Garvan Walshe was national and international security policy adviser to the Conservative Party until 2008.
I count among my friends more than one member of the Fonseca family, half of the now infamous Mossack-Fonseca law practice. Their profession, hiding the money of the rich from the world’s tax gatherers, will never be the world’s most honourable. In our starkly puritan age, it is deeply unfashionable. But as the populist anger this disclosure provokes raises demands not for transparency, but for confiscation, it will become necessary, lest economic incentives for free enterprise be snuffed out.
The capitalist system suffers from two ineradicable flaws: the great inequality of its rewards and the impossibility of subjecting it to detailed regulation. In good times, corners are cut, frauds perpetrated and whistleblowers ignored. Amid the general prosperity, infractions, frequently seen as victimless crimes, are overlooked. In the bad times, when people, almost always the poor, though sometimes also the unlucky, suffer, investigations are held and perpetrators are identified, and those identified as rich and fortunate vilified.
It galls us that the people who benefited from the system are best placed to protect themselves in a down turn. The sheer obscenity provokes demands for justice and stimulates opportunists, from John Mann to Donald Trump, to identify scapegoats.
The demand for retribution, in this as in ordinary crime or after the MP’s expenses scandal, gets out of hand. Imposing huge fines on banks leaves them less money to lend to people and businesses and to protect against a future crash; just as keeping MP’s pay down deters qualified candidates from seeking election, or raising taxes on the rich often yields less revenue by deterring the useful economic activity they would otherwise perform.
If this Panama scandal is used to strengthen transparency, and make it more difficult for kleptocrats to hide their people’s money, or for venal officials to disguise their bribes, it will have served some purpose. But its effect on the biggest criminals will just be to slightly increase the cost of salting ill-gotten gains away. In a world economy that depends on global trade, it is just too easy to hide even vast sums of money in ordinary, legitimate transactions, by overpaying for services and siphoning off the surplus. Did those renovations, with that infinity pool installed, really cost $12 million, or should a fair price have been $10 million? Are you quite sure those consultancy services were charged at reasonable rates? The art market, where valuation is entirely subjective, offers the launderer a limitless prospect.
But I fear these leaks are far more likely to give another boost to tax puritanism, which is always popular on the left and with the Treasury. The state has an excessive sense of entitlement to its people’s money. Where One Nation conservatives see taxation as a necessary evil, needed to fund important government services, they see it as a good in itself.
In fact this part of politics is just a contest for resources. The poor and their allies quite naturally want to grab the wealth of the rich and distribute it more equally. This has considerably more moral justification that we often care to admit: what economists call the “market outcomes” are flagrantly unfair, and may well be getting more so thanks to new technology and globalisation. If we have any sense that we’re part of the same society we should recognise a strong moral case for considerable economic redistribution.
But that doesn’t mean that any scheme proposed in the name of “the many, not the few” gains by dint of superior numbers exclusive moral authority. To move from “the poor need the money more than the rich, so the rich ought to part with some of theirs” to “the rich are not entitled to their money because the poor need it” is to convert civilised redistribution into confiscation.
It’s a move that John McDonnell has made, and though the chances of McDonnell himself wielding power are few, the chances of such “McDonnellism” gaining ground are a lot greater. If it does – and the astonishing success of even a mediocre politician like Bernie Sanders suggests it strikes a chord – it will drain from our economy the incentives to work hard and start new businesses. We may find in time that the work of Mossak-Fonseca or their successors will again be needed to preserve the spirit of free enterprise, by assisting in civil disobedience against a confiscatory tax system.