High finance is wrecking the economy and the planet—but it won't reform itself

I have been making speeches about rentier capitalism for years. Each time I use the word “rentier” in public, I encounter puzzled looks. Like the term “usury,” it has conveniently dropped out of use. Rather suddenly, however, it may be making a comeback.

In a special edition of the Financial Times, with a dramatic cover wrap which was virtually blank but for the giant words “Capitalism: Time for a Reset,” its economics doyen Martin Wolf went out of his way to define it for readers, guessing they too had to be enlightened. In an essay which bemoaned stagnant wages and productivity, inadequate competition, and rampant inequality, he explained that rentier capitalism “means an economy in which market and political power allows privileged individuals and businesses to extract a great deal of such rent from everybody else.” The half-forgotten term is as old as Adam Smith, who first defined rentiers as capitalists who were able “to reap where they never sowed.”

The FT’s heralding of a “new agenda” for capitalism excited comment from right and left alike—though the fact it came after the newspaper’s dismissal of Labour’s proposals to address the very problems Wolf highlighted as threatening the established “liberal economic model” suggests doublethink, or at least a temptation to will the ends of reform while dismissing the means.

The FT was following hot on the heels of the recent decision of 181 American CEOs to downgrade the pursuit of shareholder value above all else, and instead pledge “a fundamental commitment to all our stakeholders.” Doctrinaire right-wingers accused this “Business Roundtable” of shattering true American free-market capitalism, by which they meant Milton Friedman’s version of capitalism.

While it is remarkable that American CEOs are thinking along these lines, it’s hard to take the Roundtable seriously. Its chairman is one Jamie Dimon, chief executive of America’s largest bank, JPMorgan Chase—a company some would say is built on rentier capitalism. At about the same time Dimon presided over his avowedly reformist roundtable, a report was published by Rainforest Action Network which claimed that in the three years after the Paris Climate Agreement his bank had committed a vast $196bn in financing for the fossil fuel industry to fund “extreme new ventures such as ultra-deep-sea-drilling, Arctic oil extraction” and fracking.

Dimon’s business is banking: the creation of credit “out of thin air” and reinvestment of the hard-earned savings of millions of citizens. While banking entails a fair degree of risk assessment, it tends not to take the chance on investment in the creation of revolutionary assets with completely uncertain returns—such as the internet, GPS or voice recognition once were. All of those were effectively developed, as the economist Mariana Mazzucato has demonstrated, by the state. Rather JPMorgan Chase reaps massive capital gains from existing assets (property, universities and their students, pensions and so on). Above all it reaps extraordinary wealth from financing the extraction of the earth’s finite resources.

Any hope that Dimon’s bank could “reset capitalism” is naïve. In a world of capital mobility, with footloose money protected from intervention by its perpetual threat to go elsewhere, there is little sign of change. On the contrary, the World Bank, through its Maximising Finance for Development agenda, is effectively constructing a new financial order, with a colossal “shadow banking” sector at its core; at $52 trillion, shadow banking is worth something like 2.5 times US national income. The World Bank is hoping to draw trillions of dollars from private, global institutional investors (such as asset management, private equity and pension fund firms) towards “investable opportunities” in the world’s poorest countries.

With financialised capitalism grinding remorselessly onwards, it’s hard to take the “reset” debate seriously. Nevertheless it does suggest that capitalists are nervous and looking for new ideas—as well they might, because the rise of political insurgencies, protectionism and authoritarianism all threaten globalised markets. We have been here before, as Karl Polanyi reminds us in a series of essays uncovered and first published by Prime, the research network I work through. In the inter-war period, “captains of industry undermined the authority of democratic institutions, while democratic parliaments continuously interfered with the working of the market mechanism. A sudden paralysis of both the economic and the political institutions of society was well within the range of the possible… This was the critical state of affairs out of which the fascist revolutions sprang…”

Both the FT and even the Business Roundtable fret that hyper-globalisation has gone too far. A “sudden paralysis of both the economic and the political institutions” is a phrase that resonates today in Britain, the US, Hong Kong, Brazil and beyond. Such paralysis arises out of doomed and purely defensive attempts—and in many ways Brexit is a case in point—to protect society from the operation of “free” markets without thinking through clearly and from first principles the rigged way in which many of them operate. Nonetheless, the threat such paralysis poses to financial capitalism is real. It will take more than a cosmetic reset to overcome.