Imelda Marcos loves David Rockefeller?

Imelda Marcos Loves David Rockefeller?

ACCORDING TO James S. Henry in a recent New Republic, two things happened simultaneously in the 1970s. Banks lent billions of dollars to Third World governments, and Third World rulers turned around and stashed billions of dollars in U.S. bank accounts. Often the shift was accomplished by a couple of bookkeeping entries, the money never actually leaving New York. The result is that the U.S. may in fact be a net debtor with respect to Latin America, while poor Latin populations are saddled with a debt they can ill repay and from which they never benefited. U.S. banks can never hope to collect the full value of the loans. Only the looters have won.

It's a dramatic story, and the awful part is that for some countries, and within a first approximation, it's true. In Mexico, former President Lopez Portillo is widely rumored to have sent a billion dollars abroad during his six-year reign, and his successor, de la Madrid, was last reported also to be setting money aside in Switzerland. Mexican matrons go in for haute couture as avidly as Imelda, but benefit from the perfume of an anti-American national foreign policy.

The problem, then, is all too real, but Henry's proposed solutions would either not work or make things worse. He wants to pry open what remains of U.S. bank secrecy, focus public outrage on the "private international banking" operations of major U.S. banks, and in general enact new rules here and abroad to choke off "capital flight." (Most of the Mexicos of the world already have harsh rules against the export of dollars.) But even if we abolished the freedom of our own financial system in order to end its incidental benefits for foreign tycoons (or, for that matter, drug smugglers), hot money could readily go elsewhere, at the cost of some inefficiency in recycling the deposits back into the world economy.

Capital-flight controls at the other end, however, the Mexico end, might work all too well. The problem is that capital flight is the resource of the worst elements in Third World society, but also the best; of the expropriators, but also of those they seek to expropriate. Insecurity of property tenure is the fundamental economic problem in countries like Mexico and the Philippines, and rules against capital flight make it worse. Long before Marx's Communist Manifesto called for confiscating the property of all rebels and emigrants, controls on capital flight had become a chief weapon of tyrannies.

The ruling elite that enforces the regulations can typically get around the rules itself; it is the honest who suffer. Until we can distinguish between ill-gotten and well-gotten fortunes, attacks on capital flight will make sense only for those who would rather see wealth destroyed than see emigrants rich.