Why Panama Matters; By Asad Umar

[Why Panama Matters; By Asad Umar]During the past 30 years or so the world has seen a rise in inequality in almost all parts of the world. There are more than one reasons for it but one key factor has been the change of rules in favor of capital and against labor. The labor markets are still relatively strongly controlled with visas and work permits regulating who will be allowed to work in which part of the world. Capital on the other hand has become increasingly free to go to whichever destination provides the highest returns and in some cases the greatest secrecy.As a result economies around the world have competed to provide higher and higher returns to capital , with decreasing tax rates as one of the principal means of achieving this end. The logical conclusion of this race to the bottom of lower tax rates is ofcourse zero tax. Some localities particularly those with very small populations and small size chose to go this route. Then some of them decided that zero tax rates coupled with complete secrecy was the lethal combination which could provide just the right environment for attracting the illicit wealth accumulated by drug dealers & arms merchants as well as criminals dressed up as politicians , civil and military officers, businessmen , media mughals and other members of the corrupt elite of the world. According to one estimate the total amount of illegal wealth in the world amounts to more than 7.5 trillion dollars.Though this phenomena is not restricted to the developing world, its impact is particularly devastating for countries like Pakistan. There are several dimensions of the negative fallout of this flight of capital for Pakistan. The first and foremost is the incentive for corruption as it becomes easy to hide your wealth in these secret investments making it very very difficult for authorities to detect wealth generated through corruption even if they wanted to which is highly questionable in PakistanSecondly due to this moving offshore of illicit wealth the tax revenues get curtailed as the money does not show up in the official economy and gets transferred abroad. Third the national savings rate remains low as large amounts of national wealth are stashed abroad rather than in Pakistan.As a result the country remains poor and under developed. With low tax collection the state does not have sufficient funds to educate its citizens or provide them with the health care they need. The infrastructure needs are underfunded and hence productivity and competitiveness of the economy declines due to the combination of these factors. Which means low exports and recurrent negative trade balances which need to be funded by more and more foreign debt. At the same time the middle class and the poor are further crushed under the burden of unfair taxes in the shape of heavy indirect taxes as the corruption money evades direct taxes.Hence as the corrupt elite become richer with their looted wealth stashed abroad the people remain poor and the country sinks deeper and deeper into a debt trap. This is exactly the state of affairs Pakistan finds itself in. Unless we find a way to block the flow of illegal wealth abroad we will continue to dig ourselves deeper into this hole with little hope of escape. In the history of nations events happen which galvanize the nation and create a national resolve to deal with their biggest challenges and change the direction in which the country is travelling.The Army Public School attack was one such event which galvanized the nation to fight the menace of terrorism and defined the national narrative for carrying out this fight. The leaking of the Panama papers is another such event. While no obvious terrorists are involved and no one was seen killing people with guns, the consequence of this mass scale corruption and the hiding of the created wealth in secret offshore accounts and companies is exactly the same. People in Pakistan are dying because of poor nutrition and lack of health care. One third of the population of the country is living below the line of poverty because they have not been given the required education and skills . More than half the net federal revenues go into servicing our debt. We are borrowing to pay back our loans and to pay interest on them. This devastation is equivalent to economic terrorism.We must generate a national narrative to fight this menace of corruption and flight of capital. We cannot allow the white collar criminals raping and pillaging the nation to continue to go scot free. The world is changing the rules of business and punishing the corrupt wealth holders. Pakistan should not just join the fight but be in the lead as few other countries have been ravaged by this disease like Pakistan has been. Our future and that of our children is at stake. Lets not waste any more time. Lets not lose any more children of this nation or destroy future lives for the lack of will to fight this menace.