Technofeudalism is taking over

Image: Stanislav Kondratiev
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By YANIS VAROUFAKIS*

While capitalism may end with a murmur, the boom may soon follow.

This is how capitalism ends: not with a revolutionary explosion, but with an evolutionary murmur. Just as it gradually and surreptitiously displaced feudalism, until one day the bulk of human relations was based on the market and feudalism was swept away, capitalism is today being overthrown by a new economic modality: techno-feudalism.

This is a great postulate that comes in the wake of many premature predictions of the death of capitalism, especially on the left. But this time it might be true.

The clues have been visible for some time. Bond and stock prices, which should be moving in clearly opposite directions, have been rising in unison, with occasional dips, but always in tandem. Likewise, the cost of capital (the return required to hold a bond) should be decreasing with volatility; instead, it has been rising as future returns become more uncertain.

Perhaps the clearest sign that something serious is afoot appeared on August 12 of last year. In that day, we knew that, in the first seven months of 2020, UK national income plummeted by over 20%, well above even the most ominous predictions. A few minutes later, the London Stock Exchange jumped more than 2%. Nothing comparable had happened before. Finance has completely decoupled from the real economy.

But do these unprecedented events really mean that we no longer live under capitalism? After all, capitalism has experienced fundamental transformations before. Shouldn't we just prepare for its last incarnation? No, I don't think so. What we are living through is not simply another metamorphosis of capitalism. It's something deeper and more troubling.

It is true that capitalism has undergone extreme changes on at least two occasions since the end of the nineteenth century. Its first major transformation from competitive to oligopolistic came with the Second Industrial Revolution, when electromagnetism ushered in large networked corporations and the megabanks needed to finance them. Ford, Edison, and Krupp replaced Adam Smith's baker, brewer, and butcher as the prime movers of history. The turbulent cycle of mega-debts and mega-returns that followed eventually led to the crash of 1929, when New Deal and, after the Second World War, to the Bretton Woods system – which, with all its financial constraints, offered a rare period of stability.

The end of Bretton Woods in 1971 ushered in the second transformation of capitalism. As the growing US trade deficit became the world's supplier of aggregate demand – sucking up the net exports of Germany, Japan and, later, China – the US pushed the most energetic phase of the globalization of capitalism, with a steady stream of German, Japanese and, later, Chinese profits coming back to Wall Street to finance it all.

However, to play their part, Wall Street officials demanded emancipation from all New Deal and Bretton Woods constraints. With deregulation, oligopoly capitalism turned into financial 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.

While these radical transformations had far-reaching repercussions (the Great Depression, World War II, the Great Recession and the Long Post-2009 Stagnation), they did not change the main characteristic of capitalism: a system driven by private profits and rents obtained through some market.

It is true that the transition from Smithian capitalism to oligopoly capitalism increased profits enormously and allowed the conglomerates to use their gigantic market power (that is, their newfound freedom to compete) to extract enormous rents from consumers. Indeed, Wall Street extracted rents from society through certain types of market-based daylight robbery. In any case, both oligopoly and financial capitalism were driven by private profits leveraged by rents gained through some market – one trapped, say, by General Electric or Coca-Cola, or conjured up by Goldman Sachs.

Then, after 2008, everything changed. Since the G7 central banks came together in April 2009 to use their money-printing capacity to rebuild global finances, a profound discontinuity has emerged. Currently, the global economy is driven by the constant production of money by central banks, not by private profits. Meanwhile, value extraction has increasingly shifted from markets to digital platforms such as Facebook and Amazon, which no longer operate as oligopolistic enterprises but as private fiefdoms or estates.

That central bank balance sheets, not profits, fuel the economic system explains what happened on August 12, 2020. After hearing the bad news, financiers thought, “Wonderful! The Bank of England, in a panic, will print even more pounds and funnel them to us. It's time to buy stocks!” Across the West, central banks print the money that financiers lend to corporations, which then use it to buy back their shares (whose prices have become decoupled from earnings). However, digital platforms have replaced markets as the locus of private wealth extraction. For the first time in history, almost everyone is producing the capital stock of large corporations for free. That's what it means to upload content to Facebook or move around with a Google Maps connection.

Of course, it is not that the traditional capitalist sectors have disappeared. At the beginning of the XNUMXth century, many feudal relationships remained intact, but capitalist relationships had begun to dominate. Today, capitalist relations remain intact, but techno-feudal relations have begun to overcome them.

If I'm correct, every stimulus program is bound to be too big and too small at the same time. No interest rate will be consistent with full employment without precipitating a string of corporate bankruptcies. And class-based politics, in which capital-friendly parties compete against labor-friendly parties, is over.

But while capitalism may end with a murmur, the explosion may soon follow. If those on the receiving end of techno-feudal exploitation and overwhelming inequality find a collective voice, it will likely be very thunderous.

*Yanis Varoufakis is a former finance minister of Greece. Author, among other books, of the global minotaur (Literary Autonomy).

Translation: Fernando Lima das Neves.

 

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