David Frum

03.18.13

21st Century Cronyism: Quite a Profitable Game!

Are you keeping up with the banking crisis in Cyprus? No?

Well let me try to make it more interesting to you.

Start by reading the piece in this month's Vanity Fair about the most expensive apartment building in London, One Hyde Park.

The key to understanding this project, where apartments can sell for dollar prices in the nine figures, is this one fact: almost none of the buyers are British.

Perhaps the most striking fact about One Hyde Park and the London super-prime property market is what it tells us about who the world’s richest people are. Many people think the greatest winners of globalization today are financiers. A decade or so ago, that may have been true. But today another class sits above even them—the global commodity plutocrats: owners of mineral rights, or dominant players in mineral-rich countries in sectors such as construction and finance that benefit from commodity booms. Hollingsworth notes in Londongrad that the oligarchs he studies became rich “not by creating new wealth but rather by insider political intrigue and exploiting the weakness of the rule of law.” Arkady Gaydamak, a Russian-Israeli oilman and financier, explained his elite view of accumulating wealth to me in 2005. “With all the regulations, the taxation, the legislation about working conditions, there is no way to make money,” he said. “It is only in countries like Russia, during the period of redistribution of wealth—and it is not yet finished—when you can get a result. . . . How can you make $50 million in France today? How?”

Russia’s former privatization czar Anatoly Chubais put it less delicately: “They steal and steal. They are stealing absolutely everything.”

Now to Cyprus.

The island of Cyprus is home to about 1.1 million people, or about the population of Fairfax County, Virginia. This smallish jurisdiction is home to one of the world's largest banking industries, holding deposits equal to eight times Cyprus's GDP. Where'd that money come from?

The short answer is: the same places as comes the money to purchase the apartments at One Hyde Park.

This kind of money does not arrive uninvited. Britain has chosen to make itself a tax haven for dirty money. Cyprus has chosen to allows its banks to act as global money launderers. When deciding how much hardship to impose on ordinary EU or British taxpayers, it needs to be kept very much in mind for whose benefit is the hardship being imposed.