The covert in the formation of assets abroad

The formation of assets abroad is nothing more than accumulated wealth located outside the country where it was generated. This sweetened expression conceals aspects of critical importance, among others, who generated or was able to appropriate such wealth, whether that appropriation was legal or illegal, legitimate or illegitimate, why it left the country, the effects it causes, what it is used for, where it is based, why it does not help the country. 

Environmental destruction, tremendous antagonisms, poverty and indigence, famine, malnutrition, unhealthiness, forced migrations to survive, epidemics, so much suffering that prevails in the world does not exist by chance. These and other impacts are a consequence of the actions of minorities who appropriate socially generated wealth by imposing their abusive decision-making power. 

Their interests being indefensible in the open, they need to mask them. To do this, they use a variety of cover-up propositions, many of them provided by neoliberal economics that obfuscates what really happens. One of these propositions is what makes the subject of this article: what is covered up when talking about the formation of assets abroad, an expression that appears in official statistics.   

Who generated or was able to appropriate accumulated wealth as external assets

In the countries of the South, whether impoverished or middle-income economies, the internal market is essentially oligopolistic in nature. That is, those are not markets where actors hold equivalent powers but where conglomerates with the capacity to impose prices and commercial conditions prevail. This imposition allows them to extract from their suppliers and consumers margins of wealth that do not belong to them. If they did not have that power to abuse, their suppliers could obtain fair compensation for the productive effort they offer to conglomerates as well as consumers could retain income that belongs to them and are forced to yield to those who control the markets.

There are also other financial and commercial speculators who use their resources and skills to extract profits from weaker or less informed sectors. A part of that appropriated wealth is not declared and feeds informal circuits or adds to the drainage that leaves the country by swelling the formation of assets abroad. 

Briefly, there is an appropriation of wealth within countries that does not yield or stop. This dynamic, aggravated by circumstances detailed below, provides initial support for the unbridled process of concentration of wealth and decision-making power that prevails in almost all latitudes. This process has become a devastating structural feature of the prevailing economic system.     

Is this appropriation of wealth legal or illegal, legitimate or illegitimate?

It is worth assessing whether the appropriation of wealth that becomes foreign assets is legal or illegal. We do not point out the wealth that circulates informally within the country because in essence it moves outside current regulations. 

It should be pointed out an almost obvious consideration, no matter how much one tries to hide it: those who have the power to determine what is legal, at the same time establish the limits of where illegality begins. In democracies, it is established institutions that adopt laws, regulations, controls, public policies that order social and economic functioning. Boundaries between the legal and the illegal thus become a social, political construction to be more precise and, in fact, change over time. These boundaries reflect the prevailing power structure that aspires to be preserved.  

In such a context, it is clear what is now considered illegal. Thus, if large companies evaded their tax liability, did not pay the taxes set by law, they would undoubtedly be committing something illegal, a crime. Indeed, it happens that the rate of tax evasion by large corporations and other speculators is usually enormous. To this end, they have several mechanisms to carry out their crimes using all kinds of complicities.

In addition to violating existing regulations, economic power is always looking to expand in its favor what is considered legal and not illegal. If they did not have such capacity to abuse, much of what they impose today as legal would become illegal.  That is how economies controlled by neoliberalism operate; they establish unbalanced rules of the game favoring those who hold the greatest power. 

When powerful minorities decide that what they appropriate is legal, there remains an evaluative space to consider. Is what they do legitimate or illegitimate? Thus, for example, it may have been established that the rich do not pay taxes or pay almost nothing, but that legality is illegitimate since it benefits those who have a lot and harms the rest.

In this field of the illegitimate, shameless tax avoidance plays. It happens that in all legislation there are inconsistencies or cracks that make it possible to circumvent the established rules artfully. The powerful have sophisticated advisers who work to minimize their tax payments, something that ordinary citizens do not have. And it is not that little by little these imperfections are not tried to correct, what happens is that the experts in circumvention do not stop finding new “legal” modalities (loopholes) so that their clients do not pay the taxes they are supposed to pay. There is no morality or sense of fairness and social solidarity that prevails.     

In this way, the disastrous process of appropriation of wealth is maintained and renewed cycle after cycle, swollen with crimes of tax evasion, avoidance of tax burden, adoption of policies that make legal what would be illegal, deriving those resources either to unregistered circuits of the economy or to the drainage via flight of surpluses abroad. 

Thus, wealth of dubious legality and illegitimacy that is presented as the main component of the “formation of assets abroad” leaves the country. In that passage and renamed with a nondescript title, ill-gotten wealth seeks to hide its origin to swell a heritage protected by the sacred right of property. A typical masking nebula meant to cover up the indefensible.

Tax havens

Accumulated wealth that flouts laws and regulations needs to be hidden outside national jurisdiction to avoid being discovered and their appropriators punished. That is what dark tax havens and other jurisdictions with low tax burdens and lax identification of those who are true owners and not front men of that wealth are for. For those who commit crimes, cascades of funds and trusts are created that make it difficult to discover the traceability of their holders. It happens that most of the resources were not declared, an indication of the origin that they want to preserve. If it were a legal and legitimate wealth, it would not be necessary to hide it so zealously from public discretion. 

As always happens, there is no shortage of arguments to justify what has been done. One points out that they were forced to leave seeking protection against arbitrariness without explaining how this accumulation of wealth was achieved. This rigged argument explains the resistance to any investigation into how their estates were formed. Since the resources enter their assets, there is nothing to review but on the contrary, a firm information lock appears that, they say, should not be violated.

Indeed, this does not deny the existence of legal and legitimate resources that choose to leave the country to settle in other jurisdictions. Its owners do not need to hide their patrimony which is duly declared. 

Impacts of the outflow of appropriated wealth abroad

It is time to explain how the outflow of wealth that sustains the formation of assets abroad impacts the country. We point out only some of the most relevant impacts.

The impact on the distribution of wealth. 

When oligopolies and speculators appropriate wealth generated by others and then enlarge it by evading or eluding tax payments, they enshrine the concentration of assets and income in a few hands. This is unacceptable because it punishes large majorities who see their standard of living recede while watching the lavish consumption of wealthy families. On the other hand, the concentration of wealth retracts the internal market, destabilizing the economy that loses sustainability. 

The impact on a highly regressive tax structure. 

By not assuming the tax burden that corresponds to them, those who evade and elude taxes unload a greater weight on other taxpayers. More taxes are imposed on consumption than on wealth, disproportionately punishing middle and popular sectors. If tax crimes were controlled, it could form a much more equitable progressive tax structure where those who have less pay few taxes and those with higher assets and incomes contribute what is fair.

The impact of sterilizing part of domestic savings.

The flight of accumulated wealth represents a part of domestic savings that is sterilized when leaving the country. If this flow of resources were invested internally in activities of the real economy, it would generate multiplier effects in favor of a diversity of actors through productive chains that create jobs and incomes. Capital flight sterilizes these effects.

The impact of depriving the state of genuine funding

Tax evasion and elusion deprive the state of its main source of genuine revenue. The theft of this financing resents its ability to provide the social and productive services that the population needs.  As an alternative, the State increases the internal tax burden and borrows money, with the risk of slipping into a very dangerous sovereign indebtedness.  The imbalance of genuine expenditures and revenues compromises the soundness of public accounts and leads to recurrent fiscal deficits.  

The impact of decoupling the interests of those who form external assets from the general wellbeing and national development. 

Those who invest in foreign assets divorce from and antagonize with the interests of the country and their compatriots.  It happens that countries need to function with exchange rate stability and, when this is not achieved, devaluations occur that punish the middle and popular sectors. The economy is unbalanced and retracts, inflationary tensions are reinforced, jobs and the purchasing power of wages fall, foreign exchange is scarce, external sector crises and sovereign over-indebtedness occur. Devaluations lead to situations fraught with risks, inequities, and an acceleration of the concentration of wealth and decision-making power.  In this context, there are sectors that push to devalue in order to benefit from it. This group of scoundrels includes those who have assets abroad because with each devaluation they manage to increase their assets without making any effort; they militate the devaluations that enrich them at the expense of the rest of the country.  

In conclusion

The formation of assets abroad is part of a coverup nebula of cunning interests. It is essential to unmask them despite the fact that the powerful are buckled so that the effects they inflict on the country are not disseminated. However, there are indirect ways to attest to this. For example, it is worth asking why large oligopolistic corporations present poor balance sheets of results during neoliberal governments and, not surprisingly, support them to the extreme. With weakened domestic markets one would believe that they should be against the neoliberal order that contracts their sales, but what happens is that with devaluations the part of their patrimony in external assets is favored immensely. If we were to compare how the external source vis-à-vis the internal one contributes to their income and patrimonial accumulation, the unknown would be solved: they earn much more with devaluation speculation than with their legitimate productive effort.

In short, the flight abroad of accumulated wealth of dubious origin is ruinous for the country. It enables a regressive distribution of wealth, subtracts genuine financing from the State by compromising its fiscal balance, sterilizes multiplier effects for not having invested internally and, of extreme political gravity, generates a space of antagonism of interests between those who remain within the country fighting for a fair and sustainable development, and those who profit from injustice and national prostration.     

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