Killing Democracy: The Rise of Nation Inc.
Professor Dani Rodrik of Harvard’s Kennedy School of Economics argues that today’s world faces a “political trilemma”:
Democracy, national sovereignty and global economic integration are mutually incompatible: We can combine any two of the three, but never have all three simultaneously … If we want more globalization, we must either give up some democracy or some national sovereignty.
Methinks he’s onto something.
Democracy means citizens of each nation have the right to make their own sovereign rules. But global economic integration demands that those rules be the same for all countries. Given the difficulties of selling trade treaties to skeptical voters, we seem to be heading inexorably toward a global “government” that severely restricts national sovereignty in the name of “free trade.” And because democratic global government is logistically impossible, that government will tend to be a dictatorship.
Rodrik’s trilemma came to mind as I prepared my talk on personal asset protection for this week’s Total Wealth Symposium in Hamilton, Bermuda. To quote Colonel Kurtz from the epic Vietnam War film Apocalypse Now, the connection struck me like a “a diamond bullet right through my forehead.”
Sacrificing the Pawns
So what is this diamond bullet connecting Rodrik’s “political trilemma” to rapidly increasing risks to your assets? It’s nicely summarized in a recent article about Apple’s battle with the European Union over its Irish taxes: “Nation states have evolved into ‘Nation Inc.’ They follow the same logic and seek the same ends as any corporation. Leaders are now CEO-like figures whose only concern is the bottom line. Citizens are shareholders — some of whom own more stock than others.”
Now, if you’ve held a senior position in a large corporation, you know the limits of sentimentality. You try to be moral, but if the bottom line requires that you dispense with some quaint corporate tradition — or employee — you do it.
Faced with Rodrik’s political trilemma, nations grapple with insoluble contradictions between domestic and international rules, and between the interests of “little” national shareholders — you and me — and the “big” ones — large corporations and financial institutions and the government bureaucracies that protect them.
So they do what any corporation would do … they offload those contradictions onto those least able to protect themselves. That’s why the rights of little shareholders in Nation Inc. — you and me — are steadily sacrificed to improve the national “bottom line,” implicitly defined as the well-being of the bigger, more powerful shareholders.
Individual citizens like us struggle to keep our financial affairs private, keep money offshore or own a foreign asset-protection vehicle. We’re easy targets, low-hanging fruit … quick wins. Our rights are increasingly seen as “quaint” but irksome traditions that may have been important to wig-wearing patriots in the late 18th century, but irrelevant in today’s economy, where freedom for globalized corporations is the priority.
Abandoning traditional notions of individual privacy, financial freedom and security of property helps Nation Inc. maintain the illusion of fairness and the rule of law. Never mind the fact that those rules are being gratuitously rewritten to benefit our biggest national shareholders. Every time the government publicly crucifies some luckless owner of a Swiss bank account or a Panamanian LLC, it means less pressure on those big shareholders.
And the more pressure there is, the more crucifixions there will be.
The U.S. Financial Trilemma
Nowhere is this clearer than in the world of international taxation, where the U.S. government clings to its own political trilemma:
- The government insists on knowing the financial affairs of individual U.S. taxpayers in intimate detail to ensure that every penny of tax is collected on income and wealth everywhere in the world.
- U.S. corporations, on the other hand, are free to engage in any form of tax arbitrage and don’t have to pay U.S. tax on their offshore operations until they choose to do so.
- Although the U.S. insists that foreign governments and financial institutions report on U.S. clients, it maintains that it has neither the capacity nor obligation to reciprocate. Foreigners are most welcome to hide assets here.
As in a game of chess, pawns like you and me are increasingly sacrificed to protect the economic royalty at the back of the board. Cracking down on us little shareholders is a great way to keep up the appearance that Nation Inc. plays fair.
Listen, Little Man
As the contradictions of Rodrik’s political trilemma intensify, the crackdown on individual financial liberty will worsen. The threats to our privacy, financial rights and assets will grow. It’s inherent in the logic of the situation.
What are we to do?
In his 1945 essay Listen, Little Man!, Austrian psychoanalyst Wilhelm Reich explained that dependence on politicians to solve our problems was the root of our eventual enslavement: “You let the powerful demand power ‘for the little man.’ But you yourself are silent. You provide powerful men with more power or choose weak, malignant men to represent you. And you discover too late that you are always the dupe.”
I’ve said it before, and I’ll say it again: If you want to protect what’s yours in this rapidly changing world, you need to rely on yourself, not politicians — given Rodrik’s trilemma, they couldn’t protect you even if they wanted to.
That means learning as much as possible about asset-protection strategies and risk-minimizing investment portfolios. Above all, it means finding the right people, with the right experience and insight, to help you in this process.
All of the above will be on stage in Bermuda, starting Wednesday. If you can’t be there in person, click here … you’ll be glad you did.
Editor, The Bauman Letter