Pandora Papers: Is a more equal world still possible?

US President Joe Biden and UK Prime Minister Boris Johnson have both stressed on reducing income inequality – as have leaders elsewhere. Reuters

The language of politics has increasingly become focused on tackling economic inequality. Governments around the world seem to agree that their constituents want to hear that they are taking action on this issue.

Japan’s new Finance Minister, Shunichi Suzuki, for example, said this week that Prime Minister Fumio Kishida’s government will aim “to bring about a new form of capitalism that creates a virtuous cycle of growth and wider wealth distribution”.

US President Joe Biden’s $3.5 trillion spending package promises to "build back better" and includes child care, housing and healthcare benefits, free community college tuition and clean energy subsidies. Mr Biden has pledged to reduce inequality and make companies contribute more, but he is battling at the moment with members of his own party about how to prioritise spending.

Pakistan's Prime Minister Imran Khan responded to the latest revelation about the way the wealthy manage their assets offshore, called the “Pandora Papers”, with a warning. “If unchecked, inequalities between rich and poor states will increase as poverty rises in the latter. This, in turn, will lead to a flood of economic migration from the poor to the rich states, causing further economic and social instability across the globe,” he said on Twitter.

UK Prime Minister Boris Johnson claimed this week that inequality is one of the “biggest underlying issues of our economy and society” and is one of the problems “that no government has had the guts to tackle before". He promises a “levelling up” of regional inequality across Britain.

The focus on tackling inequality comes as inflation has become a real concern again. Food prices have risen 30 per cent over the past year, the IMF said on Tuesday. Managing director Kristalina Georgieva said "together with rises in energy prices, this is putting further pressure on poorer families". Indeed, in Europe, soaring prices for gas and electricity are driving up utility bills, hurting those already hit hard by the Covid-19 pandemic.

Inflation threatens to exacerbate the wealth gap.

The impact of the pandemic, including the loss of employment, has also highlighted the differences between the haves and the have-nots. Even the solution to the health crisis is riddled with inequality. The unevenness of global Covid-19 vaccine distribution is another way to see the disparity between people and nations.

This is in no one’s interest.

Japanese Prime Minister Fumio Kishida, centre, will make addressing income inequality a priority, according to Finance Minister Shunichi Suzuki, far right. Getty Images

People protesting against the government in Brazil last year. Nelson Antoine / AP Photo

One of the creators of the Oxford/AstraZeneca vaccine, Professor Sarah Gilbert, said in a letter published this week that with regard to access to vaccines, "no-one is safe until we are all safe". For the wider issue of economic imbalance, we could paraphrase her words and say “no-one is wealthy until we are all wealthy”.

What Mr Johnson, Mr Biden and others propose as a solution to closing the gap is to ask rich companies to help. The wealthiest individuals will also be expected to contribute more in taxes.

Leaks such as the Pandora Papers also put pressure on governments to ensure that it is more difficult for anyone to avoid meeting their tax obligations as the offshore financial system has been brought into the spotlight these past five years.

However, the impact of the Panama Papers in 2016 – the first such leak – on the use of such methods to keep private the identities of who owns what, is debatable. Certainly, such revelations create an easy shorthand to describe the reality of tax havens and how the wealthy manage their assets. They also provide more transparency in general, as well as a greater understanding of how criminals launder their ill-gotten funds.

The instability of the 1930s came amid a closing of that gap as wealth across the board was wiped out following the Wall Street Crash and the start of the Great Depression. Getty Images

More than anything, the Pandora Papers show that many people continue to seek ways to keep their finances opaque and there remains a huge industry out there ready to help them.

In that context, can we say that the broader argument – that moving finances offshore is an obstacle to the redistribution of wealth, which is supposed to be a panacea to the growing gap – is being won? The realities might say not. As things stand, a handful of people lay claim to as much wealth as half of the world’s population.

No-one is wealthy until we are all wealthy

In the US, for example, this represents a return to the levels of inequality experienced almost one hundred years ago, in late 1920s. The subsequent instability of the 1930s, however, came amid a closing of that gap as wealth across the board was wiped out following the Wall Street Crash and the start of the Great Depression.

Is that what it will take to close the gap now? A similar collapse in asset prices rather than the policies being put into place by governments would not solve the problem longer-term, of course. Yet, it is clear that the debate has moved beyond whether there is a need to tackle inequality and on to how best to go about doing it. The political impasse in Washington is an indication of this new paradigm.

Mr Johnson’s own change of heart illustrates this point best. In 2013, he said he did not believe economic equality was possible. “Some measure of inequality is essential for the spirit of envy and keeping up with the Joneses that is, like greed, a valuable spur to economic activity," he said.

Today’s orthodoxy says quite the opposite.