The Paradox of Plenty: When Offshore Finance Makes Countries Poorer
You know the resource curse. Countries discover oil or diamonds, and instead of everyone getting richer, everything falls apart. Venezuela had the oil. Sierra Leone had the diamonds. Afghanistan sits on $3 trillion in minerals. All of them ended up poorer, more violent, more corrupt. The wealth attracted predators and destroyed what little stability existed.
Chapter 4 of Offshore by Brooke Harrington takes this idea and applies it to offshore financial centers. And it fits perfectly. Too perfectly.
The Finance Curse
Economists have a name for it: the finance curse. When a small country builds its whole economy around selling financial secrecy to rich foreigners, the same pattern unfolds as with oil or diamonds. The money flows in, but it doesn’t go to locals. Instead, the entire country reorganizes itself around the needs of people who don’t even live there.
Here’s the thing. On paper these places look prosperous. GDP numbers look great. But scratch the surface and you find locals who can’t afford housing, democratic institutions hollowed out, and governments that answer to international elites instead of their own citizens.
Legal scholar Kojo Koram puts it well. Despite elections and politicians and all the appearances of democracy, “the network of tax havens weakens the ability of democratic actors to take any decisions that would harm the financial markets.” The democracy becomes a show. The real decisions are made elsewhere, by people with money.
Jersey: The Company Town
Jersey, in the Channel Islands, used to be held up as the model. The success story. A small island that got rich through financial services. But the wealth went to expat bankers and their firms, not to ordinary Jersey residents.
The story of journalist Leah McGrath Goodman shows how deep the rot goes. She wasn’t even investigating finance. She was looking into child abuse at a care home called Haut de la Garenne, later called the “house of horrors” by British media. But the financial services industry on the island worked to suppress the story because bad publicity of any kind might scare away clients.
Goodman was deported. Interrogated at Heathrow for hours. Banned from the entire British Common Travel Area for two years. Jersey’s own chief of police said he was suspended for pursuing the child abuse case because it threatened the island’s “secrecy culture.” The former health minister fled to London and received political asylum. From Jersey. A British territory.
When the financial industry of a small island can get a journalist banned from an entire country, and force out a police chief for doing his job, that’s not prosperity. That’s a captured state.
Panama, Luxembourg, and the Two-Country Problem
Panama is a striking example. Its economy has been booming for decades. Financial services bring in 7 percent of GDP. The Panama Canal brings in billions more. But poverty has grown to over 20 percent. A quarter of the population lacks basic sanitation. Indigenous people, 13 percent of the population, are almost completely shut out of any benefits.
One Panamanian wealth manager told Harrington he always reminds his billionaire clients that people live in cardboard boxes under bridges two miles from where they sit. “They don’t like it, but they haven’t fired me yet,” he said with a grin.
The founder of Panama City’s daily newspaper put it simply: “We still have two countries, a First World country that’s going gangbusters, and half an hour away, a Fourth World country.”
Luxembourg is the same pattern in a European suit. Highest per capita GDP on the continent. But 60 percent of the workforce is foreigners commuting in from neighboring countries. A full one-third of the country’s GDP goes into the pockets of people who don’t live there. Meanwhile poverty for locals has doubled since 1980, housing prices tripled, and the education system is in “accelerated decline.” Economist Gabriel Zucman says Luxembourg has become less a country than a free-trade zone for the ultra-rich.
The Contagion of Lawlessness
But here’s the problem that Harrington keeps returning to. It’s not just about money. When a country makes its living by helping rich people evade laws, that lawlessness spreads.
Harrington experienced this personally. In Mauritius, a taxi driver and a government official who was supposed to be her escort sexually assaulted her on a dark road through sugarcane fields. What scared her most was their casualness, their total confidence that nobody would hold them accountable. And she was right to be scared. Shortly after, the US State Department flagged Mauritius for using police to harass and jail foreign journalists investigating financial crimes.
In the Cook Islands, someone broke into her hotel room while she slept with her young child. The police officer told her this kind of crime happened often, particularly near where the wealth management offices were located. A Maori fisherman she met afterward told her crime had shot up since the financial services industry took over. “Everyone calls us the Crook Islands now,” he said. “They’ve got our government in their pockets. I hate what they’ve done to my country.”
That fisherman’s words stayed with me. This is a person who watched his own country change, watched the corruption spread from finance into everything, like an infection. The offshore industry didn’t just take money from these places. It took their social fabric.
In Malta, journalist Daphne Caruana Galizia was murdered by a car bomb in 2017 for investigating offshore-connected corruption. Minutes before, she had posted to her blog: “There are crooks everywhere you look now. The situation is desperate.” Two aides of the prime minister were implicated. Older Maltese pointed toward Sicily and said, “You expect something like this to happen over there, but not here.”
London Is Not Immune
You might think this only happens in small, poor countries. But the finance curse doesn’t stay offshore. London has earned the nickname “Londongrad” because of vast Russian wealth distorting its housing market, legal system, and press freedoms. Wealthy foreigners buy mansions as investment vehicles, not as homes. The houses sit empty. Meanwhile regular people who work in London spend half their paychecks on rent.
Housing purchases by foreign buyers doubled between 2011 and 2021, driving prices up 20 percent. Those buyers use offshore shell companies to dodge sales taxes, so the government loses revenue at the same time. Less money for services, higher costs for locals. The UK that built the offshore system is now being eaten by it.
Oliver Bullough, who writes about offshore finance, runs “kleptocracy tours” of London. He drives tourists around showing them mansions bought with looted money from Russia, Nigeria, Kazakhstan. That’s where the tourism industry meets the finance curse.
The Trap With No Exit
So here’s what happened. After the Panama Papers, over three hundred leading economists, including Thomas Piketty and Nobel laureate Angus Deaton, signed an open letter saying tax havens have “no economic justification” and need to end.
But who is going to end them? The politicians who use them? The countries that depend on them? Once offshore finance becomes a monoculture, once it dominates your economy and your government, there is often nothing left to build on if it leaves. These countries are trapped. They sold their sovereignty, and now they can’t buy it back.
Botswana is sometimes mentioned as a country that escaped the resource curse. It used strong democratic institutions to distribute diamond wealth fairly and diversify its economy. But the lesson from Botswana is hard to apply to offshore finance. Diamonds don’t move. You can control who mines them and how the revenue is shared. But offshore capital is mobile. The moment a country tries to regulate it, the money threatens to leave. The rich hold all the leverage.
Economist Jeffrey Sachs, one of the signatories to that letter, concluded simply: “They just need to end.”
He’s probably right. But I don’t see how, and this chapter doesn’t give me much hope either. The people with the power to change things are the same people benefiting from the system. And the ordinary citizens in these offshore centers, the fishermen and sugar farmers and teachers, they don’t have a voice in the conversation. Their countries were sold out from under them, and most of the world never noticed.
This is post 6 of 8 in the Offshore by Brooke Harrington retelling series.
Previous: Zombie Colonialism Next: This Side of Fiscal Paradise