The Panama Papers and the Tragedy of the Commons


Wake up , sheeple! Flickr: robin1966 (CC-BY-2.0)

The tragedy of the commons is an old economic theory from the 1970s  which basically says that if there is a shared resource, and some people in the community have an incentive to overuse that resource, they’re going to. Even if that means that the entire community,  including themselves, suffer.


The classic example is a public, common pasture – what they used to call “the commons” – which is being grazed on by the sheep or cows of the entire village. Each individual farmer has incentives to let way to many sheep onto the commons. The rewards of getting extra sheep to market go straight into the individual farmer’s pocket. But he doesn’t pay the full price for the damages. Oh no: the damage done to the entire community is shared by the entire community. It’s the classic example of private rewards versus socialised risk.

I’ve  been hearing a lot lately about the book Evicted by Matthew Desmond. A sociologist studying housing, poverty and evictions in the American urban poor who has managed to bottle something of the essence of poverty and made people see what it’s really like as an experience.

I thought this review in The Guardian made me want to read it, but also captured some defining insights into  poverty, which have been swirling around in my head too, these days, but for entirely different reasons:

What if the dominant discourse on poverty is just wrong? What if the problem isn’t that poor people have bad morals – that they’re lazy and impulsive and irresponsible and have no family values – or that they lack the skills and smarts to fit in with our shiny 21st-century economy? What if the problem is that poverty is profitable? These are the questions at the heart of Evicted, Matthew Desmond’s extraordinary ethnographic study of tenants in low-income housing in the deindustrialised middle-sized city of Milwaukee, Wisconsin.

I think this idea – what if the reason there is so much poverty is that it is profitable to other people? – is a profound insight. In fact, I think that one sentence is so deep you could build an entire economic policy around it. That sentence shows us how our economic life has devolved into a tragedy of the commons. Through overuse of certain kinds of public resources, the economic elites are creating a common, public tragedy. They are manufacturing poverty for their own good.  They’re probably not thinking about it in those terms,  but they’re doing just exactly that.

Recognising the humanity of the impoverished, and helping empower them to become a political force is a first step towards seeing a way out of it.

What is important is that Desmond takes people who are usually seen as worthless – there is even a trailer-dweller nicknamed Heroin Susie – and shows us their full humanity, how hard they struggle to retain their dignity, humour and kindness in conditions that continually drag them down.

The main condition holding them back, Desmond argues, is rent. The standard measure is that your rent should be no more than 30% of your income, but for poor people it can be 70% or more. After he paid Sherrena his $550 rent out of his welfare cheque, Lamar had only $2.19 a day for the month. When he is forced to repay a welfare cheque he has been sent in error and falls behind on rent, he sells his food stamps for half their face value and volunteers to paint an upstairs apartment, but it is not enough. People such as Lamar live in chronic debt to their landlord, who can therefore oust them easily whenever it is convenient – if they demand repairs, for example, like Doreen, or if a better tenant comes along. Sherrena liked renting to the clients of a for-profit agency that handles – for a fee – the finances of people on disability payments who can’t manage on their own. Money from government programmes intended to help the poor – welfare, disability benefits, the earned-income tax credit – go straight into the landlord’s pocket and, ironically, fuel rising housing costs. Public housing and housing vouchers are scarce. Three in four who qualify for housing assistance get nothing.


Flickr: tonythemisfit (CC-BY-2.0)

The reason I’m thinking about this idea of the tragedy of the commons so much, obviously,  is the recent revelations about the Panama Papers. I’ve already written a lot about them, but it’s worth noting that our entire economic system has been shown to be scaffolding built around a concealed structure intended to facilitate the tragedy of the commmons. The economic and political elites are dragging the rest of us down. They’re undermining our welfare states, our democracies.

It’s hard to estimate exactly, but most experts say that something in the range of $ 21 to 32 trillion is invested or secured in tax havens. That’s an insane amount of money.  It’s a number so big you can’t wrap your head around it, but maybe this will help: it’s roughly ten times an annual budget for the US federal government. Or a little under half of the gross world product for one year. That’s everything produced in the entire world in a single year. 

But that’s a static figure. Another estimate is more keyed into the dynamic production of values. It says that at any time, anywhere from 3 to 5 % of any country’s GDP is disappearing to tax havens. Or, by some estimates, as high as 20 %.

That’s actually, believe or not, worse. That means that at any given time, the public goods being produced are being dragged down. The government is being leeched so it can’t bear the economic burden of producing both a viable welfare state and other social goods, as well as a productive economy.

At any  given time, all countries are struggling to make ends meet, and we are locked into an endless cycle of needing to grow to cover the deficits produced by tax evasions.

This is unsustainable. And in fact, it is a classic case of a tragedy of the commons.

Let’s end by focusing on that one word, though: tragedy. Because that’s what this is. I just talked a lot about this as being a theoretical, economic problem. But economy is directly about the way we live our lives.

The urban poor in their decrepit housing, being evicted, unable to find stable footings: that’s the misery being produced by tax evaders. Every time a welfare state is unable to provide proper elder care to the old and dying, that’s capital flight. When the political elites cut public spending and schools, roads, police and child protective services need to be cut, the financial district is almost certainly to blame. The victims of all these cuts and disasters need to be seen for what they are: fully human, deserving of the chance to rise. But they are not seen as that. And they are not given that chance.

That’s the real tragedy underlying so many of our public ills. It is a tragedy that requires a common solution.


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