Nothing in life is certain – so Ben Franklin said – except for death and taxes. And for a select few of us, even taxes can be optional. Today, an estimated $7.6 trillion – an amount equivalent to 10% of the gross annual product of the global economy – is held offshore in tax havens. That benefits the super-rich, but it also ensures that a higher proportion of our tax burden falls on ordinary people. And while prominent politicians, most recently the British Prime Minister, David Cameron, have always been keen to show they’re on the ordinary people’s side, nothing much ever seems to get done about it.
Why is it that we seem so powerless to clamp down on tax evasion and reverse rising inequality? And why – despite the “landmark anti-corruption summit” that Cameron held in London earlier this month – are we helpless to prevent the corruption that underpins it? According to Hans Morgenthau, an eminent American political scientist, the answer is a straightforward one: “prudent self-interest” will always trump “utopian morality.”
We have a problem, and it’s getting worse
The size of the global economy has doubled in the past 30 years (from $39 trillion to $78 trillion). But, even so, inequality is sharply on the rise. The world’s top 1% now owns more wealth than the other 99%, and the richest 62 individuals are worth the same as half of the global population — 3.6 billion people. These extremes of inequality are more than just a moral problem. They undermine social cohesion and prevent the most vulnerable from rising out of poverty.*
Though several factors have contributed to global inequality, one of the most important ones is the tax system. Gabriel Zucman’s recent book The Hidden Wealth of Nations not only points out that vast quantities of wealth are being sheltered in tax havens, it also estimates that the total has increased by 25% over the past five years.
Thanks to last month’s release of the Panama Papers, which comprise the largest information leak in history, we know that at least 12 current or former heads of state have circumvented taxes. One of those figures was British Prime Minister David Cameron, the beneficiary of a family fund established by his father. Cameron’s political enemies have been quick to suggest there may be a link between this embarrassing disclosure and the Prime Minister’s eagerness to host this month’s anti-corruption summit. They say that Cameron hopes to repair his damaged reputation by portraying himself as tough on corruption and tax avoidance.
What did the London Anti-Corruption Summit achieve?
In practice, very little. Forty political officials from around the world convened with World Bank and IMF representatives to discuss what to do about tax havens. John Kerry, the American Secretary of State, declared that tax avoidance was as great a threat as terrorism to the world’s economy and security, and urged the international community to tackle the problem. Yet, despite this firm rhetoric, and similar remarks made by other important figures such as World Bank President Jim Yong Kim, only six countries signed up to a proposal to create national financial registries that would make it easier to keep track of tax-payers’ assets and interests. This was a far cry from what Oxfam and other activist groups had demanded — a global registry of companies, properties, foundations, and trusts. One key reason for such limited progress was that the US did not support a global system.
US Secretary of State John Kerry joins British Prime Minister David Cameron at the Anti-Corruption Summit
As renowned economist Thomas Piketty puts it, there is a longstanding gap between the “triumphant declarations of government” and “the reality of what they actually do.” So this outcome raises a key question: Is it realistic to expect global summits set up to tackle problems such as corruption, drugs, or climate change to have a genuine impact? Or are they nothing more than cynical attempts to quell public anger – and ensure that wealthy, politically well-connected criminals can conduct business as usual?
Hans Morgenthau’s seminal work Politics Among Nations (1948) can help us answer this question.
Hans Morgenthau on self-interest, and the limits of morality in international cooperation
When Morgenthau published Politics Among Nations, the dominant theory in International Relations was liberalism, a school of thought that argued that peace and international cooperation were attainable goals. The high tide of liberalism came at the 1919 Paris Peace Conference when US President Woodrow Wilson proposed the formation of the League of Nations (the precursor to the UN), whose mission was world peace. The basic premise behind its creation was that countries could avert another major war by working together through international laws and institutions. However, World War II and Nazism proved that Wilson’s vision was too idealistic, prompting Morgenthau to present a competing theory of International Relations called political realism. He built on the ideas of Thucydides, Hobbes, and Machiavelli, arguing that individuals have an innate tendency toward self-interest. Morgenthau’s theory contrasted with the liberalist views of Aristotle, Plato, Cicero, and Kant, who all believed that politicians could and should base their actions on strict moral principles.
Morgenthau thought this was far too idealistic. He argued that no morals are universal, and that individuals, including politicians (some more than others, of course), have an insatiable lust for wealth, power, and prestige. In his view, prudent self-interest is what ultimately should dictate politics.
In the same way, Morgenthau saw states as groups of self-interested individuals who had diverse interests, and accepted that – while political leaders might claim to stick to strict moral principles – they would always prioritize their country’s power and security over utopian moral considerations. And, unlike the liberal theorists of the past, who stressed the possibility of enduring international cooperation and world peace, Morgenthau believed that human nature dictated that lust – whether for power or money – would dictate political policy, resulting in a mixture of conflict and uneasy balances of power.
“Few men are capable of making a continual sacrifice … to the common good,” he wrote. “It is vain to exclaim against the depravity of human nature on this account.” So the primary check on selfishness is fear of another powerful state – and, in Morgenthau’s view, what stopped the Cold War turning hot was fear of nuclear war, not the existence of the United Nations.
Morgenthau’s theory of political realism was highly influential. It was the dominant theory of international relations from the time Morgenthau published Politics Among Nations until the end of the Cold War, and, even today, it remains one of the three primary theoretical frameworks, alongside (neo)liberalism and constructivism, deployed by political scientists in their attempt to understand and predict inter-state behavior.
What’s more, in recent decades neo-realists such as Kenneth Waltz have extended Morgenthau’s work in ways that help us to understand why politicians are much more likely to be greedy than be moral. Waltz paid less attention to human nature and more to the ways in which the lack of a supreme authority in international relations (known as anarchy) encourages states to pursue power and security. In other words, if individuals or states think they can get away with something because there’s no higher authority that can truly reprimand them, this urge will often supersede moral inhibitions.
What practical lessons does Morgenthau’s work teach us?
Tax evasion is not a new problem. It is a cog in the machinery of capitalism. Morgenthau would argue that the urge to avoid taxes is grounded in self-interest and the insatiable lust of some individuals and corporations to accumulate wealth, power, and prestige. He would also argue that no morals are universal. While much of society considers tax evasion immoral, others might see its neoliberal economic terms as a question of privilege and “the survival of the fittest.”
Finally – Morgenthau explains – international cooperation is always fragile and sometimes runs aground on shoals of self-interest. This was certainly the case at the London anti-corruption summit. Although David Cameron, John Kerry, and other prominent figures urged the international community to tackle tax evasion, few truly have the will or the desire to take on the wealthy, influential individuals and corporate interests that this entails.
Given that the conference was hosted by David Cameron – a tax dodger himself – and that two of the world’s biggest tax havens, Panama and the British Virgin Islands, were not invited to attend, it’s reasonable to wonder if there was ever any real intention that the summit would result in important decisions. As the Columbia University economist Jeffrey Sachs puts it:
“These governments don’t really want to do much because their powerful backers, whether it is in the city of London, or on Wall Street, are fighting very, very hard to keep these loopholes open … There is no more direct example of how the rich and the powerful really control the levers of finance than these tax havens.”
What Hans Morgenthau’s work tells us is that even if the revelations contained in the Panama Papers should concern us, they shouldn’t surprise us. Such are the forces of political realism. Those among us who still yearn for greater social justice may need to close Politics Among Nations and open Kant’s Perpetual Peace.
*Source: “An Economy for the 1%,” Oxfam Briefing Paper, 18 January 2016.
Get a deeper understanding of Morgenthau’s ideas:
- Expert analysis of Hans Morgenthau’s Politics Among Nations