I, by chance, revisited a piece I wrote wrote in 2011 over the weekend. It started on this blog and was republished by the Guardian. This is in extract::
As I'm explaining in my forthcoming book — The Courageous State — there is a two-part economy in this world. There's the real one — the one where you and I live and meet our needs, make and sell things (if only words on screens) and which is the measure of real well-being.
Then there's the other one — the feral one, if you like (feral as in wild and out of control) — existing way beyond the limits of the real economy and only loosely related to it, made up of the enormous financial balances denominated in cash of various sorts, existing only as entries in computer ledgers. Some of these cash balances are backed up by supposed assets, which are at best legal claims on property which may or may not realise real worth, such as shares (whose value usually have almost no direct bearing to the companies that lend them their names), property (which has been priced as a consequence beyond the reach of the real economy) and more obscure derivative products, which few understand and which even fewer trade in ever larger amounts.
This feral economy represents the wealth quite deliberately extracted from the real economy by those who have exploited it over the last thirty years of neoliberal domination by ensuring that the share of real wages in GDP has fallen from about 58% in 1980 to about 53% now (see diagram 1 here for detail) — with the cash they have extracted being stashed as unproductive wealth (often offshore). That unproductive wealth, whether held as cash or placed in assets that have near liquidity such as shares, property, derivatives, hedge fund and other portfolios, has had enormous consequences. There are many; let me just note two.
The first is that the refusal of the owners of this wealth to engage it constructively in the economy has been a contributory factor to underinvestment, stagnant real wages, and the rise in what has effectively been enforced borrowing by far too many households struggling to make ends meet — who have become increasingly indebted to the agents of the feral elite in the process (see diagram 3, here), reinforcing the whole vicious cycle as a consequence and withdrawing yet more and more funds from the real economy and into the free-floating world of feral finance. The relationship of feral finance with the real economy has, therefore, been wholly negative here.
Second, the use of those feral financial balances to undermine currencies in pursuit of short-term gain and maximum income returns has brought the whole edifice to the point of breaking. Breaking the real economy does nothing to the feral economy — downsides can be traded as much as upsides in the feral world of finance: gain is to be had in this world whatever happens in the real one. But the relationship of the feral economy with the real economy is again wholly destructive: those feral deals — done beyond regulation, assisted by the world of secrecy that tax havens provide, are bringing destitution, unemployment, real failure and fear to real lives.
I revisited the piece because I now think that this duality within the macro economy, where there is a ‘real' economy meeting actual need and a ‘feral' economy that seeks to extract unearned reward from that process, is exactly matched in multinational corporations.
In those companies there is, of course, an element of ‘real' economic activity. Carillion, for example, really did build things. But the truth is that laid over this operational reality that may be profit driven, there is a second, almost contiguous, operation that seeks to extract reward from it by gaming contracts, finance, tax and accounting to secure unearned rewards largely paid out to a select few within the company who partake in these rent seeking activities.
It is as if the modern corporation has a split identity. There is a part that is seen on the High Street, or wherever it meets real need, and another part that acts like a parasite sucking the life blood of that real activity by transforming its surpluses into rent for a few.
What Carillion (and others) show is that this parasitical operation can function for a while. And then it kills the host.
That process of death by rent extraction does not happen overnight, but I suspect the outcome is inevitable. If so, no wonder the current form of captilism - which I rightly called ‘feral' - is dying.
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Excellent article seeking and getting my attention on a Monday morning. Should be required reading for every economics, social and political studies student and every aspiring politician. We live in a critical time facing combined ecological, economic, social and political melt downs. To prevent mass global poverty, resource depletion, irreversible global warming and major social unrest we must get to grips with alternative thinking that you advocate.
The book “After the Great Complacense” covered the 2008 crash. It was written by 8 ot 9 academics. One of the chapters was:
“Alternative Investment Vehicle – or Nomadic War Machine”.
Perhaps this encapsulates nicely the intentions of the “Feral” economy.
Key point: the AIVs do what AIVs do & exploit (through financial bricolage) rules & regulations.
We need much better rules and regulations & they need to move in “real time”.
A really good piece – the only downside being that it was written in 2011 and too many just don’t get it.
And one of the answers is of course putting really money (People’s QE and Green QE) into the real economy.
The original says that
Yes it certainly does.
The other answer is that we surely need proper regulation and oversight as to what sort of markets the financial sector. Someone somewhere just needs to say ‘No – you can’t do that’.
And the original says that too.
Having read this blog on and off for the best part of six months I now read it daily. Thank you for your efforts and beliefs. It makes me realise that as one of those selfish baby boomers who are to blame for all current ills there are others who hold my beliefs. I have read your Joy of Tax and am currently reading The Courageous State. Next up is Bill Mitchell’s book. My family are being slowly educated in MMT and are probably ahead of the Labour Party, who, despite their faults, are our only hope.
Thanks
We have an interesting situation currently in the US that neatly exemplifies the parasitic relationship between financial markets and the real economy.
Fears are such that a relatively small interest rate rise could pop the asset-price bubble in financial markets and that a relatively small increase in employment, wages (and inflation) could see that interest rate rise.With the moral there being that to keep their debt-fuelled casino going “the markets” currently require a stagnant economy with higher unemployment and low wages.
Mind you, this is not all a shadowy world of hedge funds and derivative traders. Every speculative “property investor” that buys an existing home (or 2 or 6) to make a windfall capital gain is part of this feral economy. In this case it is not the low-waged or unemployed that are playing host to the parasite. It is the mostly young generation that can’t afford to buy a home. And it is not just City types that are exploiting them. Its a large portion of the middle aged and middle class.
The feral economy is not just something obscured by jargon that is out of view to most. It walks among us.
‘Every speculative “property investor” that buys an existing home (or 2 or 6) to make a windfall capital gain is part of this feral economy. ‘
Absolutely. It seems the nature of this ‘system’ is to turn us all ( except the totally un-financialised who are to be treated like criminals) into dog-eat-dog rentiers by exerting this behavioural influence. The middle class have bought into this big time and assisted the process.
There are some positive signs that Labour is focusing an the tragedy of housing with their announcements that compusory land purchases should not include any future development premium ( free lunch). McDonell is known to be keen on LVT but the battle for LVT goes back over 100 years.
Sorry
The sentence should have read ‘ what sort of markets the financial sector creates’.
Martin Rowson drew a cartoon in 2010/11 which depicted George Osborne waving his wrecker’s lantern from a window in Whitehall. That summed up for me Osborne’s policies. As Naomi Klein wrote in Disaster Capitalism, a ‘disaster’ can always be manufactured and a manufactured disaster is just as good for turning into a rent seeking opportunity. Fingers crossed that feral capitalism is dying … but any forthcoming Courageous State must also make very sure that it is less easy to parasitise and sell-off than the post war welfare state.
[…] Cross-posted from Tax Research UK […]
Hi Richard
You may be interested in the following text from Verso (if you haven’t already read it) https://www.versobooks.com/books/2457-the-city
It does a great job of showing this more nuanced, ultimately worst, relationship between productive and unproductive capital, and how they are bound together intimately vs the usual approach of finance being seen as completely separate.
Best
Jack
I will take a look