Corruption in India - 5

The issue of “black money” is one of the focal points of the current debate about corruption in India but neither the discussion nor the proposals to deal with it show any understanding of the phenomenon. This is not surprising, for corporate mass media have done little to illuminate the issue. A brief history lesson is necessary to show its real nature and magnitude.

The term itself is historically recent. It came into popular usage only after the emergence of the global black market in the 1960s, itself the result of European colonial Powers adjusting to the loss of their empires. Britain led the way, for it had several decades of relevant experience: after the first Opium Convention of 1912 banned the lucrative drug trade into China (an American initiative foisted on the reluctant Europeans), the British simply took the whole business underground. Its corporations  became drug runners and its banks became adept at laundering the huge revenues of the trade.

 When decolonization transformed Africa, Asia and the Caribbean in the decades after World War II, the European colonial Powers, again led by the British, did two things. One was to ensure remote control of the territories they gave up, either by transferring power to a co-opted native group or by arranging fratricidal conflicts that allowed them to manipulate the “newly independent” countries. Secondly, they put in place a new institutional support structure for a system of transnational crime that replaced colonialism.

It consisted of over a million shell companies (corporations with unidentifiable owners and assets), and nearly 80 “tax havens” or “offshore financial centres.” Most of this globally distributed system consisted of bits and pieces of former European empires. There were two primary hubs to the system, perennially neutral and passive Switzerland with its long tradition of sheltering criminals and their assets, and The City (financial centre) of London, continuing its actively predatory policies.

The system now receives and manages a mindboggling amount of hot money. Washington-based Global Financial Integrity (GFI) reported in 2009 that developing countries were losing between $858 and $1.06 trillion annually. In 2005 London-based Tax Justice Network (TJN) estimated that the world’s High Net-Worth Individuals held some $11.5 trillion in offshore tax havens. In 2010 the International Monetary Fund estimated that just the “small financial centres” (i.e. excluding Switzerland and London), held some $18 trillion in secret assets. The overall size of the underground economy is anyone’s guess. The United Nations estimated money laundering in 2010 at two to five per cent of global GDP: $800 billion to $2 trillion. The base from which the laundering takes place must necessarily be much more.

These criminal flows have become indistinguishable from the aboveground economy which processes electronically over $1.9 trillion per day, or nearly as much as the total annual amount of U.S. exports and imports. Much of the illicit flow is from tax havens into the aboveground economy; the available estimates do not include assets moved in the form of cash and other untraceable items, but even incomplete, they are impressive. The United Nations Conference on Trade and Development reported in its 2010 World Investment Report that the flow of Foreign Direct Investment (FDI) from Hong Kong in 2009 was more ($52.2 billion) than those of mainland China ($48 billion). Tiny British Virgin Islands had more FDI ($26 billion) than all of oil-rich West Asia ($23 billion) or the “Tiger” economies of South-East Asia ($21 billion). India’s FDI in 2009 was $14.8 billion.

In terms of FDI stock (cumulative total), Hong Kong has $834 billion and the British Virgin Islands $224.8 billion, adding up to more than half the FDI stock of the United States and dwarfing China’s $229 billion and India’s $77 billion. States have been very half-hearted in coming to grips with money laundering; there is no mandatory international framework of rules and regulations, and no initiative to ban shell companies or tax havens. The main vehicle for preventive action is a Financial Action Task Force (FATF) which has issued 40 non-binding guidelines.

Against this background, it is obvious that unilateral action by India cannot hope to bring black money home. The problem is not internal to India; it is global.

However, public discussion of the issue should help focus attention on the fact that we cannot continue to sleepwalk into “development” as currently envisaged. The problem is not only that corporate globalization cannot ensure prosperity for all without destroying the planetary environment. It is also a vast engine of corruption deeply inimical to democracy.

If we are to continue the Indian renaissance that began four centuries ago with Kabir and Guru Nanak and found its slow but sure-footed way to Gandhi, we will have to find an alternative means of generating wealth consonant with our traditions and under democratic control.