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Author: Kimberly Kay Hoang, Professor of Sociology, University of Chicago
Over the past decade, exponential growth rates have transformed Southeast Asia into a successless success of 21st century capitalism. However, behind the facade hides an underground disturbed world, maintains the sociologist at the University of Chicago, Kimberly Kay Hoang, in her book Spiderweb Capitalism. Thanks to the work in the field in Vietnam and Myanmar and the interviews with hundreds of initiates, it exposes a complex link of bankers, accountants, lawyers, bureaucrats and investors who facilitate the flows of capital by the through screens and financial centers like Singapore to hide the origin of dirty money, allowing capital to occur elites to accumulate obscene quantities of wealth. In addition, after the 2008 financial crisis, the West lost its supremacy on the border markets, with an increasing China which is not forced by Western regulations which gain the upper hand. Is corruption a price to pay for the ascendant of Asia? In an exclusive interview with Alex Katsomitros de World Finance, Hoang shares his reflections on the origins of this troubled ecosystem and how to untangle it.
What is spider capitalism?
We generally consider the world capital movement as the transition from the capital of the nation A to B. Spider capitalism is a system which presents a complex network of subsidiaries, offshore screens and silver flows interconnected in several countries which obscure the origin of the capital. Offshore financial centers have enabled economic and political elites – often the same people in developing economies – to guarantee exclusive and almost legal opportunities for wealth accumulation. These are multi-layer offers sometimes not available on the public market.
I differentiate the “large spiders”, the “ultra-high-nn-noue (Uhnwis) individuals whose capital flow through these canvases, and” smaller spiders “: individuals with high name of Uhnwis, but bearing criminal and reputation risks. Each element of the web is connected by various finance professionals: bankers, lawyers, accountants, public relations agents. They are deliberately obscured from each other in their relationship with the web. Each specialist builds a game, but they do not know how the other parts are built.
What are the dynamics of power between Uhnwis and Hnwis?
I use the words “coordination” and “sabotage”. There are cases where they build these canvases together. But between emerging and developed economies, there is also sabotage. You have joint ventures between local investors and entrepreneurs from abroad where the first will find ways to launch the foreign investor by mobilizing the laws on capital restriction or by initiating the State to issue taxes. There can therefore be coordination at first and sabotage towards the end as a means of consolidating resources. Sometimes there is also a protective approach to the local economy with regard to natural resources, such as oil, gas, minerals.
Do HNWIS aspire to become Uhnwis?
Many Uhnwis that I studied were formerly HNWIS that have become richer. Hnwis finally wants to become Uhnwis, but it is more nuanced than a simple story of greed. Inequality has become broader since 2008. We have thought that the financial crisis would democratize the system with the Occupy Wall Street movement. What I discovered during my research is that there are variations in one percent, and we must make the difference between 0.1% and the rest.
What is difficult to understand for the public is that HNWI feel economically precarious. We can make hypotheses that it is just greed, but it is deeper. Their socio-emotional feeling is generally middle class. They speak of securing the future of their children, higher education costs, of helping them buy houses. It is therefore less a question of wanting to appear on the list of forbes and more of the fear of late. It motivates them more than anything else.
An aspect of spider capitalism is what you call “relational capitalism”, which includes “homosocial liaison rituals” like wild nights. Is it specific to Southeast Asia or a wider phenomenon?
I first captured these rituals in my book Do a desireWhere I argued that the Vietnamese sex industry plays an important role in cement relationships of trust between political leaders and private entrepreneurs. In spider capitalism, I speak of mutual hostage and destruction relationships. Thanks to these experiences, they build homosocial bond rituals, but it is also a way to get dirt. If something is wrong with an agreement, they can free up on the photos of the media of their partners during orgy celebrations.
When you do not trust the rule of law and each bureaucrat can interpret the laws differently, the relationships are crucial to move in the regulatory apparatus. They are particularly important when something is wrong. If there are corruption or back tax costs, how do you manage this? You go to bureaucrats. Even in relations between entrepreneurs, how do you trust your partner? This is why relational capitalism is important in these economies.
At the start, I thought it was a very Asian way to do business. I gave talks in the United States and Europe and bankers told me that their rituals are not so different. Before 2008, striptease clubs and prostitution were a large part of culture.
The Epstein affair is very western. If a businessman fits with high -level politicians, notably Bill Clinton, Prince Andrew and Donald Trump, who knows what dirt he had on them? It is therefore perhaps more generalizable and not culturally specific to Asia, but we have no empirical evidence.
You mention in the book that the United States is the greatest offshore jurisdiction. So, was this system born in the West?
My research subjects would remind me several times that this system has been invented in the West. He dates back to colonialism, the British Empire and the small sovereigns linked to it. Delaware has always been there, and we claim that this is not the case. Interestingly, after the flight of Panama’s papers, Mossack Fonseca moved their head office to Delaware. In the words of my research subjects, the biggest gangsters are in Delaware!
One thing that is different in Asia is that when you have an authoritarian state, relocation is a mechanism that makes investors feel that they can protect their investments against the arbitrary capture of the State. They fear that the state can capture assets at any time. We see that in China at the moment, because Xi Jinping has accusations of corruption to consolidate power.
Offshore structures have a bad blow, but if you adopt a conservative economist approach where you do not want to stop any investment, it is a mechanism to protect assets as much as a means of escaping taxes.
Is corruption a price to pay for rapid development?
Many representatives of the government believe that if there was a repression against corruption, this would affect their net profit and that capital would cease to come. They examine how fast development has been, even in authoritarian states like China. Some hoped that Myanmar would jump Vietnam by presenting a democratic state with the election of Aung San Suu Kyi. It turned out that the military always had a strong grip on the economy and that the capitalists of cronyism would not suddenly disappear. China and Vietnam have experienced rapid growth, but inequality is extremely wide. We imagine this economy with delay, but many people have been dispossessed. They have a better infrastructure, but they did not withdraw from it.
For many economists, however, Vietnam is a success. So what is the good balance between pro-growth and anti-corruption policies?
It is a short -term success. What will it look like in 20 years? Much of growth is linked to money from other countries. For example, sovereign funds channel massive private investments through these offshore vehicles. With spider capitalism, it is difficult to differentiate the funds from sovereign and private investors. China, the world’s largest lender, uses offshore vehicles to hide its origin as a state capital.
China has a long -term vision that the West does not have because of our electoral cycles
They form sealed companies that make private investments in these countries and offer loans that will have to be reimbursed in 20 to 50 years. Many people I studied told me that China is a more benevolent lender than the West, pointing to bad loan practices of the World Bank and the IMF in Latin America as an example of what will not follow. I would therefore ask economists to take a long -term view. Can we build models that project in 20 to 50 years, in particular with the China’s Belt and Road initiative? China has a long -term vision that the West does not have because of our electoral cycles.
Does the West lack investment opportunities in the border markets being too moralist compared to China?
When the West dominated the global economy, having global laws around corruption was logical. We now live in a different world with the rise of China. You have competition for investments around the world. I sympathize with Western investors forced by things such as the law on foreign corruption practices. JPMorgan Chase paid hundreds of millions of fines for the Sons and Daughters program in Hong Kong. Meanwhile, their competitors from China, Russia, even Eastern European countries, do not have to respect these laws. Does this mean that we should allow corruption? The answer is no, it’s just that we do not live in a world where there is a cross -border collaboration. Due to geopolitical conflicts, China, the United States, Europe and Russia will not share information on oligarchs that dislocate their funds.
So how can we untangle this web?
Berkeley Gabriel Zucman and Emmanuel Saez economists have suggested a global asset register. It’s very optimistic. A challenge is that we ask regulators to regulate themselves. The only way is the separation between political and economic spheres: regulators and private investors. We see less with the renewable doors system where people spend years working in the American regulatory apparatus, then working for Wall Street. In Asia, political and economic spheres are one and the same thing. Separation is therefore the solution. This means that local and foreign investors could not capitalize on their political ties, and it would harm their results, so I don’t know how it could happen. Vietnam is a young economy. There is a new generation increasing, people who have been educated abroad and have a broader vision of the world. Not an attitude of “received”, but a more nationalist perspective and focused on the community which concerns the long -term point of view. It may be the future.