Will the World’s Middle Class Rise Up to Reclaim $21 Trillion Hoard Hidden Offshore by Global Elite?

By David Brin, An IEET Guy.

Consider this headline. $21 Trillion hoard hidden offshore by global elite. Consider that number and consider my prediction that the world’s middle classes will become radicalized, perhaps in the 2020s, or even sooner.

My 1989 novel Earth is credited with a fairly high predictive score. In fact, fans maintain a wiki to track its successful “hits” – including little things like the World Wide Web and wearable augmented reality “google goggles.”

Set in the year 2038, Earth portrays citizens in that near-future era looking back upon a brutal struggle that took place in the 2020s. The Helvetian War was unlike anything we’ve seen since the French or Russian Revolutions. A radical rising by a fed-up world middle class, pushed against the wall by cynics and the corrupt connivers.

What they seek – and attain – is not socialism, a discredited foolishness that arose out of silly abstractions that bore no relationship at all to real human nature. Market economies have out-performed socialist or communist or oligarchic ones so overwhelmingly that only delusional fools – or would-be oligarchs – should prefer top-down, bureaucratic control instead of the fluid productivity that we get out of creative competition. (Does that make me sound like a right-winger? Silly. Broaden your memes.)

No, the new radicalism that may be demanded in the 2020s—especially by emerging middle classes in the developing world—is to give all people a chance to compete fairly, free from parasitism by their homegrown kleptocrats and from the rising global variety. Free from the secret, conspiring control of a caste that Adam Smith himself called the oppressors of freedom and market economics across 6000 years.

“All for ourselves and nothing for other people, seems, in every age of the world, to have been the vile maxim of the masters of mankind.”—Adam Smith, in The Wealth of Nations

Now, in that context, consider this headline. $21 Trillion hoard hidden offshore by global elite.

Yes that is a “T” and not a “B.” Just sit there and consider that number. Then think about my prediction that the world’s middle classes will become radicalized, perhaps in the 2020s, or even sooner.

The study in question estimates the staggering size of the offshore economy and how private banks help the wealthiest to move cash into overseas havens. Russian, Saudi and Nigerian oil barons top the list, followed by US and British bankers and then drug lords and other criminal enterprises. The totals amount to as much as the American and Japanese GDPs put together.

With US tax rates at their lowest levels in 60 years, and taxes on the rich at their lowest levels since 1920, it would seem that they still aren’t low enough for today’s super wealthy. Consider the GOP’s potemkin rally in Tampa, in this context.

See also this angle: This hidden wealth costs western democracy governments $280 billion a year in lost tax revenue. That’s annual. An amount so huge that infrastructure repair and boosted science could coincide with cuts in the actual tax rates for law-abiders who aren’t part of the secret Lords Economy.

Want to see where this might lead? Try reading Earth.

Is a World Middle Class Even Possible?

In fact, it is more than possible. If by “middle class” you mean having a clean home with electricity and sanitation, a washing machine and access to transporation, plus kids who are in school with adequate food, clothing and books, then that already includes two thirds of the Earth’s human population, a fact that is seldom mentioned by either left or right.

Why is this good news ignored? Because of the Paradox of Progress. It’s all a matter of deep personality. The reflex of folks on the right is to avert the gaze from problems to be solved and to resent nagging to solve them. The reflex of the far-left is hypersensitivity to perceived problems. To rail for solutions – but to deny that any past attempts at improvement ever worked! The right is suspicious toward the whole notion of “improvability” of either humans or society. The left wants improvability, passionately, but insists it has never happened yet.

Both extremes are – in effect, completely crazy.

Amid ongoing debates over progress, there is a third group. Those who seek to improve the human condition and who admit that steady improvements have already taken place. These are called “liberals” – a very different breed than leftists – and to them the question of whether development has taken place inevitably gives way to practical discussions. How to foster a speedup of already ongoing progress. Pragmatic progressivism eschews dogma in favor of asking: what has worked and what hasn’t?

What’s becoming clear is that some parts of the world are doing better than others. In 1970, South Korea had a lower per capita GDP than Ghana. Today, all the nations of East Asia have left all African nations in a cloud of dust, and that includes China, which had a thirty year hiatus under Maoism. Today, Latin America has large areas that are burgeoning—e.g. Brazil—and sub-Saharan Africa is experiencing its most rapid rate of growth (outside of certain hell-holes) since colonial kleptocrats gave way to local kleptocracies in the 1960s.

Still, the African acceleration is only impressive compared to previous stagnation. And some regions that have tried—under pressure or tutelage from international development agencies—to reform their laws and civil society, have failed to make them sufficiently competition-friendly to invite much new investment, or to give vibrant locals a level playing field against conniving local elites.

What do the professionals say?

Two interesting perspectives offer a glimpse at just how difficult the problem can be.

In a fascinating and vivid audio-visual presentation, Owen Barder explores the implications of complexity theory for development policy. He explains how traditional economic models have tried and failed to understand why some countries have managed to improve living standards while other countries have not. Using complexity theory, he shows that development is a property of a system, not the sum of what happens to the people within it.

While Barder is both interesting and informative and is on-target in his range of criticisms – (do watch the video!) – in the end he winds up sounding like a lot of “complexity” fans. Okay, so the problem is complex. Thanks for telling us that.

For balance, have a glimpse at an interesting, if a bit depressing, appraisal of the likelihood that creative-competitive capitalism can ever take root in MENA—the Middle East and North Africa—despite formal legal reforms. The problem is an ancient one… oligarchies of a few at the top, engaging in what Adam Smith called “rent-seeking,” using informal connections and conniving to bypass the new “civil society reforms” and still maintain their advantages, thus repelling or driving out investment in new competitive enterprises.

It is a standard pattern that this World Bank report deems fairly hopeless to overcome in this region, though others are doing better… while the United States slips ever deeper into the classic oligarchic pattern that Adam Smith loathed.

So, shall we commit seppuku and give up? Of course not. There is enough light erupting all over the Earth to encourage belief in progress, not only that it can happen, but that it has. And that tech-driven transparency will help, when citizens can record and expose local corruption with the touch of a cell phone. And that—far better than chiding—is good enough reason to persevere.

So, will the world’s new middle classes rise up?

As I portrayed in Earth… and explore a bit in Existence… there are two types of uber-rich. Those who are loyal to the Enlightenment Experiment that empowered their rise and (in effect) gave them everything they have… a diamond shaped social structure in which even with their billions, they – and their children – will keep facing fresh competition from a lively, vibrant population of educated and confident citizens…

…versus a portion of the new-aristocracy that simply does not get it. Who think – as oligarchs did in 99% of past human cultures – that they are superior NOT because of this year’s latest goods and services, but because wealth inherently means lordly merit. Such folks aren’t at fault for having this reflex. We are all descended from the harems of guys who pursued power tenaciously and darwinistically. The reflex is in our genes.

But it’s a poison. Our Enlightenment Experiment achieved more human progress in just four generations than all the preceding feudal societies combined. Its founders, like Adam Smith, recognized the oligarchic tendency and denounced it. They knew that the foolish “uber” types would keep trying to pound our diamond shaped society back into a pyramid, promoting “rent-seeking” income (like dividends and capital gains) ahead of the wages earned by creative and hardworking people with their hands.

Inevitably (and history bears me out) all this conniving will have just three possible outcomes.

1- They succeed. The Enlightenment Experiment comes to an end. (In Existence I explore the rationalizations they might give, to excuse such a backward shift, some of them very clever!)

2- The middle classes – uniting in common cause with knowledge professions like science – could enact yet another mild, moderate, incremental, American-style revolution, of which 1776 was only one example. So was the first U.S. Civil War and Teddy Roosevelt’s progressive era, and FDR’s New Deal, in which oligarchy gets stymied just enough to keep freedom and creative competition and entrepreneurial markets and transparency and divided power and opportunity and social mobility going, while maintaining the allure of competitively-earned wealth as a reward for delivering cool things into the world.

3- Paris… 1789.

Here is the chief difference between the good/smart/tech billionaires and the fools who now use Fox News to push an idolatry of property that has always, always, always been the enemy of competition. The smart guys—the billionaires in Silicon Valley for example, or Warren Buffett and Bill Gates—want option number two. If need be, they will join the world’s middle classes and help keep our looming “helvetian wars” mild.

In sharp contrast, the ones who are pushing the United States into Culture War… indeed, the lastest phase of the American civil war … actually think they are very smart. But their efforts, if successful, will only lead to outcome#3.

They aren’t as smart as they think they are.