paradise — the paradise of low taxes, wealth management, deregulation and secrecy.

Since the 1980s, there has been an astonishing growth in the movement of wealth to and through the world’s 60 to 70 tax havens, which today represent at least one-quarter of existing countries. These tax havens are as likely to be in the middle of nowhere as in your own backyard. They include Switzerland, Monaco, Liechtenstein, Manhattan, the City of London, Panama, the Cayman Islands, Gibraltar, Jersey, Delaware, Singapore, Hong Kong and Dubai. The development of secrecy jurisdictions are core to the liberalization of the global economy that began in the 1980s, and they contributed to the ending of many currency-exchange controls — which enabled money to flow around the world and to develop the power of an unregulated shadow finance.

This rich class is the beneficiary of these havens. Almost all major companies have offshore accounts or subsidiar­ies, more than half of world trade passes through them at some point, and almost all high-net-worth individuals possess offshore accounts enabling tax planning (i.e., avoidance). Ninety-nine of Europe’s hundred largest com­panies use offshore subsidiaries. It has been calculated that one-quarter to one-third of all global wealth is held offshore.

Despite governments’ constant assertions that they are cracking down on tax evasion and avoidance, offshored money has grown from $11 billion in 1968 to $21 trillion in 2010 (equivalent to about one-third of annual world income). According to the Tax Justice Network’s calculations, fewer than 10 million people own this $21 trillion offshore fortune, a sum equivalent to the combined GDPs of the United States and Japan. This is the source of power and wealth of the superrich, with almost all owing their fortunes in part to the rapid and secret moving of money and ownership.

In “Treasure Islands,” his 2011 book about tax havens, Nicholas Shaxson shows that offshore is how the world of power now works. Money staying onshore is almost now the exception, suitable only for the little people still paying taxes. Big, institutional money is often offshored in one way or another. Shaxson describes how the United States is by a far the world’s most important secrecy jurisdiction. In the little state of Delaware, there is a single building that houses 217,000 companies. Shaxson conservatively calculates the annual loss of taxation from this offshoring world at hundreds of billions of U.S. dollars. The offshore world also makes it hard for small and medium-size companies to compete.

Nowhere men

“You don’t live anywhere, and neither does your money,” one commentator said about being a billionaire. “Or, rather, you live everywhere, and so does your money.” This life involves rapid movement across the oceans, with homes dotted around the world, endless business travel, private schools, family structured around occasional get-togethers, private leisure clubs, luxury ground transport, airport lounges, private jets, luxury destinations and places of distinction and luxury for encountering other superrich people. Place, property and power are intertwined in forming and sustaining such a networked and often hidden rich class.

And the consequences of offshoring are not just to heighten the privileges of the superrich. It also means that the rest of society suffers, from the loss of tax revenue and higher taxes paid by the little people, from the deterioration of public services, from a lack of control of resources, from images of the good life that are unsustainable and from an inability to effect a collective response to major issues like climate change.

We neglect these offshore worlds at our peril, especially in examining how what has escaped offshore might ever be reshored. This offshoring and lack of transparency is bad for democratic governance and for societies’ ever being able to move together toward a better future. The motto for these water worlds might as well be “Out to sea and out of mind.”

This argument is developed in: John Urry’s “Offshoring,” Polity (2014). Visit this link for a short offshoring video.

John Urry is a distinguished professor of sociology and the director of the Centre for Mobilities Research at Lancaster University. His recent books include “Climate Change and Society” (2011) and “Societies Beyond Oil” (2013). 

The views expressed in this article are the author's own and do not necessarily reflect Al Jazeera America's editorial policy.

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