Can the power of shame keep the ultrawealthy in check?
 | By John Guida Senior Staff Editor, Opinion |
The latest revelations come in the Pandora Papers, which follow, in previous years, the Panama and Paradise Papers. Brooke Harrington, a sociology professor at Dartmouth and the author of "Capital Without Borders: Wealth Managers and the One Percent," does not think the expected fix — new laws — would work very well. They would come up against too much money. |
In a guest essay, Harrington suggests that potential damage to wealthy people's reputation and status could deter them from hiding their vast wealth — which in turn relies on more whistle-blowers to make more of the financial machinery transparent. |
In a conversation with me, Harrington expanded on her argument and on the world of offshore financial services. |
John Guida: As part of your research, you earned certification as a wealth manager and met with practitioners around the world. How did that experience inform your guest essay? |
Brooke Harrington: It would probably surprise people how much the ultrawealthy care about their good names. You'd think that one of the privileges of great wealth would be laughing all the way to the bank if anyone mocked or disparaged you. But as I've found out from talking to practicing wealth managers, elites are, if anything, more sensitive than the average person about their reputations. For example, many high-net-worth individuals employ specialists simply to keep their name off the Forbes rich list. |
Recent research from Britain suggests that for high net-worth individuals, the threat of publishing their names in a news source is a far more effective curb on tax violations than fines or prosecutions. It's really a sociological approach to the problem, because it targets social status and social identity; those are genuine vulnerabilities and points of leverage with elites. That's really good news for those who want change, because that strategy is not only more effective but also less costly than the legal and financial sanctions that have so often failed in the past. |
JG: What other material would you recommend for readers curious about how we ended up with the world of the Pandora Papers? |
BH: I trace some of this history in my book "Capital Without Borders," which came out just following the Panama Papers, and in a research paper I published just afterward, linking the development of offshore to the invention of the trust as a tax dodge in Medieval England. Though people often think "shell corporation" when they hear about offshore money, the Pandora Papers really bring out how essential trusts remain, even after 700 years. The anthropologist Bill Maurer has published fascinating work on the offshore financial industry, as has the political economist Ronen Palan. More recently, the historian Vanessa Ogle published a great paper documenting how the offshore system rose from the ashes of the British Empire. |
JG: Your guest essay suggests that legal reform will be very difficult. But if you had to recommend one law that might make a difference — something that's been debated, like a wealth tax, or something new — what would it be? |
BH: This is where the work of economists like Gabriel Zucman, Annette Alstadsaeter, Niels Johannesen and Alex Cobham has been particularly helpful. We have all been invited — often together — to advise national governments as well as multinational bodies like the O.E.C.D. and the World Bank. From crossing paths like that, I learned that a common theme in our work is the need to limit destructive levels of inequality. We all arrived at the same conclusion as America's founders, who saw taxation to curtail large fortunes as necessary to the preservation of democracy. Thomas Paine argued that inheritance tax should be 100 percent. |
But upstream of those tax policy goals is the problem of secrecy: You can tax only the legal owner of wealth, who is not necessarily the person who enjoys the use of that wealth. Trusts split legal and beneficial ownership, so a trustee in Cayman can own your chateau in France; meaning that even if you're the one actually living in the chateau, you're not legally responsible for it. Offshore builds on that strategic ambiguity, purposefully making it difficult to collect tax or debts. Laws that require registration of the true beneficial ownership of assets would be helpful in solving that problem. |
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