Harrington, Capital without Borders

I first encountered Brooke Harrington’s work in an article she wrote for the Atlantic and was sufficiently intrigued that I resolved to read her book when it was published.

Capital without Borders: Wealth Managers and the One Percent (Harvard University Press, 2016) is an innovative approach to addressing a problem that is even more pressing than income inequality—wealth inequality. Recognizing that the wealthy are “notoriously difficult to study,” Harrington, a sociologist, decided to focus instead on wealth managers. In some ways, however, they are even less accessible. As professionals, they are constrained by privacy considerations. Moreover, as a group they have come under attack for being “agents of money laundering and tax evasion” and are thus suspicious of outsiders. To overcome this barrier to access, Harrington trained for two years to gain certification by STEP (Society of Trust and Estate Practitioners) as a wealth manager herself. Between 2008 and 2015 she conducted 65 interviews with wealth managers in 18 countries.

Fortunately, Capital without Borders is not simply a collection of interviews. It is a well-designed study that proceeds along two lines: (1) Who are wealth managers and what do they do? (2) What are the social and economic ramifications of wealth management as it is currently practiced?

The distinction between income and wealth is central to Harrington’s analysis. As opposed to income, which is measured in the short term and can fluctuate significantly, wealth “confers privilege along multiple, mutually reinforcing dimensions. … While there is some intergenerational continuity of income, the stability of wealth levels across generations is far higher. This is because wealth comes with special economic and political privileges that enable the wealthy to protect and increase their assets better than others.” The top one percent in the U.S. “have captured 17 percent of the nation’s income but 35 percent of its wealth.” And this wealth gap is growing. According to one recent estimate, it doubled between 2003 and 2013.

The primary objective of most wealth managers is to protect and conserve the wealth of their clients. Protecting and conserving wealth entails, among other things, that clients pay as little tax as possible, escape the reach of creditors, and navigate the shoals of divorce and spendthrift heirs. Wealth managers use trusts, corporations, and foundations to “liberate clients from the rule of law.” When legislative action onshore is detrimental to their clients, they take advantage of offshore opportunities.

By protecting clients’ income, steering surplus income toward investment opportunities, and ensuring that their wealth passes as smoothly as possible to subsequent generations, wealth managers “set in motion a kind of perpetual moneymaking machine. Wealth grows, protected by trusts and offshore vehicles, generating more income, feeding more economic resources into the system.” And wealth inequality grows as well.

I have summarized only the main thrust of Harrington’s book here. But the book is rich in fascinating detail, from the historical roots of wealth management to a description of a state system that might be called the “parasitic twin” of the Westphalian model.

Capital without Borders is a book that everyone who cares about fairness, the rule of law, and equal opportunity should read. Even if, or perhaps especially if, you’re in the “one percent.”