As mentioned in my previous post, this article is about Pandora Papers. The voices that surround the papers are many, so I can only cover a fraction of the problem. As such, I will focus on the reasons why the Pandora Papers matter, and less on the papers themselves.
Pandora Papers?
The Pandora Papers refer to the 11.9 million leaked documents that expose the offshore accounts of over 100 billionaires. The International Consortium of Investigative Journalists (ICIJ) published the 2.9 on October 3rd, 2021 (ICIJ, 2021). Among the accounts, a portion of them belonged to 35 world leaders such as prime ministers, heads of state, and current and former presidents. In fact, ICIJ’s analysis identified 956 companies in tax havens with ties to high-level politicians and public officials.
The leak has caused worldwide uproar as politicians have scrambled to attempt to address the situation. In the EU, Members of the European Parliament have denounced EU governments for their outdated tax laws (Schranz, 2021). Meanwhile, others like King Abdullah II of Jordan and Kenyan President Uhuru Kenyatta have denied any wrongdoing (Gotev, 2021). In truth, tax avoidance, also known as base erosion and profit shifting (BEPS) (OECD, 2019), is not illegal, but it is problematic.
To understand why tax avoidance by public officials is an issue, I will talk about privacy, and moral economy. After this, I will circle back to the Pandora Papers to talk about inequality and connectivity. To begin with, however, I must acknowledge that privacy and moral economy are topics have a long history of meanings. As such, I will clarify these topics within the context of taxation – beginning with the concept of moral economy.
Moral Economy
Moral economy stems from debates about the market in the eighteenth century but has evolved with the concerns about the ethics of economic life. Thus, the concept has evolved hand-in-hand with capitalism. This makes it as situated and varied as capitalist practices, and reflects the many anxieties related to the market and its expansion. Similarly, debates about the moral economy have been exacerbated by our current economic instability, the pandemic, and climate change (Adelman, 2020).
This means that the meaning of moral economy cannot be solidly defined. What we can do, is relate it to the moral dimensions of an economic activity. This way, morality is not used as a concept which is apart from economy, but one which inextricably linked to it (Carrier, 2018). This connection indicates that moral economy is a part of our social contract. It is something that you do when you engage with the world. The moral economy is part of patterns of reciprocity, obligation, and co-operation, and it changes with time and the degrees and types of relationships we have.
Moral economy is also connected to taxes because, as the IMF points out, taxes are how governments raise revenue to finance goods and services for the population (Tanzi & Zee, 2001). As such, tax avoidance directly impacts the quality and accessibility of government-funded goods and services. This impact is more prominent for countries in the Global South because of the financial limitations already faced by the governments of these countries. This, in turn, creates a vicious cycle where these nations continue to rely on aid and government borrowing to be able to provide services for their population. However, because funding is failing for these systems, people increasingly rely on private corporations for these services – creating further shortages in the local welfare system. As such, the local moral economy is linked to the development of a nation. However, we can also find links to the privacy of its government officials.
Before I talk about privacy though, I will explain what the social contract is. This way, I will have a basis for the limitations of privacy. These limitations are important to keep in mind precisely because we are part of a social contract.
The Social Contract
The idea of a social contract had long been debated by the 18th century (D’Agostino, Gaus, & Thrasher, 2021). However, it was in 1762 that philosopher Jean-Jacques Rousseau gave birth to the contractual model that we most commonly use today. Rousseau theorized about the best way to establish a community in an unequal society (2002). This led to the idea of the Social Contract, an unspoken contract where people give up some of their rights for the betterment of society. Importantly, this meant the giving away of the same rights and the imposition of the same duties. A good example of this is taxes.
With taxes we are all expected to give away a percentage of our income to the government. This percentage relates to the amount of money we make, so people with lesser income should—in theory—give a smaller percentage of their income. Meanwhile, those who make a lot of money, should—again, theoretically—give more money because it will not impact their well-being. In exchange, the government creates and runs public goods and services. Typically, these services include a healthcare system, safety nets for unemployment, and schooling for children and adults.
Since the inception of this idea, the social contract has been widely debated. Nevertheless, academics in the social science often use it describe state-society relations because of its ability to make these interactions more predictable. Social scientists assert that this predictability is good because it means that politics and social benefits are more stable (Loewe, Zintl, & Houdret, 2021). In other words, when the social contract model works as expected, it is a sign of a good moral economy. This is because moral economy is an integral part of our social interactions as citizens of whichever country we live in. Thus, a good moral economy means that social benefits (the welfare system), and political participation (democracy) work for the benefit of the citizenry.
Privacy
Yet, the question remains: how do the social contract and moral economy relate to privacy? I am addressing privacy here for two main reasons. First, the information of the accounts leaked in the Pandora Papers was private. Further, it was information with the specific intent of keeping economic transactions away from public knowledge. This is even though the offshore taxation system is not illegal. As such, despite the public uproar, many of the accounts, trusts, and shell companies exposed do not have legal repercussions for their holders. This leads me to the second reason why addressing privacy is important when talking about the Pandora Papers: financial disclosure.
In short, financial disclosure is a system where public officials are required by law to disclose information about their assets and business activities (The World Bank, 2021). These disclosures make it possible to detect wealth variations and illicit activities. They also serve to detect potential conflicts of interest and are meant to keep public officials accountable. In turn, this increases public trust in governmental institutions. This means that part of becoming a government official is giving away some rights to balance the additional power you gain. This power might be access to sensitive information or the ability to influence laws.
Of course, there are loopholes in this system. For one, while it is being increasingly used as a provision against corruption, not every country has these laws. Additionally, while public officials might be expected to disclose financial information – people close to them might not. Sometimes the scope of the laws means that they are applied more as a suggestion than a regulation. Yet other times they are simply ignored.
Regardless of the state of financial disclosure laws, however, this giving away of privacy has become an expectation from government officials by citizens in many countries. This is because it has long been touted by intergovernmental organisations as a required tool against corruption to the point that it has become a part of presidential campaigns (ICIJ, 2021). Thus, even in countries where financial disclosure laws are not enacted, they are often expected by the citizenry. Further, people in poor countries can feel betrayed when they struggle to survive while their officials store away fortunes.
Equality and Community
The simple truth is that when you become part of a community, you are expected to give away some of your rights to create a more equal environment. This is part of the unspoken social contract that goes into forming a nation-state. For example, if you consider yourself a communist but live in a capitalist country, you cannot simply opt out of capitalism. You can enact your ideology in the limited ways in which capitalism allows you because you are part of a capitalist society. However, you cannot abstract yourself from capitalist interactions if you want to be part of the society of the country you live in. Similarly with privacy, while we expect some privacy in our interactions – we know that our privacy is limited. This is typical of authoritarian regimes, but even in democratic regimes our interactions can be closely monitored (Taylor, 2020).
This has led to problems where it comes to the exercising of rights considered to be fundamental. That is, rights such as privacy and autonomy are not extending across borders – be it physical or digital (Taylor, 2017). Yet, not everyone is treated equally in the human rights terrain. While some people must contest their digital privacy rights, sometimes the powerful acquire additional rights or exercise their rights in a problematic manner. A typical example of this are digital workers.
Digital Workers
While today’s connectivity has further empowered some, it has created a space of fierce competition and disempowerment for digital workers. As Graham, Hjorth, and Lehdonvirta note, this is particularly the case for workers in the Global South (2009). This stems from a “pronounced lack of bargaining power” (p. 275) as digital workers must compete with increasingly lowering rates to be able to find work. Further, the disembeddedness of the digital job market means that digital workers do not have local norms or moral economies to regulate their employment.
This is much like the disembeddedness of trust funds or shell corporations found in the Pandora Papers. Where, because of a lack of local regulation, the powerful do not have to rely on laws or moral economies because of the privileged status. However, this impacts people of lower economic resources negatively because they do not have the economic means utilize their lack of labour situatedness to their advantage. Additionally, because the ownership and control of digital labour platforms is often performed outside the purview of governments – wages, worker protections, and taxes are treated as an option rather than a requirement. Thus, value chain structures continue favouring the rich in the digital market. This is also evident when analysing BEPS and its impact on the development of aid-dependent countries.
BEPS and Development
The Pandora Papers demonstrate how society does not apply laws and regulations equally. However, this is explicitly problematic when it comes to tax evasion and government officials. As I have already mentioned, citizens have come to expect transparency from their government officials. Yet, they are not the only ones. For one, aid providers also expect transparency when they choose to donate to a specific country. Interestingly, while this accountability sometimes has a negative impact on aid recipients (Enghel & Noske- Turner, 2018), the Pandora Papers have shown that accountability is not equally spread. We can take Jordan as an example of these unequal expectations.
On one hand, Jordan is an aid-dependent country (Hailat & Magableh, 2018). Aid from the U.S. alone has quadrupled over the last 15 years with a total bilateral aid amounting to approximately $22 billion dollars (Sharp, 2021). Additionally, the COVID-19 pandemic has created an unemployment rate of over 25%, and there is a projected 2.89 billion budget deficit for 2021. On the other hand, the Pandora Papers exposed information on Jordan’s monarch, King Abdullah II, and his purchase of 14 luxury homes worth more than $106 million (ICIJ, 2021). He has also set up over 36 shell companies to shift his assets out of Jordan and to keep his fortune hidden from the public eye. Therefore, while Jordan has increased its debt with the world, its monarch has amassed a sizeable fortune and moved it to offshore tax havens.
Further, because of the Pandora Papers we can see similar situations in Lebanon, the Czech Republic, Guatemala, and Nigeria, to name a few countries. This is even though organisations like the OECD have demonstrated that “BEPS practices cost countries 100-240 billion USD in lost revenue annually” (OECD, 2021). A loss of revenue that disproportionately affects countries in the Global South (ICIJ, 2021).
Conclusion
“National legal systems thus have become items on an international menu of options from which asset holders choose the laws by which they wish to be governed. … Assuming a new legal identity in this way, the privileged few can decide how much to pay in taxes, and which regulations to endure.” (Pistor, 2021)
In 2018 the Bahamas enacted a new that required companies and some trusts to declare their real owners to a government registry (ICIJ, 2021). This meant that millions of dollars moved from the Caribbean Island to American states like South Dakota. Indeed, the U.S. has become one of the biggest countries in the offshore world, thanks in part to its outsized role in the international banking system.
Now, because of the Pandora Papers, American lawmakers are proposing a new legislation. This legislation aims to require lawyers and trust companies to investigate foreign clients seeking to use the American financial system to shift money and assets (Fitzgibon, 2021). Other countries are planning to adopt similar legislations – whether by updating their internal tax laws to clamp down on tax avoidance or by making it harder to use the existing systems to launder money (Woodman, Alecci, & Medina, 2021). However, there is a high chance that this will only result in the powerful moving their money to new offshore havens. This is because of the loopholes in the laws of many countries that allow certain people to legally avoid paying taxes.
Additionally, in the world of data capitalism, it can be difficult for law-makers to vote on laws that directly impact their country’s economy. After all, when money makes such a difference in the well-being of a country, it is easy for ethics to go out the window. Thus, no one person can provide a solution. However, I believe that by addressing the problematics of tax evasion, we can begin to collectively envision new ways to address the reasons for tax evasion. In this sense, this article is another voice of the many that have arisen since October 3rd, 2021. This is with the hope that together we can address the systemic empowerment of those who repeatedly abuse the system for their own gain.
Works Cited
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