A general theory of Billionaires - I
by Bhaskar Menon on 16 Jul 2018 2 Comments

Oxfam announced in January this year that a new billionaire had been created every two days in 2017. It turned out to be a serious undercount. London’s Sunday Times reported in May that one had appeared every day — or rather, every 0.97 days. Some other startling facts about the worlds’ super-rich: ?All the world’s 2,754 billionaires together now have $9.2 trillion. Just 47 individuals now have as much wealth as the world’s poorest 3.7 billion people. A staggering 82% of new global wealth in 2017 went to the world’s richest one per cent.


Why is this happening?


There is no ready explanation. In fact, there is no explanation at all. You can look in vain through the reports of the world’s biggest financial institutions and organisations like the World Bank, IMF and OECD. The financial Press has nothing to say, other than describe the various strategies used by the $3 trillion “hedge fund industry.” The lack of explanation is almost as extraordinary as the situation itself, for people have never got rich this fast except through war and genocide, as when the Spanish plundered Inca gold and the British looted India.


A working hypothesis


What’s probably happening is that the British financial elite is emptying out the global black market it has built over the last five decades. The paucity of comment is somewhat like the silence of a family with a grisly family member chained in the basement. Here’s the story: How the Global Black Market Got Started.


The global black market is rooted in the opium trade the British East India Company foisted on China from the second half of the 18th Century. Its managerial elite included the rich and famous of three continents who acquired stakes in the business when opium was the most valuable commodity in world trade. The British Crown acquired much of its current wealth from its one-third interest in the East India Company, which had a monopoly of Indian opium exports until 1834. In the United States, the “China trade” accounted for many fortunes, including that of John Jacob Astor, who at his death in 1848 was the wealthiest man in the country. Opium was one of the early interests of India’s Tata family, which gives its name to the country’s largest multinational corporation.


To begin with, the opium trade was entirely legal – or to put it another way, in the days of European colonialism, everything was legal in Africa, Asia and Latin America. How it got illegal is a complicated story we come to a few paragraphs down. 


The only country strongly against the opium trade from the beginning was China; but when it tried to stop the trade ruining millions of Chinese lives, Britain fought two “Opium Wars” to keep the business going. The first (1839–1841) resulted in expanded drug imports and the loss of Hong Kong Island to the British. The second (1856–1860) forced Peking to open up the whole country to the drug trade, hold Europeans immune from Chinese law, and lift the ban on the export of indentured labor.


But that history is balanced to some extent by the “One Country Two Systems” deal Margaret Thatcher made with Deng Xiaoping in 1984 to return Hong Kong to Chinese sovereignty. The unadvertised core of the deal was that in return for letting Hong Kong continue as Britain’s primary money laundering center in Asia, China would get an unconditional flow of investments. That deal rescued China from the ashes of Mao Zedong’s brutal economic policies and put it on its current path.


To understand how all these strands come together in the 2017 multiplication of billionaires, we have to follow a tangled skein of unexpected consequences. It begins with the agreement at the end of the Second Opium War that Chinese indentured laborers would be allowed to go to the United States without restriction. That was necessary to meet the labor shortage imposed by the end of slavery and manpower losses due to the Civil War; it was needed to build the infrastructure for accelerating industrialization.


Unforeseen Consequences

The Chinese influx into urban America created “Chinatowns” in many cities, and among the comforts they provided for newcomers were “opium dens.” The drug itself was not a major concern to Americans, for opium was already widely available, peddled by snake-oil salesmen and sold at corner drug stores under various brand names, including Heroin, the Bayer Corporation’s patented remedy for feminine discomforts and colic in babies. What did raise public alarm was a vividly racist campaign by a California newspaper about the danger of Chinese men debauching White women in opium dens. The sensational charges carried all the way up to the United States Congress, which banned opium in 1905.

Meanwhile, Baptist missionaries in the Philippines (which the United States acquired after its 1898 war with Spain), had begun a campaign to stop the opium trade globally. Washington took up the cause as it maneuvered in China to distance itself from European Powers, and under American pressure, an International Opium Convention was agreed to in 1912. It banned a trade that had been a significant source of colonial revenues for some 150 years and, not surprisingly, had no more effect than the Manchu edicts of the previous century.

When the League of Nations tried to implement the ban after the end of the First World War, British merchants delegated trafficking to criminal Chinese “Tongs” (secret societies), and in short order the whole trade disappeared from view. The British confined themselves to banking the enormous profits, establishing the Hong Kong and Shanghai Banking Corporation in March 1865. It is now HSBC, Britain’s (and Europe’s), largest bank. From the beginning, it has laundered the proceeds of the opium trade, leading the way to a system that in the second half of the 20th century developed into a structured support system for organised crime, most importantly the drug trade.


The “War on Drugs”


International efforts to deal with drug trafficking has been a saga of continuous failure. To shore up the 1912 Convention, the League of Nations adopted a number of instruments but succeeded only in spreading corruption to new areas. In 1923, a Vienna-based International Criminal Police Organisation (ICPO) was established, but it too made no difference, especially after the Nazis overran Austria and moved the ICPO headquarters to Berlin. After a post-war cleansing, the ICPO changed its name to its telegraphic address and continued to be ineffective as INTERPOL.


In 1961, the United Nations rationalized the various international drug laws into a Single Convention, to which a decade later was added the Convention on Psychotropic Substances (amphetamine-type drugs). By then the punitive approach had ramified widely. States were required to punish “cultivation, production, manufacture, extraction, preparation, possession, offering, offering for sale, distribution, purchase, sale, delivery on any terms whatsoever, brokerage, dispatch, dispatch in transit, transport, importation and exportation of drugs.”

None of the treaties takes note of the money laundering arrangements that support drug trafficking. The CEOs and senior managers of banks that launder drug money are as complicit as drug lords and pushers, but have always been magically exempt from the requirement that “imprisonment or other penalties of deprivation of liberty” be the punishment for “any other action which in the opinion of such Party may be contrary to the provisions of this Convention.” Not that there is any reason to believe that incarceration would discourage bank employees any more than it has traffickers.

Those failures have made no impression on votaries of drug prohibition, for every new treaty since the 1912 Convention has prescribed new punitive measures. The 1988 United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances imposed on States the obligation “to extradite or prosecute accused drug offenders, to provide mutual legal assistance, to cooperate in restraining and confiscating drug proceeds or property of corresponding value and to engage in law enforcement cooperation.”


Those arrangements cover not just drugs but also “precursor chemicals” - including such common substances as acetone, hydrochloric acid and sulfuric acid. They have led to surveillance of pharmacists and employees of stores selling drug-related materials or paraphernalia in “suspicious” quantities. Major retail chains of those innocuous substances have been pressured into “voluntary” participation in control programs and bank records of everyone involved have been open to police inspection.

All this has not made a dent in drug trafficking or use, but it has legitimized the brutal practices of autocratic regimes and seriously eroded the basic norms of democratic societies. Rogue elements in police forces and intelligence agencies have invoked the threat of drugs to mistreat, imprison, and murder people with impunity in countries around the world. In countries like Indonesia, Malaysia and Iran execution has become a routine punishment for drug trafficking; in the Philippines under the presidency of Rodrigo Duterte (since 2016) the police have taken to murdering suspected traffickers without any legal procedures whatever.


Spies, Cartels, Jihadists, “Leftists”


During the first half of the Cold War the opium trade was centered in the “Golden Triangle” of Burma, Laos and Thailand; by its end Afghanistan had become the primary source of illicit opium. In the former, various ethnic mafias were engaged in drug trafficking; in the latter, groups claiming to be motivated by “extremist Islam” were the traffickers. In both cases, British and American intelligence agencies were in the background, providing arms, finance and other facilities to process and market the drug. In Afghanistan, Saudi Arabian and Pakistani agencies were also involved. After the end of the Cold War, American and Saudi involvement in the Afghan drug trade appears to have ended but British and Pakistani engagement seems to have strengthened.

While the Asian drug trade was passing into its Afghan phase, the cocaine trade in the Americas was brought into the global black market. The Bahamas, which gained independence from Britain in 1973 but remained closely linked to London’s financial industry, became the key logistical center. In 1979, Carlos Lehder, a Colombian with a German father, bought a 165-acre property in the Bahamas and turned it into a refueling point for small planes smuggling cocaine from Colombia to the United States. In very short order, cocaine use in the United States went from being a high-society indulgence - described by Newsweek in 1977 as “de rigueur at dinners” of the smart set, passed around “like Dom Perignon and Beluga caviar” - to a street drug in decaying inner cities.

In the 1980s, cocaine replaced coffee as Colombia’s main crop and Lehder became a founder of the Medellin cartel. The FARQ guerrilla movement took on the government of Colombia as it tried to bring drug trafficking under control, dragging the country into the hemisphere’s longest civil war. Western mass media steadfastly reported the FARQ as “Leftist.” In September 2012, weeks after the Obama administration hit Britain’s HSBC Bank with a $1.9 billion fine for money laundering and other criminal violations of American laws, FARQ sued for peace in Colombia.


Mass Media


That coincidence escaped the attention of mass media, which reported without irony that the money laundering had been a matter of managerial oversight. In a masterpiece of comic understatement, an analyst on the BBC even described HSBC’s multi-trillion dollar money laundering as an “amazing lapse of concentration.” However, the charges levelled against HSBC did cause a rare shift of media attention from the violence and criminality of drug trafficking to its financial aspects.

None of the major news organisations reported what researchers at the UN Office on Drugs and Crime (UNODC) had revealed, that only two per cent of the proceeds of drug trafficking stayed in producing countries. The UN did not say, but the remaining 98% presumably went to those managing the money laundering arrangements.

There was also little investigative zeal to find out who had taken over HSBC’s Latin money laundering business or how Central America and Mexico were affected by the end of the Colombian cartels. Curiosity remained dead even as the extreme violence accompanying changes in the region sent waves of hapless asylum seekers to American borders. However, President Trump waxed indignant over “illegal” asylum seekers and his opponents raged against the despoliation of American values in separating parents from children in the custody of US Immigration authorities.


(To be concluded…)


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