Introduction:
The Stakes Could Not Be Higher

WE ARE AT AN INFLECTION POINT. The two basic components of the democratic-capitalist system are at risk of splitting apart. This poses an existential threat to human progress in the twenty-first century, paralleling the importance of climate change.

How did we get here? How can we prevent this from happening?

An absolutely essential element in fighting a kinetic war or waging a political battle is to understand your opposition, study its strengths and weaknesses. The degree to which capitalism has taken control of the two-part system guiding our lives is inadequately understood. This book addresses this gap and charts a path forward.

Over the last half century, capitalism has created the means by which trillions upon trillions of dollars, euros, pounds, and other stores of wealth can move and shelter invisibly, out of sight and beyond the control of central bankers, revenue authorities, law enforcement agents, and international institutions. With this level of financial secrecy now available to and dominating capitalist operations, riches move inexorably upward, accelerating economic inequality. Rising inequality is directly imperiling—weakening, obstructing, and degrading—democracy.

Across recent decades and particularly over the last 15 years a great many organizations have taken up determined fights against poverty, climate change, terrorism, ethnic division, gender discrimination, money laundering, and corruption and concentrated battles against drugs, human trafficking, wildlife poaching, antiquities theft, resource plundering, cybercrimes, tax evasion, and a multitude of other serious concerns. All of these problems are complicated by and many are direct symptoms of the larger truths now entrenched in the core of the democratic-capitalist system: motivations and mechanisms moving and sheltering money unseen, uncounted, and unknown. The fact is, organized efforts combating many of our most serious national and global problems cannot succeed when major parts of the capitalist system are working in purposeful contradiction to such efforts.

Who should care and why?

•   The policy arena comprising legislators, government officials, think tanks, nongovernmental organizations, and activists needs to understand the financial secrecy system and how it undercuts well-intentioned programs aimed at policy innovations and civic improvements.

•   Scholars and educators need to expose students, particularly at the university level, to how capitalism today differs from its roots and how many of its routine practices produce inequality, cross into illegality, and threaten democracy.

•   Multinational corporations must face up to what has become fundamental within everyday business operations—separating ownership from control, divorcing price from value, and disconnecting sellers and buyers. Then dealing with these disjunctures, take proactive steps to assure executives, managers, and staff that in the performance of their jobs they are not committing felony offenses.

•   All of us—citizens and consumers—need to grasp that the financial secrecy system created in recent decades impacts the origin, quality, and cost of the clothes we wear, cellphones we use, energy that powers our cars and heats and cools our homes, rent we pay, fees on our bank accounts, movies we watch, jewelry we wear, airplanes we fly in, political messaging we absorb, votes we cast, and indeed the nature of the democracy in which we live.

Much of what follows draws upon original research and published materials, including my personal observations and experiences across many decades in the United States and in a hundred other countries. My earlier book, Capitalism’s Achilles Heel, delved into dirty money as it impacts the majority of the world living in developing countries. Since the book’s publication in 2005, the concept of illicit financial flows has been embedded into the global agenda, with 193 countries now committed to curtailing this problem. I have asked myself many times, “Why not just leave what I have to say at that?” And the answer is that in recent decades I have observed so many of the issues I confronted in the developing world and wrote about in Capitalism’s Achilles Heel coming home to roost in the wealthier world. Widening economic disparities, social unrest, challenges to democracy, violence, even threats of authoritarianism— as so frighteningly demonstrated on January 6, 2021, in Washington, D.C.—are no longer concerns only of “those countries over there.” No, these kinds of concerns are now also here, whether “here” is supposedly stable societies in the Americas or Europe or Asia or Africa or elsewhere. The entire world is affected by perversions arising within capitalism that are working to undermine democracy.

Throughout these pages, “capitalism” and “capitalist,” “democracy” and “democratic,” are often presented as conscious realities speaking in their own voices. These tenets are treated as living structures, currently at odds, needing to rediscover the harmonies recognizable in past years. I shift back and forth between these two concepts, as their intertwined relationship is a key component within these writings. Democratic capitalism is often referred to here as a “system,” since its dual components working together establish a systemic linkage that is expected to be mutually reinforcing. Instead, capitalism is now subordinating democracy, imperiling the whole system.

Observations and arguments, words and graphs, are laid out as clearly as possible. The climate change issue informs this approach. Scientific research into global warming accelerated in the 1960s and 1970s but took decades to become more broadly understood. United Nations conferences weighed in, and Al Gore finally succeeded in securing the issue into global consciousness with his films, speeches, and writings. The young Swedish activist Greta Thunberg stood poised in front of global forums and challenged older generations “How dare you?”

In a similar vein, issues currently surrounding democratic capitalism, particularly issues of widening inequality and rampant illegality, are at the moment principally the purview of scholars and experts. Capitalism and democracy are in growing conflict with each other, yet this confrontation remains largely contained within the specialized journals of academics and professionals. Instead, learned analyses need to be simplified and extended into mainstream thinking. The gravity of this conflict must be grasped at the popular level, in the same way that climate change is now grasped at the popular level, if it is to be resolved.

This is intentionally a rather short work, conveying a lucid picture rather than myriad details. The focus is on capitalism. Democracy itself has problems that need to be addressed in years to come, but that would be the subject of a different work. Here, I concentrate on the eroding interactions of capitalism with democracy, offering an alternative understanding of the relationship today of one to the other. By the end of this brief journey together, I hope that the depth of the problem within democratic capitalism and the recommended path toward renewal will be evident.

This book takes two avenues into its subject matter, striving to be both informative and evocative, conveying both understanding and feeling, because our intellects and our passions, our heads and our hearts, are required to solve our shared problems.

Permit me to repeat one thing said in my earlier writings. This is not an anticapitalist screed. Democratic capitalism is, in my judgment, the best system yet devised in political economy, but dysfunctions within its capitalist component are undermining the two-part system.

We begin in part I with an explanation of the motivations driving the financial secrecy system and how resulting behaviors are generating and sheltering trillions of dollars in underproductive wealth. This system directly promotes corruption, crime, terrorism, economic inequality, and weakening democracy.

Part II illustrates how these realities further corrode the commonwealth, with chapters devoted to the facilitating activities and impacts of banks, corporations, enabling lawyers and accountants, governments, and international institutions and concluding with the limiting role played in policy silos that are missing the bigger picture.

Thus, the strategic approach taken in parts I and II explains and portrays the continuum of motivations powering, mechanisms operating, and outcomes resulting from ill dealings within capitalism.

Finally, part III brings home the precarious state of our chosen economic and political system. Do the current confluences of pandemic, privation, protests, and political division set the stage for change? How— pragmatically and specifically—do we reset capitalism so that it contributes to shared prosperity and sustained democracy? And in conclusion, the philosophical notion that character is destiny urges that we marshal the power of reason to improve prospects for progress in this age.

Change can and must come if the hinge of political economy is to pivot toward strengthening both equality and justice. Reforming capitalism is a necessary step toward strengthening—indeed saving—democracy. The stakes could not be higher.