Stuffed Under Panamanian Mattresses



The news of the week is the Panama Papers, the world’s largest cache of meaningfully leaked documents. I’ve been trying to process the scale and meaning of this story, and perhaps like you I’ve found myself initially a bit overwhelmed.

The world’s wealthiest people have stashed tens of trillions of dollars — more than the sovereign debt of the most powerful nation on the planet — under a mattress of Pretty Much Entirely Legal offshore shell companies.

While most of the press have focused on the Who — World leaders! Criminals! Celebrities! — and their possible involvement in Tax Evasion! Corruption! Money Laundering! — I’m still stuck on the central framing questions of What and Why.

What is really going on here? And Why is it happening?

Well, to me the What is this: Our economic system rewards capital extraction above all else. When we canonized “maximization of shareholder value” as our true north 30 or so years ago, we set the extraction of capital from our economic system as our ultimate goal. (Rana Foroohar has written an excellent book about this trend, also called financialization). This applied to companies, of course, but also to those with wealth and means. If you have life changing wealth, you were a fool if you didn’t corporatize it: To preserve and grow your wealth, you must act like a corporation — in fact, you were encouraged to create an uber corporation, one that maximized value for you, the sole shareholder. To do so, you called a firm like Mossack Fonseca, which turned you and your holdings into a shell corporation capable of extracting the most possible value for its shareholders, which, of course, would be you. By our current social norms, this is not reprehensible, it is encouraged.

That is what is going on here.

The Why then follows: The Panama Papers are extraordinary because they lay bare the workings of this prevalent economic system: We’ve enfranchised it, and it’s working exactly as it’s supposed to work. Perhaps the most flummoxing fact of the Panama Papers is this: The equivalent of the United States’ national debt is hidden under the mattresses of the world’s wealthiest people because it’s exactly what should happen, given the incentives of our current economic system.

So this is not a surprise. Instead, the Panama Papers are a mirror —here we are, staring at ourselves. What we do next will be one of the greatest stories of our age.

Read my latest column for NewCo Shift, Tech Is Over.

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