by Michael Roberts
Financialisation’
has been promoted by heterodox economists as the cause of the
iniquities and failures of modern capitalist economies. Now an additional theory has been offered: ‘renterisation’. In a recent long article
in the British Financial Times, its well-known economic columnist,
Martin Wolf, offered this concept as the explanation of low productivity
growth, rising inequality and the mountain of debt in the major
economies.
Wolf reckons that capitalism has been “rigged” by monopolistic economic powers.
“So why is the economy not delivering? The answer lies, in large part,
with the rise of rentier capitalism. In this case “rent” means rewards
over and above those required to induce the desired supply of goods,
services, land or labour. “Rentier capitalism” means an economy in which
market and political power allows privileged individuals and businesses
to extract a great deal of such rent from everybody else…. While
the finance sector is an important part of this monopolistic
development, so that ‘financialisation’ has enabled monopoly sectors to
create their own profits (if often illusory) and generate financial
crashes, the real enemy of successful capitalism is “the decline of
competition”. Wolf then cites all the recent empirical evidence of
this ‘renterization’ of capitalism: market concentration; rising
monopolistic profit mark-ups and ‘super star’ companies like the FAANGS making “monopolistic profits”.
But does this theory hold as the main reason for poor economic
growth, rising inequality and financial crashes? Is it monopoly
capitalism that is the cause, not the contradiction of capitalism as a
whole? Well, let me remind readers of the empirical evidence for the
renterisation theory. I have recounted that in previous posts and the evidence is doubtful at best.
For example, you would expect the biggest profit mark-ups to be
achieved by the ‘monopoly’ giants – in fact the data show it is the
smaller companies that get higher mark-ups.
Again, low productivity growth appears to be much more closely
correlated with low investment and in turn with low profitability, not
with monopolisation. The biggest slowdown in productivity growth in the
US began after 2000, as investment in productive sectors and activity
dropped off. It is a fall in the overall profitability of US capital
that is driving things rather than any change in monopoly ‘market
power’. Again,
for example, evidence shows that the ‘rent-seekers’ appear to have
played no role in the low investment rate of the Eurozone: it’s just low
profitability there. But such evidence is not convenient because
it suggests that the cause of low productivity growth is due to
contradictions in capitalist accumulation. It is more encouraging to
argue that if profits are high, then it’s ‘monopoly power’ that does it,
not the exploitation of labour in the capitalist mode of production.
And it’s monopoly power that is keeping investment growth low, not low
overall profitability.
Brett Christophers from the University of Uppsala in Sweden has
published an important piece of work on renterisation (with a book to
follow). Christophers rejects the term ‘financialisation’ as a cause of
the current malaise in capitalist growth. Finance is too narrow a
cause; because rents are being extracted in many other sectors like real
estate. Christophers argues that “renterism’ in its various guises
is today a significant, even dominant, dynamic, in contrast to during
the period preceding the neoliberal turn.” He reckons the British economy “has been substantially rentierized.” Christophers renterization Christophers
offers what he calls a hybrid definition of rent that tries to combine
Marx’s view of rent coming from the monopoly ownership of a non-produced
asset (land, minerals etc) with the mainstream view of “excess payment”
over and above efficient production, namely payment above the ‘marginal
productivity of labour or capital’.
I’m not sure that this hybrid definition is useful. It appears to fudge the key issue that Marx makes about how rent emerges: namely
that it comes from the appropriation of surplus value created in the
exploitation of labour in the production of commodities. For Marx,
rent comes from the ability of monopoly owners of non-produced assets to
retain surplus-value from being merged with the competitive process of
capital flows. For Marx, ‘productive capitalists’ as appropriators of
surplus value from the exploitation of labour are forced share some of
that surplus value with owners of non-produced resources (rent) and
finance (interest). Rent and interest are part of total surplus value
created in the production of commodities. Value and surplus value must
first be created by the exploitation of labour power. Then the surplus
value gets redistributed and those with some monopoly power can extract a
part of that surplus value in rent. “Excess payment’ over ‘efficiency’
implies that there is an acceptable payment to capitalists for
exploiting labour power to benefit productivity and thus ignores these
class relations.
Marx considered that there were two forms of rent that could appear
in a capitalist economy. The first was ‘absolute rent’ where the
monopoly ownership of an asset (land) could mean the extraction of a
share of the surplus value from the capitalist process without
investment in labour and machinery to produce commodities. The second
form Marx called ‘differential rent’. This arose from the ability of
some capitalist producers to sell at a cost below that of more
inefficient producers and so extract a surplus profit. This surplus
profit could become rent when these low cost producers could stop others
adopting even lower cost techniques by: blocking entry to the market;
employing large economies of scale in funding; controlling patents; and
making cartel deals. This differential rent could be achieved in
agriculture by better yielding land (nature) but in modern capitalism,
it could be through a form of ‘technological rent’; ie monopolising
technical innovation.
Undoubtedly, much of the mega profits of the likes of Apple,
Microsoft, Netflix, Amazon, Facebook are due to their control over
patents, financial strength (cheap credit) and buying up of potential
competitors. But the renterization explanation goes too far.
Technological innovations also explain the success of these big
companies, not just monopoly power. Moreover, by its very nature,
capitalism, based on ‘many capitals’ in competition, cannot tolerate any
‘eternal’ monopoly, namely a ‘permanent’ surplus profit deducted from
the sum total of profits divided among the capitalist class as a whole.
The battle among individual capitalists to increase profits and their
share of the market means monopolies are continually under threat from
new rivals, new technologies and international competitors. Take the constituents of the US S&P-500 index.
The companies in the top 500 have not stayed the same. New industries
and sectors emerge and previously dominant companies wither on the vine.
The history of capitalism is one where the concentration and
centralisation of capital increases, but competition continues to bring
about the movement of surplus value between capitals (within a national
economy and globally). The substitution of new products for old ones
will in the long run reduce or eliminate monopoly advantage. The
monopolistic world of GE and the motor manufacturers of the 1960s and
1990s did not last once new technology bred new sectors for capital
accumulation. The world of Apple will not last forever.
‘Market power’ may have delivered rents to some very large companies
in the US, but Marx’s law of profitability still holds as the best
explanation of the accumulation process. Rents to the few are a
deduction from the profits of the many. Monopolies redistribute profit
to themselves in the form of ‘rent’ but do not create profit. Profits
are not the result of the degree of monopoly or rent seeking, as
neo-classical and Keynesian/Kalecki theories argue, but the result of
the exploitation of labour.
Moreover, rents are no more than 20% of
value-added in any major economy; financial profits are even smaller a
proportion. Moreover, the rise of renterism in the recent period is
really a counteracting factor to the decline in the profitability of
productive capital.
There is another definition of a rentier economy based on Marx’s
explanation of the division of surplus value into profits, rent and
interest that is relevant. There are national economies where the
capitalist sector appropriates much surplus value in the form of
interest, dividends and profits through non-productive services like
finance, insurance, and so-called business services. Britain is one of
these ‘rentier’ economies; Switzerland is another – both much more so
than the likes of Germany or Japan, or even the US, where the
appropriation of surplus value is still predominantly through the direct
exploitation of labour power (both domestically and abroad).
As the spoke person for the City of London recently said, “London is
the capital of capital”. The City of London delivers a considerable
inflow of income to the UK economy through its sale of financial
services, bank interest and profits and allied business services. The
UK financial sector plus real estate (oligarchs want to live in London)
and other business services contributes a much larger proportion of GDP
and cross-border income inflows to the balance of payments than most
other major economies.
Tony Norfield has developed a power index of imperialist economies
and in that index, the US leads, but it is followed by the UK. If you
strip out of the index, the military and GDP constituents, Britain is
way ahead of all as a rentier economy (at least in absolute dollar
terms).
I did a little analysis from the WTO of commercial services exports
of different countries. The export of financial, insurance and other
business services as well royalties and fees collected could be
considered a measure of rentier exports if you like. On this measure
global rentier exports totalled $2trn in 2013. The US received export
income of $365bn, or 18% of world rentier income; the UK obtained
$180bn, or 9%, while Japan received $78bn or 4% and Germany had no
cross-border rentier income at all. US GDP in 2013 was $16.7trn, the
UK’s was $2.7trn. So the UK received rentier export income equivalent
to 7% of its GDP while the US got just 2% of its GDP from rentier
exports. In this sense, we can talk about a rentier economy and Britain
as the poster child. But that makes Britain particularly vulnerable to
financial crashes.
Joseph Stiglitz and Martin Wolf reckon that what is wrong with
capitalism is that ‘financialisation’ and monopoly rentier interests have ‘rigged’/ruined the ‘progressive’ features of capitalism, namely its ability to expand the productive forces harmoniously for all. As Wolf puts it: “We
need a dynamic capitalist economy that gives everybody a justified
belief that they can share in the benefits. What we increasingly seem to
have instead is an unstable rentier capitalism, weakened competition,
feeble productivity growth, high inequality and, not coincidentally, an
increasingly degraded democracy. Fixing this is a challenge for us all,
but especially for those who run the world’s most important businesses. The way our economic and political systems work must change, or they will perish.”
But as LSE professor Jerome Roos perceptively pointed out in the British left journal, New Statesman, “By
opposing the “bad” capitalism of the unproductive rentier to the “good”
capitalism of productive enterprise, however, the conventional liberal
narrative overlooks the fact that the two are inextricably entwined.
Such thinking relies on an idealised but entirely theoretical version of
capitalism that is pure, uncorrupted and far more benign than it is, or
has ever been or, in all likelihood, ever will be. The reality is that
the concentration of wealth and power in the hands of a few privileged
rentiers is not a deviation from capitalist competition, but a logical
and regular outcome. In theory, we can distinguish between an
unproductive rentier and a productive capitalist. But there is nothing
to stop the productive, supposedly responsible businessperson becoming
an absentee landlord or a remote shareholder, and this is often what
happens. The rentier class is not an aberration but a common
recurrence, one which tends to accompany periods of protracted economic
decline.(my emphasis)”.
In the past, this blog has posted overwhelming empirical evidence
that the key to understanding the movement in productive investment
remains in the underlying profitability of capital, not in the
extraction of rents by a few market leaders, as Wolf and others suggest.
If that is right, the Keynesian/mainstream solution of regulation
and/or the break-up of monopolies (even if it were politically possible)
will not solve the regular and recurrent crises in production and
investment or stop rising inequality of wealth and income.
If you have opinions about the subject matter of posts on this blog please share them. Do you have a story about how the system affects you at work school or home, or just in general? This is a place to share it.
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