by Irene Caratelli
Associate Professor of International Relations and Global Politics in the American University of Rome

Hard power is about the economic clout (e.g. money, bonds, assets) that political leaders, mafia bosses, banks, law firms, drug traffickers and the like have, secreted or not. Soft power is about making people want what you want (Nye, 1990), which in the business world would be a synonym to marketing. Soft power is much more though, as it relates to a cultural hegemony. The cultural hegemony of the capitalist market system that has been imposed since the late 1980s have thrived so that politics often ends up wanting what Big Actors want.


The Panama Papers are not telling us soImething we were not aware of before, but the magnitude and the amount of people in the criminal and non-criminal world involved comes as a shock. When you get one scandal a day you have your dose. The International Consortium of Investigative Journalists (ICIJ) gave us an overdose. A good one, hopefully. 

Prime Ministers (e.g. Iceland, the UK and Ukraine), Banks (e.g. UBS, Experta Corporate & Trust Services, Credit Suisse, HSBC, Société Générale Bank, Landsbanki Luxembourg, Rothschild Trust Guernsey Limited) andLaw firms (e.g.Mossack Fonseca, the world’s fourth-largest law firm providing offshore financial services) are involved in massive scandals from either a legal or ethical point of view. As stated before, there are also mafia bosses, arms dealers, billionaires, drug traffickers and celebrities in the list. Why should the latter not be named one by one? Of course they should, but there is a crucial difference between what a prime minister, a bank, and a law firm represent, and what a billionaire, an arm dealer, and mafia bosses represent.

Some of the scandals brought up by The Panama Papers are illegal, others raise ethical questions but are still legal. There are two problems here. First, what is illegal should be punished, but the magnitude of the scandals is somehow telling us that illegality is tolerated, at best. Second, what is politically, economically and legally feasible will have an impact on what people can do – billionaires, celebrities, bankers, law firms, drug traffickers, arms dealers, and mafia bosses alike. Politics should be brought onto the stage, since the focus should be on the political, ethical, and legal objectives and boundaries States have, should have, and actively promote.

The claim here is that we should not hope that companies, banks, law firms, or even prime ministers act as charity organizations, sharing the wealth equally with employers and workers around the world, paying taxes, not polluting, and/or (even!) respecting human and labor rights. If something is to be expected, it must be imposed and enforced.

The most important cultural change brought by globalization is the idea that economics comes first and politics follows with its complex and lengthy processes and procedures. We should go back putting politics before economics, democracy before the economy, so that the economy serves political purposes. Each country will define and determine which political purposes will and should guide the economic realm. Even libertarians à la Hayek (i.e. extreme laissez-fair capitalists), have a political agenda. Negative and positive economic liberties are always informed by a political idea. The point here is that the absence of politics from the economic domain is as political as the presence of politics in the economic domain. The only difference is the ideology, which is guiding the action (non-action) of governments. The market is not a ‘natural’ institution but a political one. A government is needed to enforce the rule of law, property rights, and competition policies, all essential to have a functioning market system. Politics will establish the extent of market freedom and market limits according to the prevailing values. Politics left the power to the market. Politics can regain power over the market. To be sure, it is argued here that politics should reestablish its democratic sovereignty over the market.

During the ages of slavery people (both white and African-Americans) were socialized to slavery, not even thinking of questioning that kind of economic and political system. Today we tend to do the same with the market economy, as if it was the result of necessity and not a deliberate political choice. This is the cultural hegemony of the current capitalist system (soft power), which is subject to the influence of people who seemingly have nothing in common (e.g. politicians, celebrities, billionaires, drug traffickers, bankers, lawyers, businessmen, mafia bosses, arms dealers). These people created un unchecked ruling transnational economic oligarchy who grabbed a relevant share of global wealth (hard power). A cultural shift is needed to restore the hierarchy between states and markets, between democracy and the economy.

The battle to have more democracy in the economy is a political one, not an economic one. This battle has two dimensions. First, a national one: each country must establish the core values and principles that companies, banks, law firms and people must respect, promoting a form of democratic economy. Countries do not live in isolation however, and globalization is making countries more and more integrated and interdependent. This leads us to the second level, the transnational dimension. Countries should agree on a minimum level of principles that Governments, National and Multinational Companies, Banks, and Law firms must respect. The crucial battle is at the transnational level given that no country alone is able to face challenges that are beyond the national dimension: tax evasion; money laundering; drug trafficking; arms smuggling. This means promoting a form of transnational economic democracy and transparency.

The challenge of course is that multinational corporations, banks, mafia organizations, and billionaires, have often an economic and political power equal or superior to that of democratic and non-democratic states alike (hard power).This is an excuse though. The power could be in the hands of politics, if only politics wanted to get it back. States have been reluctant to establish rules and limits on the international financial system. The 2007 financial crisis was a clear demonstration of this, and the Panama Papers are just a further proof. Some governments (e.g. the United States and some member states of the European Union) have been fighting to push blacklisted governments famous as tax havens (e.g. Switzerland), but now some of these governments are on the list of ideal locations hosting anonymous shells companies (e.g. Delaware and Nevada in the United States).

Imposing rules and limits on what Governments, Banks, Law firms, and Multinational Corporations can do seems as alien today as it was alien until 1971 the idea that women could vote in Switzerland. Women gained the right to vote in federal elections after a referendum in 1971 in (democratic) Switzerland. In 1959, in a previous referendum on women’s suffrage, the majority of Switzerland’s men(67 per cent!) rejected the proposal that women should have the right to vote. The majority can rule against the minority, but minorities (e.g. African Americans, women) have historically proven to be able to fight unequal rules, rulers, and powers. Even democratically. Promoting stronger democratic economies and a minimum level of transnational economic democracy is not very popular, yet. The actors who fear losing money and power, should hope instead that this cultural shift will happen peacefully.