Capital without Borders

 
Capital without Borders
Wealth Managers and the One Percent
by Brooke Harrington
Harvard University Press

2016
 

 

Capital without Borders is a sociological study of the profession of wealth management. Harrington spent two years earning the STEP certificate to qualify as a trained wealth manager and interviewed working wealth managers in 18 countries, mostly 'offshore' locales like the British Virgin Islands, the Caymans, etc. 

 
Wealth management apparently arose from the volunteer trustees that crusading knights nominated to hold their lands in trust so that they could evade England's various laws around inheritance, to avoid, for example, the 'Pride and Prejudice problem' of the family's women being thrown off their land when the father dies. As England industrialized, trusts went from just holding land to holding financial assets as well, and the custom was exported to all the various British colonies.

 
Today, the purpose of wealth management is still to evade laws and allow wealthy men to save and move around their money as they wish. This includes evading estate taxes, but more routinely, it involves evading every other kind of tax as well, especially taxes on income and capital gains. The most common way of doing this involves holding all the money offshore in some complex combination of trusts, corporations, and family foundations. The goal is protecting the fortune rather than growing it. These arrangements hide who actually owns the money, and protects it from being taxed, used to pay debts or creditors, or divided between family members differently than the wealthy man prefers. It would be difficult to overstate how much the world's billionaires resent the idea of being obligated to pay any money to anyone.

 
The wealth managers Harrington interviews like the intellectual challenge of their work (obeying the letter of the law while defying its spirit), and feel good about helping the families of the wealthy. They also sometimes worry about their clients' amorality, and feel conflicted about what they see their work doing to both their home countries (deprived of tax revenue and harmed by the existence of a class of people who are above the law) and to the offshore island nations where their businesses are housed (since these countries' governments function to serve the billionaire clients rather than their own citizens).

This was a fascinating read for me, because of how well Harrington explains the processes that let wealth managers hide their clients' fortunes. I'm aware that the world's elite evade their local taxes, but didn't always know how, or how common the practice was - seemingly ubiquitous for anyone with over $50 million to protect. 

 
I'm actually somewhat sympathetic to some of the motivations when the governments being evaded seem unjust to me too, like the Middle Eastern fathers who want to leave their daughters an equal share of their estate, or the residents of Russia, China, and certain South American nations, who fear having their fortunes seized by the current strongman. Avoiding the local laws seems less sympathetic closer to home though, and everywhere it happens, wealth management seems to weaken the local rule of law and function of democracy.