We have moved from productive investment to unproductive money, from profit to rent, from deserved compensation to misappropriation, from entrepreneurs to middlemen and gatekeepers.
As the color of this strange capitalism we live in has gradually changed, during the last four decades, we hardly noticed that it is not capitalism any more. Capitalist traits remain, no doubt, but the logic of the system has been transformed. The big productive corporations are certainly still around, such as General Motors, General Electric, Toyota and the like. But big money flows and the corresponding fortunes are in the GAFAM sphere; Google, Apple, Facebook (Meta), Amazon and Microsoft in the West, as well as the BAT sphere; Baidu, Alibaba and Tencent in China. And the banks, of course, but these have been around for quite a while, although their move to the platform age has been equally recent. We are all in the platform age, governed by middlemen, paying virtual tolls.
We do need their services. I live in São Paulo, and a lady comes once a week to clean up. I pay her 200 reais, equivalent to $40 dollars. She pays part of this to a private health corporation – they have no doctors or clinics, they just ensure access, for a fee. This corporation has shareholders, one of which is BlackRock. This is an asset management corporation, managing US$10 trillion dollars, equivalent to half the GDP of the USA. These are the proportions. A part of the ridiculous amount I pay the lady ends up somewhere in the world. This is because nowadays only 3% of what we call liquidity exists in the shape of printed bills, 97% is virtual money — a few signs on a computer. And access to health goes in part through their hands.
A few decades ago, a shareholder of BlackRock in Saudi Arabia would have to spend a lot to have access to a few bits of the money I paid Dorinha, the lady. Presently, with virtual money, computers, algorithms and the internet, in fractions of a second her money becomes part of the wealth of someone around the world. I am speaking of money being drained to a huge financial corporation, out of the pocket of some of the poorer inhabitants in a third-world country.
The capillarity of the modern virtual money draining machine is astounding. Taking a ten-dollar bill out of the pocket of someone in India would earn you a lot of trouble. With virtual money, the financial corporation just presses ‘enter’ and some kind of fee reaches not hundreds of millions, but billions around the world. With very little cost: the electro-magnetic waves carrying the money around belong to nature. This is much more than “money makes the world go ‘round”. It is micro-draining the whole world. No wonder Larry Fink manages $10 trillion dollars.
Facebook, now Meta, is free. I use it among others to spread the word on how the economy is changing. I have to use Facebook because in order to communicate, I have to use what others use. It is called a demand-monopoly. The access of billions to Facebook makes it inevitable for advertisers. Marketing has become a huge industry. For me, it is a nuisance, and for the advertisers it is a salty cost. The innumerous businesses posting their messages on Facebook, or on the other mass-communication platforms, put the costs into the selling price, which means that every time I purchase goods or services, there is a good chance some of the money I pay goes into the hundreds of billions of dollars that Zuckerberg or similar toll-booth owners are earning.
No free lunch. His costs are ridiculous, this is the internet. And the cost-benefit relation is fabulous. And really, I need to communicate, I do not need the advertising. I know what I am interested in buying, I do not need it to be pushed over to me with life-style paintings. In case you haven’t noticed, it is not information you get, but mostly success messages. In fact, this huge marketing industry is a pain in the ass, and useless for the economy. As an open service, like the W3C internet consortium, we could have open access, reduce the costs and the pain. Having Vivaldi interrupted by an excited voice telling me how happy I would be if I bought this beautiful sandal brings me down to the real world we are living in. Honestly, who needs this crap we are paying for? Without the costly marketing industry, wouldn’t people buy the things they need?
Another kind of misappropriation can be found in the exploitation of nature. Petrobrás is one of the biggest oil companies in the world. It dominated the whole cycle; from the pré-sal (pre-salt) oil discoveries, to platforms, deep-water extraction, refineries, distribution and the corresponding technology. As a state-owned company, it generated resources to pay for infrastructure and social policies governments have to provide. Nobody ‘produces’ oil, it is the extraction of a natural resource belonging to a nation, and should benefit the nation. It is being privatized, and presently 63% of profits go to private shareholders, basically the likes of BlackRock, on different scales. The huge profits drain the country, and instead of funding our development, it becomes part of the global commodity traders’ profits.
They certainly did put some money into the business, in the oil fields auctions, but with no reasonable proportion to the extracted profits. Privatizing was not an economic, but a political decision, benefiting global finance and the Brazilian shareholders. The same absurd option was taken concerning Vale, one of the biggest iron and nickel exporters in the world, privatized in the 1990’s. The World Bank rightly calls these activities ‘decapitalization’ and not ‘production,’ since it drains the natural capital while not stimulating the economy. It generates rent, not capital. From the developing countries’ point of view, we are back to the neocolonial system of raw materials exports in exchange for more sophisticated goods and services, although at a much higher extraction technology level.
The debt-generating platforms have become a world-wide rent extraction system. Instead of providing cheaper capital to poor parts of the world in order to restore some balance to our social and economic inequality drama, poorer countries, considered more risky, pay higher interest, and their debt service is used to drain natural resources. They remain locked in the growing debt trap, exporting oil (like Angola) and using it to pay for the debt, instead of financing economic infrastructure. The poorer you are, the more you are in the hands of the international usury system.
In Brazil the debt servicing system has become a huge internal drain on the economy. Revolving credit on credit cards has reached 350%, overdraft 150% and overall average interest rates for private persons over 40%, even when inflation was under 5%. The result is that a majority of the population is deep in debt, and many in bankruptcy.
Debt servicing has become a permanent drain on the income of families, of businesses and government. Credit is of course useful, while the interest rates allow for a business to expand its activities. But just as in the case of dividends for shareholders, interest rates higher than the productive contribution of the credit locks the company in a debt servicing trap, unable to invest in higher production levels. It becomes a permanent drain. The general usury system practiced in Brazil has exploded since the banks managed to take Article 192 out of the 1988 Constitution, which equated usury to a crime, limiting interest rates to 12% plus inflation.1 These asset managers are not producing, they are draining.
Another form of misappropriation is real estate rent seeking. With demographic expansion and urbanization, real estate prices grow, and profits are generated by simply taking over existing housing and warehouse space. According to Visual Capitalist figures, “the demand for real estate can be heavily influenced by overarching trends found around the world. One of these is population growth and urbanization, which has drastically pushed up the cost of housing in many cities around the world. There’s also the rising prevalence of ecommerce, which has triggered a boom in demand for warehouse space. This is best captured by Amazon’s massive growth during the Covid-19 pandemic, during which the company doubled the number of its warehouse facilities.”2 The financial profits seen above use this as a rent generating investment, without the need of expanding housing; just buying out existing infrastructure, and raising prices.
Real estate investment has also been used on a large scale for money laundering. “The use of anonymous shell companies and complex corporate structures continues to be the number one money laundering typology. Eighty-two percent of U.S. cases involved the use of a legal entity to mask ownership, highlighting the importance of implementing a robust beneficial ownership registry under the Corporate Transparency Act.”3 This is money gained on existing capital, with the plus of not having to pay taxes. “In terms of total returns, residential real estate and equities have shown very similar and high real total gains, on average about 7% per year.”4 As Thomas Piketty has shown so well, finance yields higher returns than investing in production. And money goes to where it pays more. Effective growth of goods and services production in the world is nearer to 2%. When you extract more than the expansion of production, the result is net extraction.
Intellectual property control has become another source of rent. In the last century, patents lasting 20 years could be considered a reasonable way of stimulating creativity, but with the modern rhythm of innovation, they have become a feudal lease. When the main factor of production is knowledge, which with online connectivity can be replicated to infinity without additional costs to those who produced it, we can generalize access, remunerating only the initial costs of its generation, and multiplying the benefits by millions of users. In China, in the framework of CORE (China Open Resources for Education), an innovator receives a bonus from the institution, and the innovation is passed on to the entire network of universities and research centers, so that no one keeps reinventing the wheel, everyone works on the crest of technology. A systemically innovative collaborative environment is generated. Wikipedia, Open Access, Creative commons, MIT's OCW and so many other experiences, presented among others in Wikinomics, point to a much more balanced and productive path.5
The process of interactive and collaborative knowledge construction in networks is fairer, as it allows reducing the impact of middle-men who filter access to a knowledge that could multiply the productivity of other agents. Gar Alperovitz and Lew Daly bring here an excellent analysis, in Unjust Deserts, mentioning, for example, that if it weren't for the advances in transistor and microprocessor technology developed by others, a Bill Gates would be in his garage playing with cathode ray tubes. We pay fortunes for a product to which his company contributed very little, taking advantage of knowledge developed by other institutions and research centers, and destroying competitors. Today we are forced to use MS Word, for example, simply because we have to use what others use. There is no market and no competition, only demand-monopoly and rent-seeking. How long will we keep paying this toll?
Knowledge is a social construction, and its return should be to society. The goal is not to control knowledge, but to free it from the middle-men.6
Planetary connectivity allows much more horizontal networked management, in place of the giant pyramids of verticalized power. The wealth of the planet, as a result of scientific advances and the development of productive capacity, has reached a level that today allows everyone to live in a dignified and comfortable way, all that is needed for this is a moderate redistribution of wealth, and in particular, the control of the financial drain by unproductive economic agents.
The key areas in the global economy are in the digital era. Europe is taking the first steps: “Today the way in which gatekeepers conduct their businesses is either largely unregulated or based on sets of rules many of which pre-date the digital economy. This is the case across the EU… The EU’s proposed Digital Markets Act (DMA) intends to address competition concerns in the digital economy, with a clear mandate to regulate unfair trade practices imposed by large platforms. The DMA defines ‘gatekeeper’ online platforms, which are platforms with a strong economic position, and a strong intermediation position, entrenched within the market.”7
These are really just first steps. Ann Pettifor sums it up: “financialization has permitted the almost effortless making of extraordinary capital gains by those that derive income from the possession of financial assets that generate interest, or from scarce assets or assets made artificially scarce (like patents and intellectual property). Rental income from land, property, minerals or financial investments, are the best-known forms of rentier capitalism.”8
The rules and regulation systems we have inherited from the industrial age are outdated. We do need a global green new deal, or a new Bretton Woods: we are in the digital revolution age, with rust-belt age institutions.
1 Figures on interest rates in Brazil are hard to believe. ANEFAC, Pesquisa mensal de juros. See also Banco Central de Brasil.
2 Visual Capitalist. Real Estate Investment Trusts (REITs).
3 Global Financial Integrity. Acres of Money Laundering August 2, 202.
4 Oscar Jorda et al., The rate of return on everything 1870-2015. Cambridge, May 2019.
5 Don Tapscott and Anthony Williams - Wikinomics: how mass collaboration changes everything. Penguin, US, 2006.
6 Gar Alperovitz and Lew Daly. Unjust Deserts: how the rich are taking over our common inheritance. The New Press, New York, 2008.
7 European Commission. The Digital Markets Act: ensuring fair and open digital markets. 2019.
8 Ann Pettifor. Inequality and morbid symptoms of a financialized system. Real-world economics review, issue no. 92, 29 June 2020 pp. 246-251.