CBS researcher publishes book on the world of wealth managers

Almost eight years. That’s how long Associate Professor Brooke Harrington from the Department of Business and Politics at CBS spent studying wealth managers who help the rich become even richer. Trained as a wealth manager, she has followed the work of colleagues across the globe. In July Harvard University Press will publish her book, Capital without Borders, which she talks about here, describing who wealth managers are and why they work the way they do. 

The Panama Papers have created a broad debate across national borders. How do you hope your book will contribute?

The Panama Papers afford a close-up of the larger picture presented in my book, providing a look at the activities of a single company, Mossack Fonseca, and its customers. My research studied multiple companies worldwide that perform the same type of work: the creation of legal structures designed to hide assets, not just from taxation but from any kind of legal obligations. My book shows how the companies’ activities and the entities they create fit together to establish a system that shapes the world’s political economy, causing an effect that goes markedly beyond tax evasion. For my book, I interviewed 65 practitioners in 18 countries. One of them worked in Mossack Fonseca’s Panama office. As a wealth manager, he was part of a much bigger machine.

You’ve said that wealth managers call themselves “social workers for the rich” – How would you characterise their work?

As a sociologist it’s interesting to see how the work wealth managers do combines two highly different abilities. First, they need the technical skills to hide fortunes and, second, they must use their social and emotional intelligence because the rich are an elite group. There aren’t many people they can trust. Not even the people closest to them because money poisons family relationships. Family members are like wolves at the door, waiting only for the rich, elderly family member to die before pouncing on the money. Sometimes the wealth manager is the only neutral person able to protect a client from children and grandchildren.

Why did you choose to research and write a book examining this particular group of people?

This area has not been studied often because doing so is too difficult. The poor are easier to study because receiving funding from the state means they must provide extensive information about themselves that can be used in research. The rich, however, only want privacy, refusing to talk to me, journalists or anyone. One of the reasons is that they don’t trust very many people, leaving them feeling isolated. Moreover, it’s expensive, complicated and time consuming to study them. I discovered that in order to understand them, I could study the people who help the ultra-rich be rich: wealth managers. It’s a full-time job because the laws are constantly changing.

You’ve written that the real scandal regarding the Panama Papers is what’s legal. Why do you think that?

When Mitt Romney was a presidential candidate in 2012 and it emerged that he paid very little taxes without breaking the law, many people said it wasn’t an issue. These same people, however, didn’t consider why we have laws that make it perfectly acceptable for someone with a fortune to pay much less in taxes than their secretaries or housekeepers. It’s legal, but let’s think about why it’s legal.

What would it take to change the laws?

I think that there are two reasons why governments don’t do anything in this regard.

First, there are personal conflicts of interest. The Panama Papers leaked a large number of names linked to Mossack Fonseca. There are sports stars, business people, individuals who have inherited money and people from government, some of them perceived as corrupt and others as honest. This means that in many governments there will be people who likely benefit from avoiding paying too much tax.

The other reason is what I would call an institutional conflict. Most countries can be used as tax havens, also Denmark. The US, where I’m from, has been named the new Switzerland because many laws make attractive tax havens possible. And for many countries it would be devastating for their economies if they tried to stop people from paying too little in tax. Property values would decrease, there would be fewer jobs and nobody wants to be the bad guy. That’s why governments don’t do anything. One of the things that can be done, however, is happening in Iceland, where many people are protesting because they feel betrayed by their leaders. If this begins to happen on a larger scale, it can lead to political action. But in other countries, the same level of consensus about what the government should do doesn’t exist. In the US there is greater diversity and there will, for example, be people who don’t see it as a problem that some people don’t pay very much tax. The American dream means that the poor and middle class have a hope of one day becoming rich and wouldn’t want to pay much tax either. It’s naïve, but that’s how it is and that makes it difficult to change legislation. 

Read more about Brooke Harrington and her book.