Sean Carroll's Mindscape: Science, Society, Philosophy, Culture, Arts, and Ideas - 237 | Brooke Harrington on Offshore Wealth as a Complex System

Episode Date: May 22, 2023

The modern world is large and interconnected, and there are a lot of systems that might be important to how it functions but about which most people are barely aware. One of these is the offshore wealth management network, which wealthy individuals can use both legitimately (to invest and plan their money) and less legitimately (to avoid taxation or hide questionable practices generally). Brooke Harrington is a sociologist who has studied offshore wealth management, including by training to be one. In a recent paper, she and colleagues analyze networks of offshore wealth managers as a complex system, uncovering power-law behavior and interesting nation-dependent network structures. Web site with transcript: https://www.preposterousuniverse.com/podcast/2023/05/22/237-brooke-harrington-on-offshore-wealth-as-a-complex-system/ Support Mindscape on Patreon. Brooke Harrington received her Ph.D. in sociology from Harvard University. She is currently a professor of sociology at Dartmouth College. Among her awards are the IPM Outstanding Book Award from the American Sociological Association. She is the author of Capital Without Borders: Wealth Management and the One Percent. Web site Dartmouth web page Google Scholar publications Amazon author page Wikipedia Twitter

Wellness looks different at every stage. The right support makes all the difference. Shake up your routine with vital proteins collagen peptides. With 20 grams of collagen sourced from grass-fed, pasteur-raised bovine, it helps support healthy hair, skin, nails, bones, and joints. Made with no artificial sweeteners, it's a clean way to fuel your body. So your wellness stays effortless wherever the day takes you. Vital Proteins. Stay vital.

Visit VitalProtene's.com to get started. These statements have not been evaluated by the Food and Drug Administration. These products are not intended to diagnose, treat, cure, or prevent any disease. Hey, everyone, it's Cal Penn. I'm inviting you to join the best-sounding book club you've ever heard with my podcast, Earsay, the Audible and I-Heart Audio Book Club. Every episode, I nerd out with amazing guests and dive into the best new audiobooks available on Audible. It's the book club for your ears.

Listen to Earsay, the Audible and I-Heart Audio Book Club. On the I-Heart Radio app or wherever you get your podcasts. Hello, everyone, and welcome to the Mindscape Podcast. I'm your host, Sean Carroll. The thing about complex systems, which is a frequent focus of our attention here, is that by definition, they are complicated. They can be very different from each other. You can be complicated in different ways. You know, simple things are kind of alike, but complicated things are all complicated in their own particular way. The galaxy is a complex system. Our brains are complex systems. The U.S. economy is a complex system. The ecology of the Amazon rainforest is a complex system. But all of these systems are obviously wildly different from each other. So how do you even say that there is a field called complex systems? But the nice thing is, by thinking about it hard and by looking at data especially, people have come to realize that complex systems very often,

maybe not always, this is the nature of the beast in this kind of science, but very often share certain features. They have hierarchical structure that could be characterized. as a network kind of structure, scale-free networks in particular, are a kind of network structure that shows up over and over again. So I'm very interested in this stuff, and one of our former Minescape guests, Henry Farrell, my new colleague, now that I'm at Johns Hopkins, Henry is at the SNF, Agora Institute, here at Hopkins, he pointed me to a paper by a sociologist, Brooke Harrington, and her collaborators, that is about a new, well, discovering that a system of a system of that had been studied quite a bit, can be thought of as a complex system and a scale-free

network. And the system we're talking about is offshore wealth managers. So these are the people who will, if you're a billionaire in that realm of financial happiness, you need people to manage your money. And some people want to, in particular, save themselves from being taxed or being sued, right, or going to jail and having their wealth confiscated, being subject to sanctions, if you're a Russian oligarch or something like that. So there's a whole ecosystem of wealth managers that store people's wealth in offshore accounts and hide it from other people who are trying to get it, okay? And Brooke Harrington actually is a sociologist who has studied these people, and she has a wonderful story of how do you study wealth managers because they're notoriously

secretive. They're not there to spill their guts to nosy sociologists. So she actually got the training. She took a two-year course in becoming a wealth manager and talked to everyone who was her fellow student as well as people who were managers at the time. And on the basis of that, wrote a book, Capital Without Borders, Wealth Management and the 1%. And more recently, she became aware of the fact that it could be helpful to think of this system as a complex system. There's enormous number of questions here politically, economically, morally, and just, you know, personal financially, right? But she wanted to think about the network structure and how that could help us understand and perhaps deal with this complex system, especially because, you know, there's absolutely benign reasons to have wealth managers, you know, managing your retirement or doing your taxes or whatever. But there's also less benign reasons.

from the rules that you're supposed to be obeying. So sometimes if you want to enforce those rules, understanding the structure of this kind of network is very important. And not only is it a sort of scale-free network, but it's a different kind of scale-free network depending on what kind of oligarchs we're talking about. The U.S., the U.K., Hong Kong, Russia, China, all have slightly different perspectives on how this works. So I thought this is a fun podcast to do because it's sociology, right? It's human behavior en masse in a group context, but looked at through the lens of complex system research with an eye to understanding issues that are very, very relevant to public policy and how we do things going forward. So I think it's a fun one. Let's go.

Harrington, welcome to the Mindscape podcast. Thank you for having me. I'm so excited to speak with you. The reason we're here in some sense, the sort of intellectual draw, is that you've written a paper, that talks about, of all things, offshore wealth management systems as a complex system. And, you know, the word's complex system get me very excited and so forth. But I think there's a lot of groundwork to lay before we get to the complex system side of things. So tell us, what is a wealth manager? I don't have one myself. I probably don't need one. Probably not many professors do. Well, I'm a wealth manager. Oh, congratulations. You could be a wealth manager if you wanted to it's a it's a profession that has existed for centuries but it wasn't professionalized until

recently so until maybe a decade ago you couldn't go to college to study to be one people just did it and and now you can get a credential which is what I did after about two years of study it's sort of like one year of an MBA program plus one year of law school but very specialized needs and interest of people who have like 50 million or more investable assets. So one of the people I interviewed for the eight-year study I conducted of offshore wealth managers said, you know, it's one of the most complex professions in the world because the technical requirements to do it well combine law and finance and accounting and a certain

amount of like what you might call political science, just like sussing out what the likely political atmosphere in different offshore centers might be, and if it's going to be stable, because you don't want to put your client's fortune in a country whose regime might topple at any minute, like you don't want their assets to be confiscated or nationalized in some way. But also there's a non-negotiable element of emotional intelligence that goes into it, too. And you can't really teach that. But independently, two wealth managers I worked with said, I'm a social worker for the rich, meaning themselves.

And these were highly credentialed professionals who had law degrees or MBAs. And they said, well, ultimately money is just very emotional. What they meant by that is that when you're a wealth manager, your job is to protect the client's fortune, to grow it somewhat. But when you're wealthy enough to afford a wealth manager and to use offshore finance, often what you really want is simply to protect what you have from the various forces that might diminish your assets, which include taxation debts. So the same people who don't like to pay their taxes also don't like to pay their debts.

and there are high-end bounty hunters who chase these people around wealthy folks who don't like paying their debts also have a bad habit of bragging about their locations on Instagram. So a few years ago, the Wall Street Journal ran a really interesting article on a friend of mine who is a very high-powered lawyer who was based in London at the time. And basically all he did was follow the Instagram accounts of oligarchs. And as soon as they came to the UK or particularly to London, they would post some photo of themselves at clerages or something. And he'd be like right to his team. And he'd send them to clerages to the smoking room to serve these individuals with the legal papers necessary to start the lawsuits to reclaim whatever it was they owed to my friend's clients. So taxes and debts threaten a person's fortune. So do disgruntled heirs, divorcing spouses.

Any kind of inquiring press coverage can be a threat. So your job as a wealth manager is sort of be to bodyguard for the money, not so much the client. The client brings you the money and you have to protect it from being chipped away at by those various forces I've mentioned. And it's surprisingly complex. Like you never ever put all the fortune in one place. You spread it out like confetti across different countries, often for good reason, like different countries compete with each other to have laws that protect specific kinds of assets or do certain kinds of things.

Like some countries specialize in protecting assets like yachts. Others specialize in allowing you to register your private jet. without tax. Others, like the Cook Islands, they don't provide tax avoidance at all. They provide debt avoidance. So one person I talked to, a wealth manager had a client who had taken a half-million dollar loans from Bankrupt of America, socked it away in a Cook Islands Asset Protection Trust, declared bankruptcy and said, oh, sorry, Bank for America, I can't pay you back.

And Bank for America, knowing what was up in the Cook Islands, which is to say that that country has established what's called firewall legislation, saying that if you're a foreigner who comes there claiming any right to assets in a trust under Cook Islands law, you face extremely hostile legislation that puts all the burden of proof on you and that disfavors you in the of the law. So no force on earth. Even the U.S. government has been able to break through a Cook Island's asset protection trust. So Bank of America kind of went, forget it, Jake, it's Chinatown. And they just walked away from it. Holy smokes. So, okay, good. That gives us a flavor. I like that. I mean, presumably, look, I know some people think that there shouldn't be any such thing as wealthy people.

And that is an absolutely an attitude to have. My attitude is I'm very in favor of wealthy people. I wish I were one myself. I just want them to pay taxes and to pay their debts, and then we can use those resources. But if you think that wealthy people existing is not bad, then I imagine there is a benign side to wealth management, right? I mean, you know, retirement planning or investment planning or whatever. But then there's also clearly the shady side. I mean, it's a very unfair question, but is there a fraction that you can give to sort of how much of this is just responsible money management? and how much of it is trying to sneak around the rules?

Well, I say a lot of it now has just become a very elaborate form of cheating, cheating on capitalism, cheating on the rule of law. So the problem isn't wealthy people. Wealthy people have existed long before there was an offshore financial system. Sure. So the existence of wealthy people isn't a problem that I'm pointing out. the problem is that some people can buy their way out of the sort of basic mutual responsibilities that keep society functioning. And they're what sociologists call free riders.

Yeah. Are you familiar with that phrase? Very much, yes. Like everyone who's ever done a group project knows what a free rider is. And everyone hates the free rider, right? They're like a certain group of people in a group project who actually do. do all the work. And then the free riders, their real skill is figuring out how to game the group project so that they get maximum reward for as little effort as possible. Another way of describing

what offshore does is it permits people to certain people to sort of dine and dash on society. You know that phrase from if you ever worked in a restaurant, dine and dash is when customers come in and they eat and then they just skip out on the bill. Common in large parties, you know, a group who comes into a restaurant and then racks up, you know, a couple thousand dollars in charges and then one or two people just sneak off to the powder room and never come back, leaving others to pay their share. I think that's pretty universally frowned upon. And that is essentially what the offshore system allows certain people to do.

Yes, there are benign uses. for it. For example, when I was going around the world interviewing wealth managers in places like Mauritius, which is an island in the middle of the Indian Ocean, some of the wealth managers I spoke to there said, well, there really wouldn't be any foreign direct investment in Africa without us. Like virtually all the wealth that goes from India to Africa passes through Mauritius at some way. Why? Because Indian investors don't want to plunk their money down in like Mozambique where they they may not speak Portuguese, they may not be confident that the regime there is stable. They want to protect their assets by putting them in say Mauritius

trusts or Mauritius corporations because they understand this English common law, which was in Mauritius as well as it was in India. And there's a sense of security. Like they can with us, they're not so sure they can deal with some of the governments of the countries that they'll be investing in. So that is an argument that one hears that foreign direct investment is dependent upon the offshore system. You also hear from people who are developing countries, well, I can't trust the government of my own country because if there's regime change, if there's any kind of instability, like a political assassination, I don't know what happens to my assets in this country. The safest thing for me and my family is to get them offshore. So often

it's an individually rational decision to want to get your own wealth offshore. The Russian oligarchs that we studied have this dilemma too. On the one hand, many of them looted and pillaged their own society. On the other hand, maybe some of them made their fortunes in honest ways, but Russia is also a country where if you say the wrong combination of words at the wrong time, you might find yourself facing a 10-year sentence in the Gulag like Mikhail Khorovsky did. So there's a very real possibility of assets being confiscated you being jailed, your family being faced with reprisals. So for many people from autocratic societies, putting their assets offshore is their insurance policy.

And by the way, they also get themselves offshore by getting themselves and their family members foreign passports. Or even a whole new, yeah, nationality, right? Oh, yeah. It's very common for people in this echelon of society to have two, three, four nationalities. And then you pick the one that has the law that is best suited to your present purposes. That's exactly right. So, for example, a year ago, one of the ways that Roman Abramovich was able to, to avoid some EU sanctions on himself was that the EU cannot sanction its own citizens or citizens of its member states. Weeks before then, Abramovich has secured himself a Portuguese passport.

There you go. Do you ever feel like you're drinking from a firehouse? Pekor's intelligent HR solution empowers leaders to turn down the pressure. Their unified platform includes payroll, talent management, compliance software, and a lot more. Connecting your you to the people, data, and expertise you need to drive long-term business results. Visit paycourt.com slash leaders and go from work flood to workflow. That's paycourt.com slash leaders. Hey, everyone. It's Cal Penn. I'm the host of Earsay, the Audible and Iheart audiobook club. This week on the podcast, I am sitting down with Ray Porter, the narrator of Andy Weir's

audiobook Project Hail Mary, Massive, sci-fi adventure about survival and science. And what happens when you wake up alone very far from Earth? I really had to make a decision because I caught myself getting that frog in my throat and starting to get teary as I'm narrating some of these sections. And it's like, okay, yo, yeah, yo, is this indulgent? And I really thought about it. I was like, no, at this point, it would kind of be betraying the trust the author and the listener have in telling this story if I don't go through it. But there's places in this book that deeply emotionally affected me, and I left it on the mic. That's great.

Because it served the story. People will say like, oh, my God, I cried at the end. It's like, yeah, dude, me too. Listen to Earsay, the Audible and IHeart Audio Book Club on the IHeart Radio app or wherever you get your podcasts. And the case of Mauritius and the Cook Islands and so forth is an interesting one where small countries have intentionally chose. and to make themselves into favorable locations for this offshore wealth, wealth management. It's a little bit, it's kind of a venue shopping, right? Like there are states in the United States where the tax laws are looser, you know, corporate

protections are greater whatever. What is the thought process behind being the Cook Islands or whatever and saying, yes, we're going to be a haven for a lot of wealth passing through? It's the easiest way to pump up a struggling economy because it requires almost zero infrastructure investment. All you have to have is working telephone lines, an internet connection, electricity, and hopefully, generally an English-speaking population helps. But there are whole offshore centers like Panama that cater specifically to Spanish-speaking populations or traditionally Hong Kong cater to Chinese-speaking populations. The story of how countries become offshore financial centers or even how American states become offshore centers, like South Dakota and Wyoming, Nevada, Delaware is one of places that are economically fragile.

They're generally small. They may not have a lot going for them. Like South Dakota used to be fairly prosperous just on its agricultural production, but it can't be now. And so it needs some way to pump up its tax base and, you know, keep the lights on in the state of South Dakota. And so they just borrowed the strategy that lots of decolonizing countries adopted 50 years ago. And in fact, it was pushed on a lot of decolonizing countries because the what are called the colonial metropoles, the centers of colonialism like London or Paris, they didn't want to have to financially support. these ancient colonies. You know, they were like kids who failed to launch. It's like, okay, you want to be independent, that's great. But if you want to live with us, you've got to pay rents or, you know,

go get a job. And so these former colonial powers said to their former colonies, get a job. And, you know, what are you going to do if you're a little mosquito-infested spit of sand in the middle of the Caribbean as the Cayman Islands were? I mean, literally, no one wants to be. I mean, Literally, no one wanted to go there because the mosquito problem was so bad. It was a disaster. And most of the men, able-bodied men, they left to be in the fishing industry. And they were sailing all over the world. So there wasn't much left there except women and children and mosquitoes.

And now it's one of the biggest tax payments in the world. Because some enterprising people from other colonies like Canada, or in the case of the Cayman Islands, it was a guy named William Walker who was born in what used to be called British Guiana. And he was sort of a colonial elite who went and took another post-colonial place and brought it into the financial world. So people like Walker built those places up by establishing very basic things like pest control, phone lines, office buildings. And he brought over some people from the UK and from Canada. And he trained locals and out of those rather humble beginnings, almost like a garage band or like, you know, H-P's starting up in their garage on Pageville Road.

He built this thing that became a juggernaut in the financial world. And that became a model for a lot of other small struggling post-colonial countries because, Places like the Cayman Islands and the Bridge Virgin Islands have some of the highest standards of living in the world, largely because they are these conduits for billions, probably trillions of corporate and private wealth now. And other small countries like Mauritius or the Seychelles or the Cook Islands, they see that. And they're like, we need that. And it's not that difficult to do in terms of investment to get started. Just as a little personal color, I do want the audience members to hear the story.

of how you became an embedded journalist on the thought that maybe the wealth managers of the world who are doing some shady things for secretive people wouldn't want to talk to a sociologist. You came up with an unusual strategy. So I wasn't a journalist. I have been a journalist before. Before I went to graduate school, I was, but this is different. I was what's called an ethnographer, which is a technique that comes from anthropology and has been adopted by other fields. Basically, what you do is you go live among the population you want to study.

You stay with them long term and you observe them and you see what you can find. And this is a very important technique for groups of people who don't wish to be studied, who are either very remote or very secretive and suspicious or all of the above. So my previous work was on American investors. in domestic context. If anyone listening remembers the Beards Town ladies or investment clubs from the 1990s. Oh, yeah. I studied investment clubs because there was a point in the late 90s, early 2000s,

when 11% of non-incarcerated American adults belong to an investment club, which is just a mind-boggling number. So that actually is studying how individuals who are not finance experts decide to invest their money as a collective, turned out to be pretty interesting. And that was actually the first sort of complex system work that I ever did. And that's what got me to SFI way back and I think it was 2003 or 2004. But in the course of doing that research, I discovered that like beyond the middle class echelon that I had been investing, there were these further echelots that I could just barely see where people who really had a lot of money, they weren't

messing around like the Beards Town ladies. They had a more bespoke kind of solution to the problem of doing something with their wealth, protecting it, growing it, etc. And I knew a little bit about that because I happened to grow up in a wealthy suburb of Chicago where the kind of people who had wealth managers lived and sent their kids to public schools. And they ended up sitting next to middle class me in, you know, French class. So I know these people existed and I started thinking, how can I study this? Because while all these middle class folks are puttering away in their investment clubs, there's this whole other world they don't even know about where you can make a lot more money. You have access to much more profitable investments and also a lot more protection against

downside risk. How do I get funding to study that? How would I even get in there? So for years, I turned over in my head how I can persuade the National Science Foundation to fund me to like go live among the ultra rich and study their ways. And I thought, you know, they're never going to buy this. You know, I probably could do it. I'm a sailor. And I thought, if I just turn up at the harbor and Monte Carlo or something when they, when they're showing off their yachts, like maybe I could crew or maybe I, if I got a fancy enough dress, I could just walk, walk on there and like, show up at a cocktail party and and fake it till I made it. Exactly. But I just, I couldn't figure out a way to pitch that to the NSF or any American funding organization with a straight face. But fortunately, I was invited in 2006 to do a sabbatical year at one of the Max Pike

Plake Institutes in Germany. So I thought I was just going for a year to do some research and not have to teach or do administrative work. I got there and found out that the guy who ran that particular Max Planck Institute had just published a big book on inherited wealth. He was interested in the same things I was. He got why I wanted to study the ultra wealthy. And best of all, he was in charge of a $2 million euro budget annually that he could sprinkle like fairy dust on anyone who wrote him a plausible three to five page memo. And I'm like, this is the promise land. So being young and unendetted and not having a family to support at the time, I was like,

you know what, I'm staying. So I stayed instead of going back to Brown where I was an assistant professor or going back to the U.S. at all. I just stayed in Europe. And I found that European funding agencies are much more open-minded about funding, truly high-risk research. And I built on the money that the Max Planck Institute gave me to get some more funding from other German institutions. But the real sort of moment of breakthrough was sort of thinking about what Max Weber had said about the role of expertise and how so much of the world really depends on experts.

Like there are people who benefit from the expertise like the clients of wealth managers. But even I knew that ultra wealthy people, they're not sitting around on their yachts boning up on the tax code of the Cayman Islands. They have people to do that, just like they have people to pick up their dry cleaning and clean their houses. And I thought, well, the Weberian strategy here is study the experts because they're the ones who are really making the offshore world happen. If you want to look at wealth inequality, which is what interested me, don't look at the people who just benefit from it. look at the people who make it, you know, with their own two hands. So I thought, huh, I wonder if there is a place where I could go study the experts. And I knew there was a professor at MIT named John Van Manon,

whose work is sort of a must read for sociology grad students because he's sort of a god of qualitative methodology. He made his name as a graduate student in Southern California in the late 60s, right after the Watts riots. Not all listeners may know what that was, but it was a racially motivated police brutality riot that tore apart Los Angeles and Southern California and sort of became a touchstone for civil unrest based on racism and police brutality. So John Van Manor was a graduate student in Southern California right around that time, and he decided he wanted to study the police. So he wrote a series of polite letters, as one was supposed to do, to local police departments say,

Hi, I'm a graduate student in sociology, and I would like to shadow your officers to study how the police work. And every single door was slammed in his face because the suspicion between police on the one hand and civilians on the other, especially like allegedly long-haired hippie graduate students in sociology, it just was never going to work. and a normal person would have given up at that point and found something else to do their dissertation on. But John Van Manon was dogged and he was like, you know what, I've got time. I'm a graduate student. I'm just going to walk down to the police academy and enroll and they can't stop me. So he did.

And then he went through the police academy. He went around on patrol armed with other police. He didn't lie to anyone. He didn't say, you know, I really want to be a police officer. use a fake name. He told everyone that he encountered who he was and why he was there. And the idea was the hope was that he would gain enough of their respect by trying to put his feet in their shoes that they would at least consent to talk with him or to let him see what the world was like. And it worked and it yielded some really legendary publications and the rest is history. So I realized

I could do that too and pretty much for the same reason. Wealth managers, are not just bound by a professional norm of discretion. In many places like Switzerland, if you're a wealth manager and you're found to have disclosed any identifying information about one of your clients, even by accident or in passing, you face not only civil charges but criminal charges. So they're very strong incentives for people like that, never ever to talk to people like me. So really my only option was to join them. So I did what Van Manor did. I found the place you go to get a credential and wealth manage it.

And luckily for me, there's really only one place you could do it that's globally recognized. An organization called Stepp in London is sort of the global professional society for wealth managers. And they offer the most globally recognized credential, which is this two-year thing I mentioned to you. So I enrolled. and I got the money to do it from German funding sources. And even they were kind of skeptical. I didn't know if I could get these people to talk to me, but I figured I'm going to show up and try.

I've got nothing to lose, and I'm never going to get this chance again, so I'm going for it. And lo and behold, once I was in these five day a week, nine to five classes with practicing wealth managers, like anywhere between like a dozen and 50 other people, they did talk to me. They talked to each other and I listened in. When I approached them and asked them if they would be willing to speak to me on condition of anonymity,

like in other words, I wouldn't even write down their names, much less whom they worked for. I was going to ask them questions that wouldn't get them in trouble, like nothing about individual clients, for example. Many of them weren't very willing to speak to me because this is my theory, a couple things. one is I looked enough like them that I didn't trigger any sort of knee-jerk distrust or fear. Most wealth managers are still, I would say at least 70% are white, upper middle class, English-speaking people. Most of men, but like I blended in well enough. There are many situations where I couldn't have just parachuted in and studied a group.

Like I just would have looked too different to not. aroused suspicion or to to engender enough trust that people would be willing to speak to me. But this was a hot bourgeois professional group, so I could just kind of slide on in there. I could walk the walk. The other thing was that I didn't realize how much people, the wealth management industry, as well compensated as they are, they feel very aggrieved and misunderstood, but they don't have any outlets to express that or defend themselves. because of these norms of confidentiality.

So they've got all this pent up anger about being portrayed as the bad guys of the international financial world. And, you know, the families have probably had an earful about it and are bored to death. So have their colleagues. So who's left? I come along. I'm not a colleague. I'm not a family member.

I'm credentialed. So I know enough about what they're talking about that they don't have to explain every third word. I can ask intelligent questions. So it turned out that when people were willing to speak to me, the biggest problem I faced oftentimes was giving them to stop talking. One guy only, we only ended our interview because the cafe we were sitting in closed after three and a half hours. Wow. I mean, that is the level of sort of confessional or unloading that I was experiencing. So it was awesome from a data perspective.

And I think there's probably many things. Let's tell the audience that you wrote. wrote a book. So tell them what the title of your book was because I don't have it in front of me. So after about eight years of this immersive field research called ethnography, where I went all over the world, I got my credential to be a wealth manager. And then I used that. That was my ticket to go to professional society meetings and wealth management. Because you can't just go to them. You have to prove that you're one of them first. Then you pay the fee and you go. So I ended up going to 18 offshore financial centers all over the world and speaking with and observing 65 wealth

managers at work. So for a qualitative study of a secretive group, that's a lot. It took about eight years, partly because getting the funding together to go to crazy remote places like the Cook Islands, which is roughly between Fiji and Tahiti. It's hard. It's very time consuming. Anyway, after about eight years of that, I published a book in 2016 called Capital Without Borders. And that came out roughly six months after the Panama Papers broke, which was like one of the biggest strokes of luck I've ever experienced in my entire life. It was like the ultimate PR campaign. It put offshore finance and off for cheating on everybody's radar. So I had no idea it was coming. And when I was reviewing the galleys for capital without borders,

kaboo, it just dropped. It dropped like a happy bomb into the news. And ever since then, there have just been more leaks and things like the sanctions on Russian oligarchs continually keeping offshore finance, relevance, and timely. Hey, everyone, it's Cal Penn. I'm the host of Earsay, the Audible and I-Heart Audio Book Club. This week on the podcast, I am sitting down with Ray Porter, the narrator of Andy Weir's audiobook Project Hail Mary, massive sci-fi adventure about survival and science.

And what happens when you wake up alone very far from Earth? I really had to make a decision because I caught myself getting that frog in my throat and starting to get teary as I'm narrating some of these sections. And it's like, okay, yo, yeah, yo, is this indulgent? And I really thought about it. I was like, no, at this point, it would kind of be betrayed. being the trust the author and the listener have in telling this story if I don't go through it. But there's places in this book that deeply emotionally affected me and I left it on the mic.

That's great. Because it served the story. People will say like, oh my God, I cried at the end. It's like, yeah, dude, me too. Listen to Earsay, the Audible and IHeart Audio Book Club on the IHeart Radio app or wherever you get your podcasts. Like I was going to say, there's a whole bunch of interesting things in the book. we could talk about. But I just want to, because I want to get to the complex systems business, but the one thing I can't let go of is the attitude that wealth managers have toward their

clients, which is, which is divided, right? Like, there are some who are very resentful that they're doing all this work for these wealthy people, but there's others who are cheerleaders, apologists for the, for the people that they're working for. Yeah, I think this must be a more general phenomenon. It's not just that like everybody, every job has people who love the job and are meh about the job and some group who hate it. The people I interviewed, I would divide into three main categories. Probably about one fourth of the wealth managers I spoke with were what you might call hardcore libertarian anarcho-capitalists who honestly believed that taxes theft, that basically government in general is a dubious proposition, except insofar as government enforces the

contracts and protects the private property of their clients. Otherwise, nah. And those are the people who would tell me, you know, I protect my clients who are wealth-creates. creators from the rapacious and illegitimate confiscation of out-of-control welfare states. And they would say it with an absolutely straight face. They weren't having me on. It was they believed it. And so my job as a sociologist was just to sit non-politely and let them explain their views. About 50% of the people I interviewed, they kind of, they made a not very satisfying moral compromise.

which they said, what I love about my job is that I help families. Now, that's exactly. Well, that's true. They do help families. It's just a partial truth. And it's a very carefully crafted partial truth, which they knew and I knew, and they knew that I knew. The partial truth, what they were excluding was they were helping a small group of families

at the expense of all other families. And, you know, I'm not even wagging a finger at these folks. Far from it. Everybody, no, not everybody. Many people make moral compromises in the work they do. You know, I do. Oh, yeah. I went from eight years of teaching at Copenhagen Business School,

which is one of Denmark's eight public universities. There are no private universities in Denmark. And when I was teaching there, I knew for sure that every single student I saw was there because of their merit, because there is no such thing as a tuition fee. So I wasn't part of reproducing an elite that had unfair advantages over anyone else. I really was helping to build a country in a way. I was training the best and the brightest of this country. It just wasn't my country.

So I come back to this wonderful job at Dartmouth, and it feels a little weird, even though I am a product of the ID League system, you know, Stanford and Harvard and Brown, So I know it's just very obvious from looking around. Their money plays a big role in who gets into a place like Dartmouth. It doesn't play the only role. And I'm not saying the students that I teach don't have any merit at all. They do. Many of them are brilliant.

But there's a distortion happening because of the fact that tuition at Dartmouth is just north of $70,000 a year. that creates a different dynamic than I experience at a tuition-free public university. And I know that I'm part of it. As a sociologist, it would be very dishonest for me to avoid confronting that. So I make moral compromises with that fact just the way wealth managers who have mortgages and kids' school fees and careers that they've invested decades in, they make their moral compromises. So I'm not putting this out there as my standing in judgment of them. I'm just trying to observe and analyze what they're telling me.

There's another quarter of the group I interviewed. And I have no way of knowing in a sample size of 65, how representative this is of the whole population of wealth managers. But in the group that I interviewed, 25% were these sort of hardcore libertarians. About 50% were the people who made it. this, I help families compromise. But then to me, very interesting other 25% were people who were very out and explicit about their discomfort with the nature of their own work. And they were struggling. They were telling me about the struggle that they had with it.

So one fellow I interviewed who was actually at Mossette Fonseca in Panama City several years before the Panama Papers broke. He said to me, look, I used to be involved in social justice causes. I didn't get into the law to serve rich people. Quite the contrary. I got into the law to serve indigenous people and poor people. And basically my employer tapped me for a project that got me sucked into working with some of the company's wealthiest clients.

And I turned out to be good at it. So they just kept me on. And it bothers me because here I am talking to some of the world's wealthiest people, but a mile away there are people living under bridges in cardboard boxes. So what do I do with that? I want my son to be able to look at me and feel some respect the way I could look at my own father. So he says, this is what I do. I figure I've got the ear of these people.

Nobody else talks to them about poverty and inequality. I'm going to take the risk. And if they fire me, they fire me. So he said, you know, I talked to them about the people living under bridges in cardboard boxes, and I urged them to think about what they might do with their wealth to help those people or other people similarly situated elsewhere in the world. And often they look at me like I have three heads, but no one's fired me yet, so I'm going to keep doing it.

So there were several people like that who they had a plan. And I wonder sometimes when a new leak comes out was that someone I have. interviewed. If not, they're part of this cohort of wealth managers or insiders who have similar qualms about the nature of their work and its effect on the world. And this is the way they deal with it. They leverage the fact that they are on the inside, either to try and persuade clients one person at a time or to make these big anonymous leaks that pull the lid off the whole thing. I think that's legit. I think you need all kinds of people. You need to people. You need to protesting on the outside. You need people on the inside trying to make things a little bit better.

I'm also not going to judge anybody that way, one way or the other. But let me be clear. Let's clarify one thing, because we've been talking about wealth managers and we've been talking about the offshore wealth management system. Are they synonymous? I mean, I presume there's just onshore wealth managers as well. But we're in particular today talking about the offshore system. Is that right? Yes. So, I mean, what led you to invite me on the show is this article that I produced with colleagues at Brown and I'm sorry, at Dartmouth, two mathematics professors, Dan Rockmore and Fang Fu, and our first author, Herbert Chang, who is just finishing up his dissertation at USC Annenberg and is about to join us as a, professor of quantitative social science at Dartmouth. So what we worked on is the system, the complex system created by wealth managers. So wealth managers are the experts, but they designed and they manage and they keep up and running this complex system that's built on the

ashes of mostly British colonialism. I was very interested when you dropped in into the paper. the fact that so much of this is a colonial legacy. Like the ex-colonies really are what you need if you want to have an efficient offshore wealth management system. Yes, and that's mostly because of the legal system that the British left behind. Because there are things you can do in the common law tradition that you can't do in other legal traditions. And you need those things in order to play what legal scholars call the shell game of

ownership, where, you know, those little shell games that people play with Walnut shells and like ball bearings on street corners. So a lot of what happens offshore is instead of walnut shells, you have structures like trusts or corporations or foundations. And then you move the ball bearing, which is the client's fortune or a particular asset. You move that asset around under those different legal structures. And you make it very difficult to ascertain. well, who really owns that structure?

If it's in a trust, the trustee owns it. That's usually the wealth manager. If it's in a company, well, that company can be owned by a trust and a foundation. This is what Ingvar Kamprot, the creator of Ikea, did. He didn't want to pay Swedish taxes. So he used the law of the Netherlands to create an offshore financial structure that basically envelops Ikea in what is ostensibly a charitable foundation, except it doesn't really ever give away any money.

It just enables him to control the firm and pay his kids a salary without paying normal corporate tax. So what fraction, like if I am a person, I'm not, if I were a person that had $50 million or more to invest, does most of that go offshore? Or is there like only the Uber elites that really? dominate that market? Well, to get a wealth manager, even to give you the time of day, you'd have to have at least 5 million U.S. in investable assets. And that means not just your net worth, but your net worth not including your primary

residence. Right. So when you narrow it down like that, you're talking about a couple million people worldwide, but that's sort of the absolute bottom of the barrel. That's when it would be you and maybe nine other people sharing a wealth manager. And as you have more wealth to invest, you're more and more likely to get bespoke services from a wealth manager. It's kind of like the analogy I would use is for clothing. You know, there's off-the-rack clothing that you could buy at Target or Saks Fifth Avenue.

And then there's hotechure, which is what you see walking down the runway in Paris and that, say, Christian Dior will make on your body specific to your measurements for like $20,000 for a ball gown or something. And in between there's a kind of clothing called Pretta Poitay, which are these sort of very special designer lines that you wouldn't find for sale at Target. They're not bespoke to your body, but they're much closer to the runway. So if you're coming in with $5 million in investable assets, you're essentially buying wealth management off the rack from Target. a lot better than nothing, but that's very entry level. If you're the kind of person who has

$50 million or more, you're getting the wealth management equivalent of Kuture. You probably have what's called a family office, which is not just a wealth manager, but several wealth managers who do nothing but work for you and your family. Yeah. And then in between, in that gray area, between five and 50, you have the finance equivalent of Pretta Porte, where maybe you share wealth manager with like three or four other people. But it's it's very personalized. And, you know, in capital without borders, I talk about these these crazy stories where wealth managers would tell me, yeah, my client called me from like Zurich. I was in London. And she said, I've lost my bracelet outside this restaurant in Zurich. Help me find it. And as a wealth manager, they can't say,

what, are you insane? Find it yourself. Call the police. How can I find something in a different country? But no, if you're a wealth manager, you just work it out. And that's the kind of personalization I'm talking. Must be frustrating to be the person with $10 million in extra money and still not really be at the upper level of what you can get in this business. Well, you know, that is a super interesting point, Sean. I'm really glad you raise this because a lot of what I see sort of in popular discourse is people asking about the rich, why do they never have enough?

You know, why do people like Bezos and Musk and Branson have to get their rocket projects and compete with each other over like who launches first? Like, what is their problem? Why can't they just like go get themselves some, you know, cocktail with a little umbrella in it and lay back on their yacht and enjoy themselves? Why are they always fighting with each other to have more and more and more? This is the reason, because no group of people competes with the entire universe of other people for status. In sociology, we call this the problem of reference groups. We choose or are given in life certain reference groups against which we compare ourselves. Family, neighborhood, school friends, and now because of social media, we have lots of other groups we can choose as our reference groups, like fans of Kim Cardinal.

So those are the yardsticks we use to measure our status. And so while we may be, I don't know, compared to the universe of people in the world, well paid, well off, we're not going to feel well paid, well off or high status unless we're doing well compared to our reference group. So the reference group for people with $10 million is other people with $10 million or more. And it's the or more that eats a way of. them at night. Yeah. Academia could tell exactly the same story, couldn't it? Exactly. Yes. It's like, oh, I'm a full tenured professor, but I don't have an adoubt chair. Do you ever feel like you're drinking from a firehouse? Paycor's intelligent HR solution empowers leaders to turn down the

pressure. Their unified platform includes payroll, talent management, compliance software, and a lot more, connecting you to the people, data, and expertise you need to drive long-term business results. Visit paycourt.com slash leaders and go from work flood to workflow. That's paycourt.com slash leaders. Hey, everyone, it's Cal Penn. I'm the host of Earsay, the Audible and Iheart audiobook club. This week on the podcast, I am sitting down with Ray Porter, the narrator of Andy Weir's audiobook Project Hail Mary,

massive sci-fi adventure about survival and science. And what happens when you wake up alone very far from Earth? I really had to make a decision because I caught myself getting that frog in my throat and starting to get teary as I'm narrating some of these sections. And it's like, okay, yo, yeah, yeah, yo, is this indulgent? And I really thought about it. I was like, no, at this point, it would kind of be betraying the trust the author and and the listener have in telling this story if I don't go through it.

But there's places in this book that have. that deeply emotionally affected me, and I left it on the mic. That's great. Because it served the story. People will say like, oh my God, I cried at the end. It's like, yeah, dude, me too. Listen to Earsay, the Audible and IHeart Audio Club on the IHeart Radio app or wherever you get your podcasts. Yes, that's how we are.

It's all human beings all the way down. But, okay, let's put ourselves in the world of the very tiny tip of the iceberg, where they all have their bespoke offshore wealth management. What you did in the new paper is think about that system as a complex network. So there are nodes and there are connections. So let's bring it down to earth. What are the nodes and what are the connections? What is the network that we're talking about here?

The network is this complex structure that wealth managers have created in the offshore world. So what we were able to look at using the leaked data that has come to light through the 2016 Panama papers, the 2017 Panama papers, let me backtrack a bit, so that Panama Papers in 2016 was a cache of data from one company. It was 40 years of data from the company called Mossack Fonseca. It was a law firm in Panama City, Panama.

So somebody on the inside there dumped a ton of data and that was followed in 2017 by the Paradise Papers, which came from a company called Applebee's and Bermuda, which is also a law firm, a wealth management law firm, and then I believe Asia City Trust, which I can't remember where that is, but it was two countries. And then you may remember in 2020, there was the Pandora Papers, which involved, I'm going to get this wrong, is it 14 companies or 14 countries. I think it was at least a dozen countries. So it was much more spread out than either Panama or Paradise Papers.

But still very incomplete. We have no idea how representative any of these leaks are of the whole universe of wealth management offshore activity. But they're all that we've got because otherwise this data is completely held in secret. There's no way to know who holds what offshore. All of this information went to an organization called the International Consortium of Investigative, journalists. And they strip out a lot of identifying information. Like in these leaks where things like images of the passports of the clients, their home addresses, really, really sensitive identifying stuff. So ICIJ goes in, they strip out all of that identifying stuff and they make

the rest publicly available online. Anyone can find it. We took this data, me, Herbert, Dan, and Fang. And we tried to figure out, okay, knowing that this is very incomplete and patchy, is there anything that we can make of this that would be useful? So I had a bunch of ideas I wanted to test. And here was the quantitative data to test it with. I reached out to them because I don't have the skills to do this level of network analysis. Like, I've done quantitative work before. I published a lot of laboratory experiments using econometric methods, but like network science of complexity, that's a whole different animal. Yeah, there's some specialized knowledge there.

I called in the experts. Good. And they're mathematicians and computer scientists. And luckily for me, they were willing to climb this very steep learning curve to learn enough about offshore finance that we could have a conversation about what the data were in these ICIJ publicly available sets. Because you can't just open up what the ICIJ makes available and instantly grasp what they're showing you.

Oh, no. And I think that's one of the reasons there hasn't been as much research based on offshore leaks as there might have been because it's an incredibly deep, rich resource. I think like something like a total of 10 terabytes worth of data, just enormous. The problem is to make head or tail of it, you have to be able to look at it and know what what's an intermediary? What's a beneficiary? What's a trust? And just getting there is it's a big leap. So I had that information and I had a series of testable propositions derived from my qualitative research. Here was the data. Here were people who could work with the data. And we had to kind of meet in the

middle to learn to speak each other's language across disciplines well enough that we could make something up. And as I was telling you at the top of this podcast, just this morning I ran across an article of nature by my old grad school pal James Evans, who's a sociologist at the University of Chicago, talking about how the most high-impact research tends to be when scholars cross the streams of disciplines, like disciplines that normally are not in conversation with each other at all. And that's definitely the case with sociology and math and network science. Although there are plenty of quantitative sociologists, the level of what Herbert and Dan and Fank can do is far beyond what most sociologists, except people like James Evans, actually do. So what we were able to do in the PNAS

nexus paper was to use this sort of frustratingly incomplete data to map out the relationships or the web of relationships between clients of offshore that is the wealthy people and the wealth managers and the structures that those wealth managers create for them in different places. And from that, we began to observe some very interesting and unexpected patterns like wow, this seems to behave like a scale-free network. And, huh, wealthy people from different parts of the world, such as Russia and China and the United States and Hong Kong, they have very different patterns of relationship to both wealth managers and offshore structures.

Now, this was very gratifying to me because that's exactly what my qualitative research suggested we would find. but I'd never been able to test that until we sort of did the laborious work of combing through this data and testing it. It's a good feeling. It's a great feeling. Similarly, I received a pretty good quantity of anecdotal data for wealth managers working with Russian and Chinese clients saying, look, they're really different.

What they want is different. They have different needs because of the political environment they come from. They need different things from us and from the offshore system in general than clients from Europe or the Americas might be. Tell us. And here's some specific. Oh, could you just tell us in very simple terms? I'm sure that most of the listeners here know what a scale-free network is, but let's assume that they don't. Like, what does it mean to say that this network that you've drawn between clients and managers and structures is scale-free?

I think if I were explaining this to some of my undergraduates, I'd say, well, some networks are very easy to break down. But others are robust, kind of like fabrics, like the netting that you see on like a wedding veil. Like you can tear that with your fingertips really easily. That's not a robust fabric. You can see it's a little network of threads or fibers that connect to one another, but it's not robust. There are fabrics like ripstop or Gortex where not only could you tear out it with your fingers, but you could take like a relatively sharp object and try and tear away at it without succeeding. There are certain networks that are composed more like that that's really hard to

tear them apart or break the connections. A scale-free network comes across like a piece of ripstop or Gortex. It seems unbreakable. But if you know about the properties of the fiber, you can find ways to break it. The World Wide Web is composed like this. It's very robust, but if you know where to attack, you can make it break down. There's some gene editing networks and animals that work the same way. So Scaled Free Network has this really interesting property that it's robust to random attacks. So if you just start like tearing at it randomly, it's not going to break. But if you know where the vulnerabilities are, which are these highly connected nodes like hubs, like in a airport hub and spoke system. And if you strike there, yeah, then you can make either the

whole thing fall apart or big parts of it. So everyone who has tried to like fly through Chicago or Newark during winter storm season or summer thunderstorm season, knows how this works. If your hub gets attacked or it gets pulled out of service, everyone's flights are disrupted. That's the kind of network that we're seeing in the offshore world, except instead of the hubs being Chicago or Newark, the hubs are certain wealth managers who have a lot of very wealthy clients who all cluster their business around this or that person. I really like the two, the combination of the two metaphors of fabric and the airline network because it drives some of the difference between a scale-free network and something like a lattice, right? Like if the

airline network in the United States were like a fabric where everything is just connected nearby, to get 3,000 miles, you might have to take 30 trips of 100 miles each, right? But because it is scale-free and there are these long-range connections, you can get there in two trips. And so you're saying that the offshore financial network is that kind of thing. There are some hubs that are really super-duper-connected, and then there are some smaller hubs, and then below that, even smaller hubs. Yeah, and, you know, I alluded to the fact that my informants in the qualitative study had told me that although wealthy people, ultra-wealthy people from all over the world, have a lot in common with each other, sometimes more in common with each other than with the people of their own

countries, there remain very significant national differences that are driven both by culture and by politics. And so, for example, apparently with Chinese clients, you cannot speak to them about death. It's just a taboo topic. Oh. Which is very awkward because a lot of what a wealth manager does is plan for things like succession. I was going to say, yeah. What happens if you have a client, as is common, a Chinese client who has created a very

a very wealthy family business, how do you have the conversation about, okay, so whom do you want to take over and who gets your stuff? Now, imagine trying to have that conversation if you can't say words like death or die. Tricky, huh? Right. Similarly, clients from autocratic societies tend to be understandably extremely distrustful. And when they find someone, usually through word of mouth whom they regard as trustworthy. Everyone wants to work with that person. You see this a little bit. If you read magazines in the grocery store checkout line,

like people are in touch. All the celebs like to go to the same hairdresser or the same plastic surgeon. Why? Because the person is not just competent at their job. They may also have a reputation for having the best bent side manner or the most reliable discretion. or whatever.

The people who go to wealth managers for offshore financial services are no different. They use word of mouth. They don't go to the yellow pages to find a wealth manager. They use whoever their friends use. And if they come from autocratic societies, they tend to have very few people whose opinion and word of mouth they could trust. And so that creates these hub and spoke effects where lots of, say, Russian oligarchs with Chinese oligarchs end up using the same wealth managers.

And that in turn creates the vulnerability in the system. Because if you can take that hub out of commission by, say, sanctioning the wealth managers so they can't work with sanctioned oligards, that disrupts the system as a whole. And this makes perfect sense in terms of why you would want to borrow expertise from complex systems studies, because that makes perfect sense. to someone who studies networks and complex systems when you see scale-free behavior because not all networks are scale-free, but you want to understand what is the mechanism? Why does it have this scale-free behavior?

And one of the most obvious ones is preferential attachment, the rich get richer. And so the good wealth managers get their word of mouth shared around and they're going to get more clients that way. Exactly. And it's clear from your paper that a lot of the motivation here

is very policy-driven. So, you know, even though it's complex systems and fun academic intellectual ideas at the end of the day, how does this tell us what better policies to implement? In particular, you were motivated by the fact that some of these people are from regimes which can be bad actors and we might want to sanction them someday. And how do we do that effectively? Well, there's this long tradition of sanctioning the transfer of information and people who can transfer it. And it started at least in the 1940s with the nuclear program and then extended to things like bio weapons and so forth. So if you happen to work in any of

those areas where you might be privy to nuclear secrets or to information about how to manufacture or use chemical weapons, you're subject to a lot of restrictions on whom you can talk to, what you can say and so forth. And if you break those rules, you can be sanctioned, not just professionally, but by the government for improperly sharing secrets pertaining to national security. So the logic of that is we're suggesting apply that to wealth managers. And even as we were writing this paper for PNAS Nexus, they were governments of the UK and the European Union and the U.S. were starting to do this with wealth managers, saying, of course, you can continue to practice your profession, but you cannot serve clients whom we have sanctioned.

So do your jobs, knock yourselves out, but you can't serve sanctioned Russian dollar marks. And if you do, you will be subject to civil and or criminal penalties. And did that work? I think it's too early to say. It only just started even being suggested last June, 2022. Right now, in fact, it's kind of an exciting time to be talking about this because the Swiss, for example, they're actually prosecuting some Swiss wealth managers who were serving Russian oligarchs. Wow. So they're implementing this theory and like taking these guys to court right now.

The Department of Justice here in the United States is doing the same thing to wealth managers, the prosecuting wealth managers who served sanctioned. Russian oligarchs. So this is very much a situation that is unfolding as we speak. It makes me think very much of something that I've often thought about and is probably just too hand-wavy to be anything very definite. But the very idea that a wealthy person, even like a little wealthy person, like an average middle class person in the modern world, they're not carrying around gold bullion in an abstract, right? They're not actually in possession of their wealth. The idea of wealth is very much based on a network of trust, that when I log on to Bank of America's website, I can move zeros and ones around and suddenly a package appears at my door. And I imagine

at the level of super-duper wealthy people that, you know, that network is is wider and the trust is even more important. One of the things I would really like to learn more about in the domain of network science and complex systems is how to conceptualize and measure trust as a mechanism because I'd like to take research findings from the domain of mafia studies, which are very informative on the dynamics we're seeing. But they're qualitative. I need to be able to translate those into terms that can make sense within a complex systems analysis. Because you're absolutely right. The whole concept of Fiaturrency, you know, those little bills that say in God we trust aren't about trust. Trust in the full faith and credit of the U.S. government or whichever government is issuing the currency. And then that's just accentuated the more you go up the wealth ladder. You need to be able to trust the people who know where all the bodies have varied, who know about the true extent of your fortune, how you got it. what the threats to it really are.

It's a very, very sensitive information. So how oligarchs establish these trusting relationships, I understand a little bit about that from my qualitative research, but I haven't developed yet an understanding of how to conceptualize and test that as a mechanism. But I think it's very important in addition to, what was the other mechanism you were speaking of? A preferential attachment.

Right. So I think underlying the preference. preferential attachment is this dynamic of trust. It makes me think, I mean, there's also a political version of this, right? If you're a dictator, what does it mean to say that you have power over a huge number of people? Ultimately, it means that a small number of people will listen to your orders and carry them out, and then the large number of people will listen to their orders. And it strikes me more that it works at all than the fact, I'm not surprised that it fails sometimes.

I'm surprised that so often people will go along with it. There's a historian named Ruth Ben-Giott at NYU's who wrote a wonderful book called Strongman. And it's all about the sort of the psychodynamic of what you're talking about. And also relevant to mafia studies in that the way become a strong man is that you project an image, almost like the Wizard of Oz, of invincibility. And you make sure that no one can look behind the curtain. To the extent that autocrats or would-be autocrats could be successful in surrounding themselves with yes-men and with people who are willing to commit violence to enforce this illusion of invincibility, they'll stay in power. And Putin has done an incredible job of that over the last 20-plus years.

But one of the objects, the ultimate objects of using sanctions on wealth managers as a non-military strategy to counter the Russian invasion of Ukraine is to begin to make some of Putin's closest allies feel some pain, not because we think they can advise him or change his mind about anything. That's not how they relate to Putin. He tamed the oligarchs in the early 2000s and they don't tell him what to do. But if they stop publicly supporting him or if they are willing to countenance other people being disobedience to Putin. That weakens the strong man image and emboldens others to try to depose him. And this worked to bring down Pinochet's regime in Chile, and it worked to bring down the apartheid regime in South Africa, peeling away the elites.

Well, so you've said this already. I don't want to oversimplify it, but this analysis suggests a way for policymakers to thinking about who to sanction, right? So include wealth managers as well as the actual oligarchs and also target the hubs, target the ones who are most widely connected. Is this a broader paradigm for social science research? It makes me think a little bit. I did a podcast a few months ago with Andrew Papacrisos, who is a sociologist who studies street violence on the streets of Chicago, so a very different scale. But the same network study. give you like pointers to say like, look, this person is very likely to not necessarily do something bad, but be the target of something bad. You don't know. But thinking of it in that way can help us target

our resources for things that we think are bad and want to prevent. I think you're absolutely right. And it's interesting that you bring up the analogy of street crime in Chicago. Because one of the things we talk about in this PNAS Nexus article is that the earliest theory, in sociology about secrecy. And that's ultimately what the offshore system is about, is secrecy. Without secrecy, it doesn't work at all. Geyorek Simmel, the German sociologist, who wrote this sort of foundational text on how secrecy works in human societies. He explicitly made this connection between groups of the nobility who had the secrets that protected their wealth and power, and groups of assassins and criminals who also use secrecy to protect themselves from the law or from accountability.

So an obvious extension of what we're doing here is to investigate, say, terrorists or other criminal networks because especially the international ones, they work as far as we know, or as far as I've seen, on this hub and spoke kind of system. So they're robust to certain kinds of attacks, but they're very fragile if you can find the hubs. The trick of it all is figuring out what are the hubs. That is some of, that's the information that's often guarded with the greatest amount of secrecy. Because the people who organize these networks know that if anyone knows what the real hub of the system is, they're in big trouble. Is there a flip side if I, I don't want to think about necessarily the offshore financial network, but is there, are there lessons for people who want to build robust networks rather than people who want to attack semi-robust networks?

work. Yeah, I guess don't put all your eggs in one basket. Yeah. Try to avoid having hubs. Or if you can't avoid having hubs, find decoys or other ways to keep the nature or location of those hubs invisible to inquiring others. Okay, maybe a good, maybe a good last question here is because we've pretty explicitly touched on not only sociology, but network science, complex systems, occasional analogies with physics and things like that. How do we make that kind of cross-disciplinary interaction more real and tangible and useful? I mean, there's sort of lip service given to, yeah, sure, interdisciplinarity is great, but then when departments hire people, they hire people in their disciplines because the hiring is done by departments, right? Do you have any words

of wisdom for how to make this, how to lower the barriers to this, how to make it natural and commonplace rather than the exception? Yeah, I've thought about this a lot. The other thing, in addition to hiring, is funding. You know, a lot of funding agencies talk a good game about we like to fund high-risk interdisciplinary research. But when it comes right down to it, unless the research is mostly done, they're not going to touch it with a 10-foot pole because it's too risky.

And they don't understand it. Or, you know, just getting reviewers who are knowledgeable enough about what you're doing to evaluate the cross-disciplinary I work. It's like, it's a huge uphill battle. So I think it's, I think this has to come, this has to be led from the top. One of the things I promised myself is when I became a tenured full professor, instead of sitting back and resting on my laurels, I would use my position to take bigger risks than I'd ever taken before. So that's one thing. And there are lots of other similarly positioned scholars who can use, their position at the top of the hierarchy to do things that would have maybe jeopardized their

careers an earlier stage. The second thing is to try to, in addition to taking those risks, to specifically try to build institutions and training that will help bring in younger people, postdocs, junior faculty, even undergrad and grad students to kind of normalize this kind of work. that's part of the next step that Herbert and Dan and Feng and I are going for here to start building some kind of institutional infrastructure to support this. Dartmouth itself, much like the Santa Fe Institute, provides a nice incubator for this kind of work. Because if I worked at maybe Ohio State or Michigan or some giant university, I think it would be harder for me to walk across the street and talk to someone I didn't know

in a completely different field of inquiry. Like, they'd have too many people competing for their time. Yeah. But Dartmouth is really small. And for some people, that's a huge drawback. But the silver lining in it, for me at least, is that I can go talk to the chair of math department and, like, say, yes, hi, I'm a random sociologist,

and I have this idea, and would you give me the time of day? And he's got enough experience of mingling with people from different disciplines because it's a small place and it's unavoidable. You can't silo yourself. Kind of the way people end up around the lunch table at SFI talking to folks who are in completely different fields of work. Great stuff comes from that. So not everyone is lucky enough to work in a small institutional environment where they can just walk across. the street or, you know, walk across campus and get someone in a completely different field to talk to them. But I think those of us who can do that should leverage those opportunities

and build places, research centers, or gather funding using the fact that we are tenured full professors, using our reputations and our networks to gain the funding, to bring in other people. So not just to sponsor our own research, but to become sort of like mini funding agencies for other people so that we can take a chance on their wild ideas, just the way somebody took a chance on my wild idea 15 years ago. Well, from your lips to God's ears, I hope this is exactly a great paradigm. We're trying to do similar things at my own new institution. So Brooke Harrington, thanks so much for being on the Mindscape podcast. Thank you. It was a pleasure. What if you could have even more and more and more help to pursue your goals. At LPL Financial, we offer more ways for

advisors and their clients to thrive. So what if you could? Paid advertisement. Investing involves risk including potential loss of principal LPL Financial LLC member FINRA SIPC.