Mainstream economists continue to invoke the rent-seeking argument (as I have argued before, e.g., here and here) to make sense of rising inequality. So, I asked Joseph Collins, a professor of Political Economy at the University of Sydney and a specialist in rent theory, landed property, and extractive industry, to make sense of the current debate. I am pleased to publish his guest post here.
The rent-seeking argument emerging out of the progressive side of the mainstream economics community runs something like this: the top 1% are socially unproductive and receive obscene amounts of money by securing themselves into positions of ownership that permit them to misappropriate wealth. Taken to its logical conclusion, this argument would suggest that “elites” are the problem and, once we mitigate their ability to appropriate unearned gains, we can get on with establishing a good society where there is relative equality of opportunity and a more desirable amount of economic inequality. Sounds great! But does it work and is it enough?
David Ruccio’s ‘sense’ on why this is happening is accurate: grotesque inequality has made marginal productivity theory untenable so the search is on for an alternative means to understand the post-GFC world. But marginal productivity theory has been intellectually bankrupt and bereft of scholarly integrity almost since its inception from the 1870s. In what Yanis Varoufakis dubs one of the most radical and significant theorems of the social sciences in the twentieth century, Kenneth Arrow, a champion of marginal productivity theory, proved in 1950 with his ‘impossibility theorem’ that deriving macroeconomic results from microeconomic principles was logically impossible. Why did that not stop the onslaught of what Ben Fine has called ‘economics imperialism’?
Seeking only to blame rent-seekers for outrageous economic inequality or for stalling economic dynamism inadvertently rationalises the systemic appropriation of what the 99% produce by the 1% who own and control the means to produce it. This is what Marx meant by exploitation and this is exactly what the new rent-seeking argument attempts to justify. Marginal productivity theory can be discredited beyond repute but if the material structures upon which it is based remain, the ideas that replace it will merely justify fundamentally similar social relations, just through more palatable concepts. How, then, do we make sense of this ‘shitty rent business’?
Rent, in the final analysis, is a social relation because it arises only under specific socially determined conditions. It is an enduring problem for capitalism because the existence of rent presupposes private ownership of the means of production to the exclusion of all others. This ability, however, of the owners of productive property to either facilitate or mitigate the investment of capital is a barrier for capital in its drive to accumulate. Capital cannot abolish private property because to do so would undermine the very foundation of the capitalist system. This means that capitalism is stuck with rents. But in what form?
The rent relation entails a dual character: ownership and control. When the Classical school examined the issue of rent, landed property was a powerful social class that was imbued with political and economic power inherited from feudalism. This class therefore obscured the fact that appropriation of rent entailed both ownership and control. The owners controlled the land and therefore made rent appear to be contingent only upon ownership. This dual power becomes evident in capitalism.
Take mining, for example, where many countries technically own their minerals on behalf of their citizens but are unable to effectively appropriate rents. Why not? While states own the minerals, they do not actually control access to them. They can legally restrict access but the political power exercised by mining companies or intermediaries, like highly capitalised prospecting firms, can manipulate investment so that countries with an abundance of minerals will accept very low ‘rents’ in exchange for investment. Consider Norway against Ghana, with 51 percent and 3-12.5 percent oil-rent taxes, respectively.
Land is not reproducible in any meaningful scale, yet, so land-based commodity production poses a unique problem regarding rents. Technology, finance and other areas where artificial barriers to capital are erected can be considered, however, along similar lines in relation to monopoly rents. It is in these industries that most of the rentier discussion is focussed in the context of first world countries. We might then make analytical distinctions between rents arising from artificial and absolute barriers to capital. The sources of rent may differ but the dynamics are, for the purposes of this discussion, the same. The critical point is that blaming rentiers diverts our attention to how profits are distributed. Sure, this is important, but this issue is connected inextricably to the deeper problem of how those profits are made in the first place. Warren Buffet knew the score when he spoke the truth about the class war. Class war requires class analysis. Economic inequality facilitated by unearned gains are merely symptoms of a much deeper problem.
While calls to dismantle the ability of large firms and wealthy individuals to misappropriate wealth through rent-seeking are a useful first step, they cannot be the ultimate end. Even if more progressive taxation is implemented to address inequality, in conjunction with regulatory suites that bust monopoly power, new opportunities to rearticulate ‘rentier’ positions will arise owing to the fundamental structures of capitalism, which facilitate the systemic appropriation of the social product by one group from those who produce it. ‘Rent-seekers’ have been there since capitalism began, and the structural opportunity to fulfil this parasitic role will remain until humanity can transcend this stage of social evolution.
Do not be fooled by the economist who cried ‘rentier’! We need an alternative theory of value, not just a new and seemingly more pleasing variant of the same economics.