Abstract
Everyone knows that it takes money to make money. But few of us understand how wealth accumulates in this age of hypermobile global capital and steep economic inequality. If you read macro economists of inequality, you get the sense that wealth accrues through self-perpetuating structures that automatically propel assets to astronomical heights among the one percent. In fact, these structures are crafted, held in place, and manipulated by a cadre of global professionals available for hire, for the right price. Wealth managers defend the world’s biggest pools of private money from taxation and inheritance laws through their expert navigation of an intricate web of loopholes, trusts, and corporations, thereby keeping money from distributing back into states or markets. They are the major players in circulating, hiding, and protecting global capital. Their work is so complex, spanning national regulations and tapping into both archaic and novel business practices, and at times so bizarre, it’s as if one would need to get trained as a wealth manager to understand it. Brooke Harrington has done just this.
To learn the ropes of the international world of wealth management for Capital without Borders: Wealth Managers and the One Percent, Harrington signed up for professional training by the London-based Society of Trust and Estate Practitioners (STEP). She enrolled in the organization’s two-year training program and got her Trust and Estate Planner (TEP) certification. Once she could talk the talk, she interviewed sixty-five wealth managers in 18 countries, following the money from the Caribbean to Singapore. She also followed the documents coming out of high-profile lawsuits, leaks, and thefts, such the 2016 leaked files from within the Panamanian law firm Mossack Fonseca. By focusing on the agents of wealth accumulation, Harrington navigates the problem of “studying up” among elites, something particularly vexing for the study of wealth since, unlike income, it is strategically hidden and those hiding spots are globally dispersed.
The book reveals a number of surprising strategies of wealth managers, but even more significant are the insights Harrington delivers about the one percent and their orientation toward the state, family, economic inequality, and democracy.
The first part of the book is the story of the profession, and the second half is about the global political economy of wealth. Insights on the profession are the most straightforward, framed within the paradox that wealth managers have the curious job of getting the very people compelled not to trust anybody to trust them. Trust is a useful analytic, as it sheds light on the transformation of today’s capital.
Building trust with the world’s Ultra High Net Worth Individuals (UHNWI; people with investible assets of more than $30 million) can be especially difficult among those from developing countries like Russia and China, where private fortunes are growing more rapidly than anywhere in the world, because these clients come from unstable regimes with a deep distrust of anybody wanting to control their money. One way to build trust with such elites is to be elite too, hence the success of former wealthy men, and increasingly, some women. Other people who happen to be familiar with the codes of the ultra-rich can crack into the profession, such as one uneducated yacht crew member who transitioned into wealth management by virtue of spending so much time in the America’s Cup races.
Historically, antecedents to the profession are trustees, medieval knights sworn to the duty of overseeing their feudal lord’s household from land seizure, as could happen during the Crusades, or primogeniture, the legal practice of excluding women from family inheritance. Either of these could ruin a family’s wealth. As wealth shifted from land to capital over the centuries, trustees evolved to shield wealth from tax and inheritance laws and spendthrift heirs.
Their job now is chiefly to protect the property rights of elites against governing authorities; it is the professionalization of what the economist Thorstein Veblen, at the end of the nineteenth century, called “shrewd practice and chicanery” (p. 126). Indeed, one wealth manager in Geneva describes his work as “playing cat and mouse” with tax authorities around the world (p. 69). To play this game, these professionals draw from a large arsenal of strategies, from trusts and foundations, corporations, and selective disclosure of assets to family members. One comes away from this section of the book, “Tactics and Techniques of Wealth Management” (pp. 123–192), rather exhausted and frustrated, not so much that Harrington documents many of these techniques in painstaking detail, but that this whole complex underworld of growing assets of the highest class exists and that it functions so well and so inaccessibly to everyone else.
The second part of the book takes a broader political economy approach, with two compelling arguments on the state and stratification. First, Harrington argues that through all of these tactics, the ultra-rich carve out a new relation between themselves and the state. They fiercely fight the costs of being state citizens while enjoying all of the benefits, thus shifting the costs of funding government to the nonwealthy. Their economic power makes them immune to the rules that restrict everyone else: borders can be ignored or their passage paid for, tax rates in some countries can be negotiated down, and state authority is generally undermined.
This has disastrous implications for island nations whose main business has been attracting offshore accounts. In the zero-sum race to attract billionaires, tax haven nations gain in the short term an influx of foreign money, only to see a hike in their everyday costs of living. In the long term, these states lose both affordability and credibility among citizens that actually have to live there.
Second, on inequality, Harrington offers a forceful critique of extreme wealth concentration. On simple economic principle, offshore accounts reduce the mobility of wealth that, as Adam Smith pointed out, should reenter markets to make capitalism work best. Weber observed that the Islamic version of trust, called vakf, hindered the development of the Middle East (p. 218). In their strategic defense of capital, wealth managers assure the intergenerational transmission of wealth, transforming one generation’s surplus into dynastic fortune.
That a professional class is trained to do this, and really believes in what they are doing, is an important insight that has been overlooked. In his much-read book Capital in the Twenty-First Century, for example, Piketty shows a sharp increase of the impact of inheritance tax on stratification in the last three decades. What we haven’t seen until now are the agents and their strategies driving this polarization. They are a central mechanism of the neoliberal turn in policy away from redistributive taxation since the 1980s. In fact, STEP has successfully lobbied legislatures to keep wealth defense tactics open and those who use them cleared of wrongdoing. The textbook in a TEP course describes taxes as a “chill upon the entrepreneur as a creator of wealth,” while the poor rely on state handouts rather than engage in productive work (p. 226). A majority of the wealth managers interviewed read like ideologues straight out of an Ayn Rand novel. Harrington succeeds in showing that we can’t understand wealth concentration without the professionals who ensure it.
The book is relatively silent, however, about how best we should use this information. Throughout the pages, Harrington reminds us that hypermobile global capital doesn’t move itself. Professionals with agency turn the wheels of wealth concentration and economic inequality. And for the most part, their complicity is shored up on ideological grounds. There are some exceptions. Some of these professionals are critically reflective, believing their profession’s reputation as “dirty work” is deserved. One wealth manager feels so guilty about the public coffers he erodes by shielding the ultra-rich that he encourages his clients to engage in philanthropy. (Too bad he is not aware of the critiques of “philanthrocapitalism” as undermining democracy via billionaires’ outsized influence.) Unfortunately, we do not learn how many of these practitioners are so critical, only that they are a “significant minority” (p. 229), and Harrington does not explore what, if anything, makes them different from the rest.
There may be a way to incentivize elite professionals, if not their elite clientele, to see the hazards and unfairness of wealth concentration. Harrington cites the case of the Israeli government, which co-opted wealth managers’ expertise in the interests of pursuing tax compliance. The government crafted legislation such that practitioners would profit from making sure their clients pay their taxes as much as they once profited from helping them avoid taxes. Israel is the sole example, and a specific one, but it raises the prospect that states could reel in hidden wealth by pressuring the professionals managing it.
Capital without Borders is an elegantly argued book, well written and meticulously researched; and it is full of fascinating analysis of the agents behind the secretive movements of wealth. To sociologists, these findings will further sound an alarm about growing economic inequality, specifically wealth inequality. To libertarians, trickle-down economists, and to most wealth managers and their clients, this book will ring on deaf ears. That most of Harrington’s subjects will shrug their shoulders at her analysis is a real challenge to the sociology of elites, which has yet to tackle the ideology of extreme inequality, the felt sense that it is fair, even preferable, for a tiny fraction of the world’s population to hoard such a large share of its riches. For sociologists, this is an obvious problem; for Harrington’s interview subjects, it is a job well done.