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- Herausgeber: Biteback Publishing
- Kategorie: Geisteswissenschaft
- Sprache: Englisch
- Veröffentlichungsjahr: 2021
Politicians, financiers and bureaucrats claim to believe in free competitive markets, yet they have built the most unfree market system ever created. In this Gilded Age, income is funnelled to the owners of property – financial, physical and intellectual – at the expense of society. Wages stagnate as labour markets are transformed by outsourcing, automation and the on-demand economy, generating more rental income while broadening the precariat. Now fully updated with an introduction examining the systemic issues exposed by Brexit and Covid-19, The Corruption of Capitalism argues that rentier capitalism is fostering revolt and presents a new income distribution system that would achieve the extinction of the rentier while encouraging sustainable growth.
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“The unique value added by this updated edition of The Corruption of Capitalism is the cumulative detail with which Guy Standing builds up his searing indictment of today’s rentier capitalism. If ever there was a call to action, this is it.”
Robert Skidelsky, economic historian and author of Keynes: The Return of the Master
“This is a time for radical fresh starts and major structural change that will pivot economies to work for the people and not just for the powerful. Guy Standing’s thinking gives us a new roadmap for positive and progressive change.”
Richard Wilkinson and Kate Pickett, authors of The Spirit Level and The Inner Level
“Is it possible to make capitalism work for the many rather than the few? In this thoughtful book, Guy Standing focuses on the central problem of modern capitalism – the tendency of great wealth to transform itself into political power that corrupts the political process and generates laws and regulations favouring the wealthy – and suggests useful and important solutions.”
Robert Reich, Labor Secretary to President Clinton, 1993–97
“This is a fascinating book that builds on a lifetime of empirical research.”
The Guardian
“This book paints the shocking reality. Something has to break!”
Danny Dorling, Oxford Universityii
“This book should shake out of their complacency all those who believe the waters are closing over the 2008 crash and normality is steadily returning. Guy Standing’s incisive critique of the corruption of rentier capitalism and his description of the potential of the rising precariat should put politicians and ruling elites on the alert. New frustrations and new forces are emerging that are demanding change. Traditional political forms are struggling to understand and respond to these challenges. This stimulating book provides an insightful vista of the issues that confront our society and a creative range of political and policy responses which existing political parties need to wake up to.”
John McDonnell, shadow Chancellor of the Exchequer 2015–20
“The Basic Income is an idea whose time has come, and Guy Standing has pioneered our understanding of it – not just of the concept but of the challenges it is designed to meet: rapid automation and the emergence of a precarious workforce for whom wages derived from work will never be enough. As we move into an age where work and leisure become blurred, and work dissociated from incomes, Standing’s analysis is vital.”
Paul Mason, former economics editor, Channel 4 News
iii
CONTENTS
GLOSSARY OF ACRONYMS
INTRODUCTION TO THE THIRD EDITION
‘The ordinary progress of a society which increases in wealth, is at all times tending to augment the incomes of landlords; to give them both a greater amount and a greater proportion of the wealth of the community, independently of any trouble or outlay incurred by themselves. They grow richer, as it were in their sleep, without working, risking, or economizing. What claim have they, on the general principle of social justice, to this accession of riches? In what would they have been wronged if society had, from the beginning, reserved the right of taxing the spontaneous increase of rent, to the highest amount required by financial exigencies?’
John Stuart Mill, Principles of Political Economy, 1848
Since this book was written, the trends it describes have gathered strength, while the global Covid-19 pandemic and Britain’s ill-judged exit from the European Union have revealed the inequities and iniquities of rentier capitalism for all to see. Yet governments of all complexions, captured by the rentiers, have shown little appetite for systemic change, at most proposing to tinker with this or that policy that they hope will defuse calls for radical action. x
This introduction to a new edition documents the salient features of rentier capitalism exposed by the pandemic and Brexit. It argues that these events have strengthened the need for the policies outlined in the final chapter, notably the creation of a new income distribution system anchored by a basic income.
Let us begin, however, by recalling an event in Britain that epitomises the malefic influence of rentier capitalism. In a June 2016 publicity stunt, just before the referendum vote on EU membership that month, a flotilla of thirty fishing boats loaded with Brexiteers made its way up the Thames to the Houses of Parliament in Westminster, headed by former merchant banker Nigel Farage, the most prominent leader of the Leave campaign. The slogan ‘British fish for British people’ proved significant in the narrow victory for Brexit.1 Small-scale fishers were persuaded that their plight was due to the EU’s Common Fisheries Policy, which is why most voted for Brexit and later for the Conservatives in the general election of December 2019.
In reality, their problems were the outcome of corporate power. The British government, not the EU, was responsible for allocating quotas for fishing in British waters, once the total allowable catch had been set. And it was the British government that had given – not sold – rights to this national asset, mostly to a few large-scale corporates. Over two thirds of the quotas were then, and are still, in the hands of just twenty-five companies, while only 6 per cent have gone to the 76,000 small-scale fishers, even though they make up 79 per cent of Britain’s fishing fleet. Some 29 per cent of the total quotas have been given to merely five families, all of whom are on the Sunday Times Rich List.2
There was one thing wrong about Farage’s antics on that flotilla xiin June 2016: the boat he was on belonged to a UK-registered Dutch fishing company that ‘owned’ more of the allocated fish quotas than any other – over 20 per cent of the total allowable catch. A year earlier, off the Cornish coast, a supertrawler of over 100 metres in length – the largest in the British-registered fishing fleet – owned by that Dutch company was boarded by the Royal Navy and found to have 632,000 kilos of illegally caught mackerel. In Bodmin Court, the skipper and owner were fined £102,000, including costs, but were then allowed to sell the fish, which fetched £437,000, and to keep their freely given quota, their property rights.3
It was not the first major offence committed by the corporations so favoured by the government. In 2011–12, directors and partners of thirteen of the twenty-five most privileged fishery companies were convicted in a huge overfishing case in Scotland, known as the ‘black fish’ scam.4 The companies had clandestinely landed 170,000 tons of undeclared herring and mackerel, worth about £63 million. The convictions did not stop those companies from continuing to receive their large quotas. It is a case to cite against those who claim quota systems – or private property rights – induce long-term conservation and sustainable fisheries.
In Britain and elsewhere where transferable quota systems have been introduced, quotas have become a valuable tradeable commodity. Powerful fishing companies have accumulated more and more quota that they can then lease to other fishers, gaining rental income. And quotas are being acquired by so-called ‘slipper skippers’, who never go to sea but make their money from leasing the quotas to those who do.
In the Fisheries Act, passed in 2020, the British government committed itself to preserving the existing quota system. Those xiiholding most of the quotas will probably gain from any post-Brexit expansion of the quotas awarded to UK-registered vessels. Meanwhile, the small-scale commercial fishers will find they have been duped, or sold down the river, as it were.
The fishing industry is a vivid case of rentier capitalism, with profits linked directly to the enclosure of the commons (the fish in their natural habitat) and the artificial creation of private property rights (the gift of quotas), entrenched despite law-breaking. The protection of those property rights, even in the face of blatant illegality, is class politics at its worst.
• • •
Two epochal events – the Brexit vote in the UK and the election of Donald Trump as President of the United States – occurred just after the first edition of this book was written. Both events reflected a populist vote against the insecurity, inequalities and austerity induced by the system of rentier capitalism described in the book, which has channelled ever-increasing amounts of income to a minority in a global Gilded Age. Battered by the Covid-19 pandemic and with Brexit disruption adding to its economic woes, the UK finally limped out of the European Union with a thin trade deal on 31 December 2020. And on 20 January 2021, the Trump presidency came to its ignominious end, shadowed by the insurrection he incited and a second impeachment. Yet populist rage and partisan division will live on while the fundamental causes remain unaddressed.
In a book published in 2011, this writer predicted on page one that if the insecurities and aspirations of the precariat were xiiinot addressed as a matter of priority, a ‘political monster’ would emerge, a populist who would drag society towards a ‘politics of inferno’.5 Though Trump was to prove to be such a monster, he was not the first, and will not be the last, to exploit grievances and anger to gain political power.
A cleverer successor to Trump could emerge on the authoritarian right in the United States. In Britain, the Johnson government seems bent on weakening the ability of Parliament and the judiciary to check the actions of the executive. Around the world, on every continent, strongmen have been gaining and holding political ground. Unless rent-seeking can be curbed and unless the desperate need for basic economic security for all is recognised and met, politics everywhere will grow uglier still.
If the twentieth century was the American century, the twenty-first seems destined to be the Asian century. The Trump presidency also reflected a turning point when the United States ceased to be the hegemonic rentier economy. As Chapter 2 explains, the USA shaped the international architecture of globalisation from the 1980s until the financial crisis of 2007–08, thereby facilitating rent extraction by its multinationals and financial institutions. At the same time, the plutocrats and the elite serving them used their financial wealth to sway the US government in favour of what might be called ‘pluto-populist’ fiscal and monetary policy. The essence of this, copied around the world, involved big reductions in taxes on capital and the rich, with smaller tax cuts for middle-income earners, together with lavish subsidies to help corporations and the wealthy stay in the country or compete against imports.
Advocates of the policy claimed it would lead to more investment and economic growth, the benefits of which would ‘trickle xivdown’ to lower-income workers. That has not happened. Rentiers’ greed is boundless, their lobbying capacity awesome. They always want more. But that becomes, and has become, a self-threatening sickness. Tax cuts and subsidies have created a huge debt problem.
In response, public spending has been slashed, causing a visible decay in the social and economic infrastructure in what is meant to be the world’s richest country. Homelessness mounts, schools deteriorate, roads decay, bridges collapse, productivity stagnates, inequalities multiply and resentment festers. Populist politicians emerged to take personal advantage, blaming foreign nations for the country’s woes. They turned to protectionist measures behind a rhetoric of ‘America First’ and ‘Make America Great Again’. Yet the American disease is there for all to see; the Biden presidency will find it hard to reverse the decline.
Trump launched a deregulatory crusade, ordering his officials to cut hundreds of regulations, jettisoning environmental safeguards and giving more scope to US corporations to earn rentier income, ostensibly to boost economic growth and ‘American jobs’. Before Covid-19 struck, the USA had indeed generated many extra jobs, but they were mainly low-paid jobs for the growing precariat. And while the USA tried to come to terms with its self-inflicted financial crisis of 2007–08 and its loss of faith in free trade, the geopolitics of rentier capitalism shifted profoundly. Every economic transformation involves a new geographic centre of economic dynamism. This time it is China and the Pacific Basin that are destined to be the epicentre of the next phase of a Global Transformation.
The 2007–08 financial crisis marked the point at which China became a bigger trading partner than the United States for over xvhalf the countries in the world. By 2018, two thirds of countries (128 out of 190) traded more with China than with the USA, and ninety countries traded more than twice as much with China as with America.6
China has been consolidating its growing economic power in various ways, including the construction of its Belt and Road Initiative, the new Silk Road intended to integrate China with Europe and Africa as well as the rest of Asia. Already it has halved the time it takes to send heavy freight from China to Europe to eighteen days. Meanwhile, Chinese enterprises and plutocrats are buying up property and companies all over the world. They have worked out that the returns to property and other assets often exceed the returns to manufacturing investment. China has become the principal rentier economy of the world.
HOW THE FINANCE TAIL IS WAGGING THE ECONOMIC DOG
The financialisation unleashed in the 1980s has acquired the Midas touch; it turns all it touches into gold but thereby destroys the living. It paralyses governance; finance ministers do whatever finance demands to avoid ‘capital flight’ and deepening recession. It buys politicians through lobbying and ‘revolving doors’. And financial globalisation has raised inequality, because its benefits, such as they are, go primarily to the affluent, while the associated economic volatility and more frequent financial crises hit the poor hardest.7
In the 1950s, when mainly used for saving and lending, banks contributed about 2 per cent to the US economy. By the time of the xvifinancial crash in 2008, that had quadrupled.8 In the UK, financial intermediation accounted for about 1.5 per cent of profits in the 1970s; by 2008, the share was 15 per cent. Since then, finance has gone from strength to strength. Though their contribution to the UK and US economies has remained stable at 7–8 per cent of GDP, by 2017 financial companies accounted for a quarter of US corporate profits. Yet only about 15 per cent of lending was for new business investment, the rest going to facilitate trading in stocks, bonds, property and other assets.9
Similarly, only about half of UK-owned bank assets are loans to non-bank borrowers, mostly for buying property, while lending for manufacturing investment accounts for less than 4 per cent of assets.10 Since so much of the money at the disposal of banks and financial institutions is in speculative finance, one could say that most economic growth in the twenty-first century has been fictitious.
According to the Bank of England’s chief economist, the long-term economic cost of the financial crash of 2007–08 in terms of permanently lost output was more than total annual world GDP.11 But the banks whose reckless lending triggered the crash were bailed out, while ordinary people suffered the fallout. Governments and central banks have reacted to the even deeper pandemic slump in much the same way. The Economist estimated that the value of lost output in 2020 and 2021 alone could top $10 trillion, more than the annual GDP of every country in the world except the USA and China.12 And since the effects, economic and social, will persist well into the future, the final tally will be much higher.
The value of financial assets provides one way of measuring the extent of financialisation. In 2017, financial assets held by financial xviicorporations, including derivatives, totalled 1,056 per cent of UK nominal GDP. In Japan, the figure was 739 per cent; in France 649 per cent; in Canada 648 per cent; in the USA 509 per cent; in Germany 461 per cent; and in Italy 396 per cent.13 To that should be added financial assets held by non-financial corporations, which have grown sharply in recent decades. In the USA, non-financial firms received five times as much revenue from financial activities in 2017 as they did in the 1980s.14
In terms of balance-sheet size, by 2013 the UK financial system was over five times larger than at the end of the 1970s, signalling the fragility of an interlocked financial system. As an official review of Britain’s economic statistics put it: ‘Financial stress in a few, or even a single, institution can quickly spread like a virus to the rest of the economy through the nexus of inter-institutional linkages.’15
This means government is virtually a prisoner of finance. Ironically, in the 1970s, one criticism of Keynesianism by the newly dominant neo-liberal and monetarist economists was that, once trade unions and workers knew that government would do whatever it could to maintain what it called ‘full employment’, they would push up wages, so creating an inflationary bias. This was the essence of ‘rational expectations’ theory. Under rentier capitalism, a similar theory should apply with respect to finance.
In the early phase of rentier capitalism, governments turned over decisions on monetary policy to their central banks, thereby reducing democratic control. In the UK, the Bank of England was granted independence in 1998 by the New Labour government, with a remit to target the rate of price inflation. Initially, there was a deflationary bias to monetary policy, with high interest rates well suited to the banks and the development of securitisation – creating xviiibundles of debt as securities to sell to investors. But, true to the Midas touch, finance has also benefited from the subsequent era of very low interest rates ushered in by the 2007–08 financial crash.
With the threat of inflation negligible, central banks pumped money into the financial markets to stimulate the economy. This was a wasteful way of promoting growth. Instead of helping lower-income households, who spend a high proportion of their income on basic goods and services, quantitative easing (QE) chiefly benefited the wealthy by increasing the value of financial and property assets. Moreover, low borrowing rates led to an acceleration of financialisation through the growth of private equity funds.
QE by the Bank of England, its independence probably only a convenient fiction, amounted to £375 billion between 2009 and 2013. Yet the current governor, Andrew Bailey, admitted that the bank did not know what it was doing. In October 2020, he told the House of Lords Economic Affairs Committee that he agreed with the former chairman of the US Federal Reserve that QE ‘works in practice but not in theory’.16 He then admitted there had been no proper evaluation. Earlier, the bank estimated that without QE, the real prices of equities listed on the London Stock Exchange in 2014 would have been 25 per cent lower than they actually were.17
Meanwhile, finance has marched on. In Britain, private equity now owns more than 3,400 companies employing 800,000 people, from water supply monopolies to restaurant chains and veterinary practices. In the USA, private equity controls assets totalling more than $4 trillion, and the 8,000 firms it runs account for 5 per cent of US GDP and employment.18 Its business model has been variously described as ‘termite capitalism’ and ‘looting’.19 Private equity funds borrow cheaply to buy up firms; maximise returns xixand profits; sell some of the firm’s assets, often to entities registered in tax havens; and then cash out or go ‘bankrupt’ with minimum equity at risk. Recent examples include well-known retailers Debenhams in the UK and J.Crew in the USA.
Private equity firms also own care home chains across Britain. Understaffed and under-equipped due to cost-cutting in the pursuit of profit, the residents and staff of these privatised care homes were hit particularly hard when Covid-19 struck in early 2020. And, in the midst of the pandemic, the US owner of The Priory, a chain of 450 mental healthcare facilities across Britain, sold it to a Dutch private equity firm, which owns a similar business in Germany.20 The cash-strapped National Health Service now pays private equity to profit from providing a health service that was once part of the social commons within the NHS.
Meanwhile, the awesome firepower of the financial oligopolies grows and grows. At the end of 2020, New York-based BlackRock, the world’s biggest asset management company, controlled $8.68 trillion in managed assets, equivalent to a tenth of world GDP. Founded in 1988, BlackRock has become the undisputed financial master of the universe, not only as a major shareholder in most listed companies globally but also, more insidiously, through its vast Aladdin technology platform, which is used both by clients and by competitors.
As described by the Financial Times, Aladdin ‘links investors to the markets, ensures portfolios hold the right assets and measures risks in the world’s stocks, bonds and derivatives, currencies and private equity … Today, it acts as the central nervous system for many of the largest players in the investment management industry.’21 Users include Vanguard and State Street, the second- xxand third-largest asset managers after BlackRock, as well as leading insurance companies and pension funds, and huge non-financial corporations including Apple, Microsoft and Alphabet, Google’s parent.
In February 2017, BlackRock revealed that Aladdin was being used to manage $20 trillion of the world’s assets. It has not issued later figures, presumably not wishing to draw too much attention to its global monopolistic position. However, in early 2020, the Financial Times calculated that just a third of its 240 clients had $21.6 trillion sitting on the platform, equivalent to 10 per cent of global stocks and bonds. That would suggest that, in all, at least 20 per cent of the global financial marketplace, and possibly more, is being managed by a single algorithmic technology platform whose inner workings are known only to BlackRock. It is a ‘black box’.
The very success of Aladdin, which has powered BlackRock’s superior asset performance, has brought with it not only potential conflicts of interest for its owner but also serious risks for the global financial system. Dangerous herding behaviour, as trillions of dollars react similarly to events or shocks, could lead to market collapse. And Aladdin would be a very enticing target for hackers. It brings to mind a scenario from Robert Harris’s chilling novel The Fear Index, about an algorithm designed for a fictional hedge fund that fatally turns on its creators.
The Covid-19 pandemic has proved another bonanza time for financial capital. While hundreds of millions of people were struggling to survive, governments and their central banks rebooted finance, just as they had after the financial crash of 2007–08. Early in the pandemic, market intervention by the US Federal Reserve xxitotalled an unprecedented $23.5 trillion.22 In a year in which at least 1.7 million people died from coronavirus and unemployment soared, world stock markets ended 2020 up 13 per cent and US stock markets reached record highs.23
The primacy of finance has corroded a fundamental claim of advocates of capitalism, that a system of private property rights encourages long-term accumulation and investment. In fact, it does the opposite. It encourages short-termism because both managers and shareholders gain by moves to push up share prices. In the 1970s, the average share traded on the world’s major stock markets was held for seven years; nowadays it is held for a few months, and many shares change hands in minutes or even, through automated trading, in seconds.
Market responses to the pandemic have reinforced this trend, aided by near-zero interest rates and trillions of dollars of central-bank and government stimuli. The average holding period for US shares was just over five months in 2020, compared with over eight months in 2019. In Europe, the average shrank to less than five months, from an already historic low of seven months at the end of 2019. As one portfolio manager said: ‘Capital doesn’t have a price thanks to all this stimulus. The Covid-19 crisis has accelerated the trend of short-termism in investing.’24 The share of portfolio holdings replaced in a twelve-month period increased to 92 per cent in mid-2020, from a previously unprecedented high of 85 per cent a year earlier. Despite the growth of ‘passive’ index-tracking funds, which hold on to shares as long as they remain in the relevant index, the current system is better described as ‘share-dealer’ rather than shareholder capitalism.
Reinforcing this theme, online trading apps, such as Robinhood, xxiiBetterment and Wealthfront (‘robo-advisor’ start-ups), that allow commission-free retail investment in stocks have encouraged individuals, and young people in particular, to gamble on the markets, taking small-scale punts on buying and selling shares directly. Day trading has soared in countries around the world, rich and poor. Shares have been truly commodified. The claimed moral basis of shareholder capitalism has gone.
There is emerging evidence that participation in financial markets encourages right-leaning views on society and economics, including support for market-friendly policies and less regulation.25 And, as Hyman Minsky pointed out in 1986, in a period of rapid financial innovation, regulations cannot adapt quickly enough, presaging a prolonged period of economic instability.26
Minsky also noted how financialisation fosters that instability. Take house purchase as a simple example: if you pay cash for a £100,000 house and sell it for £200,000 a year later, you double your money minus the lost interest you would have earned by keeping the cash in the bank. If you buy that house with a deposit of £10,000 and a mortgage of £90,000 and then sell it for £200,000, after paying off the mortgage you clear £100,000 minus interest on the £90,000. If interest rates are low, as they now are, you gain almost ten times the cash you put in. So, there is an incentive to finance asset purchase with debt, encouraging debt for speculation, leading to steadily rising asset prices and to financial bubbles that eventually burst.
The current situation does not augur well. Finance is ahead of the politicians and will surely do what it can to keep it that way. And as long as ‘independent’ central banks do their bidding, finance will continue to thrive on instability. xxiii
THE COLLAPSED INCOME DISTRIBUTION SYSTEM
A standard view of what has happened to income distribution since the 1980s is that capital has gained more of total income; the share of income going to labour has gone down; and the top 1 per cent of income earners has gained at the expense of the 99 per cent below. Wages have stagnated in all industrialised countries, even where unions are still strong.27 All of that is, roughly speaking, true. But it leaves out too much.
In the era of rentier capitalism, the composition, or structure, of income has changed. A large and increasing part of income growth has gone to holders of assets, including intellectual property rights. In the USA, the top 1 per cent has doubled its share of national income since the 1970s,28 and one study suggests that much of this increase has been due to patent-led innovations.29 Globally too, the top 1 per cent has pulled away from the rest.
Rentier income has risen relative to capital income gained from profits producing goods and services. And it has risen relative to labour income, as measured by money wages and non-wage benefits linked to employment. In addition, within their shrinking shares, both capital (profits from production) and labour incomes have become more unequal.30 In the process, there has been a breakdown in the old income distribution system, which has intensified a new class fragmentation of the global economy.
The share of labour income in total income has declined globally, in most types of economy, although much more in countries such as China, the USA and Britain. And the plutocracy, roughly defined as billionaires, has mushroomed, in number and in wealth.
In the decade to 2020, the number of billionaires worldwide xxivmore than doubled, up from 969 at the end of 2009 to 2,189 in July 2020. Their combined wealth more than tripled to a record $10.2 trillion, led by billionaires in technology and healthcare whose wealth more than quintupled.31 By 2020, there were more billionaires in Asia (831) than in the US (636), although the USA still led in terms of combined wealth, accounting for over a third of the total. Then, during the pandemic in 2020, many billionaires did much better than before it, most notably in the USA.
Between the onset of the pandemic and December 2020, the collective wealth of America’s billionaires rose by $1.1 trillion.32 This could have provided a $3,000 stimulus payment to every man, woman and child in the country, and still those billionaires would have been richer than before the pandemic struck. All the household names in the plutocracy gained. But a stand-out was Jeff Bezos, founder and CEO of Amazon. His wealth rose by $70 billion between March and December 2020 to a record $185 billion, as Amazon shares soared by 76 per cent. Another was Elon Musk, whose wealth rose by $132 billion to reach $159 billion.
However, it would be a big mistake to assume that, in a rentier capitalist system, rental income flows only to the top 1 or 0.1 per cent. The plutocrats sit above an elite of multi-millionaires, including financiers and corporate executives, with share options, perks and bonuses that comprise a high and rising proportion of their earnings, and with ownership of income-yielding financial and property assets that have also risen in value. The elite have also gained disproportionately from the rent-seeking practice of loading companies with debt while distributing more of the profits in dividends or buying back company stock to drive up the share price. xxv
Buybacks were only a minor activity in the 1980s. But, in the decade to 2019, companies in the S&P 500 Index (essentially the 500 biggest US firms) paid out 54 per cent of their profits in buybacks and 39 per cent in dividends, relying on debt for any net investment.33 Many of those benefiting from buybacks and dividends are highly paid company employees who are sharing in the rental income through positional advantage.34 In December 2020, the US Federal Reserve said banks could resume buybacks, which had been suspended only in June, permitting billions of dollars to flow to shareholders and flattering banks’ earnings per share.35
This is consistent with US findings that a rising proportion of the top decile of wage-earners (the upper part of the salariat) is also in the top decile of capital-income earners.36 In the UK, too, firms have contributed to the entrenchment of incomes by the elite and salariat by sharing their growing rental income with a smaller proportion of their workers. This has been linked to growing market power of a few corporations in specific sectors.37
In addition to sharing in corporate rents, many in the elite and salariat are rentiers themselves, owning low-risk financial assets or rental property, which have risen in value relative to earnings from labour.38 They also benefit from perks, such as prized occupational pensions. And, as discussed later, they have also gained from subsidies, including an array of tax breaks that privilege asset owners. The USA and some other countries grant tax deductions for mortgages. Everywhere, income from share dividends is taxed less than income from labour. The income distribution system is a zone of inequities.
The highest income earners in the elite and salariat are disproportionately concentrated in finance. The extraordinary growth xxviin earnings of finance professionals since the 1980s in the USA has largely comprised increased rent; that is, the amount over and above the earnings levels that would have induced enough supply of such professionals.39 The diversion of talent and resources into finance has been mooted as a possible cause of low productivity growth in both the USA and Britain.40
Another, less visible, form of increased rent-based inequality is the re-regulation of labour markets. As explained in Chapter 6, it is incorrect to claim, as so many commentators have done, that the global labour market has been ‘deregulated’. It has been re-regulated, through directive and restrictive reforms. This has helped to widen inequality.
There is no free market in labour. One regressive regulatory trend has been occupational dismantling, achieved by the spread of ‘licensing’, in favour of outside licensing bodies extracting rent. In the European Union, for instance, research shows that occupational licensing has raised wages by 4 per cent but increased intra-occupational inequality considerably.41 In effect, the elite and salariat within occupations have extracted rent from a growing precariat beneath them.
The pandemic year of 2020 highlighted the collapse of the income distribution system. The plutocracy, elite and salariat thrived alongside the deepening distress of the precariat. Food kitchens were besieged, homelessness increased, millions fell into unsustainable debt. In Britain, a survey by the Financial Conduct Authority found that while more affluent households built up savings and paid off debt because there were fewer spending opportunities, more than one person in three lost income, typically by as much as a quarter, with young adults and black, Asian and other ethnic xxviiminorities worst hit.42 It was not the 1 per cent versus the 99 per cent; the survey showed a 14/48/38 pattern, with the plutocracy, elite and salariat doing nicely, a large group in the middle treading water and the precariat in free fall.43
On a longer timescale, earned incomes have increasingly lagged GDP, with debt making up for falling wages.44 Consumer spending in the UK has risen faster than labour income since the 1980s, with the widening gap after 2000 being met by growing household debt. More and more people were attempting to maintain living standards by going deeper into debt.
That is not the end of the breakdown of the distribution system. Conventional analyses of inequality also omit sources of income, such as imputed income from the commons, that are neither ‘capital’ (profits from production) nor wages. Throughout history, the commons – broadly defined to include the provision of public services and amenities – have provided a significant share of material resources for lower-income groups. As outlined in Chapter 5, the plunder of the commons in recent years has effectively widened overall inequality.45 This has been a global trend.
The final twist in the breakdown of the income distribution system is that, compared with earlier eras, a higher rate of GDP growth is needed to raise the incomes of the precariat, simply because ‘trickle-down’ has been reduced to a ‘drip-down’ economy. Yet, high growth would be ecologically destructive. Globally, we need ‘de-growth’, not faster GDP growth, to check global warming and combat the threat of extinction.46
In that context, we should not focus only on income inequality. The main story in an era of rentier capitalism is the growth of wealth inequality and the rise in wealth relative to ‘earned’ income xxviiifrom labour and from capital. Private wealth has increased faster than the value of the capital stock, the difference reflecting ‘capitalised rent’, such as land rent; returns from intellectual property; rent from exploiting public procurement and subsidies; and market power to push up prices due to limited competition.47 One study suggested that 80 per cent of the equity value of publicly listed firms in the USA was attributable to rent, much of it concentrated in the information technology sector.48
There have been sharp rises in the ratio of private wealth to national income in most major economies, including the UK – where it has risen from about 300 per cent in the 1970s to nearly 700 per cent now – as well as the USA, France, Germany, Japan and Spain.49 The most spectacular growth has been in China, where the ratio has quadrupled, and in Russia, where it has trebled. Meanwhile, net public wealth (that is, public assets minus debt) has declined in those countries, turning negative in four – the USA, Germany, France and the UK.50
Generally speaking, wealth inequality is much greater than income inequality. And since the 1970s a rising proportion of private wealth is coming from inheritance. Tentative estimates comparing 1970 with 2010 suggest the inheritance share rose from just over 20 per cent to 50 per cent in Germany; from 34 per cent to 55 per cent in France; and from 50 per cent to 55 per cent in the USA.51 In the UK, perhaps because gifts were under-reported, the inheritance share fell from about 65 per cent in 1970 to 60 per cent in 2010, but in any event it appears on course to rise again as baby-boomer parents pass on their wealth to their offspring.52 Commentaries have noted that ‘millennials will inherit $22 trillion by 2042’ in America alone.53 It is a roughly similar picture of xxixcoming largesse in many other countries. Yet most of that wealth transfer will be going to a minority, chiefly the sons and daughters of the elite and the salariat. The growing role of inheritance magnifies inequality because it is increasingly the key to home ownership, prices of which have soared almost everywhere in recent years.
Finally, assessments of trends in inequality need to take account of the vast sums squirrelled away in tax havens. The Panama Papers, published in 2016, revealed how plutocrats and ‘world leaders’ were using tax havens to conceal their true wealth and avoid tax at home. They included a trust set up by the father of Britain’s then Prime Minister, David Cameron, who himself benefited from the trust by selling his shares free of capital gains tax. Rishi Sunak, appointed as Chancellor of the Exchequer in 2020, made much of his wealth while working for hedge funds with holding companies based in the Cayman Islands, another tax haven.
Financial assets stashed in tax havens could amount to 10 per cent of global GDP, and perhaps much more. A conscientious study of international tax evasion and avoidance showed that UK unrecorded offshore wealth had grown particularly rapidly since the 1980s, and by much more than recorded onshore wealth.54 The proportion was almost double that for other countries, at nearly 20 per cent of GDP. Since almost all that concealed wealth is owned by plutocrats and the elite, its growth means not only that inequality is underestimated but also that the growth of inequality is underestimated.
Tax avoidance by corporations has become routine practice. Thus, US corporations report profit rates that are seven times as high in small tax havens (Bermuda, Cayman Islands, Ireland, xxxLuxembourg, the Netherlands, Singapore and Switzerland) as they do in six major economies (China, France, Germany, India, Italy and Japan), where they do far more business.55 This difference can only reflect tax dodging. Growing inequality has been concealed by growing tax evasion and avoidance.
High levels of inequality of income and wealth have been shown to breed high levels of morbidity and mortality, causing increased stress, chronic illness (such as heart disease and stroke) and ‘deaths of despair’.56 That is surely being accentuated by a world economy geared to boosting the rentiers’ share ever further. When the dust has settled, it will be shown that more people will die from the economic outcomes of Covid-19 than from the disease itself. This is not an argument against lockdowns; it is an argument for dismantling rentier capitalism.
BLACK SWANS, WHITE UNICORNS, BROWN LEMMINGS
‘We know the premium businesses place on certainty. So, it is right that we enable them to plan ahead regardless of the path the virus takes.’ Rishi Sunak, Chancellor of the Exchequer, 17 December 2020
Certainty is something all of us like; or, at least, all of us want tolerable uncertainty, where we feel confident of handling the consequences without too much difficulty and confident of recovering from them. So, a question for economic policymakers should be: why seek to give one group in society ‘certainty’ and not others? xxxi
Some years ago, an influential book by Nassim Taleb, The Black Swan, described ‘black swan’ events as rare and unpredictable, with devastating economic consequences. The book used this metaphor to highlight the fact that in our era a primary challenge is uncertainty. Covid-19, in fact, is not a black swan event on this definition, since health experts had long warned of a global coronavirus pandemic. But the broader point is that devastating and unpredictable black swan events are no longer rare. The rentier capitalist economy is characterised by chronic uncertainty, or ‘unknown unknowns’. As Taleb argued in a follow-up book, we need institutional safeguards to combat personal and economic fragility.57
If an economy operated along the lines of elementary economics textbooks, prices, supply and demand would adjust in response to technological change and economic fluctuations. Excess profits of monopolies – the rent they receive by using their market power to charge high prices – would be whittled away by increased competition, because high prices would attract new firms into the market. The neo-liberal economists who influenced the policies of British Prime Minister Margaret Thatcher and US President Ronald Reagan in the 1980s regarded regulations to curb monopoly power as unnecessary, because, they claimed, competition would do the job.
In the textbook model, prices and quantities adjust smoothly, while entrepreneurial and contingency risks (unemployment, sickness and so on) can be covered by insurance schemes. However, conventional insurance schemes are ill-equipped to deal with increased uncertainty. Far from isolated sightings of black swans, the combination of financialisation, climate change and humanity’s xxxiiabuse of nature is producing bevies of them. This means society and the economy must be protected by policies to strengthen robustness (immunity to shocks) and resilience (the ability to cope and to recover from shocks).
Current social protection schemes – insurance-based or not – provide only ex post compensation for shocks. Many, if not most, people do not know in advance what they will receive; many do not qualify for the benefits on offer; many fail to claim them even though they do qualify and do need them; and often the income support provided is woefully inadequate.
Ex post compensation along the lines of old welfare states does not provide robustness or resilience. With a global economy characterised by uncertainty and fragility, governments need to construct a system based on ex ante protection for all and financed by new revenue-raising instruments and new distribution mechanisms that recognise two tendencies of rentier capitalism: asset price inflation and labour price (wage) deflation.
The value of property – financial, physical and intellectual – tends to keep rising almost whatever the condition of the macroeconomy, whereas the value of labour, in terms of wages and wage-linked benefits, tends to keep falling. Resolving that challenge is the essence of the final chapter of this book.58
Another rare (and strictly mythological) beast linked to financialised rentier capitalism is the unicorn, the term used to describe privately held start-ups valued at over $1 billion. When Aileen Lee, California-based founder of the aptly named Cowboy Ventures, first coined the term in 2013, unicorns were indeed rare. But, like black swans, they now appear in droves. And they are breeding fast: five new unicorns were born in the first week of 2021 alone. xxxiii
Their location mirrors the reshaping of the global economy. As of January 2021, there were 527 identified unicorns worth around $1.7 trillion, according to CB Insights, roughly half of which were based in the USA and nearly a quarter in China. The two biggest were both Chinese: ByteDance, valued at $140 billion, and Didi Chuxing, valued at $62 billion. Of the top twenty, nine were American and seven Chinese. The others – two Indian and one each from the UK and Singapore – all had significant American or Chinese investment, or both.
Unicorns are private companies, not listed on any stock exchange. Their initial needs for start-up capital are provided by a growing band of venture capital funds, whose business model is to identify potential winners that will provide high returns for their investors when they cash out, either when the company goes public or when it is sold. While most of the investors are institutions such as pension funds, others are ‘high net worth individuals’ or their agents – extremely wealthy people prepared to take high risks for high rewards.
Venture capital began in a small way after 1945 but took off in the 1980s, largely due to a series of tax cuts and regulatory reforms in the United States. Capital gains tax was cut from 49.5 per cent to 28 per cent in 1978; pension funds were allowed to invest up to 10 per cent of their total funds in venture capital in 1979; and capital gains tax was cut further to 20 per cent in 1981. Hundreds of venture capitalists emerged, most based in Silicon Valley in California.
Early unicorns included Google, Uber, Airbnb and Facebook. Many were like fireworks: a big bang followed by a little whimper. But, overall, the gambles of venture capital have paid off xxxivhandsomely – perhaps too handsomely, because now a vast pool of venture capital is in search of a limited number of promising start-ups, driving up valuations to bubbly levels.
Take the case of 25-year-old Austin Russell, founder and CEO of Luminar, a company he set up at age seventeen to develop laser technology for self-driving cars, after dropping out of Stanford University. In December 2020, he took the company public and on the first day of share trading Luminar was valued at $7.8 billion. Russell’s personal shareholding was worth $2.4 billion. But the company has yet to turn a profit.
With due respect to Russell’s precocious talent, his rise to extraordinary riches is based on his and others’ ability to make money from ownership of assets – patents and finance – that rentier capitalism makes possible. Indeed, he was also an instant beneficiary of the ‘founders’ stock’ tax break. Instead of taking big salaries, founders of US start-ups award themselves stock in their company. When the stock value rises, they pay no tax at all on that increase. Later, if they sell some of those shares, they pay tax at a discounted capital gains tax rate which is already well below the income tax rate. Their ‘earned income’ is artificially low, while their rentier income is inflated.
The third animal in the unfolding saga of global rentier capitalism is the lemming. These brown rodents become increasingly aggressive with overpopulation, and when the population density becomes too great, they migrate en masse in search of new areas to occupy. Although they can swim, if they try to cross too large a body of water, many drown. They do not, contrary to legend, commit mass suicide by running over cliffs.
Lemmings are those misled by rentier capitalism. As more and xxxvmore income and wealth flows to the plutocracy, elite and salariat in the form of rent, the mass of people increasingly struggle to afford a decent life. Political representatives of the system producing their immiseration say the fault lies with foreigners, migrants or minorities, at whom their rage should be directed, diverting attention from the structural causes. And as of now, political parties and their leaders have not provided a counter-narrative, let alone a strategy for dismantling rentier capitalism. No wonder many lemmings are drowning.
INTELLECTUAL PROPERTY PROFITS FROM PANDEMICS
‘The robust use of intellectual property tools shows high levels of innovation and creativity at the end of 2019, just at the outset of the Covid-19 pandemic.’ Daren Tang, Director General, World Intellectual Property Organization, 7 December 202059
Not so fast, Mr Tang. He was speaking at the launch of the latest WIPO report indicating that, in 2019, for the fourth year running, over 3 million patent applications were filed across the world, along with over 15 million trademark applications, 1.4 million industrial design applications and 21,430 applications for ‘plant variety’ protection – a veritable avalanche of claims for intellectual property (IP) rights.60 There are now some 15 million patents in force worldwide. But, as Chapter 2 shows, the link with innovation is unproven. Many patents are filed merely to stop ideas being xxxviused by anyone or are purely defensive, stifling innovation rather than encouraging it. Meanwhile, IP rights have become a prime source of rental income.
It is one of the lies of rentier capitalism that IP rights exist to encourage and reward risk-taking inventors. In reality, the rules are designed to maximise rental income. Aggregate patent rents have risen in the USA and UK since the 1990s, and elsewhere as well.61 And there is no evidence that IP monopoly increases innovation. Thus, one study found that ‘nations with patent systems were not more innovative than nations without patent systems. Similarly, nations with longer patent terms were no more innovative than nations with shorter patent terms.’62
Nor has the IP system been shown to raise economic growth. A 2017 study found ‘lack of evidence that increased levels of IP protection lead to actual use of the IP system and … IP may have few direct effects on growth’.63
The Covid-19 pandemic has turned the spotlight on IP rights, as pharmaceutical firms and research institutes around the world hurriedly tried to develop a viable vaccine, aided by billions of dollars of government funding and advance purchase orders. By January 2021, six vaccines had been approved for use in various countries and two others were set for approval within weeks. Leaving aside the Chinese-, Russian- and Indian-made vaccines, the patents on four of the remaining five are owned by US companies – Pfizer (in partnership with Germany’s BioNTech), Moderna, Johnson & Johnson and Novavax. The fifth was developed by Oxford University, which signed an exclusive licensing agreement with UK-based AstraZeneca.
Although Oxford/AstraZeneca and Johnson & Johnson said xxxviithey would price the vaccines at cost for the duration of the pandemic, Pfizer, Moderna and Novavax made no such pledge. In late 2020, nearly 100 developing countries appealed unsuccessfully at the World Trade Organization for patents on Covid vaccines to be waived until everyone had been immunised. This was opposed by the USA, Canada, the European Union, the UK, Australia and Brazil: all countries with important pharmaceutical industries. Compare the response in 1955 of Jonas Salk, who had just developed the polio vaccine, when he was asked by the iconic TV interviewer Ed Murrow, ‘Who owns the patent on this vaccine?’ ‘Well,’ said Salk, ‘the people, I would say. There is no patent. Could you patent the sun?’64
Pfizer has form when it comes to a hard line on patent protection. Edmund Pratt, Pfizer’s CEO between 1972 and 1991, led the business campaign to have IP put onto the agenda of the Uruguay Round trade talks launched in 1986, and then pushed for a comprehensive agreement including all forms of IP. As discussed in Chapter 2, the result was TRIPS (the Agreement on Trade-Related Aspects of Intellectual Property), which obliged all World Trade Organization members to enforce strong patent rights. Pfizer has been a major beneficiary. In 1995, the year TRIPS came into force, Pratt boasted:
Having been successful in getting ‘TRIPS’ on the GATT agenda, government asked the US private sector to provide specific proposals for an agreement, and to form an international private sector consensus to achieve it … Our combined strength allowed us to establish a global private sector/government network to lay the ground for what became ‘TRIPS’.65
xxxviiiThis is a telling example of how corporate capital has shaped and distorted the global economic system. It was no surprise to see Pfizer in the forefront of defending patent protection for Covid vaccines. Pfizer did not renounce enforcement of its vaccine patents during the pandemic, retaining exclusive rights to produce the vaccine and charging a monopoly price of a reported $19.50 a dose to the US government. In contrast, the Oxford/AstraZeneca vaccine was priced at $3–4 per dose, and AstraZeneca sub-licensed several vaccine producers, including the Serum Institute in India, to produce it. Unperturbed, Pfizer’s CEO, Albert Bourla, said companies had a right to make a profit on their investment and enforce their IP, adding that suggestions to the contrary were ‘very fanatic and radical’.66
The bank Morgan Stanley estimated that Pfizer/BioNTech, which was first off the block for regulatory approval, could earn revenues of $19 billion from its Covid vaccine in 2021, and a further $9.3 billion in 2022 and 2023.67 Although Pfizer claimed its vaccine development and manufacturing costs were ‘entirely self-funded, with billions of dollars already invested at risk’, its research partner BioNTech had in fact received €375 million from the German government and €100 million in debt financing from the EU. In addition, non-refundable advance purchase agreements by the USA and other governments to buy hundreds of millions of doses of the vaccine, even before it was known whether it would work, more than cover Pfizer’s own investment.
The other companies have benefited similarly. Novavax and Moderna, a small biotech firm that planned to charge up to $37 per dose, received development finance from the US government’s Operation Warp Speed, as well as billion-dollar advance xxxixpurchases. Johnson & Johnson obtained $1.5 billion in US advance orders and development funding. Development of the Oxford/AstraZeneca vaccine was funded by the UK and US governments, with advance orders totalling over $1 billion. And although almost all the companies said they would make their vaccines affordable in low-income countries or announced donations to Covax (the international body trying to ensure global access), as of early 2021, no vaccine rights holder had committed to sharing their patent nor their data and know-how through the World Health Organization’s Covid-19 Technology Access Pool. Pfizer’s pledge is particularly disingenuous because, quite apart from price, the vaccine must be kept at -20°C, which few poor countries could handle.
It was only when governments and agencies were prepared to put billions of dollars into development and commit to advance purchase contracts that Big Pharma became active.68 Once again, far from rewarding risk, patent ownership allowed these private corporations to profit from public investment. As other vaccines win approval, the market could become more competitive, but by then the first movers will have made their money. And if Covid-19 becomes endemic, as WHO predicts, they can be assured of regular sales and profits into the future. Oxford/AstraZeneca, for instance, has not ruled out raising the price of its vaccine once WHO announces an end to the pandemic phase.
IP rights also demonstrate the tectonic shift in geopolitics associated with the rise of China. In 2011, China overtook the United States in the number of patent filings, and since then its lead has continued to expand. In 2019, the Chinese patent office received 1.4 million patent applications – more than double the number xlfiled in the USA and more than the combined total filed by the USA, Japan, South Korea and the European Patent Office. Offices located in Asia received nearly two thirds of all applications worldwide, and China, Japan, South Korea and other Asian countries were even more dominant in trademarks and industrial designs.
Meanwhile, the Trump administration’s nationalistic and mercantilist approach to trade with China prompted other countries to do independent trade and investment deals that strengthened China’s economic influence around the world. As noted in Chapter 2, one of President Trump’s first actions after taking office was to torpedo the just-finalised Trans-Pacific Partnership (which excluded China) that would have created a US-led economic area accounting for a third of world trade. Instead, in November 2020, fifteen east and south-east Asian nations, including China, Japan, Australia and South Korea, signed the Regional Comprehensive Economic Partnership (RCEP) to create the largest free-trade zone in the world, bigger than both the US–Mexico–Canada agreement and the European Union.
The agreement also includes provisions on IP, telecommunications, financial services, e-commerce and professional services. In 1980, RCEP countries had about the same share of global exports as the USA; by 2020, the US share had fallen below 10 per cent, whereas the partnership’s share had risen to 29 per cent. A month later, at the end of December 2020, the European Union concluded an outline investment agreement with China after seven years of difficult negotiations, as China sought to strengthen its position in Europe before Joe Biden became US President.
Chapter 2 also draws attention to the iniquities of the Investor-State Dispute Settlement (ISDS) system, which could be used by xlimultinationals to claim compensation for loss of revenue due to government actions in response to the pandemic. While it is hard to believe they would stoop to that, there were reports in late 2020 that leading law firms (unnamed) had started advising foreign investors affected by Covid measures on how they could sue governments under ISDS treaties.69
The International Institute for Sustainable Development (IISD) called for multilateral action to suspend application of ISDS or to specify that Covid measures are exempt from challenge. But in the absence of multilateral action, it said states could unilaterally withdraw ‘consent’ to the ISDS process.70 The IISD further pointed out that foreign investors, if they were to win a case, could gain settlements that would wipe out IMF or World Bank support to countries needing help to weather the Covid crisis. In 2019, an investment tribunal awarded foreign mining companies $6 billion in compensation against Pakistan; just two months earlier, the IMF had agreed a bailout with Pakistan to save its economy from collapse – also for $6 billion. The spectre of a repeat of such imperialistic actions towards developing countries should galvanise action to overhaul the ISDS once and for all.
CONGLOMERATION UNHINGED
Since the 1980s, production, sales and profits have become increasingly concentrated in a smaller number of corporations. It is a global trend. Led by the USA, mergers and acquisitions, having briefly spiked around 1970, rose steadily in the neo-liberal era before falling back slightly and then rising again after 2010.71 Big firms xliihave been gobbling up smaller competitors or partners. And that continued in the first year of the Covid-19 pandemic.
Acquisitions of firms by major sector leaders, aided by Big Finance, are strongly linked to the globalised IP rights regime. A spurt in corporate concentration, or what might be called conglomeration, came in the years after TRIPS came into effect and when financialisation had reached such extreme levels that firms themselves became commodities, to be bought and sold like lemons.
The Big Five tech corporations (Alphabet, Amazon, Apple, Facebook and Microsoft) have cemented their market power by buying up over 600 firms since 2007,72 eliminating potential competition and acquiring valuable IP and brainpower in the process. Alphabet alone has acquired over 200 companies since Google’s inception in 1998. The Big Tech conglomeration raises awkward questions for democracy that go way beyond pure rent-seeking.73
However, Big Tech is only the most egregious example of growing monopoly control. Around the world, and in most industries, the concentration of production, sales and profits has been increasing for decades.74 In 2013, according to the McKinsey Global Institute, just 10 per cent of the world’s publicly listed firms accounted for 80 per cent of total profits.75
Over 75 per cent of US industries have become more concentrated since the late 1990s, permitting a sharp increase in mark-ups of sale prices over production costs from an average of 21 per cent in 1980 to 61 per cent today.76
