Brittain-Catlin, William. 2005. Offshore: The Dark Side of the Global Economy. New York: Picador.

This impressive book by William Brittain-Catlin tells the story of the vast “offshore” world that forms an integral—if unacknowledged—part in the globe’s financial architecture. The offshore is a strange interstitial place forged by the enmeshed logics (and contradictions) between capital and the state, between the legal and the illegal, between the territorial and the extraterritorial. The Cayman Islands, as an exemplary and formative case, occupies much of the narrative and analysis. The British Territory also clearly displays the contradictory forces make and unmake the offshore’s peculiar functionality to capitalism and territorial states.

Cayman emerged in the 1960s as a capitalist vanguard, making it “not merely a depository for global capital, but a business-backed state with a mission to increase the flow of capital toward its shores. It is a seller of novelties on the financial market, a sweatshop for capitalism, developing new flavors and recipes for increased returns” (9). Cayman, of course, has also played an infamous role in some of the world’s most recent corporate scandals—Enron, Global Crossing, Parmalat, the list goes on. Usually, its offshore accounts have helped corporations maintain high stock and bond prices by obscuring their monstrous losses. More often, Cayman has been one of many offshore financial centers that allow corporations to sail under the radar of tax regimes by a practice known as “transfer pricing” (48-53), whereby companies basically trade goods and services with their own shell companies at deflated prices in ways that reduce their profit margins on paper. Enron, for instance, had 692 subsidiaries registered in Cayman alone in 2000—a common corporate practice.

Beginning in the late 1960s, Cayman quickly went from being a sleepy Caribbean outpost, to financial powerhouse in just a few decades with some 580 banks and trusts registered along with 65,000 companies, which far outnumbering its population. By the end of the 1970s, more than $30 billion Eurodollars—the trade in which helped spur the country into action—were booked in its offshore accounts. In 2000, Cayman is said to have had some $800 billion in U.S. deposits (double the amount of all the banks in NYC combined) and almost 20 percent of all U.S. dollar deposits. Brittain-Catlin ends the book as the pressure of more oversight and regulation put a serious dent into its offshore paradise in the wake of 9/11, but the place remains the fifth-largest banking center in the world.

All this is based on a curious relationship between the state and capital: “In fundamental terms, the Cayman company is a cover front for real flesh-and-blood individuals elsewhere, who have no connection to Cayman as an actual country, but who nonetheless ‘inhabit’ Cayman exclusively for the purposes of doing business outside Cayman” (24).

The offshore, tax haven system boomed after the Second World War when U.S. capital directed by corporations began an unprecedented wave of foreign direct investment. These companies began facing the possibility of their profits being taxed twice—by both the U.S. and their host country. The offshore network provided a means of intense growth for corporations and the U.S. economy more broadly. Corporations effectively created internal markets within their own financial domain through wholly owned subsidiaries, allowing them to move around resources and using marginal differences and fluctuations in national tax codes to their advantage, thereby reducing their tax burdens (sometimes all the way down to zero). Secrecy also allowed companies like Enron to purge massive losses from its balance sheet. Unless, of course, “losses” are used to reduce tax liability at home, on-shore. “The strategy of keeping as much profit offshore and exporting financial losses onshore in order to claim large tax refunds from the state—out of public funds, and in exchange for rising public taxes—is, as we have seen, common business with U.S. multinationals” (88).

The exploitation of offshore benefits becomes a necessary competitive move, both for corporations and states themselves—being permissive in regards to offshore practices is the only way of attracting foreign investment and companies. “There is no real separation between state and capital—they form a totality—but there is great antagonism and contradiction between them” (119). Brittain-Catlin makes a philosophical interlude midway through the book that explores how offshoring exposes the contradictions immanent to liberal notions of freedom. Related, he also points to the tensions between rootlessness and fixity exhibited, respectively, by capital and the state: “Capital’s intrinsic transformative qualities, its mobility and flexibility over space and time; the state’s inherently fixed and stable nature, and the state’s relation to the wild transformations of capital—to its containment, control, and stabilization” (120). Modernity’s shuttling between the forces of freedom and control, genuine human freedom loses out, while the fiction of freedom becomes the pretext for coercion.

With onset of financial crises in the late 1990s, offshore centers became vilified by the rich countries of the world as a key source of instability; they called them “gangster states” (185). The offshore world that had been actively created by OECD members was now being singled out as the prime culprit. With 9/11, the tide further turned against the financial havens. Larry Summers, of all people, derided “the dark side to international capital mobility” (194). The offshore world, whether in “respectable” or criminal form, had taken the principles of neoliberal political and economic theory toward what these self-righteous and hypocritical reformers believed was a dangerous extreme.

What they had failed to come to terms with was that the onshore and offshore economies had become inseparable and symbiotic: “There is little distinction between he good and bad use of capital in the global economy. The secret realm—for better or for worse—is there at every move and twist and turn it takes. The secret realm, much less its worst excesses, cannot be distilled away; it is the essence of the global economy” (199)

(William Brittain-Catlin: If you see this post, please email me at the following address: . There’s something I’d like to discuss with you.)

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