ARISTOCRACY TO OLIGARCHY: THE NEO-FEUDAL PARADIGM
250 years ago the aristocracy retreated before liberté egalité fraternité industrial capitalism. But no more. Oligarchy has new clothes: land feudalism is reborn as rule by stakeholder capitalism.
The historical task of industrial capitalism — and classical political economy — was to free economies from the hereditary landlord class and predatory usurious finance. That seemed to be occurring post-industrial revolution, as liberalism, an educated empowered middle class and politically conscious labouring class unity coalesced from the late 19th century to the outbreak of World War I in 1914. But instead of progress into what was considered to be “modern” a century ago, the rentier interests have reasserted themselves. Their neoliberal ideology inverts the classical idea of a “free market” from one free from economic rent to one free for the rentier classes to extract rent and gain dominance. In contrast to classical political economy, their ideology promotes tax favoritism for rentiers, privatization, financialization and deregulation.
U.S. foreign policy seeks to extend this neoliberal rentier program throughout the world, mainly for the benefit of primarily Wall Street and the City of London. That effort is at the core of today’s global fracturing. The resulting dynamics of financialization and debt deflation are polarizing and, as such, are antithetical to widespread industrial prosperity.
The leading beneficiary of neoliberal ideology is the Finance, Insurance and Real Estate (F.I.R.E.) sector. That sector is based on the symbiosis of finance and real estate. Rent extraction by that sector, along with the extraction of natural-resource rents from oil and mining, and the monopoly rents resulting from the privatization of public enterprises, has become the central dynamic of the finance capitalism that has expanded to overpower industrial capitalism since World War I. The central role played by mortgage debt is largely the result of land and home ownership being democratized—on credit. Owner-occupied housing has replaced tenancy to a hereditary absentee landlord class living off groundrents. But rent is still being paid—to the banks, whose main source of revenue is mortgage lending.
A drastic phase change occurred with the Reagan-Thatcher revolution of the 1980s with its privatizations, junk-bonding of corporate industry, and dominant financial strategy of “creating wealth” by asset-price inflation (“capital gains”). By 2000 this strategy had led to a merger of investment banking with commercial banking, opening the gates for junk-mortgage lending, commercial bank fraud, speculation in financial and insurance derivatives, and a broad regulatory capture of government by the FIRE sector.
These changes led America to seek gains financially, de-industrializing its economy by asset stripping—using corporate revenue for stock buybacks and dividend payouts instead of new capital investment—and offshoring its labor and production in an attempt to win the race to the bottom.
U.S. financialization policy thus provides an object lesson - either in the economics of neofeudalism, restoring to society the pre-industrial aristocracy, courtier, serf class divisions; or in the economic dynamics that non-Western nations like China, India, Russia, Brazil and other sovereign states must avoid, to avert a future locked into cheap labour foreign capital global order.