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Global wealth chains in the

international political economy
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Leonard Seabrooke & Duncan Wigan
a
Copenhagen Business School, Denmark
Published online: 06 Feb 2014.

To cite this article: Leonard Seabrooke & Duncan Wigan (2014) Global wealth chains
in the international political economy, Review of International Political Economy, 21:1,
257-263, DOI: 10.1080/09692290.2013.872691

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 Review of International Political Economy, 2014
Vol. 21, No. 1, 257–263, http://dx.doi.org/10.1080/09692290.2013.872691

COMMENTARY
Global wealth chains in the international
political economy
Leonard Seabrooke and Duncan Wigan
Copenhagen Business School, Denmark
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As this special issue demonstrates, the literature on Global Value Chains

(GVCs), Global Production Networks, and Global Commodity Chains
continues to provide important insights into the governance and organi-
zation of production and distribution networks. The continuing promise
of these investigations is that knowledge about processes of information
sharing enables developing countries to compete in the world economy,
and that the wealth arising from production can better reflect where
value is created. This commentary piece suggests that GVCs (hereafter
‘value chains’) co-exist with what we call Global Wealth Chains (GWCs
or ‘wealth chains’). This co-existence undermines many of the develop-
ment objectives articulated in research on value chains. We define Global
Wealth Chains as linked forms of capital seeking to avoid accountability
during processes of pecuniary wealth creation. By accountability we
mean fiscal claims, legal obligations, or regulatory oversight. Global
Wealth Chains are commonly located in offshore jurisdictions, but these
places are not only the Caribbean islands we imagine as ‘tax havens’, but
also include London, Amsterdam, and Singapore, among many others.
Further, wealth chains are articulated not only through cartographic and
sovereign spaces but also within financial products such as hybrids and
derivatives.
We suggest that wealth chains are the yin to the yang of value chains.
While actors in value chains share an interest in transparency and coordi-
nation, those in wealth chains thrive on rendering movements through
the chain opaque. Wealth chains hide, obscure and relocate wealth to the
extent that they break loose from the location of value creation and
heighten inequality. This commentary piece suggests that investigating
the relationship between value chains and wealth chains is a much
needed research agenda that is not currently being adequately addressed
by scholars and policymakers.

Ó 2014 Taylor & Francis

 REVIEW OF INTERNATIONAL POLITICAL EC ONOMY

Research on value chains has provided important tools for locating

value creation, allocation, and capture, producing thick descriptions on
how value chains work in practice that are nested in typologies of gov-
ernance and transaction complexity and codification (Gereffi et al., 2005,
Ponte and Sturgeon, this issue). While the literature on value chains
provides a number of important insights and has had a significant
impact on transnational policy development, it has been largely silent
on the link between value chains and financial and legal innovations
created by firms, lawyers, and investors (with some notable exceptions,
see Williams, 2000; Milberg, 2008). Of course scholars of value chains
have a different empirical focus, but our claim here is that value chains
must be understood alongside wealth chains. The rationale for doing so
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is straightforward: understanding the dynamics behind Multinational

Corporations’ (MNCs) global strategies, and the opportunities they
may provide for developing countries, is incomplete if the legal and
financial aspects that condition these dynamics and opportunities are
neglected.
Recent literature on MNCs highlights how firms rely on global ‘search
networks’ to collaborate in ‘specialized codesign’ through experimenta-
tion and learning in particular contexts (Saxenian and Sabel, 2008: 381).
Attention has been placed on innovations in design and production but
one of the other things they are searching for is ways to avoid taxes and
hide capital. Tax avoidance and evasion1 occurs at the intersection
between variegated national tax systems. This variegation can be found,
for instance, in the definition of residence for tax purposes, the identifica-
tion of hybrid financial instruments as debt or equity or more simply in
the rate of corporate taxation. As a result, MNCs are able to locate assets
and liabilities and build global corporate structures so that profits are
taxed at a low rate, if at all, and also provide any losses and liabilities the
highest deductions possible. While any state can act as a defense against
another state’s fiscal claim, much of this activity is located in jurisdic-
tions,2 that engage in ‘commercializing sovereignty’ by designing regula-
tory and legal systems with the specific purpose of attracting
disproportionate volumes of mobile capital (Palan, 2002). As of 2013
there is widespread agreement that more than 50 countries qualify as off-
shore jurisdictions. The British Virgin Islands (population 22,000) hosts
more than a million international business companies and the Cayman
Islands (population 46,000) is the fifth-largest banking centre in the
world. In a situation where more than 60 per cent of all trade is intra-
company, 70 per cent% of all capital flight is conducted by means of
transfer pricing (Palan et al. 2010). One third of the world’s foreign direct
investment is routed through offshore jurisdictions and it is now clear
that these jurisdictions are central to global portfolio investment flows
(Coates and Rafferty, 2007). While MNCs operate as integrated entities,

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 SEAB RO OK E A ND WI GA N: G LO BAL WEA LTH C HAI NS

their legal incorporation is divided across jurisdictions according to what

regulatory environments, legal systems and financial products are best
suited to ‘optimize’ tax exposure (Picciotto, 1992). The search for knowl-
edge on how to avoid, and in many cases evade, taxes has parallelled
changes in corporate form and organization. Many international stand-
ards and national tax rules have been rendered obsolete by this evolution
and policymakers are now aggressively playing catch-up. Nowhere is
this more pronounced than in the digital or intangible economy.
Intangible assets, such as patents, and more broadly the knowledge
economy, pose a series of valuation and conceptual problems. While
intangible assets account for between one third to half of the US corpo-
rate sector, and 30 per cent of the value of listed European firms (Uppen-
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burg, 2009: 8), disputes over the value added provided by intangibles
and the role of knowledge in growth remain intractable. Knowledge is by
its very nature hard to measure and uncertainty over the contribution of
intangible assets has left both corporate accounting and the System of
National Accounts in a situation of perpetual catch-up (Perry and N€ olke,
2006). These conceptual and valuation problems are no less apparent in
the area of taxation. MNCs assign values to intangible assets that may be
unique to the firm, which makes it difficult to verify the assigned value
against like assets available on the open market. Unique intangible assets
challenge the utility of the internationally standard Arms Length Princi-
ple in transfer pricing. MNCs may then virtually redistribute these assets
to subsidiaries and holding companies domiciled in offshore jurisdictions
through what we call wealth chains. In this way, the most valuable cor-
porate assets are shifted to jurisdictions where they are subject to little or
no tax. In the digital arena the problem is more acute. The interaction of
nationally differing criteria in testing corporate residency and the dema-
terialized nature of digital service delivery mean that, in economic terms,
a firm may be active in a jurisdiction while for fiscal purposes it is
nowhere to be seen. As a consequence, it is now recognized by the Orga-
nization for Economic Cooperation and Development (OECD) and a
range of international bodies that substantive economic activity takes
place in many countries that is organized via the Internet and permits
those trading to operate ‘without having a taxable presence there or in
another country that levies tax on profits’ (OECD 2013: 7).
In this special issue Henry Yeung notes the role of Hon Hai Precision,
the world’s largest contract manufacturing company, and their capacity to
improve speediness from innovation to delivery with Apple’s iPhone,
which accounted for 58 per cent of its $39.2 billion in revenue in 2012
(Yeung, this issue). Yeung argues that Hon Hai has become disem-
bedded from the Taiwanese state. We agree and add that the firm also
actively seeks to disembed itself from fiscal claims as a company that is
listed on the Hong Kong stock exchange and domiciled in the Caymans

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(Froud et al. 2012: 7). A comprehensive understanding of Hon Hai’s

operations would include both value and wealth chains. How Apple’s
revenue is accounted for is of interest for the value chain in which Hon
Hai is situated, and especially, to our minds, in how firms like Apple
use wealth chains to avoid fiscal claims as part of a strategy to maintain
its market dominance.
This is an issue of some contemporary concern. The shifting of MNCs’
income offshore has grown significantly in the last two decades, with the
foreign share of US MNC pre-tax worldwide income increasing from 37.1
per cent in 1996 to 51.1 per cent in 2004 (Grubert 2012: 3). Accordingly, the
US government has become more interested in the issue of corporate
profit shifting and transfer pricing. A host of digital economy firms have
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recently attracted scrutiny for their tax practices in the wake of the Global
Financial Crisis, but the May 2013 Hearing by the Senate’s Permanent Sub-
committee on Investigations focused on one firm – Apple Inc. – seeking to
understand how it implemented a strategy that successfully cost the US
government $10 billion a year in taxable offshore income by shifting prof-
its away from the US and to Ireland.3 We emphasize that it is not only US
taxpayers who face losses. Firms and states throughout the chain are sys-
tematically disadvantaged by such dominant firm tactics.
Apple’s use of wealth chains is being revealed. Apple established
Apple Operations International in Ireland, which had an income of $30
billion between 2009 and 2012 but filed no corporate income tax returns
and paid no taxes. It also formed Apple Sales International (ASI) in Ire-
land to manage sales to Europe and Asia and relations with Chinese
third party manufacturers, particularly Hon Hai (who also operate
under the better known trading name Foxconn). Over four years from
2009 ASI had an income of $74 billion. During this period, both firms
were tax resident nowhere. American authorities regard the entities as
Irish, while under common law criteria of management and control the
entities are not tax resident in Ireland, where they pay a pittance in tax.4
A long-standing research and development cost-sharing agreement
between Apple Inc. and ASI transfers the development rights to Apple
products outside the Americas to the Irish subsidiary. As a consequence,
64 per cent or $22 billion of Apple’s 2011 pre-tax income was booked
in Ireland, where 4 per cent of the firm’s employees work, and where
1 per cent of its customers are located. Only 6 per cent of Apple’s pre-
tax income is allocated to jurisdictions other than Ireland and the US.
The 2011 effective tax rate on all Apple’s foreign earnings was 1.8 per cent
and on foreign base company sales income Apple avoided $10 billion in
taxes in that year. In his contribution to this special issue, Yeung notes
Hon Hai’s declining profits and shareholder returns, while Apple’s profits
have increased from 20 per cent in 2007 to 45 per cent in 2011. We suggest
that wealth chains, not value chains, are an important reason why.

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There is an important scholarly research agenda to pursue in linking

up analyses of value chains and wealth chains that can also have an
impact on transnational policy. Chun Yang (this issue) points to how
the financial crisis has led to the questioning of export-led development
models under the Washington Consensus. Some of this questioning has
led to increased policy interest in value chains. The World Trade Orga-
nization (WTO) and the International Monetary Fund (IMF) and the
World Bank are actively promoting value chains as a concept and policy
area.5 The OECD has been involved in pushing forward the research
and policy agenda on value chains, including developing a
‘participation index’ (OECD, 2012). International organizations are
adapting value chains to their purposes (see Nielson, this issue) and
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demand for this kind of research from those in policy is at a peak. For
example, the Base Erosion and Profit Shifting (BEPS) initiative being
pushed by the G20 and the OECD promises to address fiscal leaks by
investigating value chains. It is also a policy agenda of significant inter-
est to activist groups targeting tax evasion and transfer pricing (Seab-
rooke and Wigan, 2013). We suggest that research on both value and
wealth chains is needed to answer the relevant questions for policy-
makers and activists alike.
Early promises of value chains are being confronted by empirical
developments. Value chain research has been premised on the disaggre-
gation of production processes across space. We suggest that in the era of
the post-national and ‘decentred corporation’ (Desai, 2011) research
should incorporate the legal and financial disaggregation of the firm. As
capital itself finds increasingly abstract expression in the form of intellec-
tual property and financial innovations our imaginaries of the corpora-
tion and its operations require some revisiting. It is already apparent that
the contemporary MNC has transcended the institutional complex of the
Fordist era. However, our analytical tools for capturing these develop-
ments have not kept up. What we also need is a better understanding of
how financial and legal innovations are articulated through wealth
chains in ways that harm value chains and development objectives. We
also need to understand how wealth chains are maintained through pro-
fessional networks (Harrington, 2012; Seabrooke, 2014).
While wealth chains are pervasive and significant, their construction,
operation, consequences and regulation all require systematic investiga-
tion. First, IPE needs to establish taxonomies of wealth chains and spec-
ify, via thick descriptions, the role of wealth chains in the evolution of
global capital flows. Here, we should identify how far financial innova-
tions, such as derivatives, characterize transfers through wealth chains
and what role offshore jurisdictions play in asset transfer and transforma-
tion. Second, IPE needs a clearer picture of how wealth chains have an
impact on developed and developing countries alike in different regions

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of the world. Of particular interest here are the apparent irreconcilable

interests of developing countries that host wealth chains as a develop-
mental strategy and developing countries which are detrimentally
impacted by wealth chains. Third, as policy innovation accelerates IPE
should evaluate the traction and distributive consequences of regulation
in areas as diverse as money-laundering, corporate reporting and
shadow banking. More broadly, IPE needs to account for the impact of
wealth chains on how we conceive central elements of the tradition’s
agenda. This necessarily includes rethinking our understanding of how
to measure global capital flows, as well as our conceptions of the MNC,
state formation, professions, and links between wealth chains and value
chains.
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ACKNOWLEDGEMENTS
This work is funded by the ‘Systems of Tax Evasion and Laundering:
Locating Global Wealth Chains in the International Political Economy’
(STEAL 2012-15) project funded by the TaxCapDev program under the
Research Council of Norway (#212210/H30), and based at the Norwegian
Institute of International Affairs.

NOTES
1 Tax avoidance is the reduction or elimination of a fiscal exposure by means
that are strictly legal, but may contravene the spirit of the law. Tax evasion is
illegal.
2 We aver from the term ‘tax haven’ on the basis that the term is highly politi-
cized and largely a function of ‘name, blame and shame’ strategies.
3 United States Senate, Permanent Subcommittee on Investigations, Exhibits,
Hearing on Offshore Profit Shifting and the US Tax Code, Part 2 (Apple Inc.),
Committee on Homeland Security and Governmental Affairs, 21 May 2013.
Available from: <http://www.hsgac.senate.gov>.
4 Testimony of J. Richard (Dick) Harvey, Jr, Before the US Senate Permanent
Subcommittee on Investigations, 21 May 2013. Available from: <http://www.
hsgac.senate.gov>.
5 For example, Global Value Chains werea key theme at the Second Annual
IMF/WB/WTO Joint Trade Workshop in June 2013, see <http://www.imf.
org/external/np/seminars/eng/2013/trade/>.

NOTES ON CONTRIBUTORS
Leonard Seabrooke is Professor of International Political Economy at the Copen-
hagen Business School. He is a former editor of RIPE and now a Senior Editor of
International Studies Quarterly.
Duncan Wigan is an Assistant Professor in the Department of Business and Poli-
tics at the Copenhagen Business School.

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