Half a kingdom offshore

Since the early 1990s, Russians have withdrawn as much money abroad as they have left in the country.

Studies of the scale of the transfer of money from Russia to preferential tax jurisdictions confirm the darkest fears of economists and politicians. The offshore capital of domestic companies has reached 62 trillion rubles - this is comparable to 72% of Russia's annual GDP and three times more than the country's gold and foreign exchange reserves. A handful of super-rich Russians and major companies keep about the same amount of money in accounts in Panama (read our special project “Offshores. Opening”), in Cyprus and in other offshore zones, as the rest of the population inside the country has left. Or, to use another comparison,

the elites brought abroad the monetary equivalent of the entire Russian economy in the mid-2000s.

Of course, such information cannot be found in official statistics. These are the calculations of three of the world's leading experts on inequality - Tom Piketty, Gabriel Zukman and Philip Novokmet (all three come from the Paris School of Economics, but Zukman now works at the University of California). Economists prepared the report "From Soviets to Oligarchs: Inequality and Property in Russia, 1905-2016", published by a private research organization from the United States - the National Bureau of Economic Research.

Most often, Piketty and his colleagues collect and analyze global datasets, but this time they devoted a detailed article to a single country. This is due to the special trajectory of Russia's development after the collapse of the USSR - the offshorization of the economy and the income gap between the rich and the poor have reached critical values ​​here, which are not characteristic of either developed countries or other post-communist regimes. For the authors of the report, this is an example of an extreme form of oligarchic capitalism, which confirms their central thesis about the incompatibility of a high level of wealth inequality with the sustainable development of the country.

And while Piketty's methodology is constantly criticized for lack of data reliability (the use of Soviet-era government statistics raises the most questions), the conclusions of the main academic star in economics and the author of the world bestseller "Capital in the 21st Century" cannot be ignored.

In any country in the world, the owners of large capital are engaged in inventing various ways to minimize tax payments - economic incentives work the same everywhere. Zucman, in his previous work, calculated that $ 7.6 trillion is in the world's offshore zones. In 2014, the top 50 US companies held $1.4 trillion in tax havens, according to Oxfam.

However, in relative terms, this is only 8% of the US economy. About the same percentage of their wealth is stored abroad by European elites. Returning these assets to their home jurisdictions and injecting them into the tax base would certainly provide a powerful boost to the fight against inequality, but the quality of life of the average American or European would probably not change too drastically.

Can the same be said about Russia? Here, offshore companies play a fundamentally different role.

Due to corruption and the lack of institutions for the legal protection of business, the Russian economy is deprived not just of a small part of corporate superprofits, but of almost half of its potential assets. The failure of the deoffshorization campaign shows that the problem here lies much deeper than in the case of Western countries. Russian businessmen seek not so much to evade the almost preferential income tax of 13% - on the contrary, in other jurisdictions they are ready to pay twice as much, just to avoid Russian tax authorities and courts.

Even if we omit the question of the origin of the offshore fortunes of the Russian rich, the possible social gain from the return of this money to Russia looks extremely significant. The most conservative estimates predict 400-500 billion rubles of additional tax revenues to the budget each year - this is the amount of federal spending on health care in 2016.

If at least part of this money is invested in the Russian economy, the effect can be much stronger. For example, the strategy of the Stolypin Club assumes that the Russian economy lacks 1.5 trillion rubles a year in the form of business loans to grow. Economist Mikhail Dmitriev proposes to allocate the same amount to finance infrastructure projects.

However, this is empty talk - rich Russians who have made their fortunes both in the private sector and in the civil service have a completely different idea of ​​Russia's "national interests".