BUSINESS + POLITICS
Feudalism in the age of Corona
30th March 2021
Back in 2014, Thomas Piketty proposed that our current global economic system is on a path towards a return to feudalism. His main argument suggested that in an economy where the rate of return on capital is higher than the rate of growth, inherited wealth will always grow faster than earned wealth. If there is slow GDP growth, but high returns on capital, the wealth earned through labour will always be exceeded by inherited wealth. The main point of this being that capitalism, working normally, will generate quite large inequalities that will grow perpetually. To cut through the economic jibber jabber, on average, if you have a rich Daddy that invests his money (capital) and gets returns on that of 5% a year, you will always be richer (through inheritance) than someone that works in an economy with a GDP growth rate of under 5%. The way the global economic system is set up at the moment means that if you are outside of the top 1-5%, ‘pulling yourself up by the bootstraps’ is becoming to look more impossible as time goes on.
To take a moderate position, you could argue that inequality (in some senses) is good. It drives competition, which is a motivator for hard work, innovation and industriousness. That’s all well and good when there is a relatively equal playing field, like we saw in the mid-20th century up until the millennium. Over that period, we saw (in the Global North anyways) increased equality, real wage growth and improved education levels. But the modern landscape is a different kettle of fish. Following the great recession, we’ve seen over a decade of austerity, which we know hit the low to middle classes badly and left most of the rich relatively unscathed or even richer than before. This was paired with the growing power of financial markets, reduced public spending and financial regulation, the erosion of labour organising and real wage stagnation for the average Jane.
To illustrate the recent turn of capitalism, let’s take the position of rich Daddy. If I’m looking to make a bob or two on the large amount of money I already own, I’ll take a look around and see that the majority of people do not have that much extra money to spend. It’d be a waste of time for me to create a new product or service because the profits I can make back are limited by the amount of cash the people I want to sell to have. Instead, I’ll call up my old school mate that works in a private equity firm to invest my money in financial markets to give me more bang for my buck and potentially exponential profits. All the cash that I make from the money markets go into my back pocket, and I might call another of my schoolmates to get his accounting firm to stop the government getting their greedy hands into my wallet.
“The pandemic has highlighted just how bleak the situation really is. We saw a shut-down of most of the ‘real economy’ during lockdowns yet financial markets were still growing. The pandemic has seen one of the biggest transfers of wealth from the 99% to the 1% in recent history.”
So, where does that leave us? Rich Daddy and all of his old school chums aren’t putting money into what we’d call the ‘real economy’, productive goods and services that benefit people and can raise taxes for public services. The idyllic vision of free-market capitalism as pushing towards egalitarianism and technological innovation for the good of all has fallen by the wayside to a system that is more akin to feudalism than capitalism. Wealth and social inequalities are growing both between and within countries. Public services are being replaced by private ones. Real wages have been steadily decreasing. The richest one percent’s wealth is growing exponentially, increasing both their economic and political power. The aristocracy is back baby.
The pandemic has highlighted just how bleak the situation really is. We saw a shut-down of most of the ‘real economy’ during lockdowns yet financial markets were still growing. The pandemic has seen one of the biggest transfers of wealth from the 99% to the 1% in recent history. State money, generated primarily from austerity measures and taxing income, small to medium enterprises and the tiny fraction they can grab from multinationals before they ship their money to the Bahamas, is being used to pump more money into these financial markets to keep them afloat through Quantitative Easing (sounds a bit like 2009 all over again). An Oxfam report saw that the worlds 10 richest men increased their wealth by half a trillion US dollars over the pandemic. Amazon made enough profit (NOT revenue) to vaccinate the entire world 3 times over during a period where most people are struggling to get by. The ‘hazard pay’ given to the arbitrarily defined ‘essential workers’ of Amazon equated to a tiny fraction of the profits they made off, let’s not beat around the bush, the deaths of their underpaid and overworked employees.
To paraphrase Ha Joon Chang, 99% of economics is common sense made complicated. You don’t have to have a PhD in economics to understand what’s going on. Capitalism needs compound growthto sustain itself. This growth isn’t coming from the ‘real economy’ anymore. It’s coming from financial markets that don’t really generate any significant benefit to the average person and make the rich richer. Whether you’re a libertarian Elon Musk fetishiser or a lefty eco-socialist living in a commune, the fact of the matter is our economic system, in its current manifestation, isn’t working for us. The microcosm of wealth transfers during COVID 19 has only served to highlight these obscene inequalities further. The thing about this is that it’s not an issue that Bill Gates and the Davos crew (the modern-day aristocracy) will solve with their philanthropic endeavours and the ‘Great Reset’. It’s a structural issue that is designed, perpetuated and reinforced by those very same people. The solution to the crisis, as has been the case throughout history, will come from the grassroots collective action of normal people; to think otherwise is a fallacy.
Tomas Pikkety: Capital in the 21st Century (2014)
Anand Giridharadas: Winners Take All: The Elite Charade of Changing the World (2018)
Yanis Varoufakis: Another Now: Dispatches from an Alternative Present (2020)