Legality and Private Enterprise

As fallout from the Mossack Fonseca leak retreats from the front pages — today it occupies A6 of my WSJ — there is reason to wonder what the fuss is all about. Is it illegal to shield property from public seizure? Should we not instead be identifying and prosecuting the individuals who stole and revealed the private, protected records of a reputable law firm?

So has followed the entirely anticipated spin. And (outside of Iceland) there is probably a sizable number of peasants who will dutifully absorb and reflect this spin. Were it not for draconian tax laws that criminally seize the private assets of upstanding members of the business community, there would be no need to “hide” these assets from greedy government officials in shell companies.

No one would argue that capital has ever been eager to willingly shave its margins. Hiding assets from the tax man is what capital does. And for long stretches of modern history, laws and regulations have promoted, even celebrated, such robber baron practices. Think of the Gilded Age. And, yet, those of us fortunate enough to have learned our history from sources that have escaped the red editing pen of private corporate publishing know that there have also been brief intervals when even the engines of private commerce, for purely selfish reasons, have been forced to acknowledge and submit to the wisdom of res publica.  I think here of the Elizabethan Settlement — when Leviathan sat on both Roman and Protestant parties, compelling both to acknowledge the supremacy of the shared public interest; the Constitution of 1787 — when anti-Federalists conceded that disparate currencies, disparate commercial laws, and purely local legal jurisdictions were bad overall; Weimar — the brief period of social democracy in Germany following WWI; or Bretton Woods — the agreement in 1944 among all the victorious parties that never again would they let the general public’s economic and social fortunes fall so far as to compel them to embrace extreme politics. In each of these instances, private enterprise (oikonomia) was forced to concede the value of republican values and institutions (Greek, politeia; Latin, res publica).

As from the sidelines we impotently watch the unraveling of res publica in the southern and eastern Mediterranean and along the “shatter zone” from the Baltics through the Balkans, it is worth wondering how completely unraveled public institutions will have to become before capital itself demands reauthorizing the independent, public institutions without which the destruction of capital on an unprecedented scale is inevitable. Legality is not at issue here. Of course it is legal for you to hide your assets. You wrote the law! Or, in any event, you bought the policy makers who wrote the law. 

No laws were violated. I have a right to protect my private property. 

And so you do. Which begs the question, where is politeia, where is res publica, in this equation? Republican values and institutions invite us to reflect critically on the legal, institutional, and regulatory climate in which we are most likely to realize “life, liberty, and the pursuit of happiness,” not individually or privately, but as a matter of “General Welfare.” Do we all benefit from roads and rail, police and fire, a well-educated, healthy, safe and secure public, or, today, an open and universally available Internet? No doubt, there are rent-seeking opportunities plenty among these goods. Such opportunities, however, inevitably misallocate resources precisely because they privately constrain markets. Yes, hiding your assets is legal. But it is not good. 

Can markets ask, much less answer, “what is good”? No. They cannot. And we should not ask them to do so.

What Mossack Fonseca brings to light, again, is the need for strong, independent, public institutions. In the absence of these institutions, capital cannot help but destroy the very conditions of its possibility. Let us hope that it doesn’t get that far: 1929 and 1932 are separated only by a hair’s breadth from 1938. 

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