Though the story of secular stagnation is by now familiar, considerable debates continue to surround it. First, there are competing ways of conceptualizing the present stage of capitalist development. Conceptual trends have varied over the decades: late capitalism, post-Fordism, cognitive capitalism. However, the term that has risen to dominance over the last fifteen years or so is ‘financialization’—a concept that highlights the growing salience of finance, insurance and real estate in the world economy at the expense of manufacturing.1 Second, the underlying causes of the rise of ‘financialized capitalism’ are a matter of dispute. Some see stagnation as a consequence of neoliberal restructuring in the wake of the stagflation crisis of the 1970s. According to this view, neoliberalism empowered short-sighted financiers with their speculative interests, stunting capitalism’s productive dynamism in the process. Others argue that capitalism peaked with the ‘golden age’ of the postwar boom, as intense international competition gave way to thinning profitability and secular stagnation, leading to an outgrowth of excess capital in the form of finance.
There is a third debate lurking beneath the surface, one that has not yet begun in earnest but that is drawing increasing attention: the question of whether we are witnessing a transition out of capitalism. Immanuel Wallerstein saw financialization as the twilight of the capitalist worldsystem, with the Great Recession signalling its irreversible demise. At the time, he prophesied that ‘we can be certain that we will not be living in the capitalist world-system in 30 years’—‘the new social system that will come out of this crisis will be substantially different’. What it might be, however, was ‘a political question and thus open-ended’.2 Most theorists are, for good reason, less confident in making predictions with such astronomical precision, but this has not prevented a growing number of voices from raising the possibility that capitalism as we know it may be warping into something else.
For classical political economists, capitalism was defined by a pattern of self-sustaining growth driven by market competition. Competition compels producers to maximise the cost-efficiency of their operations, typically with labour-saving means, resulting in a systematic expansion of output that cheapens the price of commodities—this is what Marxists have long called ‘the law of value’. If such a dynamic is what distinguishes capitalism from other modes of production, then we need to confront the fact that the capitalist world economy appears to be transforming into the mirror image of this. With growth slowing down to a trickle and productivity stagnating, it appears that accumulation is now less about making anything and more about simply owning something. Profit-making is increasingly about cornering scarce assets in order to drive up their price—a practice that the classics called ‘rent’ and which they identified not with capitalists, but with landlords. As rentierism takes over, it appears that capitalism’s distinct forms of surplus extraction, organized around the impersonal pressures of the world market, are giving way to juridico-political forms of exploitation—fees, leases, politically-sustained capital gains. From the late David Graeber to Robert Brenner, authoritative theorists of capitalism with opposing ideas of its origins and development are now converging on the view that contemporary patterns of class domination look, increasingly, noncapitalist. For McKenzie Wark, this warrants the provocative question: is it something worse?
Redefining rent
In a masterful study, Brett Christophers casts light on contemporary capitalist dynamics by reformulating the concept of ‘rentierism’. Rentier Capitalism defines rent as ‘payment to an economic actor (the rentier) . . . purely by virtue of controlling something valuable’. Rentbearing assets can be physical, like enclosed natural resources or a piece of the built environment, or they can be purely legal entities, like intellectual property. The point is to secure ‘income derived from the ownership, possession or control of scarce assets under conditions of limited or no competition’.5 Christophers describes this as a synthesis of the views of classical political economists, who saw rent as monopoly profits derived from the objective scarcity of an asset, with those of orthodox economists, who describe as ‘rent’ all excess profits made from stunted competition, such as through regulatory capture. This contradistinction is somewhat of a caricature: was Marx, for example, truly unaware that ground-rent arises out of enclosure, and not just out of the sheer scarcity of land? Yet, Christophers’s redefinition of rent injects a remarkable dose of clarity into an otherwise obscure and intricate topic, one until recently confined to critical geography, the author’s disciplinary home. For Christophers, capitalism in its current stage is not just dominated by rent and rentiers; it is also, ‘in a much more profound sense, substantially scaffolded by and organized around the assets that generate those rents and sustain those rentiers’. In other words, we are living in a fully-fledged rentier capitalism: ‘a mode of economic organization in which success is based principally on what you control, not what you do—the balance sheet is the be-all and the end-all’. The days of creative destruction are long gone. This variant of capitalism is structured around ‘having’ rather than ‘making’; it is ‘pervaded by a proprietorial rather than entrepreneurial ethos’, in which the pace of societal reproduction is no longer set by fierce competition in the sphere of commodity production, but by ‘securing, protecting and sweating scarce assets’. This carries inherently monopolistic tendencies which are ‘generally inimical to dynamism and innovation’, as the safety of rentierism disincentivizes productivity-enhancing investments. For Christophers, the term ‘rentierization’ captures better the stagnant state of contemporary capitalism than ‘financialization’, which focuses on the redirection of economic activities towards financial channels. The latter ‘privileges one strand of a broader structural transformation and ignores all of the others—several of which, data suggest, have been just as materially significant as the expansion of finance, if not more so’. As Christophers taxonomizes in the book, contemporary rentierism is a highly complex and multi-faceted phenomenon. If the rentier of the nineteenth century was predominantly a financier or a landlord, the rentiers of today also derive income streams from digital platforms, natural-resource reserves, intellectual property, service contracts or infrastructure.
by Javier Moreno Zacarés, New Left Review | Read more (pdf):
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Abstract Marx and many of his less radical contemporary reformers saw the historical role of industrial capitalism as being to clear away the legacy of feudalism—the landlords, bankers, and monopolists extracting economic rent without producing real value. However, that reform movement failed. Today, the finance, insurance, and real estate (FIRE) sector has regained control of government, creating neo-rentier economies. The aim of this postindustrial finance capitalism is the opposite of industrial capitalism as known to nineteenth-century economists: it seeks wealth primarily through the extraction of economic rent, not industrial capital formation. Tax favoritism for real estate, privatization of oil and mineral extraction, and banking and infrastructure monopolies add to the cost of living and doing business. Labor is increasingly exploited by bank debt, student debt, and credit card debt while housing and other prices are inflated on credit, leaving less income to spend on goods and services as economies suffer debt deflation. Today’s new Cold War is a fight to internationalize this rentier capitalism by globally privatizing and financializing transportation, education, health care, prisons and policing, the post office and communications, and other sectors that formerly were kept in the public domain. In Western economies, such privatizations have reversed the drive of industrial capitalism. In addition to monopoly prices for privatized services, financial managers are cannibalizing industry by leveraging debt and highdividend payouts to increase stock prices.
1. Introduction
1. Introduction
Today’s neo-rentier economies obtain wealth mainly by rent-seeking, while financialization capitalizes real estate and monopoly rent into bank loans, stocks, and bonds. Debt leveraging to bid up prices and create capital gains on credit for this virtual wealth has been fueled by central bank quantitative easing since 2009.
Financial engineering is replacing industrial engineering. Over 90 percent of recent US corporate income has been earmarked to raise companies’ stock prices by being paid out as dividends to stockholders or spent on stock buyback programs. Many companies even borrow to buy up their own shares, thus raising their debt/equity ratios.
Financial engineering is replacing industrial engineering. Over 90 percent of recent US corporate income has been earmarked to raise companies’ stock prices by being paid out as dividends to stockholders or spent on stock buyback programs. Many companies even borrow to buy up their own shares, thus raising their debt/equity ratios.
Households and industry are becoming debt-strapped, owing rent and debt service to the finance, insurance, and real estate (FIRE) sector. This rentier overhead leaves less wage and profit income available to spend on goods and services and brings to a close the 75-year US and European expansion begun at the end of World War II in 1945.
These rentier dynamics are the opposite of what Marx described as industrial capitalism’s laws of motion. German banking was indeed financing heavy industry under Bismarck, in association with the Reichsbank and military, but elsewhere, bank lending rarely has financed new tangible means of production. What promised to be a democratic and ultimately socialist dynamic has relapsed back toward feudalism and debt peonage, with the financial class today playing the role that the landlord class did in postmedieval times. (...)
8. Finance Capitalism Impoverishes Economies while Increasing Their Cost Structure
8. Finance Capitalism Impoverishes Economies while Increasing Their Cost Structure
Classical economic rent is defined as the excess of price over intrinsic cost value. Capitalizing this rent—whether land rent or monopoly rent from the privatization described above—into bonds, stocks, and bank loans creates virtual wealth. Finance capitalism’s exponential credit creation increases virtual wealth—financial securities and property claims—by managing these securities and claims in a way that has made them worth more than tangible real wealth.
The major way to gain fortunes is to get asset-price gains (capital gains) on stocks, bonds, and real estate. However, this exponentially growing, debt-leveraged financial overhead polarizes the economy in ways that concentrate ownership of wealth in the hands of creditors and owners of rental real estate, stocks, and bonds, thus draining the real economy to pay the FIRE sector.
Postclassical economics depicts privatized infrastructure, natural resource development, and banking as being part of the industrial economy, not something superimposed on it by a rentseeking class. However, the dynamic of finance-capitalist economies is for wealth not to be gained mainly by investing in industrial means of production and saving up profits or wages but to be gained by capital gains made primarily from rent-seeking. These gains are not “capital” as classically understood. They are finance-capital gains because they result from asset-price inflation fueled by debt leveraging.
By inflating its housing prices and a stock market bubble on credit, America’s debt leveraging, along with its financializing and privatizing basic infrastructure, has priced it out of world markets. China and other nonfinancialized countries have avoided high health insurance costs, education costs, and other services by supplying them freely or at a low cost as a public utility. Public health and medical care costs much less abroad but that scenario is attacked in the United States by neoliberals as socialized medicine, as if financialized health care would make the US economy more efficient and competitive. Transportation likewise has been financialized and run for profit instead of to lower the cost of living and doing business.
One must conclude that America has chosen no longer to industrialize but to finance its economy by economic rent—monopoly rent from information technology, banking, and speculation—and leave industry, research, and development to other countries. Even if China and other Asian countries did not exist, there is no way that America can regain its export markets or even its internal market with its current overhead debt and its privatized and financialized education, health care, transportation, and other basic infrastructure.
The underlying problem is not competition from China but neoliberal financialization. Finance capitalism is not industrial capitalism. It is a lapse back into debt peonage and rentier neo-feudalism. Bankers play the role today that landlords played up through the nineteenth century, making fortunes without corresponding value from capital gains for real estate, stocks, and bonds on credit and from debt leveraging—whose carrying charges increase the economy’s cost of living and doing business.
by Michael Hudson, SAGE | Read more (pdf):
[ed. Why we don't make anything anymore. In simple terms: buy something, strip it of all its sellable assests, cut costs (usually staff), load it with debt, extract full compensatory payments to the new owners. If it survives, great; if not, great too. Every time you see a hedge fund buy another business or large segment of some economic sector, large parts of the housing market, land parcels or public utilities, remember this. See also: Pay us forever: Apple wants you to rent your life from them (Salon).]
