here. Yanis Varoufakis puts a name, techno-feudalism, on the widespread shifts
in economic power relationships. Varoufakis speculates as to whether this is a
move to a new system or a reversion to an older tooth and claw version of
By Yanis Varoufakis*
This is how
capitalism ends: not with a revolutionary bang, but with an evolutionary
whimper. Just as it displaced feudalism gradually,
surreptitiously, until one day the bulk of human relations were market-based
and feudalism was swept away, so capitalism today is being toppled by a new
economic mode: techno-feudalism.
This is a large claim that comes on the heels
of many premature forecasts of capitalism’s demise, especially from the left.
But this time it may well be true
The clues have been visible for a while.
Bond and share prices, which should be moving in sharply opposite directions,
have been skyrocketing in unison, occasionally falling but always in lockstep.
Similarly, the cost of capital (the return demanded to own a security) should
be falling 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 last year. On that day, we learned that,
in the first seven months of 2020, the United Kingdom’s national income had
tanked by over 20%, well above even the direst predictions. A few minutes
later, the London Stock Exchange jumped by more than 2%. Nothing comparable had
ever occurred. Finance had become fully decoupled from the real economy.3
But do these unprecedented developments
really mean that we no longer live under capitalism? After all, capitalism has
undergone fundamental transformations before. Should we not simply prepare
ourselves for its latest incarnation? No, I do not think so. What we are
experiencing is not merely another metamorphosis of capitalism. It is something
more profound and worrisome.
Yes, capitalism has undergone extreme
makeovers at least twice since the late nineteenth century. Its first major
transformation, from its competitive guise to oligopoly, occurred with the
second industrial revolution, when electromagnetism ushered in the large
networked corporations and the megabanks necessary to finance them. Ford,
Edison, and Krupp replaced Adam Smith’s baker, brewer, and butcher as history’s
prime movers. The ensuing boisterous 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 constraints on finance, provided a
rare period of stability.
The end of Bretton Woods in 1971 unleashed
capitalism’s second transformation. As America’s growing trade deficit became
the world’s provider of aggregate demand – sucking in the net exports of
Germany, Japan, and, later, China – the US powered capitalism’s most energetic
globalization phase, with a steady flow of German, Japanese, and, later,
Chinese profits back into Wall Street financing it all.
To play their role, however, Wall Street
functionaries demanded emancipation from all of the New Deal and Bretton Woods
constraints. With deregulation, oligopolistic capitalism morphed into
financialized capitalism. Just as Ford, Edison, and Krupp had replaced Smith’s
baker, brewer, and butcher, capitalism’s new protagonists were Goldman Sachs,
JP Morgan, and Lehman Brothers.
While these radical transformations had
momentous repercussions (the Great Depression, WWII, the Great Recession, and
the post-2009 Long Stagnation), they did not alter capitalism’s main feature: a
system driven by private profit and rents extracted through some market.
Yes, the transition from Smithian to
oligopoly capitalism boosted profits inordinately and allowed conglomerates to
use their massive market power (that is, their newfound freedom from
competition) to extract large rents from consumers. Yes, Wall Street extracted
rents from society by market-based forms of daylight robbery. Nevertheless,
both oligopoly and financialized capitalism were driven by private profits
boosted by rents extracted through some market – one cornered by, say, General
Electric or Coca-Cola, or conjured up by Goldman Sachs.
Then, after 2008, everything changed. Ever
since the G7’s central banks coalesced in April 2009 to use their money
printing capacity to re-float global finance, a deep discontinuity emerged.
Today, the global economy is powered by the constant generation of central bank
money, not by private profit. Meanwhile, value extraction has increasingly
shifted away from markets and onto digital platforms, like Facebook and Amazon,
which no longer operate like oligopolistic firms, but rather like private
fiefdoms or estates.
That central banks’ balance sheets, not
profits, power the economic system explains what happened on August 12, 2020.
Upon hearing the grim news, financiers thought: “Great! The Bank of England,
panicking, will print even more pounds and channel them to us. Time to buy
shares!” All over the West, central banks print money that financiers lend to
corporations, which then use it to buy back their shares (whose prices have
decoupled from profits). Meanwhile, digital platforms have replaced markets as
the locus of private wealth extraction. For the first time in history, almost
everyone produces for free the capital stock of large corporations. That is
what it means to upload stuff on Facebook or move around while linked to Google
It is not, of course, that traditional
capitalist sectors have disappeared. In the early nineteenth century, many
feudal relations remained intact, but capitalist relations had begun to
dominate. Today, capitalist relations remain intact, but techno-feudalist
relations have begun to overtake them.
If I am right, every stimulus program is
bound to be at once too large and too small. No interest rate will ever be
consistent with full employment without precipitating sequential corporate
bankruptcies. And class-based politics in which parties favoring capital
compete against parties closer to labor is finished
But while capitalism may end with a
whimper, the bang may soon follow. If those on the receiving end of
techno-feudal exploitation and mind-numbing inequality find a collective voice,
it is bound to be very loud.
Originally published at Project Syndicate
and his website
Varoufakis, professor of Economics at the University of Athens, is the
co-founder of DiEM25 (Democracy in Europe Movement), former finance minister of
Greece and author of And the Weak Suffer What They Must? Europe’s Crisis
and America’s Economic Future