Review: The Corruption of Capitalism, by Guy Standing

Guy Standing. The Corruption of Capitalism: Why Rentiers Thrive and Work Does Not Pay (London: Biteback Press, 2016).

I looked forward to reading this book based on previous readings of Guy Standing’s work, based on his status as both a labor organizer and a theorist of the precariat’s role in the economy. I wasn’t disappointed.

At the outset, Standing explains what he means by “rentier capitalism.”

They assert a belief in ‘free markets’ and want us to believe that economic policies are extending them. That is untrue. Today we have the most unfree market system ever created…. How can politicians look into TV cameras and say we have a free market system when patents guarantee monopoly incomes for twenty years, preventing anyone from competing? How can they claim there are free markets when copyright rules give a guaranteed income for seventy years after a person’s death? How can they claim free markets exist when one person or company is given a subsidy and not others, or when they sell off the commons that belong to all of us, at a discount, to a favoured individual or company, or when Uber, TaskRabbit and their ilk act as unregulated labour brokers, profiting from the labour of others? Far from trying to stop these negations of free markets, governments are creating rules that allow and encourage them. That is what this book is about.

Rather than rents declining in modern society with the eclipse of feudal landlordism, instead rents are more central to plutocratic incomes than ever before.

…today, a tiny minority of people and corporate interests across the world are accumulating vast wealth and power from rental income, not only from housing and land but from a range of other assets, natural and created. ‘Rentiers’ of all kinds are in unparalleled ascendancy and the neo-liberal state is only too keen to oblige their greed. Rentiers derive income from ownership, possession or control of assets that are scarce or artificially made scarce. Most familiar is rental income from land, property, mineral exploitation or financial investments, but other sources have grown too. They include the income lenders gain from debt interest; income from ownership of ‘intellectual property’ (such as patents, copyright, brands and trademarks); capital gains on investments; ‘above normal’ company profits (when a firm has a dominant market position that allows it to charge high prices or dictate terms); income from government subsidies; and income of financial and other intermediaries derived from third-party transactions.

Rather than a “free market,” the neoliberal global economy praised as “free trade” by policy wonks is actually “a global framework of institutions and regulations that enable elites to maximise their rental income.”

Standing says 31% of Western corporate profits today, as opposed to 17% in 1999, are in industries where profits are rents on artificial scarcities like patents, copyrights and trademarks enforced under the neoliberal treaty regime established in the ’90s. To take one example, Apple — thanks to patents, copyrights and trademarks — runs a 40% gross profit on the iPhone. Two-thirds of drug research is funded by taxpayers, while patents add $140 billion to the annual price of drugs in the United States.

And Standing makes short work of the propaganda myth in favor of so-called “intellectual property”; rather than being a reward for innovation, the main actual purpose of patents is to prevent others from innovating. This is especially egregious, considering that most of the new technologies and products under patent were developed with heavy tapayer R&D subsidies, and then enclosed for private profit.

Alongside rents on the artificial scarcity of ideas, the state provides enormous rents to the propertied classes through the enclosure of land and natural resource commons, dating back to the enclosure of peasant land in early modern Europe, the engrossment of land (both vacant and native-occupied) in settler societies like America and Australia, the hacienda system in Latin America, the nullification of peasant land rights by colonial powers in Asia and Africa, and the looting of oil and mineral resources. Property claims to all these forms of looted land and resources have persisted in the hands of Western capital under neocolonialism, and one of the main functions of the state is to enforce such titles — in the name of “defending private property rights” — against attempts at reclamation by their rightful owners.

In addition to the above sources of rent through scarcity, another source of income to the rentier classes is taxpayer subsidies. Standing mentions the usual things — bailouts, corporate welfare to specific industries, and the way the welfare state subsidizes the reduction of wages by socializing the cost of reproducing labor power. But he neglects the most important ways in which the state socializes major operating costs of capital as a whole (which James O’Connor discussed in The Fiscal Crisis of the State).

As corporate profits tripled in real dollars since the 1980s, wages have stagnated and deindustrialization has caused the precariat to skyrocket as a percentage of the labor force. This last trend has further accelarated in just the past few years with the rise of the gig economy. Wages in the industrialized countries ceased to be linked to productivity from about 1980 on.

Neoliberal ideologues have pushed a propaganda line of austerity since 2008, Standing says, claiming falsely that the crash was caused by ordinary people living beyond their means, and that high public debt hinders growth.

In attacking this narrative, he is quite right. In reality the crash was caused by neoliberalism itself. People “lived beyond their means” because their means had been stagnant since the 80s and they had been increasingly forced to rely on consumer debt or borrowing against home equity to make ends meet. Neoliberalism also drives people into enormous student debt through the combination of credentialing inflation and the explosion of tuition costs — largely driven by administrative salaries — in higher education.

And the working class’s stagnating purchasing power coupled with the skyrocketing incomes of rentier elites meant that capitalism’s chronic crisis of over-accumulation and excess investment capital without profitable outlets continued to get worse, and the propertied classes relied increasingly on bubbles in the FIRE economy. That’s pretty much the same thing that led to the crash in 1929.

Public debt actually saves the economy, or at least delays the collapse that would otherwise result from surplus capital and underconsumption. Government deficits compensate for some of the lack of spending by a public with stagnant wages, and the government debt soaks up trillions of dollars worth of investment capital in the form of government bonds with a guaranteed rate of return — dollars that otherwise would become part of the capital glut and drive down the rate of return on investment in the private economy. Government debt is like a farm price support system for capital.

But the austerity propaganda machine tries to persuade the public that the proper way to address the crash is by using lower wages and a slashed safety net to prop up the face value of the assets that financial elites gambled on and lost.

In criticizing neoliberal capitalism, Standing is not nostalgic for the New Deal or Social Democratic era. Rather, he repeats a criticism from his other books: the “labourism” entailed in Social Democracy. Labourism privileges members of the industrial proletariat engaged in full-time wage labor at the expense of the lumpenproletariat, and lionizes industry at the expense of the social economy.

It was the zenith of social democracy. However, the model that underpinned the Great Transformation made ‘labour’, not all forms of work, pivotal. Socialists, communists and social democrats all subscribed to ‘labourism’. Those in full-time jobs obtained rising real wages, a growing array of ‘contributory’ non-wage benefits, and entitlements to social security for themselves and their family. Those who did not fit this model were left behind. As long as the latter were a small minority, supported by a means-tested social safety net, the system worked well enough. The proverbial worm began to turn when that minority started to grow. The essence of labourism was that labour rights – more correctly, entitlements – should be provided to those (mostly men) who performed labour and to their spouse and children. As workers previously had little security, this was a progressive step. But it was inherently sexist and hierarchical, privileging those doing regular paid labour over those doing other forms of work, unpaid and outside the labour market, such as childcare and work in the community. Labourism promoted the view that the more labour people did the more privileged they should be, and the less they did the less privileged they should be…. Labourism also led to dysfunctional aspects of the welfare state. To give regular employees labour-based security, there was a shift from wages to non-wage benefits, such as company pensions, paid holidays, maternity leave and sickness benefits. This cemented a form of structural inequality between those in stable, full-time employment and those forced to take unstable or casual jobs, or doing more unpaid work than paid labour.

Standing makes it clear that the so-called “sharing economy” is nothing of the sort. Uber and similar platforms simply collect rents on physical capital owned by the drivers.

In one respect, the on-demand economy reverses a capitalist mantra. Instead of being owned by capitalists, the main means of production are ‘owned’ by the taskers – the precariat. The platforms maximise profits through ownership and control of the technological apparatus, protected by patents and other forms of intellectual property rights, and by the exploitation of labour through tasking and unpaid work. Labour brokers are rentiers, earning a lot for doing little, if we accept their claim that they are just providing technology to put clients in touch with ‘independent contractors’ of services.

Predictably, as the premier theorist of the precariat, Standing concludes by framing the precariat as what Marxists call the “revolutionary subject” of resistance to capitalism and the creation of a post-capitalist successor society. The traditional industrial proletariat, as Standing has argued in previous books, has become largely irrelevant to radical politics.

Only the precariat has the potential, in terms of size, growth and structured disadvantage, to articulate a progressive response to rentier capitalism and its corruption. The lumpen-precariat, the underclass, does not have the agency to act, although some in it might join protests, as they did in 2011. Literally, as beggars, they cannot afford to be choosers. So, the revolt must be led by the precariat and those around them. But, to have a chance of success, it must have three features: a sense of unity around commonly held beliefs; a sustainable understanding of the flaws, inequities and unsustainability of existing arrangements; and a reasonably clear vision of feasible goals…. To curb the adverse distributional effects of a rentier economy, a new distribution system must be constructed in which wage earners and others receive part of the income accruing to rent and profits. Wages by themselves will not sustain living standards. In the twentieth century, it made sense to focus on wage bargaining. That will not work now. The struggle must be to build a new system. While wages will continue to stagnate, innovative ways must be found to limit and share rental income and to share profits. Otherwise inequality will continue to grow, with ugly social and political consequences.

As one important means of resistance, Standing proposes the “social strike” — millions of people in the streets for extended periods at a time — on the model of Occupy and M15.

As an agenda, he enumerates the following laundry list

*elimination of the patent system for technologies developed at public expense, and radical scaling back of the duration other patents are in effect combined with compulsory licensing

*elimination of all corporate subsidies

*the removal of money from politics

*regulation of the gig economy with mandatory employer insurance

*the replacement of legal licensing regimes for most professions, except those with genuine public safety rationales, with collective self-governance

*reasonable on-call pay

*using revenue from taxing rental income and natural resource extraction to create sovereign wealth funds which pay a social dividend or basic income

The proposal for regulating the gig economy strikes me as the most-wrong headed on his platform. In the past I’ve expressed an openness to see regulation as a net benefit for liberty if it imposes secondary restrictions on the abuse of privilege that results from primary interventions by the state (e.g. in the specific case of Net Neutrality). Nevertheless it would make far more sense to directly target the primary state interventions that enable phony “sharing economy” platforms like Uber and Airbnb — namely ceasing to enforce the legal foundations for such proprietary, walled garden apps — while at the same time promoting radical union seeding of the gig economy labor force and jailbreaking the apps, in order to replace the existing capitalist gig economy with ecosystems of genuinely cooperative/peer-to-peer alternatives instead. Another important innovation we need to see more of is cooperative/p2p social safety nets organized through a revived guild system of freelance and gig economy workers.

I’m generally friendly to proposals for Social Credit/Citizen’s Dividends/Basic Income funded by taxes on economic rent or negative externalities (CO2 tax), as transitional measures. That is, so long as the state continues to exist and to enforce monopolies and artificial scarcities, and to be funded by taxes, taxes on income derived from artificial scarcities amount to a net reduction in exploitation. And the replacement by the intrusive welfare state, whose actual purpose is (in the words of Frances Piven and Richard Cloward) regulating the poor, by an unconditional subsistence income for everyone is also a step in the right direction.

If there is to be a Basic Income, it cannot be feasibly be funded by a tax on income — for political reasons if nothing else — but by the creation of social equity in the property of the rentier classes.

I recommend this book, along with the rest of Standing’s body of work, as an example of the kind of outside-the-box thinking the Left needs in place of the dinosaur Old Left’s organization and policy models if it is to be relevant to the new economy.