THE Pandora Papers’ revelations raise questions about the international financial structure and its implications for global equality. The discourse on corruption aside, the Papers reveal how the global economy is designed in a way that allows the wealthy to evade taxes and hide their wealth in tax havens and offshore companies abroad. The inequity inherent in the global economy is what we need to scrutinise.

The origins of this structural inequity lie in the transformation the global economy has undergone since World War II. Prior to the 1970s, the global financial economy was governed by the Bretton Woods paradigm — a system of agreements that pegged global currencies to gold and ensured tight capital regulation. Following the stagflation shocks of the 1970s, the global economy shifted towards deregulation and what economist Michael Hudson calls the “neoliberal financialisation of the economy”.

The revelations show how the economy promotes inequality.

This turn towards neoliberal principles envisioned a global economy characterised by the free and open flow of capital and almost non-existent regulation of capital flows. Under the IMF’s structural adjustment programmes, developing countries such as Pakistan and the Asian Tigers were forced to adopt this system of deregulation and open capital markets, one that encouraged little governmental oversight on the funds entering or leaving countries. This also resulted in the financial economy gaining in significance vis-à-vis the ‘real’ sectors of the economy, and gave birth to, for instance, the flow of ‘hot money’ and the intermittent economic crises we witness in the global economy today.

The Pandora Papers and the siphoning away of wealth lie at the heart of this neoliberal structure. For as countries reduced regulation and accountability mechanisms — in the guise of upholding the ‘free market’ — tycoons globally were able to transfer their wealth and capital to offshore holdings. The ease with which these transactions occurred stem from the lack of accountability and oversight in the system that was created. Eventually, this flow of capital became a mechanism to hide substantial amounts of wealth — often ill-begotten — into offshore accounts. A Washington Post report estimates that as many as $11.2 trillion are held in offshore and tax-free accounts.

The Pandora Papers thus give us excellent insight into how the financial economy promotes economic inequity. While perusing the fallout from these revelations, therefore, we must strongly appreciate how the very system that our economies and we as individuals operate in is geared towards not only protecting, but perpetuating global inequality. The changes the global system has undergone which allow for these transactions have, meanwhile, been born of a concerted intellectual movement that advocates deregulation and the dominance of the free market over state interference.

The global neoliberal financial economy carries other reverberations besides the existence of offshore companies. First — and the Pandora Papers are a glaring example of this — it shifts money away from the collective pool of society (the national tax net) to huge individual wealth which remains sheltered from this tax net. This results in the ‘hollowing out’ of the state, as neoliberal tenets propound, with states failing to provide essential services such as social security, education and health on account of falling revenues. The collapsing social security system in Europe and America, along with declining education and health budgets all over the world are prime examples.

In most cases, public institutions providing these services are privatised under notions of ‘best practices’ often because their rising deficits are seen as indicators of inefficiency. In reality, this debilitation stems from a concerted effort to shift money from public to individual control, thus compromising the ability of the state to uphold its end of the social contract.

Another fallout from the global neoliberal regime is the increased susceptibility of economies to financial crises. The 1997-98 Asian financial crisis, the collapse of the Russian currency post-1991 and the 2007 recession are all products of a neoliberal financial structure that exposes economies to the whims of capital and hot money on account of the deregulation it espouses. All this further engenders inequality and diminishes the capacity of the state to mitigate it.

There thus remains a lot to unpack in the aftermath of the Pandora Papers. Any analysis of the revelations, however, must begin by thoroughly scrutinising and indicting a global structure that is geared towards perpetuating inequality and promoting the interests of the few over the many. Only then can we move towards envisioning an alternative and better future.

The writer is a civil servant and studied at Cornell University and at the University of Oxford.

Published in Dawn, October 23rd, 2021