09 November 2016
Capital without Borders
Wealth Managers and the One Percent
2016, Harvard University Press, 400 pages,
Reviewer: Ian Bright
This is a useful and engaging book. Its main value is explaining what the wealth managers for the world’s richest people do and how this is changing. Among other things, the book describes how informal arrangements between the wealthy and their trusted advisers are being formalised, with internationally organised management.
This change has been driven by at least four developments.
First, increasing numbers of high and ultra-high net wealth individuals come from Asia, Africa and South America. Europe and the United States no longer dominate. Demand for people who understand wealth management is increasing.
Second, the liberalisation of capital controls that began in the 1980s allowed wealth to be shifted more easily to places with lower taxes and less transparency.
Third, sources of wealth are no longer likely to be immobile. In the past, land was likely to be a major source of wealth (land cannot be moved); wealth nowadays can be associated with intellectual property, which can be moved more easily.
Fourth, some countries actively encourage wealth managers to set up within their borders. Regulatory arbitrage has become a form of competition between countries.
The author argues persuasively that these changes in the way the wealth management industry operates have implications for the perpetuation of inequality and the sovereignty of nations. The discussion about inequality will not surprise those aware of the literature on the topic. However, it is rightly noted that many studies of inequality concentrate on income, whereas the author concentrates on the greater inequality in wealth. The book notes much of the industry is designed to preserve, rather than grow, wealth over generations within a family or dynasty – and the mechanisms developed will be difficult to dismantle.
The threat to national sovereignty occurs just as wealth managers are increasingly playing a role in advising on tax laws, not just in tax havens but even in the UK where Parliamentary Agents have privileged access to Parliament.
The author is an associate professor in sociology at Copenhagen Business School. To aid her research she gained a professional qualification in wealth management. By doing this she was able to gain acceptance by a restricted group and have conversations with its practitioners. Not all these conversations were pleasant: the industry prefers a low profile. The process took nine years and cost hundreds of thousands of dollars.
This book is an easy read: some may be tempted to dismiss it as journalism. This would be an error; the book makes a valuable addition to more formal studies of inequality and the organisation of tax havens.