This article is the second in a two-part report on the Panama Papers.  Read part one here!

As we saw in my last piece on the Panama Papers, many news outlets are exulting in another blow struck against “global capitalism” and its greedy excess.

What “capitalism” would that be, exactly? After all, capitalism is a system free exchange based upon the protection of private property by the rule of law. Does the entire world enjoy the protection of private property under the rule of law? Hardly. Then how can there be “global capitalism” without these two foundations?

The answer is there cannot be “global capitalism,” but rather something that tries to mimic capitalism’s success without adopting its means.  Capitalism, in the West, is utterly dependent upon a set of cultural and legal ideas which have recently come under heavy fire. There must be a focus on the individual, whereas family and tribe matter more in much of the rest of the world.

Let’s briefly look to politics to see if this cultural emphasis on individualism still holds.

Francis Fukuyama has noted, in his study of political order, that the attempt to apply democratic forms to nations which lack a history of democracy often fails. He cites the example of Melanesia, an island chain northeast of Australia. In that society, people belong to groups called a “wantok” or “one talk,” which each share a common language and a belief in shared ancestry. This means that, in an election, people vote for a local Big Man or Woman who will defend the interests of the wantok, not some idea of the public good or the law. Without the historical experience and shared values, democracy can’t work.

Just as the world doesn’t have democracy, it doesn’t really have capitalism. The world’s “poorest” aren’t always poor, but what wealth they possess is unstable, and their ownership of it uncertain. Economist Hernando de Soto has convincingly argued this point in The Mystery of Capital. He writes that the world’s poorest hold immense wealth in land and other resources, but that these are held in a “defective form.” The lack of defined property rights under law hampers the ability for these people to develop economically, so they remain “poor” despite having access to large amounts of resources.

What there are worldwide, however, are exploitative elites who prefer to live in more comfortable areas of the world. These elites take whatever wealth they can from their own countries–and often countrymen–and relocate to places like the United States or Europe. This is a key reason for why so-called “failed states” are frequently the scene of war, kleptocracy, and evil.

People act upon incentives, so we have to look at their incentives. A man who makes money, whether it’s legal or not, wants keep what he’s made. Mafiosi, kleptocrats, entrepreneurs, and laborers all share the desire to keep what they have. So when wealthy individuals in China, a nation not known for it’s respect for property, hiding money in offshore accounts, we can only presume that this is the same incentive is at work. This also holds for those in Russia who are hiding money abroad.

These Papers are not demonstrating that capitalism, in the Western sense, is failing. But they do give clear evidence that people with a lot of wealth on the line prefer to keep it safe in places where property and the rule of law are respected. This means, sadly, that much wealth is being hidden in the West, and much of it is not being invested into the nations where it often originates.

Megan McArdle at Bloomberg Review writes that “What we’ve seen from the papers so far is not so much an indictment of global capitalism as an indictment of countries that have weak institutions and a lot of corruption.” This corroborates perfectly with what I’ve said up to this point.  The Panama Papers don’t indict capitalism, which grows weaker and weaker even in the West, but they do indict the rest of the world.

Until this story fully plays out, we won’t know the total impact of the Panama Papers. But we can say that, so far, capitalism is not being indicted.

If anything, both capitalism and the Western ideas that allow it to exist and function have been vindicated one more.