Martin Wolf has a new theory out there:
Even as democratic capitalism was flourishing, the system was getting out of whack. “Rentier” capitalism, in which a small number of people extract more value from the economy than their contribution warrants, has been on the rise since the late 20th century, especially in Britain and the United States. The system is therefore not serving large parts of society, whose members have turned against it. The beneficiaries of this ferment are populists who claim to represent “the people”, but serve them even worse than do the elites who run democratic capitalism.
We’re not sure we do agree with that although we certainly agree that it’s a possibility. Rentiers, rentierism, can get out of hand and if they - it - do then the way can indeed be cleared for something and someone vastly worse. A rational being would prefer some amount of rentiers making hay to any form of democratic socialism for example.
But assume that it is true. What, then, should be done about it?
At which point, a slightly twisted view of the world. Twisted by the usual conventions that is, even if it is in fact the correct, non-astigmatic, manner of looking at things.
Cui Bono? Who benefits from Walmart, or Amazon? Sure, we can call - and many do - the Walton family who inherited 50% of the stock, or Jeff Bezos who enjoys his own shareholding, rentiers. But who in fact benefits from the organisations themselves? For theory we’ve W. Nordhaus on Schumpeterian profits. The entrepreneurs gain perhaps 3% of the total value of their efforts. Near all the rest flows to the consumer.
We can also be more specific. As Jason Furman has pointed out (old figures, of their time) the Walton shareholding in Walmart is perhaps $100 billion of capital. The annual benefit to US consumers of the existence of Walmart is $263 billion. Bezos has been worth $200 billion and now perhaps $120 billion from his Amazon stock. The effect of Amazon more broadly is “a decrease in pass-through inflation.” The other way to put that is that the entire retail structure of the country has become more efficient, thus saving consumers money. Estimates run at around 0.1 to 0.2% per annum off the general inflation rate for a couple of decades. Call that 2% off consumer pricing in those past couple of decades then. Or, in the US economy of $20 odd trillion, $400 billion a year.
As we know from Saez and Zucman we can capitalise such income streams by applying the relevant discount rate. That is how they estimate the wealth distribution after all. The existence of Walmart creates around $5 trillion of wealth for US consumers, of Amazon perhaps $8 trillion.
At which point it’s possible to ask who are the rentiers here? By value allocation it’s not entirely obvious that it’s the Waltons or Bezos. Actually, it looks like it’s consumers who are making out like bandits.
The reason the value gets allocated that way is because both Walmart and Amazon were competitive irruptions into the marketplace, forcing every other capitalist - rentier - to compete with them. It’s the competition that leads to the consumer benefit - the consumer benefit being the thing we’re after in the first place.
At which point the policy to follow to attain our goal is obvious. Maintain the free part of free markets - the ability to enter the marketplace - and watch as the rest of the system does the job for us. As long as people compete to become rentiers then the system works. That very competition to become so being what limits the rent that can then be extracted thereby allocating near all of it to us out here.
Despite what some might think we do not believe that free markets are the answer to everything. They are though the answer to capitalism.