12
The Precarious State of Democratic Capitalism

HOW DO YOU SOLVE A PROBLEM that no one wants to solve? Or, to put it more accurately, a problem that few want to solve? Or, to put it more accurately still, a problem that few among the economic and political elite want to solve? Capitalism has adopted motivations and mechanisms that undermine democracy, concentrate wealth, drive inequality, and empower crime and corruption. Yet, grasp of these linkages and their combined impacts is painfully narrow, subdued, and avoided.

Explanations, illustrations, and outcomes surrounding capitalism’s financial secrecy system filled the preceding pages. Secrecy is treated not as a matter of guarding binary snippets of data but more broadly as the assembly and operation of a construct that organizes and propels an obscured motivation.

Understood thus, secrecy is less about the pure withholding of information and more about the production of a social order. . . . [W]hat becomes important to understand about the secret is less its hiding per se, and more the way in which it structures social relations, regulates communication, and distributes political power.¹

Secrecy contributes to separation, and separation contributes to social disintegration. Capitalism’s financial secrecy system has brought about a fundamental change from the way the world was viewed in the mid-twentieth century. Then, most saw the world as a north-south divide— democratic northern countries versus unstable southern countries. But the world is now more accurately viewed as a rich-poor divide, with economically privileged elites across the globe distancing from less fortunate masses of humanity. The ultimate product of a sense of economic segregation is a matching sense of social and political anomie, which characterizes the United States and many other countries today.

Within these pages I seek to frame issues affecting democratic capitalism with clarity. Modern-day motivations propelling capitalism inform the construction of this framework. Within this scaffolding, operative mechanisms are explained and outcomes elucidated. Understanding capitalism’s motivations and mechanisms developed in recent decades is a necessary step toward understanding how to change the system.

This approach differs from commentary surrounding neoliberalism, often taken to mean laissez-faire economics or preferences for free markets over government controls. Nothing in the pages of this book should imply opposition to the profit motive or support for anticorporatist sentiment. What is criticized here is the way capitalism is operating today, wholly unanticipated and unintended by earlier designers of and practitioners in the capitalist system. Neoliberalism is sometimes mistakenly credited with economic growth and poverty alleviation recorded in recent decades. The fact is, every aspect of both accomplishments would have been realized, indeed exceeded, without neoliberalism in place. In the absence of financial secrecy there would have been considerably more economic expansion and social equity. The shadow financial system is less about growth for all and more about moving money in a hidden manner, serving the dishonest, the corrupt, and the criminal.

Democracy has largely maintained its essential motivations since first adopted, however imperfectly implemented. But capitalism has veered away from its original motivations, now fundamentally altered. Capitalism for the last half century has been building and perfecting secrecy structures that allow the commanding heights of the system to function well beyond effective oversight by representatives of democracy. These structures, cleverly and proudly erected to create, move, and shelter trillions of dollars in income and wealth, have concentrated power into capitalism’s ranks, weakening democracy’s standing. If this continues, the democratic-capitalist system will not survive the twenty-first century. Authoritarianism beckons as the logical amalgamation of economic and political systems seeking to operate with neither transparency nor accountability.

Consider what has happened over recent decades since secrecy became the shared goal along with profits in the capitalist system:

Tens of millions of disguised corporations without known owners are established worldwide.

Secrecy jurisdictions have grown from 3 or 4 handling minor transactions to now more than 100 facilitating perhaps half of international trade and capital movements.

Multinational corporations, led by those headquartered in the United States, conduct hundreds of millions of transactions for goods and services in violation of laws against schemes to defraud and offenses against property.

Enablers design and participate in financial arrangements comprising dozens of opaque steps specifically intended to disable comprehension and escape scrutiny.

Transnational organized crime groups, using the financial secrecy system provided by capitalism, grow exponentially, successfully defying global efforts to curtail drug trading, human trafficking, environmental crimes, arms flows, and more.

Western financial institutions encourage, organize, and welcome trillions of dollars gushing out of developing and authoritarian states even as Western governments then criticize and sanction poor and despotic regimes.

Banks create and participate in schemes intentionally cheating their own customers out of billions of dollars through false dealings.

Economic inequality, narrowing between countries, is widening within most countries as income and wealth flow to those at the top, those able to profit from opportunities offered by secrecy structures.

Tax burdens worldwide shift from capital to labor as corporations and the wealthy seek ever greater accumulations and continuously weakening oversight.

Tens of trillions of dollars sit in accounts earning little interest, no interest, or negative interest as most of the world’s population yearns for greater productive investment and higher living standards.

When financial systems eventually collapse and when pandemics unexpectedly hit, a disproportionate burden falls immediately on the poor without savings.

Measures of freedom in the United States and scores of countries across the globe decline as faith in democracy decidedly wanes.

Capitalism buys the forbearance of democracy through legalized campaign contributions and sells the lure of democracy by exchanging citizenship for cash.

These are realities, not judgments, not speculations. None of this has arisen as the result of some giant conspiracy. It has arisen out of the motivation adopted within capitalism for secrecy, parallel in importance with profitability. Hiding money has become as material as making money.

The overarching purpose of secrecy mechanisms within capitalism is to drive money from the bottom to the top. Not a single element of the secrecy system is aimed at benefiting the poor. Extreme poverty viewed globally is already being reduced and could in fact be ended. But charity for the poorest is not the same thing as change for the whole. This book is about change.

Capitalism, taken as a current body of thought and practice, has no answer to widening inequality. Capitalism is making a mistake, offering something it cannot deliver, marketing shared prosperity but delivering inflated disparity. The truth is, we cannot reduce inequality via a system that is designed to produce inequality. Economic fairness does not exist within the machinations of the financial secrecy system, neither in fact nor in perception. A more equitable world cannot be realized while widespread secrecy pervades operations in one of the components of the democratic-capitalist equation, while the other component strives to operate with transparency. Secrecy and transparency are incompatible partners.

Capitalists themselves have not focused their attention on moderating the top of the economic scale, where money flowing through secrecy mechanisms comes to rest, giving the richest few more wealth than all the rest of humankind. Certainly some scholars and politicians seek means to lessen inequality, but this is pursued with scarce recognition among the wealthiest that lessening inequality is in fact necessary to preserving democracy. Are capitalists prepared to sacrifice any portion of wealth accumulation in order to enhance democracy? For some, the answer is no, readily accepting a diminution of democracy if needed to maximize and retain riches. Inequality undermines democracy, a price that a portion of the wealthiest are quite willing to pay.

Our chosen political system—democracy—will always need to hone its reach for justice, and shortcomings can be corrected within the democratic system’s refreshing ideologies. Shortcomings evident in capitalism cannot be corrected within the frame of current capitalist thought and practice. Capitalism is not introspective, not self-correcting. Minor adjustments perhaps, but not the fundamental realignment with principles and goals compatible with democracy that is necessary. The democratic-capitalist system as a whole requires both parts to contribute to freedom and prosperity for all. This is not happening now.

Capitalism has become competitive with democracy, indeed suborning democracy, seeking to subordinate the influence of its counterpart. Instead of cooperative systems, mutually reinforcing, these have become confrontive systems, and democracy is losing. Capitalism has transformed from a force focusing primarily on economic progress to a force equally bent on political control. Capitalism has acquired enormous powers over democracy, and these powers are corrupting. Capitalism has bought democracy, paid for the concessions that give it dominion over democracy, making democracy a commodity that can literally be sold on the market. Capitalism, claiming that it is overregulated, is in fact running out of control. Nothing so clearly illustrates the triumph of capitalism over democracy as the massive structures that have enabled multinational corporations to operate for decades effectively beyond the rule of law. We are witnessing a separation between our two central ideologies, once linked but now engaged in conflict. Repeated blows could produce mutual destruction. Declining faith in democracy lies within the failings of capitalism. Steer capitalism toward equity or risk losing liberty. With declining democracy, nothing prevents capitalism’s drift toward an alignment with authoritarianism.

Law enforcement has failed to curtail excesses of capitalism and explosions of crime powered by the financial secrecy system. The reason is fundamental: you cannot regulate a secret system. You cannot regulate what you cannot see. Attempts to do so belie logic. And attempts to do so are inevitably compromised by inadequate and porous legislation. In this arena, the vital role of law enforcement is playing whack-a-mole. You hit it in one place, and it pops up in several more places. For decades, law enforcement going one-on-one against selected miscreants has failed to curtail the magnitude of drug trading, human trafficking, resource theft, illegal logging, unregulated fishing, arms trafficking, counterfeiting, money laundering, tax evasion, and more, activities moving trillions upon trillions of dollars. There are not enough law enforcement agents to compete effectively with an entire system designed to function beyond the oversight of law enforcement. Instead, the secrecy structure must be eliminated before law enforcement and regulatory efforts have a real chance to succeed.

Can anything that is politically acceptable be done? Capitalists themselves will not dismantle the secrecy structures that make them wealthy. This has to be done by elected legislators, influenced by the votes and demands of citizens. There is an approach that, executed with purpose and courage, will work: transparency and accountability. Deconstruct secrecy. Require accountability. Enact systemic change around transparency and accountability. Instill into our shared world a capitalist system steeped in transparency and accountability, and we can look forward to the democratic-capitalist system building shared prosperity and freedom likely for ages to come.

Can the shattering crises occurring in this decade be marshaled in meaningful efforts to recast democratic capitalism for the twenty-first century? Let us hope, as chapter 13 addresses.