Wealth isn’t created at the top. It is merely devoured there

Bankers, pharmaceutical giants, Google, Facebook ... a new breed of rentiers are at the very top of the pyramid and they’re sucking the rest of us dry.

• The truth is that we are living in an inverse welfare state.
• These days, politicians assume that most wealth is created at the top. By the visionaries, by the job creators, and by the people who have “made it”. By the go-getters oozing talent and entrepreneurialism that are helping to advance the whole world.
• We may disagree about the extent to which success deserves to be rewarded – the philosophy of the left is that the strongest shoulders should bear the heaviest burden, while the right fears high taxes will blunt enterprise – but across the spectrum virtually all agree that wealth is created primarily at the top.
• When economists talk about “productivity”, what they really mean is the size of your paycheck. And when we use terms like “welfare state”, “redistribution” and “solidarity”, we’re implicitly subscribing to the view that there are two strata: the makers and the takers.
• In reality, it is the waste collectors, the nurses, and the cleaners whose shoulders are supporting the apex of the pyramid. A growing share of those we hail as “successful” and “innovative” are earning their wealth at the expense of others. The people getting the biggest handouts are not down around the bottom, but at the very top.
• There are two ways of making money. The first is what most of us do: work. Tapping into our knowledge and know-how to create something new, a wedding cake, a stylish updo, or a perfectly poured pint. To work is to create new wealth.
• There is also a second way to make money. That’s the rentier way: by leveraging control over something that already exists, such as land, knowledge, or money, to increase your wealth. You produce nothing, yet profit nonetheless. By definition, the rentier makes his living at others’ expense, using his power to claim economic benefit.
• There is no longer a sharp dividing line between working and rentiering. The modern-day rentier often works damn hard. Countless people in the financial sector apply great ingenuity and effort to amass “rent” on their wealth. It’s hardly surprising that they feel wholly entitled to their wealth.
• Our economy as a system shows solidarity with the rich rather than the poor. The clearest illustration of modern freeloaders at the top: bankers. Studies conducted by the International Monetary Fund and the Bank for International Settlements have revealed that much of the financial sector has become downright parasitic. Instead of creating wealth, they gobble it up.
• Banks help us gauge risks and get money where it is needed which are vital to a well-functioning economy. Economists tell us that the optimum level of total private-sector debt is 100% of GDP. If the financial sector only grows, it won’t equal more wealth, but less. In the UK, private-sector debt is now (2017) at 157.5%. In the USA, the figure is 188.8%.
• The financial innovation concocted by all the math whizzes working in modern banking (instead of at universities or companies that contribute to real prosperity) basically boils down to maximizing the total amount of debt. And debt is a means of earning rent. So for those who believe that pay ought to be proportionate to the value of work, the conclusion we have to draw is that many bankers should be earning a negative salary; a fine, for destroying more wealth than they create.
• Bankers are the most obvious class of freeloaders.A lawyer and an accountant wields a similar revenue model. Take tax evasion. Untold hardworking, academically degreed professionals make a good living at the expense of the populations of other countries. Take the tide of privatizations which have been all but a carte blanche for rentiers. One of the richest people in the world, Carlos Slim, earned his millions by obtaining a monopoly of the Mexican telecom market and then hiking prices sky high. The same goes for the Russian oligarchs who rose after the Berlin Wall fell, who bought up valuable state-owned assets for song to live off the rent.
• Most rentiers are disguised and not easily identified. They look like industrious folks, because for part of the time they really are doing something worthwhile. Precisely that makes us overlook their massive rent-seeking.
• Pharmaceutical companies like GlaxoSmithKline and Pfizer regularly unveil new drugs, yet most real medical breakthroughs are made quietly at government-subsidized labs. Private companies mostly manufacture medications that resemble what we’ve already got. They get it patented and, with a hefty dose of marketing, a legion of lawyers, and a strong lobby, can live off the profits for years. In other words, the vast revenues of the pharmaceutical industry are the result of a tiny pinch of innovation and fistfuls of rent.
• Even paragons of modern progress like Apple, Amazon, Google, Facebook, Uber and Airbnb are woven from the fabric of rentierism. Because they owe their existence to government discoveries and inventions (every sliver of fundamental technology in the iPhone, from the internet to batteries and from touchscreens to voice recognition, was invented by researchers on the government payroll). And they tie themselves into knots to avoid paying taxes, retaining countless bankers, lawyers, and lobbyists for this very purpose. Companies like this are incredibly difficult to compete with, because as they grow bigger, they only get stronger.
• Uber, the world’s largest taxi company, owns no vehicles. Facebook, the world’s most popular media owner, creates no content. Alibaba, the most valuable retailer, has no inventory. And Airbnb, the world’s largest accommodation provider, owns no real estate. These companies own a platform that lots and lots of people want to use. First, because they’re cool and they’re fun – and in that respect, they do offer something of value. The main reason why we’re all happy to hand over free content to Facebook is because all of our friends are on Facebook too, because their friends are on Facebook … because their friends are on Facebook. Stripped down to essentials, it’s an ordinary ad agency. In 2015 Google and Facebook pocketed an astounding 64% of all online ad revenue in the US. The bigger such platforms grow the more powerful they become, enabling the lords of these digital feudalities to demand more and more rent.
• Rentier is defined as someone who uses their control over something that already exists in order to increase their own wealth. The feudal lord of medieval times did that by building a tollgate along a road and making everybody who passed by pay. Today’s tech giants are doing basically the same thing, but transposed to the digital highway. Using technology funded by taxpayers, they build tollgates between you and other people’s free content and all the while pay almost no tax on their earnings.
• Why does most of the population work itself to the bone to support these rentiers? Firstly, the modern rentier knows to keep a low profile. There was a time when everybody knew who was freeloading. The king, the church, and the aristocrats controlled almost all the land and made peasants pay dearly to farm it. But in the modern economy, making rentierism work is more complicated. How many people can explain a credit default swap, or a collateralised debt obligation? Or the revenue model behind those cute Google Doodles?  
• “The world’s most powerful investment bank,” wrote the journalist Matt Taibbi about Goldman Sachs, “is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.” When current Goldman Sachs CEO Lloyd Blankfein was asked about the purpose of his job, his straight-faced answer was that he is “doing God’s work”. 
• The average rich freeloader manages to masquerade quite successfully as a decent hard worker. He goes to great lengths to present himself as a “job creator” and an “investor” who “earns” his income by virtue of his high “productivity”. Most economists, journalists, and politicians from left to right are quite happy to swallow this story. Time and again language is twisted around to cloak funneling and exploitation as creation and generation.
• The fact of the matter is that feudalism has been democratised. To a lesser or greater extent, we are all depending on handouts. En masse, we have been made complicit in this exploitation by the rentier elite, resulting in a political covenant between the rich rent-seekers and the homeowners and retirees. Most homeowners and retirees are not benefiting from this situation. The banks are bleeding them far beyond the extent to which they themselves profit from their houses and pensions. Still, it’s hard to point fingers at a kleptomaniac when you have sticky fingers too. So why is this happening? The answer can be summed up as: Because it can.
• Rentierism is, in essence, a question of power. It’s no different for the modern rentier. He’s got the law, politicians and journalists squarely in his court. That’s why bankers get fined peanuts for preposterous fraud. The biggest tragedy is that the rentier economy is gobbling up society’s best and brightest. Ivy League graduates are opting for banks, law firms, or trumped up ad agencies like Google and Facebook. When you think about it, it’s insane. 
• In a rentier economy, innovation remains just concerned with further bolstering that very same economy. This explains why the big dreams like flying cars, curing cancer, etc have yet to be realised, while bankers and ad-makers have at their fingertips technologies a thousand times more powerful.

Yet it doesn’t have to be this way. Tollgates can be torn down, financial products can be banned, tax havens dismantled, lobbies tamed, and patents rejected. Higher taxes on the ultra-rich can make rentierism less attractive, precisely because society’s biggest freeloaders are at the very top of the pyramid. But such a revolution require a different narrative about the origins of our wealth. All we need to do is to give real hard-working people what they deserve. And they are the waste collectors, the nurses, the cleaners – theirs are the shoulders that carry us all.

Like a parasite stunts a child’s growth,
so the rentier drains a country of its vitality.

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