…the philosophy of the left is that the strongest shoulders should bear the heaviest burden, while the right fears high taxes will blunt enterprise – but across the spectrum virtually all agree that wealth is created primarily at the top.
So entrenched is this assumption that it’s even embedded in our language. When economists talk about “productivity”, what they really mean is the size of your paycheck. And when we use terms like “welfare state”, “redistribution” and “solidarity”, we’re implicitly subscribing to the view that there are two strata: the makers and the takers, the producers and the couch potatoes, the hardworking citizens – and everybody else.
In reality, it is precisely the other way around. In reality, it is the waste collectors, the nurses, and the cleaners whose shoulders are supporting the apex of the pyramid. They are the true mechanism of social solidarity. Meanwhile, a growing share of those we hail as “successful” and “innovative” are earning their wealth at the expense of others. The people getting the biggest handouts are not down around the bottom, but at the very top. Yet their perilous dependence on others goes unseen. Almost no one talks about it.
Studies conducted by the International Monetary Fund and the Bank for International Settlements – not exactly leftist thinktanks – have revealed that much of the financial sector has become downright parasitic. How instead of creating wealth, they gobble it up whole.
Don’t get me wrong. Banks can help to gauge risks and get money where it is needed, both of which are vital to a well-functioning economy. But consider this: economists tell us that the optimum level of total private-sector debt is 100% of GDP. Based on this equation, if the financial sector only grows, it won’t equal more wealth, but less. So here’s the bad news. In the United Kingdom, private-sector debt is now at 157.5%. In the United States, the figure is 188.8%.
In other words, a big part of the modern banking sector is essentially a giant tapeworm gorging on a sick body. It’s not creating anything new, merely sucking others dry. Bankers have found a hundred and one ways to accomplish this. The basic mechanism, however, is always the same: offer loans like it’s going out of style, which in turn inflates the price of things like houses and shares, then earn a tidy percentage off those overblown prices (in the form of interest, commissions, brokerage fees, or what have you), and if the shit hits the fan, let Uncle Sam mop it up.
Most rentiers are not as easily identified as the greedy banker or manager. Many are disguised. On the face of it, they look like industrious folks, because for part of the time they really are doing something worthwhile. Precisely that makes us overlook their massive rent-seeking.
Take the pharmaceutical industry. Companies like GlaxoSmithKline and Pfizer regularly unveil new drugs, yet most real medical breakthroughs are made quietly at government-subsidised labs. Private companies mostly manufacture medications that resemble what we’ve already got. They get it patented and, with a hefty dose of marketing, a legion of lawyers, and a strong lobby, can live off the profits for years. In other words, the vast revenues of the pharmaceutical industry are the result of a tiny pinch of innovation and fistfuls of rent.
Even paragons of modern progress like Apple, Amazon, Google, Facebook, Uber and Airbnb are woven from the fabric of rentierism. Firstly, because they owe their existence to government discoveries and inventions (every sliver of fundamental technology in the iPhone, from the internet to batteries and from touchscreens to voice recognition, was invented by researchers on the government payroll). And second, because they tie themselves into knots to avoid paying taxes, retaining countless bankers, lawyers, and lobbyists for this very purpose.
Even more important, many of these companies function as “natural monopolies”, operating in a positive feedback loop of increasing growth and value as more and more people contribute free content to their platforms. Companies like this are incredibly difficult to compete with, because as they grow bigger, they only get stronger.
Think back a minute to the definition of a rentier: someone who uses their control over something that already exists in order to increase their own wealth. The feudal lord of medieval times did that by building a tollgate along a road and making everybody who passed by pay. Today’s tech giants are doing basically the same thing, but transposed to the digital highway. Using technology funded by taxpayers, they build tollgates between you and other people’s free content and all the while pay almost no tax on their earnings.
The typical workday of Goldman Sachs’ CEO may be worlds away from that of King Louis XIV, but their revenue models both essentially revolve around obtaining the biggest possible handouts. “The world’s most powerful investment bank,” wrote the journalist Matt Taibbi about Goldman Sachs, “is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.”
But far from squids and vampires, the average rich freeloader manages to masquerade quite successfully as a decent hard worker. He goes to great lengths to present himself as a “job creator” and an “investor” who “earns” his income by virtue of his high “productivity”. Most economists, journalists, and politicians from left to right are quite happy to swallow this story. Time and again language is twisted around to cloak funneling and exploitation as creation and generation.
The fact of the matter is that feudalism has been democratised. To a lesser or greater extent, we are all depending on handouts. En masse, we have been made complicit in this exploitation by the rentier elite, resulting in a political covenant between the rich rent-seekers and the homeowners and retirees.
Don’t get me wrong, most homeowners and retirees are not benefiting from this situation. On the contrary, the banks are bleeding them far beyond the extent to which they themselves profit from their houses and pensions. Still, it’s hard to point fingers at a kleptomaniac when you have sticky fingers too.
So why is this happening? The answer can be summed up in three little words: Because it can.
Rentierism is, in essence, a question of power. That the Sun King Louis XIV was able to exploit millions was purely because he had the biggest army in Europe. It’s no different for the modern rentier. He’s got the law, politicians and journalists squarely in his court. That’s why bankers get fined peanuts for preposterous fraud, while a mother on government assistance gets penalised within an inch of her life if she checks the wrong box.
The biggest tragedy of all, however, is that the rentier economy is gobbling up society’s best and brightest. Where once upon a time Ivy League graduates chose careers in science, public service or education, these days they are more likely to opt for banks, law firms, or trumped up ad agencies like Google and Facebook. When you think about it, it’s insane. We are forking over billions in taxes to help our brightest minds on and up the corporate ladder so they can learn how to score ever more outrageous handouts.
One thing is certain: countries where rentiers gain the upper hand gradually fall into decline. Just look at the Roman Empire. Or Venice in the 15th century. Look at the Dutch Republic in the 18th century. Like a parasite stunts a child’s growth, so the rentier drains a country of its vitality.
What innovation remains in a rentier economy is mostly just concerned with further bolstering that very same economy. This may explain why the big dreams of the 1970s, like flying cars, curing cancer, and colonising Mars, have yet to be realised, while bankers and ad-makers have at their fingertips technologies a thousand times more powerful.
Zoom in and you’ll see rentiers everywhere.