Beyond capitalism

We have been adding qualifiers to the global mess we call capitalism, to make it more realistic, such as global capitalism, extractive capitalism and the like. But is this really capitalism? Productive investment generating products, jobs, profits and taxes? Financialization changed the system, empowered rentierism, but the transformation goes much beyond.

(Ladislau Dowbor)

We should begin to distinguish productive investment from speculative investment.

(Marjorie Kelly, Wealth Supremacy, (p.144)¹)

Is this capitalism? We certainly have rich capitalists, in the sense that they have a lot of money, but are these resources, hoarded in asset management corporations, trusts, private equity, hedge funds, tax havens and so many financial private services, still capital? Chuck Collins calls these capitalists “wealth hoarders”, in a study on “how billionaires pay millions to hide trillions”. ² Does being rich make you a capitalist? Money is nowadays essentially just a digital sign on computers, but they give you rights over social wealth, whether generating more money with money, or purchasing non-financial assets such as real estate, yachts, art or gold. The key issue is that when rich Chinese wealth hoarders buy houses in Vancouver, they will profit on rising prices or tax avoidance, but they do not add any product to society. The houses were there, as is the case of so much real estate speculation on high-value residences in London.

The key issue is that unproductive capital is wealth, not capital. This is all there was in the legitimacy of capitalism, that wealth was the result of productive activities that resulted in more production of goods and services. It was unfair, since the result of productive activities was badly distributed, but it was productive, generated jobs, and paid taxes, which allowed governments to fund social policies such as health and education, as well as infrastructure for transportation, energy, communications, water and sewage systems. Modern wealth hoarders cling to this image, but it is borrowed legitimacy. When the wealth generating and wealth appropriation system changes, it is a systemic change.

The technologies that are reorganizing our lives have evolved much faster than our capacity to manage them. We see fragmented changes everywhere, but we tend to miss the global picture of what is being structured. Delinking wealth appropriation from productive contribution is the critical aspect. It means that the convergence between individual interest and the common good is severed. The basic justification for profit maximization, the idea that minding your interest is in everybody’s interest, and is in some way “deserved”, is fractured. Martin Wolf sums it up, in the Financial Times: the system has lost its legitimacy. We presently have high-tech illegitimate appropriation of wealth, but regulation and governance, the institutions we have inherited from another century, are helpless. We are facing the digital revolution times with industrial capitalism institutions, inherited from the past.

An overall change results from the adoption of virtual money. Government-printed money represents less than 5% of global liquidity, 95% is just signs on computers, whirling around the planet on the internet, in the “high-frequency trading” system, while regulation is fragmented into the 194 UN-member countries. That money is global while politics is national represents a huge systemic change. The US still rides on the dollar primacy, but in the rest of the world we face financial chaos, and the system is shaky. Money regulation is being tried everywhere, from blockchain opportunities to CBDC (Central Bank Digital Currency) or cryptocurrencies. Bretton Woods, the last global decision-process architecture, was eighty years ago, and it is not breathing.

Another structural change resulting from the digital revolution is the dominance of platforms, managing the immaterial world of money, but also communication and global as well as private information. An asset management platform like BlackRock manages over 10 trillion dollars, compared to the 6 trillion US budget. It is a world scale business, based on algorithms prioritization, maximizing shareholder value throughout the planet. The communication platforms, presently referred to as GAFAM or FAANG, are dominating the attention industry, holding us by the eyes on so many screens. Facebook presently reaches three billion clients: 97% of its revenue is from marketing, based on private information gathered from our computers or cellphones. Individualizing information for billions is not a problem for algorithms. Max Fisher, Shoshana Zuboff and so many others present the workings of this new universe, where just pressing “enter” can reach billions, and pay trillions, while spreading consumerism, fake news and hate speech. We are all suffering from sensorial overload.

The disaster this unregulated global universe is generating is visible to all, and most of the corporations are careful to claim their adherence to the ESG principles. But dividend maximizing is the real business. This absentee ownership global structure generated a dilution of responsibility: I can “invest”, meaning I buy shares, and have the illusion I am financing productive activities, but my asset management platform focuses exclusively on dividend maximizing, whether it comes from JBS and the Amazon disaster, Pfizer and the Paxlovid scam, Volkswagen and the emissions fraud, BP and the Deepwater Horizon, Deutsche Bank or HSBC and financial frauds, the opioid catastrophe, you name it. The fact is that we are not economic citizens, there is no economic democracy, and the world-scale wealth-extractive system is not interested in our opinions. They actually shape them. Try exercising your “freedom of choice” in Kochland.

To get rich by underpaying your employees, you must at least generate jobs, produce something people will buy, and even pay taxes on the products you sell. This was capitalism, with capital accumulation. In this new universe of hedge funds, asset management, private equity, venture capital, portfolios, tax havens, derivatives and so many high-tech speculative activities, we are in the hands of “specialists”. This can be called extractive capitalism, but the basic fact is that when the financial system’s input into productive activities – agriculture, manufacture etc. – is less than what it extracts, we have a problem of decapitalization. A productive company’s profit can be directed to workers benefits, to reinvestment in the company, to raise the executives’ bonuses or to increase dividends paid to shareholders. The dominant present logic is that you restrain participation of your employees, restrain reinvestment in the company, and prioritize solidarity between executives and shareholders in taking out what you can for CEOs pay and shareholders’ dividends.

The present ratio of average employee salary to CEO’s pay has reached 1:300, while it was around 1:20 a few decades ago. The real productive economy and the financial extraction world have changed seats: finance is in control. “Let’s expose the fact”, writes Marjorie Kelly, “that one-third of GDP is being extracted by the finance industry, make visible the fact that financial assets are five or more times the size of GDP yet still bent on limitless and eternal growth.” (p.192) She calls it “asset management capitalism”: “Financialization is the diversion of financial flows away from production and consumption and toward asset markets. It means the system is now less about manufacturing stuff and more about manufacturing debs. Finance once was in service to communities, jobs, homes, family firms – making loans to small businesses, helping people buy houses, and so on. Now we’re in service to finance. Instead of having an economy designed to produce more value in the real world, for regular people, the economy’s machinery has been rejiggered to produce higher asset valuations.” (p.83) “In essence, the free-market concept is a fig leaf…Wealth extraction is the real game.” (p.118)

I suggest we work with a basic theoretical starting point that this is a digital revolution, as deep in its impact at the industrial revolution was in its time. Industry in the US represents 11% of GDP. Among the dominating corporate behemoths, you have finance, the communication platforms, and energy, which is also basically an extractive activity with huge speculative power. Capitalism? We are playing a new game but with ancient rules. And politics is basically helpless in the face of the new challenges. We know what we need: a society which is economically viable, but also socially fair and sustainable for the environment. How do we put this on the agenda, higher than the ESG mumblings?

There is an interesting global shift in economic theories, and proposed alternatives. Thomas Piketty opened the way with the powerful Capital in the XXI Century, and suggests “participatory socialism”, Joseph Stiglitz suggests “progressive capitalism”, Wolfgang Streeck “democratic capitalism”, while Robert Reich denounces “corporate capitalism”, Mariana Mazzucato “extractive capitalism”, Joel Kotkin “neofeudalism”, Zygmunt Bauman “parasite capitalism”, Shoshana Zuboff “surveillance capitalism”, Grzegorz Konat “realny kapitalizm”, Raymond Baker “our broken system”, Brett Christophers “rentier capitalism”, Marjorie Kelly “wealth supremacy”, Nicholas Shaxson “the finance curse”. Bernie Sanders asks, “Where do we go from here?”, Noam Chomsky “who rules the world?”, the Oxfam report at Davos-2023 is titled “Survival of the Richest”, a clear word-play on Darwin’s “survival of the fittest”. Too many structural changes have occurred, too many dark clouds are gathering, for us to go on as usual hoping things will take care of themselves. A new systemic approach is gaining weight.

We need active result-oriented structural measures, it has indeed become a survival issue. The “mission economics” approach by Mariana Mazzucato is close to the point, in that we must define key-missions, and converge efforts to reach them. Kate Raworth’s approach, defining the key dramas to avoid and the key progress to build, in her Doughnut Economics, is a strong contribution, considering that running for GDP growth as a measure of progress has become ridiculous: growth has to be measured according to the simultaneous economic, social and environmental balance. Stiglitz’s practical approach, Rewriting the Rules for the American Economy, is another example, since rewriting the rules is precisely what we need. ³ The Roosevelt Institute stresses the need to “craft 21st-century governance structures for public institutions – structures that hold community control of investment and accountability as core principles.” ⁴ And we certainly need rules, in the new global environment, not just interested narratives. But the rules must be for the digital world environment. How long will we stage COPs, discuss BEPS, claim fake ESG adherence?

Back to basics: we have the financial resources, the world GDP divided by the populations shows we produce around 4,200 dollars of goods and services per month per four-member family. We do not need hunger and so many tragedies. We know what’s to be done, it is spelled out in detail in the Sustainable Development Goals. And we have all the statistics on the priorities, as well as the corresponding technologies. But the system is just plain stupid, dramatically incompetent, riding on old slogans like “free markets”, or the ridiculous “greed is good”. We must see the dramas down here, but for the causes we must look to the top. Yes, don’t look up is popular.

We need “intelligent design”, not from heavens, but from the different conflicting centers of power which are tearing this world apart. Old ideological simplifications, such as “free markets” or “centralized planning” belong to another century. We need planning for infrastructure and long-term options as to the future, we need markets for bicycles and tomatoes, and we need decentralized, community based public policies for health, education, security and the like. But most of all, we need money, the financial system, back to serve social interests, not to serve itself at the cost of the global drama. Because who controls the financial resources controls the other priorities. And the decision process it is in the wrong hands. These fortunes are partly legal, simply because we do not have regulation systems adequate to the digital age. But they are not legitimate. Screwing the economy for personal profit, considering the human and sustainability challenges we face, is not only immoral, it is plain stupid.