I explored some of the ideas that I might wish to challenge in a new book, yesterday. As I suggested I might, I then spent some time during the day reflecting on these and realised that the list is incomplete.
It is insufficient to explore the belief that markets are good, that the householding analogy is inappropriate within macroeconomics and that greed is the basis of human motivation when seeking to explain the mess that we are in, although it is most certainly necessary that each of them be taken into account. It will also be necessary to explore the obvious contradiction in the modern economy that reveals its own lack of faith in any of these convictions, which is evidenced by the rise of rentierism.
The concept of a rent is widely misunderstood. This is partly because it is only commonly applied to the payment made for the right to occupy land, but a hint as to its true nature is implicit in that use.
Rent represents a payment made to a person for the use of a resource to which they have a legal entitlement, but which they have either not created or for which the payment is in excess of any reasonable amount that might be owing in exchange for the effort expended in its creation. 
Rents come in many forms. In addition to the payments for the use of land commonly described as such the extractive industries also, quite literally, extract rents by exploiting the natural resources to which they claim ownership entitlement. Rent is, therefore, implicit  in large amounts of what we buy because the land itself is not, of course, remunerated for that part of the price that we pay. Someone who is a landlord, is instead.
Banks also extract rents. After all, the main commodity that they supply, which is money, is created costlessly by them out of thin air, but they extract a charge for our use of that facility, which they are entitled to charge as a consequence of having a banking license. That payment is a rent.
This hints at one of the most common forms of rent in the economy, which are payments made for an artificial factor of production created by law. No one denies that the concept of copyright, with the associated payment of royalties, was created with good intent. It remains the case that such a payment can be a fair compensation for the use of another person's property. The same is true for patents.
However, it is equally fair to say that the exploitation of these rights by many large corporations, which are themselves an artificial form of intellectual property right created by law, has resulted in massive exploitation of consumers with resultant enormous extractions of profit arising. These inflated profits represent rents.
So, for example, the price that we pay for much of the software that we use represents a rent. Now that annual charging is commonplace the pretence that it is otherwise has been abandoned. Nothing about the pricing of these products accords with standard microeconomic theory on pricing: it is simply maximised in the interests of the greed of both the senior management of the enterprises involved, and their owners. Copyrights and payments permit this exploitation, which was never their intended purpose.
Brand names achieve the same outcome. Their promotion is deliberately undertaken with the intention of preventing market entry by competitors, which is the antithesis of what is taught to be necessary for fair and efficient markets.
And let's be clear that a century ago those who pursued monopoly profits were relentlessly legally challenged by the US government in the interests of consumers. Now they are called entrepreneurs. Actually, those undertaking these activities reveal no such ability. That is because they do not face risk in what they do when almost everyone now described as such (or worse, as a ‘wealth creator') by governments is on a steady salary with large bonuses attached, settled at regular intervals. Their ability is not in risk taking in pursuit of the marginal profits that might arise when competing on a level playing field, but is instead in tilting that playing field as heavily as possible in their own favour.
This, of course, explains their twofold desire to both heavily influence government to reinforce their claim to artificial legal property rights that they might exploit, whilst simultaneously reducing its ability to extract their inappropriate rewards from them.
It is the extraction of rents that is doing four things in our economy.
First, it is increasing inequality.
Second, it is consigning those on low pay to lives of destitution, as it did in the Victorian era.
Third, it is destroying innovation of any sort, as the intention of the rentier is to protect what they have, not to create something new.
Fourth, it provides the financial platform form which the assault on government, free markets, the environment, and people can be launched. 55 Tufton Street symbolises that.
The rise of rentierism has to be in the book.
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Thank you and well said, Richard.
You correctly say that Tufton Street symbolises that. I just add that the consulting firms run by the Clintons, Blair and Mandelson are just as dangerous and opaque and equally in hock to interests promoting rent extraction (and fossil fuel and arms). Blair and Mandelson have assembled many of their delegates to draft Labour’s programme and advise in government.
Agreed
Thank you, Richard.
I forgot to add that, a dozen or so years ago, I attended a meeting of bank CEOs and the Treasury and heard the CEOs of Barclays and Santander argue that if bank bonuses are banned or limited, there won’t be much, if any, lending to SMEs. SMEs were singled out.
A few weeks ago, reader Therese asked why, when I hold the people I work with / for in such contempt, I don’t leave. As per the above, what I do is not uninteresting. One learns a lot. I need to pay bills, too. It’s mainly the clients, often oligarchs, who I find objectionable. There are some awkward colleagues, too.
I bet “people” can’t wait …
I suspect publishers will agree with you
Possible typo:
“Second, it is consigning this one on low pay”
Should this be
“Second, it is consigning those on low pay” ?
Thank you
It’s been a busy day and too time to get to this
Apologies for such a banal question from the sidelines, but, is there an alternative to “rent”? Everyone already has a very strong idea of what it is – as you say, a widely misunderstood idea. Won’t the oposition be able to bog down argument from the outset by leveraging this firm misunderstanding? You have some very astute contributors here, could a better catch-all be sought for this?
Why replace a term that is actually widely understood, even if only narrowly?
not really an alternative but as a kid i heard adults talking about the tax they paid on ‘unearned income’, which i gathered was higher.
It was
“Unearned Income” is a vividly descriptive and easily understood phrase that decades of neo-liberal propaganda has mostly managed to make disappear from the economic lexicon.
Even as a kid growing up in the 1960s largely ignorant of any economic concepts it was a phrase I picked up from the national conversation that I understood.
At the time it appeared to be widely accepted that unearned income should be considerably more highly taxed than earned income, in the interest of both fairness and developing a successful country.
I still find it mildly mind boggling that we now live in a country where even raising the level of tax on unearned rent to that of the level of tax earned by working is controversial.
This is probably a book in itself , and presumably ( or hopefully?) there must be a host of recent research.
It would be great to see how much the different forms of rent – land, IP, monopoly have grown over the years – in UK, US, EU – and/or especially in footlose global corporates.
Could be a daunting task.
Mazzucato et al : Mapping modern economic rents:
https://academic.oup.com/cje/article/47/3/507/7160981?login=false
https://www.ucl.ac.uk/bartlett/public-purpose/research/projects/mapping-modern-economic-rents
My purpose is to contextualise it: it’s existence is known
On a previous post where you ask “what should my next book be about?” I was tempted to post “If you don’t know then don’t write it”…. but I think there is definitely a lot to be said about rentierism. Indeed, it could (if broadly interpreted) be the entire book.
On banks, they certainly are rentiers with respect to basic banking services (and oligopolists, too) however, if you are suggesting that (commercial bank) money creation is rentierism then I am not sure I would agree. Indeed, making loans and taking credit risk is perhaps the one area that is not rentier in nature… although is still oligopolistic.
Charging for a commodity created out of thin air is the ultimate rentier activity, I think Clive. How can it not be?
Some distinct issues here, I think.
Payments. This is done on infrastructure that is decades old and certainly IS rentierism.
Central Bank money (created by deficit spending that is not drained by gilt sales) sits in individuals’ and companies bank accounts with those banks having a corresponding balance in the Central Bank Reserve Account. CBRA are remunerated at the Base Rates and this is not “passed on” to depositors. Commercial banks did not create this money, they take no risk in accepting deposits, they get riskless income for doing (virtually) nothing. This IS (almost) pure rentierism, I think.
Commercial Bank money is different. Banks don’t “choose” to create money – rather it is the byproduct of their choosing to extend credit to a client. First, a client must want to borrow; second, the bank must assess the credit risk it takes; third, it must price it accordingly. If they both parties agree the loan is made and money is created; the bank will earn the difference between the loan rate and the rate it has to pay to keep the corresponding deposit at the bank. I see this as a genuine economic activity that is not rentierism. There ARE other issues but they are largely related to oligopoly, implied and explicit government support etc…. and I suppose one could (at a stretch) call that rentierism – but I personally would rather keep them separate.
In summary, handling the money created by government IS rentierism; creation of commercial bank money is (largely) not.
Perhaps your book could explore the relationship between monopoly and rentierism in detail – they are related but different.
We will have to disagree
The interest on commercial loans is rent
The risk premium is not
I think they differ and can be differentiated
PS – the question was rhetorical, and intended to create focus when there are many choices available.
The curses of neoliberalism.
Does that need balancing with the curses of communism?
That is not to suggest that neither viewpoint is devoid of benefits.
In the case of software, years ago I did some market studies for a client on “application service providers” – which offered remote-hosted software – turning computers into quasi-dumb terminals. ASPs were not a success but with the rise of broadband they have now morphed into “Cloud computing” an orwellian terms which fails to call it what it actually is. However, every action has an equal and opposite reaction – in this case “PirateBay” plus open source software.
Rentiers in other sectors include the Crown Estate (owns the UK’s seabed) – revenues (you have to pay if you want to erect an offshore wind farm) keep the House of Saxe-Coberg-Gotha in the style to which they have grown accustomed. The trajectory is to turn us all into serfs – techno or otherwise.
The intellectual property system is rigged in favour of IP owners.
Firstly, as an individual, it is extremely difficult to own patents because they are extremely expensive to procure and difficult to enforce unless you are a company with large financial resources. That said, at least patents only last for 20 years from application, which limits the rents that may be extracted.
Trademarks (brand names) on the other hand, can last in perpetuity. There is no time limit, you merely have to renew every 10 years. Perhaps this could be addressed by doubling the application fee every time the trademark is renewed.
Copyright on literary works such as novels, lasts a ridiculously long time. It only expires 70 years after the death of the author. So, if someone wrote a novel in their thirties (e.g. JK Rowling) and lived until their eighties, copyright would last 120 years! By this reckoning the Copyright on the first Harry Potter novel wouldn’t expire until about 2300! Copyright is supposed to be there to enable authors to make a living from writing (something that is currently being undermined by AI). But it is ridiculous that copyright can last more than 100 years. Copyright lasting 50 years from publication would surely accomplish the same thing without supporting excessive rentierism.
And then there’s software. In theory it is treated as a literary work. So its copyright has the same ridiculous lifespan as for novels. So far, no software has gone out of copyright. Anyone who knows about software knows that any product is the work of many people, and copyright lasts until the last one of those dies. This mean that software copyright is, in practice, limitless. It would be more sensible if software copyright were limited to 20 years from publication in line with patents, or even 50 years in line with a sensibly reduced lifetime for literary copyright.
In short, our intellectual property laws are an outrageous mess unfit for purpose.
Agreed
It’s also interesting to think about the political representation of this. I’m semi-retired now but still very much in touch with the enterprise development world. There are lots of pretty progressive businesses out there – for example proposals in both Europe and America, from within the business world, to extend the fiduciary duties of directors to environmental and social responsibilities, as well as shareholders; in 2015 the EU estimated that 1 in 4 of all new businesses in Europe were social enterprises – 1 in 3 where I live (France); the ICA counts more co-op members in the world than there are shareholders. The enormous French multinational Danone turned all its US subsidiaries into B-Corps (a form of social enterprise) and started a joint venture with celebrity social entrepreneur Mohammed Yunus – although its shareholders rebelled when it tried to restructure itself as a social enterprise
As new enterprises become increasingly knowledge-based, they are increasingly spinning out of or working with academic institutions, with liberal rather than conservative values.
In short, the reality of much enterprise is already a long way from the hard-nosed macho accountant image of The Apprentice, etc – those guys really are dinosaurs – and a long way from the current Tory or Republican parties.
Boris Johnson, sometime Tory leader and British Prime Minister, famously remarked ‘Fuck Business!’ over its opposition to brexit – a shock to those (like the BBC) that still thought the Tory Party was the party of business. But it isn’t – it’s the party of investors, for whom new starts, especially in the UK, are of little interest. Most deals are done with existing shares or other assets – they are not related to entrepreneurialism at all. The Tory Party represents rentiers, not entrepreneurs – which is one reason there is space in corporate sponsorship now for the likes of Starmer, or why America can have one party of its duopoly funded by ‘disaster capitalists’ (investors just looking for a killing), and another by (slightly) more responsible business interests.
Thanks
Thanks
“The Tory Party represents rentiers, not entrepreneurs …”
This is one of the strong arguments Abby Innes’s makes in her book “Late Soviet Britain” about both the Conservative and Labour parties in regard to their privatisation of public services (Gordon Brown’s PFI anybody? Although actually introduced under John Major I believe but considerably expanded by Brown because he was playing the “maxed out credit card” game like Starmer).
I would raise the question whether “rentierism” is a response to a third of the world’s manufacturing now taking place in China because their regime currency rigs. Certainly foreign businesses also entrepreneurially invest in China.
Protection of copyright and patents is fundamentally important for innovation – no-one is going to invest in research and development to find a new product if they can’t protect that IP and monetise it. It is the opposite of what you are trying to claim.
There is no reason why protection need anything like as long as it does
And most patents are created for tax transfer pricing purposes anyway
“And most patents are created for tax transfer pricing purposes anyway”
What complete rubbish!
You have clearly nit studied offshore finance
As an innovator actively working on creative concepts and useful pieces of kit, I have a problem with fully supporting parents as they stand right now. Patents have been used to strip indigenous people of their right to plant remedies they have used for centuries. Patents have also been employed to torpedo innovation that threatens the status quo: electric vehicle technology could have progressed decades ago without this destructive influence. For those who lack the finances to fight a large corporation over patent infringement, the money expended on securing a patent is worthless; their legal rights are easily trampled on by those powerful enough to exploit the profit of a unique invention.
With a really great innovation, I honestly think it’s better, after building a working prototype, to rigorously test it and then set up production to run with it as hard and as fast as you can before the vulture corporations have the chance to steal your idea. Open Source and wiki collaborative efforts can also provide valuable input that is a lot more rewarding. Some inventors are so paranoid about sharing knowledge of their work that they miss out on the important considerations offered in collaboration. There are other inventors who proudly exhaust all their funds obtaining a patent, but then never take their product to market. My greatest impediment remains, too many innovations in train at once, hampered by a chronic lack of business skills. However, I have never seen the value of secrecy, so do not suffer from the tunnel-vision of such protective paranoia. After my cancer scare, I am more concerned over the possibility that my innovative ideas will be buried with me! My current focus is on ‘seeding ideas’.
Obtaining a patent can make it easier to secure funding to upscale production of a valuable invention. The patent can also prevent a proliferation of cheap, unworkable, and sometimes dangerous copies from going to market, and this is as important a consideration as the remuneration earned. When I lived in the US I learned of the offer made by the Canadian Government to those prepared to sacrifice a percentage of the profits from their invention to the state. The value of this arrangement offers the inventor the full weight of the Government in protection of their patent rights: who wants to fight the state in a patent infringement lawsuit? Of course any nation, including the UK, could set up a similar system available to their inventors, but what if….
This got me thinking about a far more expansive international offer. What if the United Nations, under the auspices of UNDP, the UN’s Development Program, were to create a similar cooperative arrangement to facilitate and protect a ‘Humanity Patent’. The Humanity Patent would automatically protect all living species throughout the world from the dangerous exploitation of large corporations. The individual inventor could apply for a Humanity Patent to protect their invention on the understanding that a percentage of profits would be payable to UNDP. I doubt that those unscrupulous corporations would want to take on the might of the UN! The creation of the Humanity Patent could provide all the positives of a globally applicable patent while eliminating the current abuses of the patent system.
We’re trapped in a system created by and for the benefit of a tiny handful of those who came before. They use the advantage of being born earlier to fence off and preserve the best of life for themselves and their bloodlines and anyone they think worthy of being recruited into their ranks. The rest of us work to support that system. We don’t have the options in life they did, only the options they choose to make available to us. We can’t grow and develop as individuals and bring what we night to humanity’s table as we’re always working, generally against our own interests. It’s a rotten system, it needs to fail, and we need deprogamming from the brainwashing we get at school. reinforced via the media throughout our adult lives, so we can get a reasonable perspective on what we live in and amend it.
I completely agree.
Plus I wonder whether the different political power of rentierism in different developed economies helps explain their different trajectories.
For example, Britain seems to be doing unusually badly at the moment, and I wonder if this is connected to its imperial past and avoidance of defeat in either World War.
Again, maybe Japan’s crushing of aristocratic political power in the aftermath of its defeat in WWII may have been a necessary precondition of its spectacular economic growth in the following few decades.
For the second time in 12 months a friend of mine has been given a two months notice no fault eviction notice. The rent was £900 a month four years ago and is now £1700 a month. My son who lives in Bristol has a secure job with an average salary and cannot afford to buy a home unless he shares with someone on a similar salary.Two examples of how unjust rentierism is particularly in an uncontrolled market. There are millions who do not have secure homes and have no option but to pay inflated rents to parasitic rentiers. There are many examples of controlled social housing in other countries where affordable rents and long term security are features.
Agreed
And bang on time comes this example:
https://www.theguardian.com/money/2024/mar/12/private-nursery-chains-profits-england.
Agreed
And another one Richard…….
https://www.theguardian.com/business/2024/mar/13/uk-private-equity-firms-sexual-assault-referral-centres
Well, well, well eh? Perhaps people like Jack Tanner, if that’s his/her real name, would like to comment on why private equity firms are able to make large profits on services like these~?
Richard,
I think we are still waiting for your source for the claim that ‘the majority of patents are created for tax transfer pricing purposes anyway’?
Also, you haven’t explained about your studies in ‘offshore finance’.
Or should we just conclude that the claims you made are just the usual crock of shite’ that you invent to make a point, safe in the knowledge that you can censor anyone who points out the lie?
https://www.cornellpress.cornell.edu/book/9780801476129/tax-havens/#bookTabs=1