Techno-feudalism takes over by Yanis Varoufakis
The claim that capitalism is being overthrown by a new economic mode follows many premature predictions of the demise of capitalism, especially of the left. But this time it may be true, and the signs that it is have been visible for some time.
ATHENS – This is how capitalism ends: not with a revolutionary bang, but with an evolutionary moan. Just as it displaced feudalism gradually, surreptitiously, until the day when most of human relations were based on the market and feudalism was swept away, so capitalism today is overthrown by a new economic mode: techno-feudalism.
This is an important claim that follows many premature predictions of the demise of capitalism, especially of the left. But this time it may be true.
The clues have been visible for a while. Bond and stock prices, which are expected to move in very opposite directions, have soared in unison, falling at times but always at the same rate. Likewise, the cost of capital (the return required to own a security) should decline with volatility; instead, it has increased as future returns become more uncertain.
Perhaps the clearest sign that something serious is brewing came on August 12 of last year. That day we learned that in the first seven months of 2020, the UK’s national income has fallen by more than 20%, well above bleak forecasts. A few minutes later, the London Stock Exchange jumped more than 2%. Nothing like it had ever happened. Finance had completely decoupled from the real economy.
But do these unprecedented developments really mean that we no longer live under capitalism? After all, capitalism has already undergone fundamental transformations. Shouldn’t we just be preparing for his last incarnation? No, I do not think so. What we are experiencing is not just another metamorphosis of capitalism. It is something deeper and worrying.
Yes, capitalism has undergone extreme transformations at least twice since the end of the 19th century. Its first major transformation, from its competitive appearance to oligopoly, came with the Second Industrial Revolution, when electromagnetism ushered in the large, networked companies and mega-banks needed to fund them. Ford, Edison, and Krupp replaced Adam Smith’s baker, brewer, and butcher as the main driving forces behind the story. The ensuing tumultuous cycle of mega-debts and mega-returns eventually led to the crash of 1929, the New Deal, and, after World War II, the Bretton Woods system – which, with all its financial constraints, provided a rare period of stability.
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The end of Bretton Woods in 1971 triggered the second transformation of capitalism. As the growing US trade deficit became the global supplier of aggregate demand – sucking net exports from Germany, Japan, and later China – the most forceful phase of globalization in US capitalism, with a constant flow of German, Japanese, and later, Chinese profits flow back to Wall Street to fund it all.
To play their part, however, Wall Street officials demanded emancipation from all the constraints of the New Deal and Bretton Woods. With deregulation, oligopolistic capitalism has turned into financialized capitalism. Just as Ford, Edison and Krupp had replaced Smith’s baker, brewer and butcher, the new protagonists of capitalism were Goldman Sachs, JP Morgan and Lehman Brothers.
Although these sweeping transformations had major repercussions (the Great Depression, World War II, the Great Recession and the long stagnation after 2009), they did not change the main characteristic of capitalism: a system fueled by private profit. and rents extracted through a certain market.
Yes, the transition from Smithian capitalism to oligopolistic capitalism has increased profits disproportionately and allowed conglomerates to use their enormous market power (i.e. their newfound freedom to compete) to extract large rents. to consumers. Yes, Wall Street has extracted rents from society through market-based forms of daylight theft. Nevertheless, both oligopoly and financialized capitalism were motivated by private profits stimulated by rents extracted in certain markets – a market cornered, for example, by General Electric or Coca-Cola, or referred to by Goldman Sachs.
Then, after 2008, everything changed. Since the G7 central banks united in April 2009 to use their money printing capacity to revive global finance, a deep discontinuity has emerged. Today, the global economy is fueled by the constant generation of central bank money, not by private profit. Meanwhile, value extraction has increasingly moved from markets to digital platforms, like Facebook and Amazon, which no longer operate as oligopolistic businesses, but rather as fiefdoms or private estates.
The fact that central bank balance sheets, not profits, fuel the economic system explains what happened on August 12, 2020. Hearing the sad news, financiers thought, “Great! The panicked Bank of England will print more books and channel them to us. It’s time to buy stocks! All over the West, central banks print money that financiers lend to companies, which then use it to buy back their stocks (whose prices have decoupled from profits). Meanwhile, digital platforms have replaced markets as a place to extract private wealth. For the first time in history, almost everyone is producing the registered capital of large companies for free. This is what it means to upload stuff to Facebook or move around while being linked to Google Maps.
It is not, of course, that the traditional capitalist sectors have disappeared. By the beginning of the 19th century, many feudal relations remained intact, but capitalist relations had begun to dominate. Today, capitalist relations remain intact, but techno-feudalist relations have started to catch up with them.
If I’m right, every stimulus package has to be both too big and too small. No interest rate will ever be compatible with full employment without precipitating successive business failures. And the class politics in which the pro-capital parties compete with the parties closer to work is over.
But while capitalism may end with a whimper, the bang may soon follow. If those who suffer from techno-feudal exploitation and stultifying inequalities find a collective voice, it is bound to be very strong.