The Panama Papers – What Happens When Corruption Is Systemic

by Joe Brewer; originally published on The Rules.

An historic release of information came out in the Panama Papers showing exactly who, how, and when a vast network of people stole and hoarded money. Our minds easily grok the realities of Vladimir Putin embezzling a billion dollars through offshore accounts or the Prime Minister of Iceland stealing cash from public coffers. Where we fail more easily is visualizing the system of shell companies, accounting tools, trade regimes, tax havens, and legislative changes that make up the system of wealth extraction all of these individuals are using in collaboration with their partners in crime.

As the media is quite likely to frame the Panama Papers as a few bad apples using legal financial instruments, I would like to offer an alternative that keeps our mental eye on the ball. What really matters is the architecture of wealth extraction that has been systematically built up in every country around the world. I use the word ‘architecture’ intentionally here for two reasons: (1) to remind us that there were architects who intentionally created this exploitative system (it did not arise naturally or by accident); and (2) the purpose of this system was to hoard as much wealth as possible in the hands of a tiny elite.

“What really matters is the architecture of wealth extraction that has been systematically built up in every country around the world… The purpose of this system was to hoard as much wealth as possible in the hands of a tiny elite.”

This is what my colleagues at The Rules have been calling the Story of Poverty Creation when we write about the unnamed development agenda that goes by the name of economic growth. Ask yourself the question “What really grows, when we grow the economy?” and ponder how it is that three years ago there were 300 people who had the same aggregate wealth as 3 billion. Today it is even worse — 62 individuals have the same total wealth as 3,700,000,000.

We are fools to think this happened by accident. There was a long history of colonialism and slavery that gave certain Western nations a huge amount of wealth that has since been used to rig global institutions like the International Monetary Fund and the World Bank in a manner that keeps this historic trend going strong. In the mid-20th Century it was the banana republics, where US corporations benefited from the displacement of democratic leaders with despotic dictators throughout Latin America (with help from a network of financiers and government aid). The decades that followed saw the rise of “free trade” zones and “structural adjustment” programs that guaranteed a one-way transfer of wealth from poor countries to the pockets of the extreme rich in wealthy countries (while ignoring the colonial period that set up this economic advantage in the first place).

Lest we forget this recent history — or more egregiously, that many of us never learned it in our corporate-influenced public school programs — the pattern continues now in the form of the Trans-Pacific Partnership and the newly minted Sustainable Development Goals of the United Nations that fail to acknowledge the existence of this vast architecture of wealth extraction.

Our ignorance of the past is what keeps us from seeing that “progress” in the current economic paradigm is nothing more than the spread of a cancerous parasite through the body politick that threatens to take down our entire global economy. Inequality, it turns out, is about much more than social justice. It is a measure of social health and well-being that tells us how likely it is for a violent rebellion, the rise of militant extremism, emergence of a fear-mongering dictator, or civil war.

So as you read about the Panama Papers, I merely want to remind you to think about the corruption systemically. For this is the only way to see how we can begin the work of systematically dismantling it. Getting rid of a few bad apples will only perpetuate the Gospel of Greed that these individuals serve using the tools of corporate charters, trade agreements, accounting systems, and so forth.

Luckily, there is a solution to this mess — and it comes out of research in evolutionary game theory. When corrupt individuals get away with their bad deeds without being punished, this encourages other greedy people to go along with this new social norm (and for those who might prefer to cooperate who now feel the need to compete in the rigged system). A runaway pattern ensues whereby many people “defect” from being good citizens and the corruption becomes systemic. The way to deal with this situation is simply to add punishment as the ‘countervailing system’ and the defections will soon come to a halt in the context of the pro-social norms of cooperation that are now enforced by society.

A truism of the human condition is that we are quick to anger when we feel cheated by another. This social morality is quite natural and has a long history in our evolutionary past. Let us use this moral compass now to guide us through the changes that must come — changes to the rules that structure our economic and political systems for wealth extraction and hoarding — so that our societies become more healthy, more functional, less corrupt, and better able to serve all of us living together on this densely populated planet we call home.

Onward, fellow humans.