We’ve another one of those Guardian blasts at the iniquities of capitalism. This time around it’s about rents and rentier capitalism. An analysis that suffers from the occasional problem to be honest about it.
What is that model? Scholars have made various attempts to capture its essence. The two that have gained most traction are “financialisation” and “neoliberalism”. Neither concept quite suffices, even as both get at important developments. Rather, the UK economy is a quintessential case of rentier capitalism. It is an exemplar of what the Nobel-winning economist Paul Krugman called a “rentier regime”.
The capitalists own everything and the capitalists get paid just because they own everything. How bad, terrible, overthrow society etc.
All of this backed up by:
In his memoir Boone, the legendary US oilman T Boone Pickens recalled casting envious glances towards the North Sea from his station in the Gulf of Mexico. It was the 1970s, there was oil to be had, and the British government was issuing exploration licences. “I couldn’t help thinking about the great possibilities across the Atlantic,” Pickens wrote, “especially when I learned that 50,000-acre tracts were being given free to companies willing to explore them. To oilmen used to paying millions just for the privilege of drilling, that was a real incentive.”
Oh Lordy:
The basic business model here is the business model that has defined the British economy from the 1970s to the present, from the North Sea to PPE.
Sigh.
To understand rentier capitalism, one first needs to understand rent. Rent is income generated by virtue of exclusive ownership or control of a scarce asset of some kind. A rentier is the recipient of this income: the individual or, more commonly, corporation that controls the asset. Rentier capitalism is an economic order organised around income-generating assets, in which overall incomes are dominated by rents and economic life is dominated by rentiers. Fundamentally orientated to “having” rather than “doing”, it is based on a proprietorial rather than entrepreneurial ethos. That, in short, is the UK since the 1970s.
In the PPE case, the asset is the exclusive £252m contract. In the North Sea case, it was the exclusive exploration licence and resulting oil. Alongside contracts and natural resources, five other key categories of asset make up the contemporary rentier economy.
Goddamit.
So, with a natural resource, what is that rent? It’s the resource rent, the value that arises just because that resource is there. That bloke God got in to do the fiddly bits put the vein of gold here, the iron there, the rare earths are in China and the oil and gas are under the North Sea.
OK, so what do we do with such resource rents? Well, in order to avoid rentier capitalism – peeps getting rich just because they’ve the good fortune to own the piece of land where the resources are – we went out and nationalised all the oil and gas (and the coal, gold and silver but not the iron) back in the 1930s. So, it all belongs to government.
There are no private resource rents from those minerals. Because they cannot be privately owned.
T Boone is used to the American system where it is the peeps owning the land above who own the oil. The payment is thus advanced royalties. In the British system government charges the taxes and also collects the royalties. Government is also going to be around forever so it doesn’t need an advance. It can wait for the full amount.
So, it allows peeps to come in and look for free – the oil companies spend their money to find out if there’s anything there. If there is government takes the resource rents through some combination of tax and royalty. The oil company makes a profit, sure it does, but government is really very careful to make sure that it makes on from its capital, expertise, effort, but doesn’t from the mere presence of the minerals itself. The British government has been very good at it too.
Now, the initial worry about resource rents and rentiers is fair enough. But to use North Sea oil as an example is idiocy. Because that’s exactly where the problem has been solved. The oil companies don’t get to make any resource rent because it’s all taxed away or in royalties to government.
OK, maybe not idiocy, ignorance then. Neither of which is a good starting point for an analysis of society though now, is it?
Yes, any “rentier” in a contract has a monopoly on that contract. No one else can open a shop in your exact location, no one else can sell PPE to the government that you have promised to sell it. The oil/minerals example feeds the Guardian’s case in that you didn’t put that crude oil or vein of gold there, though you might work hard to get it up to the surface. In vastly more cases though, you the rent-seeker DID “build that,” and do deserve your pay, even if I might elbow you aside and try to earn it.
God bless T Boone Pickens, Armand Hammer and the rest of those guys. We were broke and desperate at the time – and may be again if the current shower don’t pull their finger out.
The term “rent” for lease payments on buildings leads to a lot of confusion – deliberate or otherwise – on the part of people who write for the Guardian. They rely on the assumption that lease payments are the same as an economic rent: it’s the same word so it must be the same thing, innit. “Rentier capitalism” is one of those things that mostly exists in the fever dreams of said Guardian writers. If capital has been applied then it’s not an economic rent, is it? Unless the capital has been applied in the form of bribes to government… Read more »
The Guardian perception of land rent appears to be based on the ideas of David Ricardo – never unchallenged, and totally refuted by Frank Fetter more than a century ago. If they are going to embrace the false Ricardian theory of land and rent they might as well embrace his false Labour Theory of Value as well – a false theory which both Karl Marx and J.S. Mill blindly accepted (Mr Mill also accepted the false theory of land).