Читать книгу The Finance Curse - Nicholas Shaxson - Страница 7

In the early 1990s I was the correspondent for Reuters and the Financial Times in mineral-rich Angola in west Africa, which was then supplying more than 5 percent of all US oil imports and which the United Nations reckoned was suffering the world’s worst civil war. Angola was, on paper, one of Africa’s wealthiest countries, but on standard measures of human development it was almost the poorest. As UNITA rebels rampaged across the countryside, digging up diamonds to pay for their war machine, I flew into besieged cities in the interior in corkscrew dives to avoid antiaircraft fire, to try to make sense of what was going on. In the government-held capital of Luanda I remember the sight of upside-down legs kicking and wriggling from the tops of stinking hot garbage Dumpsters, as scab-encrusted war orphans in diesel-soaked clothes dived for food and other treasures discarded by the beneficiaries of the oil wealth. These kids, some of whom slept at night in sewers to hide from robbers and the police, would surround me on street corners, tickling my elbows, wheedling for cash, crooning “Amigo! Amigo!” to try to establish a friendship with the white man. Often, though, they used two different words: “Chefe!” or “Patrão!” the Portuguese words for “boss” or “patron.” This would, they reasoned, oblige me to fulfill my assigned role and look after them as my loyal underlings. Most days, I’d donate something to Kwanza and the boys, six or seven cheerful rascals who lived on my hotel’s street corner, and they defended me fiercely against all comers. Sometimes, I felt as if they would have fought to the death to protect me.

These kinds of relationships were woven into the country’s economic and political tapestry, especially in the hierarchy of political power, where the rich and influential handed out goodies to their underlings in exchange for their support. At the time, oil and diamonds made up more than 99 percent of Angola’s exports, and it was quickly obvious to me that economic theories about supply and demand and interest rates that were being taught in Western schools made no sense here. To begin to understand an economy so extremely dependent on minerals, it helps to picture it as a swollen river, which fans out into a widening delta system of ever more numerous rivulets. Flotillas of boats loaded with treasure—meaning the oil wealth, in Angola’s case—glide downstream, and gatekeepers extract tolls from the passing boats. The big diversions occur far upstream, and as the river flows onward and splits and branches, there is steadily less to go around. These street children lived out at the furthest end of the river delta, where all that was left for them lay at the bottom of a bug-infested dumpster.

Every Western visitor to Angola had a version of the same question: How could the people of a country with such vast mineral wealth be so shockingly destitute? War and corruption were part of the answer, of course. A venal leadership in Luanda was stealing the oil money, eating lobster and drinking champagne on Luanda’s beaches, while its ragged and malnourished compatriots slaughtered each other out in the dusty provinces. But something else was going on too. I didn’t know it then, but I was getting a frontline view of a grand new thesis that academics were just starting to put together, now known as the “resource curse.”

Many countries dependent on income from natural resources tend to grow more slowly and suffer more corruption, greater conflict, more authoritarian politics, steeper inequality, and greater poverty than their resource-poor peers. It’s not just that powerful crooks steal the nations’ mineral bounty and stash it offshore, though that is also true. The big point is that all this money flowing from natural resources such as oil can make their populations even worse off than if those riches had never been discovered. In short, more money can make a country poorer. That’s why the resource curse is also sometimes known as the “paradox of poverty from plenty.” The curse affects different countries in different ways; some countries, like Norway, have apparently benefited from their minerals, but few in war-ravaged Angola back in the early 1990s doubted that the minerals were a curse.

As I was writing about the destitution and the bloody carnage in Angola, John Christensen, the official economic adviser to the British tax haven of Jersey, was reading my articles and noticing some weird parallels with what was happening at home. “I was fascinated by this counterintuitive concept that too much oil and gas wealth could make you poorer,” he recalled. Jersey, which was dominated not by oil but by a swollen offshore financial industry based on secrecy and low- or zero-tax facilities, was suffering some of the same symptoms. “The more I read about it, the more I thought, ‘But this is Jersey!’” he said. And he understood a bigger point: it wasn’t just finance-dependent Jersey that was suffering something akin to Angola’s resource curse. Other countries whose financial sector had grown too dominant—such as Britain and the United States—were exhibiting some of these same symptoms. Christensen had by then left Jersey, horrified by the venality and corruption he had witnessed in this little British tax haven, and set up the Tax Justice Network, an organization dedicated to understanding and fighting against offshore finance.

We met in 2006 and began to discuss the similarities between oil-rich countries and finance-dominated ones. We resolved to work together to create a new analysis, which we began to call the “finance curse.”

The nations of Africa’s oil-soaked western coastline provide a good starting point for understanding the finance curse. Traveling extensively in those regions between 1993 and 2007, I watched the oil sector pump up some parts of their economies and drain life out of others. For one thing, high-salaried oil jobs were sucking the best-educated and most talented people out of industry, agriculture, government, civil society, and the media, damaging them all. Something similar has happened in the United States. Back in the 1960s and early 1970s, bankers didn’t earn that much more than teachers or doctors. Then, around the 1970s, this ratio began to rise. By 1990, the average financial sector worker earned three times as much as the average American, a ratio that hasn’t fallen despite the global financial crisis.¹ And that’s just the average worker in finance; the top players earn hundreds of times more.

Now “finance literally bids rocket scientists away from the satellite industry,” wrote the authors of a study by the Bank for International Settlements on the impact that the rise of finance has had on economic growth. “The result is that people who might have become scientists, who in another age dreamt of curing cancer or flying people to Mars, today dream of becoming hedge fund managers.”² As we’ll soon see, America contains many experts in corporate strategy, whose talents lie in reengineering and fixing up failing firms and making them sing again. Yet many if not most of these experts have been sucked into the private equity sector, where they are incentivized to engage not in productive corporate reengineering but in damaging financial engineering that sucks out maximum profits from these firms at the cost of long-term viability. The financial brain drain out of politics and into highly paid finance is also a big reason we have so many mediocre politicians: many excellent candidates have been diverted into banks and hedge funds, their talents washed away by a deluge of money.

In Angola, those clever people who did stay in government soon lost interest in the difficult challenges of national development, and politics became a corrupting, conflict-ridden game of jostling to get access to the flow of oil money. Wall Street has achieved something similar in the United States. Whole swathes of the political classes have turned their attention away from the tough slog of fostering a stronger manufacturing sector or creating a level playing field to allow local media to flourish and prevent its wholesale capture by the billionaire class. Now our politicians are enraptured by the power and wealth and business models of the likes of Citigroup, Goldman Sachs, private equity firms, and hedge funds, which have very different agendas. Big money has captured policy making, and finance has played a central role. With this great shift of political focus, balanced national development has taken a second hit.

The cascading inflows of oil wealth in Angola also raised the local price of goods and services, from housing to ham sandwiches to haircuts, in a “Dutch Disease,” a phenomenon named after the economic dislocation that hit the Netherlands after it made large gas discoveries in the 1960s. This high-price environment caused a third wave of destruction to local industry and agriculture, which found it ever harder to compete with cheaper imported goods. Likewise, large inflows of money into Wall Street and into real estate markets from overseas can raise local price levels, making it harder for many local businesses to compete with foreign firms.³

As if all this were not enough, these curses of resources or finance produce a more destabilizing problem. I remember watching cranes festoon the Luanda skyline at times of high oil prices, then, when prices crashed, I saw weeds grow in the lobbies of half-finished concrete hulks whose owners had gone bankrupt. Massive borrowing in the good times and a buildup of debt arrears in the bad times magnified the problem. The equivalent in the United States was the euphoria of the 1990s that culminated in the global financial crisis. This boom-bust was differently timed and mostly caused by different things, but as with oil booms, it had a ratchet effect. In good times, the dominant sector can curse alternative economic sectors for reasons I’ve already given, and when the bust comes the chaos magnifies the damage. And those lost sectors, once destroyed, aren’t easily rebuilt. Meanwhile, bankers—who famously will lend you an umbrella when it’s dry but want it back once it starts raining—reinforce this instability by turning on the credit taps during booms, creating endless new financial vehicles to help households and businesses take on more debt, amplifying the exhilaration, then whipping away credit when things go bad, deepening the slump.

Alongside all this, there’s another whole array of damage to consider.

In our traditional view of the US economy, wealth is created throughout the economic system by many people and businesses working in diverse fields: in manufacturing, construction, banking, fishing, tourism, or catering, trading with each other in competitive markets. Finance, creating helpful linkages between these players, supports workers, consumers, and businesses alike. Meanwhile, the government supplies the police, roads, schools, sewers, and so on and upholds the rule of law to support all this activity. To pay for these services, governments need to bargain with voting citizens and with businesses to raise the taxes, and this bargaining has, since the days of the Boston Tea Party, fostered healthy lines of political accountability. This is a story of healthy horizontal relationships between the many different actors in an economy. With a mineral-dependent economy, though, it’s different. Return to that image of the river delta: when oil money sluices downward from the top of the political system, rulers don’t need to bargain with their citizens anymore. These are vertical, hierarchical relationships. As it flows downward, the oil money washes away checks and balances, institutions, and accountability, replacing them with a crude political and economic formula: rulers allocate wealth, or permissions to access wealth, downward in exchange for loyalty. And if your citizens complain, the oil money pays for paramilitary police to keep them in their place. This is why oil economies like Russia’s, Venezuela’s, or Angola’s are often rather authoritarian.

Finance, it turns out, is starting to have similar effects in the United States. While America has a vastly more diversified economy than Angola’s, its economy is seeing an ever-larger share of wealth spout out at the apex of the system—not from oil pipes inserted into the ground as in Angola, but from pipes jammed into the lifeblood of the real economy—and into your pocket. Back in the 1950s and 1960s, assets held by the financial sector in the United States were worth around one year’s GDP, and financial corporations earned little more than a tenth of all corporate profits. Now the financial sector’s assets are worth more like five years’ GDP, and around a third of all corporate profits flow to finance—a proportion that is rising. As all this has happened, bankers and other financial players, cheered on by the Clinton, Bush, Obama, and now Trump administrations, have hoovered up companies across the economy and assembled the pieces together in anticompetitive mergers or cartel-like arrangements, or run their financial affairs more aggressively through tax havens to sidestep tax bills or irritating regulations. Each move flushes more wealth out at the top, while the other parts of the economy that are being extracted from grow weaker and find it ever harder to compete with the giants. All this increases the top-down flows of money and power, generating the core fact of economic discrimination that underpins all those better-understood forms: racial, gender, sexual, and geographical discrimination. Our financial sector should serve our economy, but it’s increasingly the other way around.⁴

The costs of the finance curse are staggering. Since around 2010 a diverse range of academics at the International Monetary Fund (IMF) and elsewhere have begun putting together a new strand of research now known as “Too Much Finance,” which shows a remarkably consistent pattern across the world over time. As a country’s financial sector develops, it tends to contribute to the development of the economy—but only up to a point, after which it starts to reduce economic growth and inflict all sorts of other damage. The graph of the relationship between the size of a financial sector and economic growth is an inverted U shape, with a “sweet spot” of maximum, ideal size in the middle. It turns out that the United States, Britain, and many other Western economies passed this optimal point long ago. According to a 2016 estimate by Professor Gerald Epstein and Juan Antonio Montecino of the University of Massachusetts at Amherst, the excess bloat in the United States’ financial sector will have cost the US economy a cumulative $12.9 to $22.7 trillion between 1990 and 2023. That calculation, a first approximation of the costs of the finance curse, is equivalent to a net $105,000 to $184,000 loss for the average American family. Had the financial sector been at its optimal size and performing its traditional useful roles, and had this lost wealth been spread equitably among the people, the typical US household would have doubled its wealth at retirement.⁵ The US economy would be stronger today if the US government had paid its highest-paying financiers their full salaries, then sent them off to live in luxurious gated communities to play golf all day.

The great financial crisis that first erupted in 2007 was a part of this damage. But the finance curse has multiple layers. Once you know what to look for, you’ll find its distortions, schemes, and abuses all over the place. For instance, the five largest US technology behemoths spent around $150 billion in 2018 just on buying their own stock, instead of investing in improving their businesses. Since 1995 IBM has spent well over $160 billion buying back its own stock—yet at the time of this writing, the company was worth little more than $100 billion. IBM stockholders got rich, while company investment stagnated. More broadly, the S&P 500 firms spent $720 billion on share buybacks just in the twelve months before September 2018, a gigantic “anti-stimulus,” sucking money out of the productive economy, that is comparable in size to Obama’s economic stimulus package approved in 2009 to respond to the financial crisis. If you add dividends to these buybacks, the total rises to $1.2 trillion, which is 1.3 times the size of the US defense budget in 2018. When oil companies spend their money on financial games like buybacks instead of investing in oil rigs, it’s called “drilling on Wall Street.” Across the Atlantic, a study of 298 companies in the S&P Europe 350 share index found something similar: they spent €350 billion—equivalent to 110 percent of their net income—on shareholder dividends and stock buybacks in 2015. The comparable figure for the UK was 150 percent. This is what Bank of England economist Andrew Haldane meant when he said firms were “eating themselves.”⁶

What on earth is going on? A simple, crude answer is that when a company buys its own shares or pays bumper dividends it boosts its share price and, with it, corporate executives’ short-term stock options and bonuses. With over a third of all stocks and other financial assets owned by the richest 1 percent of Americans (and around 80 percent held by the top 10 percent), share buybacks and bloated dividends are syringes jammed into the veins of the real economy, sending torrents of wealth skyward.⁷ But a more interesting answer lies in a word that finance academics now use: “financialization.” This is a process that first properly emerged in the 1970s and has slowly, silently, crept up on us all. Financialization involves two main trends: first, a massive growth in the size and power of the financial, insurance, and real estate (FIRE) sectors; and second, the penetration of financial techniques, markets, motives, and ways of thinking into the economy, society, and even culture. In this era the bosses of companies that create real wealth in the economy—making widgets and sprockets, finding cures for cancer, or selling mass-market holidays—have been turning their attention away from the hard slog of trying to boost entrepreneurship, productivity, and genuine efficiency toward the more profitable sugar rush of financial engineering, monopolization, and unproductive “tax efficiency” to tease out more profits for the companies’ owners, always at somebody else’s expense. As this has happened, the rate at which new job-creating businesses are formed has halved since 2006, just before the global financial crisis.⁸ Private equity titans buy up healthy companies, load them up with debt, and drive them into the corporate graveyard—yet get ridiculously rich in the process. Airlines often make more money speculating on fuel derivatives than on selling you tickets to Atlanta. Banks buy and sell trillions of dollars’ worth of derivatives and other exotic financial instruments to each other—and they, too, mysteriously get richer. Are they creating wealth inside this closed circle? Or are they extracting it from others elsewhere?

Half a century ago it was widely accepted that the job of a corporate CEO was to generate wealth to serve several goals: to produce profits, to create and maintain good jobs, to contribute taxes to support roads and schools, and so on. All these things enriched healthy communities and made a stronger nation—and this formula ultimately made for stronger corporations too. Back then, CEOs at big firms earned twenty to thirty times what the average worker did. But financialization has whittled down the purpose of business to little more than a single-minded focus on maximizing the wealth of shareholders, the owners of those companies, often at the expense of employees, suppliers, or the wider community. This shift has unleashed gushers of profits for owners—and for CEOs, who now earn two to three hundred times the average worker’s paycheck. And as the bosses’ rewards have soared, the underlying economy—the place where most of us live and work—has stagnated. When adjusted for inflation, Americans’ real hourly earnings have barely budged since the 1970s. The profits and the stagnation are two sides of the same coin: wealth extraction by those at the top from the rest. “It is not short term versus long term; that is not the distinction,” says William Lazonick of the University of Massachusetts at Lowell, one of America’s best-known experts on corporate strategy. “It is value creation versus value extraction.” Financialization is a central part of the finance curse. Its consequences include lower economic growth, steeper inequality, less efficient and more distorted markets, eroded public services, greater corruption, the hollowing out of small towns and small businesses, and widespread damage to democracy and society.

To compensate for this economic sluggishness, and to escape from politically difficult choices, successive governments have filled the holes with policies of financial loosening, which have unleashed oceans of credit into the economy in the past forty years, puffing up finance. You’d expect a larger financial sector to be a fountain of investment capital for other sectors in our economy, but in fact the opposite has happened. As recently as 1995 over half of bank lending went to small businesses, which are the economy’s lifeblood, creating two out of three jobs. Now the share is less than a quarter. Most of the credit now unleashed on the economy has been circulating inside the financial sector, unmoored, disconnected from the real economy and from the people it is supposed to serve. This book will show how these self-serving parts of finance have increasingly overshadowed and even preyed on other parts of the economy, which must struggle to survive, like seedlings starved of light and water under the canopy of a giant, deep-rooted, and invasive tree.

And there’s another whole dimension to this, which the academics have hardly measured in any useful way: the rise in global organized crime and abusive quasi-legal activities that spew out of modern finance. It’s impossible to convey the scale of this, but one approach can be found in a list entitled “Robert Jenkins’ partial list of bank misdeeds,” a kind of running score regularly updated by a former Bank of England official.⁹ Each element on his list is a shocker. There are many elements that are widely known: “mis-selling interest rate swaps” and “mis-selling of mortgage-backed securities” (“mis-selling” is a euphemism for “fraud”). Coming in at number 11, there’s “abusive small business lending practices,” a hallmark of modern finance. At number 16, there is the humble “aiding and abetting tax evasion”—a sport that has cost treasuries around the world hundreds of billions. Next comes “aiding and abetting money laundering for violent drugs cartels,” a reference to, among other things, the role played by HSBC in washing hundreds of millions of dollars for Russian gangsters and Mexico’s Sinaloa cartel. Number 19 is “manipulation of Libor,” referring to the numbers used to calculate payments in the $800 trillion derivatives market and a lot more besides. Number 61 is the less weighty “offers to procure prostitutes to curry favor with SWF [sovereign wealth fund] clients.” Tucked away at number 114, there’s “facilitating African money laundering on a grand scale.” At the time of this writing, the list contained 144 items; each represents a large can of villainous worms. And this is only a partial list of the misdeeds—and even then, this refers only to banks. There’s a whole zoo of “shadow” financial players outside the regulated banking system whose members enjoy less oversight, so often behave even worse (we’ll meet some of them soon). And the list hardly touches on the national security aspects of oversized finance, as shadowy foreign players use secretive Delaware shell companies to insert silent crowbars into America’s economy and political system. Trying to get your arms around the scale of all this damage feels a bit like trying to convey to a child the distances between galaxies in the known universe.

The transformation that has happened in the era of financialization has had little to do with the needs of ordinary business and ordinary people. Financial cheerleaders would like us to believe that Wall Street is the wealthy goose that lays America’s golden eggs. The finance curse shows it to be a different bird: a cuckoo in the nest that is crowding out other parts of the economy.

We all need finance. We need it to pay our bills, to help us save for retirement, to redirect our savings to businesses so they can invest, to insure us against unforeseen calamities, and also sometimes for speculators to sniff out new investment opportunities in our economy. We need finance, but the measure of its contribution to our economy isn’t whether it creates billionaires and big profits, but whether it provides useful services to us at a reasonable cost. Imagine if telephone companies suddenly became insanely profitable and began churning out lots of billionaires, and telephony grew to dwarf every other economic sector—yet our phone calls were still crackly and expensive and the service unreliable. We’d soon smell a rat. All this wealth is a sign of sickness, not health.

To unpack the idea of the finance curse, we’ll go on a century-long journey that spans the globe, from the era of robber barons in the early twentieth century, to the City of London as it rediscovered a role for itself after the fall of the British Empire as a crime-infested, deregulated offshore playground for Wall Street in the 1950s, to the birth of modern tax havens in the Caribbean in the 1960s, to the myth of Ireland’s Celtic Tiger economy (contrary to received wisdom, it wasn’t based on low corporate taxes), to the shocking truths about London’s role in generating the global financial crisis—something that parochial Americans have spent too long ignoring. After the crisis we travel to South Dakota and the peculiar world of wealth managers, then follow twisting corporate trails leading from a shattered local newspaper in New Jersey up to the glittering offices of secretive private equity titans and hedge fund moguls in Manhattan, and from there to Iowa’s bitter, financialized, hog farming communities. And we will see how, all along the way, evidence has been beaten, twisted, and abused to perpetrate a great hoax upon the public, persuading us that all this activity is normal, necessary, and even a good thing. It is anything but.