Dr. Teck Ghee–Lim on Thomas Piketty’s Capital

October 5, 2016

Dr T G Lim on Thomas Piketty’s Capital

We need bold solutions to our growing problem of inequality. A wealth tax on what is classified as illicit financial outflows would be a good beginning.

Image result for thomas piketty capital in the twenty-first century

The publication of the book, “Capital in the Twenty-First Century” by French economist, Thomas Piketty in 2013, immediately ignited a controversy among economists on both sides of the Atlantic. This debate still continues today.

The issues raised by the book touch on the forces that drive and shape the accumulation of capital. This is of special interest to many people primarily because it deals with the key dilemma of how wealth is distributed in society and what should be done to ensure its more equitable distribution. Such questions have preoccupied social scientists and scholars going back in time to Karl Marx and even before him.

In his work, Piketty analysed data from 20 countries – some going as far back as the 18th century – to uncover what are the key economic and social patterns in capital. Among some of his main findings are that the return on capital is greater than overall growth and that the rich have acquired an ever increasing proportion of the economic pie.

These findings by themselves appear to be unsurprising or controversial although some critics have faulted his data and basic assumptions. What has provoked fierce dissent are his proposals to correct this phenomenon through what is seen as a ‘soak the rich’ approach so as to bring about greater equality. This strategy proposes counter measures such as higher income and inheritance taxes as well as a progressive tax on wealth levied globally to prevent the rich from evading their contribution to the state coffers.

Image result for thomas piketty capital in the twenty-first century

Piketty’s policy proposals have mostly been dismissed as a non-starter. In the United States, for example, a wealth tax is regarded as illegal as well as unconstitutional whilst in Britain, it has been pointed out that “eating capital is the best way to impoverish a nation, reduce productivity growth and keep wages down…societies where the most successful entrepreneurs are rewarded by the state seizing their assets don’t prosper,” (Allister Heath, “Thomas Piketty’s bestselling post-crisis manifesto is horrendously flawed”, (The Daily Telegraph, 29 April 2014).

Illicit Financial Outflows

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Malaysia’s Mafioso of Illicit Money

Image result for malaysia illicit money outflow

How these issues and proposals are finally resolved in the West should be of interest to Malaysians as we grapple with our home grown pattern of capital and wealth formation and distribution. In our case though the spotlight initially should be on the more pressing issue of what has been categorized as illicit financial outflows. This outflow of wealth is where Piketty’s proposal for a global wealth tax could be immediately applicable.

Recently, the Global Financial Integrity (GFI), a US-based anti-corruption watchdog estimated that Malaysia was fifth in the world on cumulative total illicit financial flows (‘IFF’) since 2003. For 2012 alone, this amounted to approximately U$49 billion (approximately RM170.7 billion) and over the cumulative 10 year period from 2003-2012, illicit outflows was estimated at a staggering US394.87 billion. If taxes were levied on the illegal outflows, the country’s finances could have benefitted to the tune of tens of billion US dollars .

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Readhttp://www.ipsnews.net/2016/04/opinion-illicit-financial-flows/– Professor Dr. Jomo Kwame Sundaram’s Opinion Piece here

Bank Negara Malaysia has disputed the GFI figures, saying that the estimates of illicit outflow were overstated as the estimates in trade mispricing had not been taken into consideration. The central bank argued that the GFI estimates were essentially unrecorded financial flows, which were not necessarily synonymous with illicit financial outflows.

However, BNM left unanswered the key question of what part of the IFF was caused by illicit transfers. In the language of GFI, these are “cross-border transfers of funds that are illegally earned, transferred, or utilized. These kinds of illegal transactions range from corrupt public officials transferring kickbacks offshore, to tax evasion by commercial entities, to the laundered proceeds of transnational crime.”

While the GFI study has been helpful in providing some hard data on the quantum of the illicit financial outflows, it does not provide much assistance on key details such as who are responsible for the outflow; the countries of fund relocation; etc. At this stage, we can only hazard a guess as to the likely individuals or parties involved in the non-transfer pricing outflow. The most likely culprits are those who have been able to accumulate considerable wealth and who find it expedient to conceal their wealth accumulation as well as to diversify their wealth havens and assets away from Malaysia.

Names which come to mind will include, for example, Taib Mahmud, the former Chief Minister of Sarawak who together with his immediate family is reputed to have shares in more than 330 companies in Malaysia alone and more than 400 companies in total around the globe worth several billion US dollars.

Various quarters have questioned the legitimacy of the wealth accumulation engaged in by the Chief Minister and his family members. A recent article in the blogsite, Sarawak Headhunter, provides in-depth details into what is alleged to be the income stream of the Chief Minister’s financial vacuum machine. But until a proper and full study is undertaken, we will have to assume that Taib Mahmud and his family’s wealth has been legally accumulated and has been taken out of the country with the full blessing of our financial authorities. Even then, such wealth should be eligible for taxation if Piketty’s proposal of a global tax on assets is implemented.

We need bold solutions to our growing problem of inequality. A wealth tax on what is classified as illicit financial outflows would be a good beginning.    


3 thoughts on “Dr. Teck Ghee–Lim on Thomas Piketty’s Capital

  1. Really? They have no realistic proposal to just reduce blatant stealing, enforce laws on simple fund transfer and political funding, and he proposes to deal with complex illicit fund flows and income inequality?

    Before getting smart on things you are amateur at, one should first succeed in that you should be able to do.

  2. His book is not easy to read. It was translated from French. It is based on his Ph.D. thesis from MIT. I tried to read it from cover to cover but failed.

  3. I’m afraid Dr Lim is wide of the mark, even if his heart’s in the right place. Anybody reading the actual GFI reports would know that 90%+ of the “illicit” financial flows from Malaysia is a transfer pricing/trade mispricing problem.

    For one thing, this does not involve any financial “flows” at all – it’s a matter of accounting. For another, it’s multinationals, not individuals. We actually researched this, and I had the privilege of talking to the person directing BNM’s investigation into the matter. Most of it involves MNCs in the electronics industry (the other biggie is oil & gas; again MNCs), and the main recipients are China, Singapore and Hong Kong. A wealth tax here would do less than nothing; its primarily a corporate income tax issue a’la Apple or Google.

    There’s also a serious flaw in GFI’s reporting. They characterise all unrecorded outflows as “illicit” but never mention inflows. Using the same methodology, “illicit” inflows into Malaysia are just as large as the “illicit” outflows. On balance, Malaysian flows appear to be net zero.


    I actually found the book surprisingly readable. I’ve read both academic papers or translations from French that were many times worse.

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