Traders in the New York Stock Exchange. Photo: Richard Drew / AP/Press Association Images. All rights reserved.The 20th century income distribution system has broken down irreparably. Recall the post-1945 consensus under which the shares of income going to capital and to labour were roughly stable, when workers and corporations shared the gains from productivity growth, and when rental income was modest. Those relying on wages, particularly in the precariat, can no longer rely on money wages to giving them economic security, or look forward to being able to do so.
Today, not only is the share going to profits rising, and the share going to labour falling, but the share going to many forms of rent is rising dramatically. Linked to rent-seeking, within the share going to profits more is going to a minority, and within the labour share more is going to a minority. The precariat is trebly hit. In that historic context, the left’s defining challenge is to build a new income distribution system suited to the 21st century global economy. So far, they have ducked the challenge and are paying the price.
Keynes famously predicted the euthanasia of rentiers – those gaining from scarce capital and property. He thought that as capital would become less scarce, it would lose the ability to extract rental income. For a while after the second world war, that seemed to be happening. But that didn't account for the gathering global transformation: the painful construction of a global market system, analogous to Karl Polanyi’s 'great transformation', which was about the construction of national market systems. As this ongoing global transformation stretches into the 21st century, we have entered the age of rentier capitalism: where property ‘rights’ triumph over free markets. It is no accident.
The global elite, led by the financiers, have built the institutions and regulations to make it happen. Ironically, while advocates of global capitalism wax lyrical about the virtues of free markets and deregulation, the reality is that governments, led by the USA, and international agencies doing their bidding, have created the most regulated unfree market system ever. A tightly regulated global system blocks free markets from operating, to the growing benefit of plutocrats, plutocratic corporations and a minority of hangers on.
The result is slower growth, economic instability and a second 'gilded age', a veneer of dazzling opulence below which a growing precariat seethes from chronic insecurity. Unlike the first gilded age – when wages still rose while inequality boomed – in the second, real wages stagnate and earnings become more volatile, particularly for those in the precariat, while rental income leads the growth of inequality. The left is in disarray, and will remain so until it articulates a strategy for achieving Keynes’ euthanasia and offers a new distribution system. This should be the mission, not defensively trying to hold back the waves washing away the remnants of social democracy.
What are the causes of this dystopia? It starts with the global institutional architecture that sets the rules and regulates economic transactions. At the apex is the intellectual property rights regime, centred on the once-mocked WIPO, the World Intellectual Property Organisation, now dominating the skyline in the UN part of Geneva.
Since the passage in 1995 of TRIPS (Trade-related Aspects of Intellectual Property Rights), the annual number of patents filed has tripled, guaranteeing trillions of dollars in monopoly rental income for 20 years, or more. The rental income just from patents may account for 20% of global GDP, vastly more than it used to do. It is morally and economically unjustifiable, and a threat to everybody.
The number of copyrights has also mushroomed, giving monopoly income flows for 70 years, for long after the owner’s death. Monopolistic brands and trademarks have also boomed. Many patents result from publicly funded research, but give corporations billions of dollars. Plutocratic corporations are patent hoovers, buying thousands of patents. It is a winner-takes-all market created by the regulatory apparatus, not market forces.
Cementing this edifice are over 3,000 trade and investment agreements – perhaps to be augmented by the frenzied passage of the TPP and TTIP – all of which are protecting corporate rentiers, and the undemocratic ISDS, the Investor-State Dispute Settlement process. This is a bad joke, by which multinationals can sue governments for any policy change they deem hits their prospective profits. And they, with the World Bank President, get to appoint the judges (all corporate lawyers) who use confidential proceedings that do not have to draw on precedent, usually to rule in the corporations’ favour. Imagine if we could sue the government for harm done – or prospective harm – from any policy change. We could all do very nicely. Rentier corporations have been gaining hundreds of millions of dollars that way. It is an undemocratic rigged system.
Rentier capitalism does not stop with intellectual property rights. Most countries have moved into a ‘competitiveness’ game by which they indulge in beggar-my-neighbour fiscal policy, giving oligarchs and MNCs incredible subsidies to encourage them to relocate to their country or to stay there. Regressively selective tax systems go with this, as do the permitted use of tax havens and tax avoidance arrangements. Low-income countries cannot play that game. But the plutocratic corporations and their friends scarcely complain about that.
So-called tax breaks or 'reliefs' are another form of rent, given to those with assets. These include the Patent Box boondoggle that twice blesses corporations with patents by cutting their tax obligations. Recently in the UK, the government has revealed that of those tax reliefs that they could trace the amount they cost to the public had risen to over £117 billion, more than the cost of the health service. In the small print, it added that it could not calculate the cost of 218 tax reliefs, and had not analysed the effect of tax reliefs on the behaviour they ostensibly exist to promote. This is institutionalised corruption.
This is also the era of debt, in which finance and the elite borrow at unprecedently low interest while the precariat wallows in debt fleeced by unprecedently high interest rates. Debt has become a rent-sucking instrument, including wheezes such as securitisation. It is a mechanism for inequality, transferring income from the precariat to the elite and financial intermediaries.
Less appreciated, but testifying to the hegemony of the rentiers, is the commercialisation and privatisation of the commons – public land, spaces, amenities and services built up by and for the people over many generations. Often in the name of austerity, much of the commons is being given away, and more is planned, at discount prices to commercial interests. They gain vast rental income. The accelerated depletion of public nature will have devastating ecological costs. Meanwhile, labour markets are being transformed by a new breed of labour brokers, in the euphemistic platforms, who use apps to obtain a rental wedge for transactions they induce. Many, such as Uber, Airbnb and AMT, take 20% or more from every transaction.
Finally, our democracies have been put up for sale, with plutocrats allowed to fund politicians and parties, with PR companies making huge amounts from manipulating elections – reflect how both sides of the Brexit referendum were run by non-European PR companies paid millions of pounds. And many of those who enter politics use it as a stepping stone, before going through revolving doors in extracting income from sectors they help to privatise or remake. Sadly, one can document all this with ease.
We are faced by an impasse. Rentier capitalism threatens free market capitalism and a sustainable market economy. Rising inequality is fomenting anger and desperation. Revolt is coming. For now it is a revolt of primitive rebels. The atavistic part of the precariat is easy prey for neo-fascist populists who play on the fears and insecurity that characterise reality for all the precariat. This year they are flocking to Donald Trump and his type; it will be Marine Le Pen next year, and sundry others in the wings.
Fortunately, bubbling away is a more progressive form of revolt, based around ideas of social dividends and democratic wealth funds. Defenders of free market capitalism and critics have a common interest in helping it emerge. There is a famous story of a delegation who went with a policy proposal to see President Roosevelt. At the end of the presentation, he said, “OK, you have convinced me. Now go out and put pressure on me to do it.” Today, the left must put its petty infighting aside and concentrate on generating such pressure for nothing less than a new distribution system.