“Capitalists Hate Capitalism” so we are back in (some form of) Feudalism
Daniel Kapusy
Business Development Adviser Vialto Consulting / Regional director Bonumstrat Consulting / Senior Consultant at ImEon Services Ltd.
(parts of this summary are AI generated)
In his latest podcast [1] and a column [2] for Locus Magazine, Cory Doctorow explains why capitalists hate capitalism
He starts by exploring the distinction between "profits" and "rents" within capitalist systems, a topic that unveils why traditional capitalists may seem to dislike the very capitalism they operate within. According to Doctorow, capitalists are those who use capital—either monetary or assets purchased with it—and labor to generate profits, which they share with their employees in the form of wages. Rentiers, on the other hand, earn through ownership of assets that are indispensable for capitalists to make their profits.
A key example provided is a landlord owning a building that a coffee shop rents. While the coffee shop owner, as the capitalist, makes a profit by utilizing the labor of baristas, the landlord earns rent simply from owning the property. This dynamic reflects a fundamental tension within capitalism as described by its early thinkers like Adam Smith, who criticized the concept of earning income through rents. Historically, rents were a major source of income during the era when capitalism was emerging, a time dominated by feudal lords who owned vast lands and controlled serfs bound to those lands. These serfs had to pay rent in the form of agricultural produce, essentially for the right to live on land they could not leave legally.
These early capitalists opposed the feudal system's rent-based economy because it stifled economic freedom and innovation. They envisioned transforming feudal lands into industrial sites, turning serfs into free laborers who could potentially work in factories. Thus, for pioneers of capitalism, a "free market" meant freedom from rents, and "free labor" was about laborers being free to leave their birthplaces, albeit facing the risk of poverty if they did not work for capitalists.
Doctorow argues that for the founders of capitalism, the free market was not only a mechanism for profit but also a moral framework. Competition among capitalists was seen as beneficial—it forced them to improve their products, reduce prices, and offer better wages and working conditions to attract and retain workers. This competition was viewed as a positive force, contrasting sharply with the feudal lords who, as rentiers, were insulated from market pressures. Lords received their dues regardless of the economic climate or their management of the estate, leading to a stagnant and often exploitative system.
In contrast, capitalists live under the constant threat of losing their investments and market position to competitors, which theoretically drives them to innovate and improve the overall quality of goods and jobs. Smith viewed capitalism as a transformative force, turning personal greed into public good through the mechanisms of the free market.
However, the narrative shifts when considering the role of rentiers in a capitalist economy. Even if a capitalist business owner, like the coffee shop owner, faces the threat of competition and potential failure, the landlord benefits regardless. Should the original business fail, the landlord can simply rent the space to a new tenant, possibly at an even higher rate due to increased demand in the area. Thus, the failure of a capitalist venture can paradoxically serve as an advantage for the rentier.
Doctorow continues that while the industrial revolution marked the triumph of capitalism over feudalism, particularly in transforming hereditary estates into productive industrial assets, it did not eradicate the concept of rents. The dynamics of feudalism, where rents dominated, have transitioned into capitalism where profits are supposed to lead but rents persist.
The inherent conflict between profits and rents continues, with capitalism favoring profits but not completely eliminating rents.
In his 2023 book "Technofeudalism," Yanis Varoufakis presents the idea that contemporary capitalism has morphed into a new form of feudalism, marking a cyclic return to feudalistic tendencies within an ostensibly capitalist framework. Varoufakis argues that while capitalists still exist, the dynamics of the economy have shifted to predominantly favor rents over profits, underscoring a systematic victory of asset ownership and rent extraction mechanisms over traditional profit-driven enterprise.
Varoufakis uses Amazon as a prime example of this shift. On the surface, Amazon resembles a colossal marketplace bustling with independent sellers who set their own prices and compete for customers. However, Varoufakis points out that Amazon operates more like a feudal lord, taking a significant cut from each transaction, controlling who sells what and at what price, and dominating the visibility of products on its platform.
Another stark example is the practice of patent trolling, particularly in the Eastern District of Texas. Here, entities that produce nothing but hold vague patents sue major productive companies like Apple and Google, extracting massive sums in patent rents. These patent trolls, supported by governmental mechanisms, epitomize the triumph of rent over productive profit-making.
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In this "technofeudal" system, the real power lies not in generating products or services but in controlling the platforms and intellectual properties that others depend on to conduct business. Major tech firms such as Google and Apple mirror this by preferring to rent out digital real estate—like app stores and patent portfolios—rather than solely competing through innovation in the marketplace.
Docotorow draws upon Adam Smith's observations that capitalists, when gathered, naturally conspire to fix prices and reduce competition, similar to feudal lords managing their estates to maximize rents without enhancing productivity or innovation. This tendency is evident in tech giants who collude to control markets and labor rather than compete, as demonstrated by Silicon Valley's infamous "no poach" agreements, where companies agreed not to hire each other's employees to stifle wage growth and limit mobility.
At the lower end of the labor market, non-compete clauses bind even fast-food workers, preventing them from seeking marginally better pay elsewhere, thereby cementing a modern serfdom. Doctorow criticizes companies like Petsmart, which enforce training repayment agreements that lock in low-wage workers under the guise of recouping training investments. This practice turns laborers into assets bound to their employers, much like serfs tied to a lord's land.
Docotorow asserts that the widespread corporate preference for rent-extracting arrangements over genuine risk-based capitalism stifles innovation and shifts the risk onto workers and smaller businesses. This feudalistic approach is not limited to labor but extends to intellectual property and digital platforms, where the ability to control and restrict access becomes a tool for rent extraction.
Silicon Valley, despite its competitive ethos, thrives in California where non-compete clauses are illegal, suggesting that innovation can flourish without oppressive controls over labor mobility. Docotorow points out the contradiction in the capitalist narrative that risk necessitates restrictive practices to secure investments. Instead, he observes that the most dynamic sectors of the economy are often those with the freest labor markets.
Ultimately, Docotorow agrees with Varoufakis 's critique of modern capitalism, that it has regressed to a feudal-like system where the accumulation and control of assets (rents) overshadow genuine entrepreneurial risk-taking (profits). This shift undermines the very principles of risk and reward that are supposed to drive innovation and efficiency in a capitalist economy. The current era, as per Varoufakis, sees rents consistently triumphing over profits, a sign that we have entered a new age of feudalism disguised within the mechanics of modern capitalism.
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