BH

No, I would say it’s not. And it’s important to realize that economic studies of all these, say, Silicon Valley entrepreneurs who’ve made new fortunes, reveal that the American belief that anybody can bootstrap themselves up and become the next Steve Jobs is actually not true. That the people who engage in entrepreneurial activity are doing so because they have inherited wealth behind them. They have a private safety net.

So that’s really what drives entrepreneurial activity, it’s inherited wealth. Not necessarily the level of wealth that would get you multiple offshore accounts, but enough so that if you fail multiple times as an entrepreneur, you’re not going to be living in a box on the street. You just get up and do it again. You have family resources to fall back on.

But to go back to the question of what spurred the growth of offshore, according to the sixty-five wealth managers that I interviewed all over the world, it had to do with a couple of things that happened simultaneously. Before I was born, there used to be things called currency controls. Some countries still have them, but what they mean is that you’re not allowed to take more than a certain fixed amount out of the country, and it’s usually rather a low amount.

One of the people who taught me in the wealth management training program was British and he said, “In the seventies, if you were in England and wanted to go on holiday, you couldn’t take more than fifty pounds sterling out of the country with you. It made going on holiday quite difficult.”

So imagine if you’re a company and you wanted to do business, because currency controls applied to you, too. Companies had to lobby for the creation of these legal financial no-man’s lands, which we now know as offshore financial centers, where currency controls didn’t apply. So, Channel Islands of Jersey and Guernsey: they’re technically still Great Britain, so you could get money there, but money could leave those places in much greater quantities than they could leave the main island, England. So people started using Jersey and Guernsey, and other crown dependencies of Great Britain, as conduits to plug into the global economy. That was one thing.

The other thing was that in the seventies, a lot of countries began to develop extensive welfare states, so taxes rose. And a lot of wealthy people didn’t want to pay those taxes. They saw the lifting of currency controls, or the availability of offshore financial centers and they said, “Ah ha. If corporations can use them, I can use them, too.” And they would employ bankers and lawyers to get their personal wealth offshore in the same way that corporations were doing.

That became this massive growth industry that multiplied on itself, like a snowball picking up snow as it rolled downhill, because wealth, as Thomas Piketty has shown, tends to multiply itself much more than other kinds of economic assets.