Facts unearthed by the Panama Papers leak

Published 14.04.2016 21:48

The unveiled scandals are the direct consequences of neoliberal policies introduced by Margaret Thatcher in the U.K. and Ronald Reagan in the U.S. in the early 1980s

The International Consortium of Investigative Journalists (ICIJ), which has recently leaked the Panama Papers, unveiled a similar scandal at the end of 2014. It seized and leaked 28,000 pages of confidential documents relating to international tax evasion in Luxemburg, disclosing the greatest tax fraud scandal of recent years. Indeed, the Panama Papers can be regarded as the continuation of the Luxemburg scandal. I think there are three basic dynamics lying behind the consecutive disclosure of these scandals. The first is the systemic crisis that broke out in the mid-1970s and that resorted to ultra-liberalism as a way out in the early 1980s; the second is the wave of financialization that emerged after 2008 and the third is the fact that "confidential information" is no longer possible in the current phase of technological developments.

In fact, these three dynamics and their revelations have set a very clear picture in front of us about what will happen from now on. First of all, the unveiled scandals are the direct consequences of neo-liberal policies that were introduced by Margaret Thatcher in the U.K. and Ronald Reagan in the U.S. in the early 1980s. This process was named "ultra-liberalism" in the U.K. and "supply-side economics" in the U.S. The unconscionable and irregular privatization process and the nation states' rapid abandonment of the economic area that started in the 1980s transferred a significant number of funds to the politicians and bureaucracy. These funds firstly moved toward "respected" hidden money and tax havens such as Switzerland and Luxemburg, and then accumulated in offshore centers such as Panama and the Cayman Islands.

The 2008 crisis intensified and accelerated this process as financialization. Economies that relied on traditional sectors and whose profits fell in the face of knowledge and technology-intense sectors highlighted the financialization in order to postpone the crisis and make up for the falling profit rates. Just before the 2008 crisis, the circulation value of products that can be defined as financial bubbles reached $600 trillion, which was 10 times more than the world gross domestic product (GDP). Interestingly enough, a very significant part of these assets were on the dollar basis. All kinds of tax evasion, criminal money, unrecorded arms trade resources and the ill-gotten gains of politicians accumulated in these centers. However, the problem was at the heart of the system, which was rapidly collapsing.

I think the Luxemburg scandal that came out into the open before the Panama leaks is much worse, as it also speaks to the political aspect of the European crisis. There was a total of 340 global companies cited in the 28,000 pages of confidential documents that were released by the ICIJ. These companies inflated profits in their Luxemburg-based units in financial means by transferring capital to them in an implicit way between 2002 and 2008, and evaded billions of euros in taxes by announcing their profits in other centers to be law.

Now, Germany is one of the countries that has taken center stage with the leak of the Panama Papers. We cannot regard the incident merely as the disclosure of offshore accounts, as what has been disclosed is the distortion in the core of the system. American economist Hyman Minsky, one of the most important representatives of the Keynesian tradition who passed away in 1996, introduced this whole story to the economic theory in his "Financial Instability Hypothesis." According to Minsky, financial systems evolve from a stable system toward an unstable one in the development phases of a capitalist economy. In other words, these structures switch from hedges (preserved and relatively small scales) to speculative (big but unsafe) scales during growth periods. However, these speculative scales turn into Ponzi-style structures that carry unsustainable high debts, risks and inflated values. As a Keynesian economist, Minsky suggests public intervention and regulations to overcome this problem.

Minsky turned out to be right in the 2008 crisis. During the pre-crisis period, the size of the mortgage sector reached 60 percent of national income and a significant part of it stemmed from Ponzi-style structures, as Minsky suggested. Large investment banks such as Goldman Sachs managed these structures. For instance, at that time, Goldman Sachs hid and distorted information about Abacus - a mortgage investment product that was highly likely to take a bath. In fact, there is nothing new, as this incident was somehow a reverse version of today's Panama scandal.

Well, do economic theories and policies not have an answer to all this decadence? Will we never discuss neo-liberal economists like Milton Friedman who tell a "perfect" narrative of everything that happens? It has been falsified that the economy can be managed with monetary measures and policies and that the state should not have a control mechanism. So, why are Friedman's theories still accepted as essential principles but Minsky's theses are ignored in developing countries? Do you not think that neo-liberalism has gone out of fashion? Therefore, Friedman's economic theory must be debunked as he was an economist who proposed coups for the sake of the neo-liberal understanding in developing countries and who served as an adviser to Chile's bloody-minded tyrant, General Augusto Pinochet. More importantly, it must be written in history that the essence of corruption is not in developing countries, but in developed ones, and corruption must be fought, starting with developed countries.

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