Killing Capitalism,

by Yanis Varoufakis

Varoufakis argues that we no longer live in a capitalist society, because capitalism has morphed into a “technologically advanced form of feudalism”.

Rent over Profit

Traditional capitalists are people who can use capital – defined as “anything that can be used to produce saleable goods” (such as factories, machinery, raw materials, money) – to coerce workers and generate income in the form of profits. Such capitalists are still flourishing, but they are not driving the economy in the way they used to.

In the early 19th century, many feudal relations remained intact, but capitalist relations had begun to dominate. Today, capitalist relations remain intact, but techno-feudalist relations have begun to dominate.

Traditional capitalists have become “vassal capitalists”, because they are subordinate and dependent on a new breed of “lords”, the Asset Management and Big Tech companies. The 'Biggest 3' asset managers are Vanguard, State Street Global Advisors, and BlackRock.

The Big Tech ones, like Microsoft, Apple, Google, Amazon, Meta, Tesla, Tencent, Alibaba, are generating enormous wealth via digital platforms. A new form of algorithmic capital has evolved – “cloud capital” – and it has displaced capitalism’s two pillars, namely markets and profits.

Markets have been replaced by digital trading platforms which look like, but are not, markets. The moment you enter “you exit capitalism” and enter something that resembles a “feudal fief”: a digital world belonging to a very few and their algorithms, which determine what products you will/won’t see.

If you are a seller, the platform will determine on which page you can sell and which customers you can approach. The terms in which you interact, share information and trade are dictated by an “algo” that “works for the feudal fiefs’ bottom line”.

The capitalists who rely on this mode of selling are granted access to the digital estate by its virtual landowners, the Big Tech companies. And if “vassal capitalists” don’t abide by the laws of the estate, they are kicked out – removed from Apple’s App Store or Google’s search index – with disastrous consequences for their businesses.

Access to the “digital fief” comes at the cost of exorbitant rents. Many 3rd-party developers on the Apple store, pay “30% on all their revenues”, while Amazon charges its sellers “35% of revenues”. This is like a medieval feudal lord sending the sheriff around to collect a large chunk of his serfs’ produce because he owns the estate and everything within it.

This is not extracting profit through the production or provision of goods and services, as these platforms are not a “service” in the sense in which the term is used in economics. They are extracting rents in the form of the huge cuts they take from the capitalists using their platforms.

There is no disinterested “invisible hand of the market” here. The Big Tech platforms are exempted from free-market competition. Their owners – “cloudalists” – increase their wealth and power at a dizzying pace with each click, exploiting a new form of rent-seeking, made possible by the new algorithmically structured digital platforms. Acting parasitic on capitalist production, they are now dominating it.

Cloud serfs

But something even more transformative has happened. Even though most of us are regularly interacting with capitalists and earning wages via our labor, now, for the first time in history, all of us contribute to “the wealth and power of the new ruling class” through our “unpaid labor”.

Every time we use our cloud-linked devices – smartphones, laptops, Alexa, Google Assistant, Siri – we replenish the capital of the Big Tech cloudalists. This in turn increases their capacity to generate more wealth. How? We train their algorithms, which train us, to train them, and so on, in a feedback loop whose goal is to shape our desires and behavior. They are “selling things to us while selling the energy of our attention to others”.

This interaction is not taking place as any kind of market exchange, such as wages being paid by a capitalist to a group of workers. In this interaction, we are all high-tech “cloud serfs”.

The advertising men of the postwar world, thought television was amazing because of its power to deliver audiences to advertisers. They could innovate “attention-grabbing” ways of “manufacturing” consumer desires, which was then delivered free through the air!

But the ad men of the previous century could never have imagined the development of something like Amazon’s Alexa: a digital network learning “at lightning speed”, via the input of millions of people, how to train us. It is shaping our desires and behaviors in a process of perpetual reinforcement. Our experiences and reality are increasingly algorithmically curated. And due to the incredible ease and utility, the information is all given freely.

So, the “cloud capital” we are generating for them all the time increases their capacity to generate yet more wealth, and thus increases their power. This is something we have only just begun to realize. Approximately 80% of the income of traditional capitalist conglomerates go to salaries and wages, while Big Tech’s workers, in contrast, collect “less than 1% of their firms’ revenues”.

Quantitative easing

So how did this dystopian turn happen without us really noticing the change? There are two main drivers.

First, the “internet commons” of Web 1.0 transformed into Web 2.0, privatized by American and Chinese Big Tech.

Second, the colossal sums of central bank money that were supposed to refloat our economies in the aftermath of the 2008 Global Financial Crisis (GFC) – a process known as “quantitative easing” – were instead lent out to big business. Coupled with “austerity” economics for the many of us, this “murdered investment” led to a so called “gilded stagnation”.

Much of the central bank money, particularly following another round of quantitative easing during the COVID pandemic, made its way to the Big Tech companies. Their share prices soared to astronomical levels.

The “world of money” was decoupled from the “real economy”, where most of us live and work. In an environment where profit became “optional”, loss-making Big Tech companies run by “intrepid and talented entrepreneurs” chose to build up their capital in the cloud.

So along with markets being steadily replaced by digital platforms, central bank money displaced private profits as the fuel that “fires the global economy’s engine”. Intended by G7 central bankers, and their presidents and prime ministers to “save capitalism”, it has unintentionally helped finance the emergence of a new form of capital, “cloud capital” and a “new ruling class”.

GFC: the turning point

So why was the GFC such a pivotal point?

Crucial changes had taken place in our economies since the rise of large corporations in industry and banking, which grew ever bigger over the course of the 20th century, eventually becoming global in scale.

The Bretton Woods international financial system – designed to prevent the “greed-fuelled recklessness” that led to the 1929 crash, the Great Depression, and WWII – was abolished in 1971. From the 1970s, economies were progressively deregulated and free-market policies were increasingly and enthusiastically practised, leading to a new “financialized” version of capitalism.

This was facilitated by the suppression of workers’ wages and their bargaining power. The weakened democratic state was progressively captured by lobbyists for the interests of big business. And the hegemony of the “now fiat” US dollar in the global system led to a “tsunami” of dollars pouring back into US markets from Europe, Japan, and later China, thus enriching America’s ruling class, despite its huge trade deficit.

By the new millennium, this had led to an orgy of market speculation and, by 2007, the financiers, using “computer-generated complexity” to obscure their “gargantuan risks”, had “placed bets worth 10 X more than humanity’s total income”, $700T vs $70T.

This new version of capitalism was failing, but it had grown to such a scale and in such a complex, integrated “globalised” way that the banks and insurance companies were “too big to fail”. Their collapse in 2008 would have taken down the US banking system, and the rest of the world with it. Their hubris was thus “rewarded with massive state bailouts” to them.

What could have happened, as in Sweden in the 1990s, was to “kick out” the banksters, nationalize the banks, appoint new directors and, years later, sell them to new owners, thus saving the banks, but not the bankers.

What happened instead was that the banksters, were handed out large bailouts, which did not direct the money to where it was most needed. Neither punished nor chastened, they sent this money straight to Wall Street. And there it stayed. Combined with the profits from the rest of the world sent to Wall Street, it eventually caused an “everything can rally” that went on for over a decade.

This ultimately helped fuel the development of the cloud capital that has overtaken capitalism. And every time we use our devices, we contribute to its value. The more we transact via platforms, the further we move away from an economic system primarily driven by markets and profits. Thus, more power concentrates “in the hands of ever fewer individuals”, a “tiny band of multi-billionaires residing mostly with two rival “super cloud fiefdoms” in California and Shanghai”.

Because of the current power and control of Big Government, Big Tech and Big Finance, the only place where an better alternative society has a real chance to develop is in democratic/socialist Russia.