The New Dark Age

In the 1800s, economists such as Ricardo (see Principles of Political Economy & Taxation) and George (see Progress and Poverty) identified economic rent-seeking, the earning of excess profits from the ownership of land and natural resources, to be a very major problem for any economy. These profits were not from a productive activity but rather acted as a private rentier tax on those that carried out productive activities, while at the same time owners benefitted from external events such as population growth and infrastructural investments made by the government that increased rents and land values.

Such rentier profits should either be taxed away or land and natural resources publicly owned. Marxist economists agreed about the negative impact of economic rents, but saw them as a result of the ability of monopolies to extort higher prices in any area of the economy. A concept that can be extended to all forms of monopoly, including the monopoly of a bourgeois capitalist class over the means of production. The Marxists and political economists may have differed somewhat in their treatment of economic rent extraction, but they agreed on the need to remove it for the better of the economy and the general population.

In the early 1800s, Ricardo had pushed for a repeal of the tariffs that protected British landowners from foreign competition (the “Corn Laws”) as they raised food prices that then required industrialists to pay higher wages; holding back industrial development. The beneficiaries were the landowners who gained higher prices for the food they grew, or could charge higher land rents to tenant farmers; a form of economic rent. The Corn Laws were repealed in 1846. Ricardo argued for free trade more generally, but severely (or perhaps wantonly) misunderstood the difference between those economic sectors that drive technological upgrading and productivity (e.g. manufacturing) and those that have much less impact (e.g. agriculture). He argued that other nations such as Portugal should focus on agriculture (reducing British industrialists costs) while Britain focused on manufacturing (capturing the upgrading and productivity benefits). Such an arrangement locks in the commodity producer to an extractive relationship while locking it out from the benefits of industrial activity; a situation that the South American nations find themselves in today.

The consensus of classical political economy against rentier profit making could not be accepted by the national oligarchies of the UK and USA, as it pointed directly at themselves while questioning the virtues of profit-making. So the classical political economy upon which it was based had to be banished. A classical political economy that looked widely at such issues as the “social question”; such as conflicts between landowners, capitalists and labour and problems of distribution. Even Adam Smith saw bourgeois capitalists as a group that was driven by “mean rapacity” and an “intolerable monopoly spirit” that collude to keep wages down, to keep prices up and limit competition, to gain monopolies and tariff protection from the state and use predatory lending techniques and hidden fees. Smith was deeply suspicious of the capitalist businessman, quite the opposite of the high regard that current society holds them in. Smith argued that unbridled competition was the answer, rather than state regulation, but we have to remember that Smith (1723 to 1790) lived in much simpler and largely agrarian times. The era of colossal industrial corporations that challenge even governments for size was in the future.

The economic “marginalist revolution” produced an economics that ignored the social question and instead focused on a depoliticized optimization of scarce resources, where value was defined by subjective utility in an autonomous, logical market. Counting all profit the same and banishing any issues of class conflict. This was lead by Jevons (UK, 1835-1882), Menger (Austria, 1840-1921) and Walras (France, 1834-1910). Jevons was born into an iron merchant family, Menger was born into a wealthy family of minor nobility while Walras was from humbler beginnings. We must remember that the universities in which they gained academic positions were generally privately funded and controlled by the ruling class. This was not simply a theoretical discussion but one that would be actively shaped by the ruling class, a class worried about the emergent proletariat and political economists that pointed to the conflicts between rentiers and productive capital, and between labour and capital in general. The result was a political economy atomized into a depoliticized economics and technocratic-oriented sociology and politics; with economic class struggle and rentier profiteering made invisible.

With the evisceration of anti-trust and the deregulation of the financial sector in the US, that economy has become dominated by oligopolistic and monopolistic markets and a logic of rent extraction with respect to corporate assets. The predominant focus is not on building new products and capabilities, but rather on concentrating supply within a few hands, extracting the wealth built up over decades, lining up at the government trough, and financial engineering and manipulation. Or such profiteering tactics as stopping customers from fixing the products they bought themselves (e.g. cars, trucks and farm equipment), forcing customers into rental instead of purchase agreements (e.g. Microsoft software), and forced obsolescence (e.g. software operating systems). Including egregious examples such as this with respect to truck tail lights:

The main reason why US corporate profit rates have risen in the past decades, and are now more than double those of a China where the Party-state enforces competitive markets and severely punishes corruption. Where Chinese companies threaten the cozy profiteering existence of US firms, the US state will try to destroy and/or lockout the competitors through export controls (e.g. Huawei and the Chinese chip industry) and/or levy very high tariffs (e.g. 100% on Chinese EVs and batteries, 80% on Chinese solar cells, 75% on steel and aluminum, up to 55% on consumer electronics, chemicals and active pharmaceutical ingredients, up to 50% on industrial machinery).

Peter Smith in his substack piece “The Stolen Dream of the Iron Lady” details how rent extraction in the UK has gone even further, with foreign owners extracting large amounts on an ongoing basis from the UK economy. In the post-WW2 years, the UK government had nationalized the “natural monopolies” of water, the electricity grid, the gas distribution network, the railway network etc., with the economic rent being used to fund government operations rather than being captured by private rentiers. These were all privatized at knock-down prices with the majority now owned by foreign firms, with the economic rent flowing abroad rather than staying within the UK. With the level of rent being optimized by underinvestment, high debt gearing and high dividend payments, together with games to reduce UK taxation to a minimum.

This is not a market. It is a colonial relationship in reverse: the former imperial power now paying tribute to the capitals of other nations. The economic rent generated by Britain’s monopoly infrastructure, the captive surplus extracted from every household’s water bill, energy bill and rail ticket, flows out of the country in dividends and interest payments to shareholders and creditors who are predominantly foreign.

The UK net international investment position stood at a negative GBP 271 billion in 2024, as the UK government also made little effort to stop the foreign buying up of major private corporate strategic assets.

Through the “right to buy” legislation, the government also sold off its huge stock of housing that provided rents to the government, at massive discounts to their real value. In effect, the British state sold off colossal amounts of its capital assets at far below their true value. Stripping the state of large amounts of ongoing income. In the early 1990s the Thatcher government attempted to replace the local property taxes with a “poll tax”, which would have caused a very large regressive redistribution of taxes and was successfully defeated. The replacement though, through a tax cap (the top band was set at GBP 320,000 and above), still greatly benefitted the rich. The valuations have not been updated since the 1990s, also benefitting those whose property has massively appreciated in value.

Then there are the large numbers of Public Private Partnerships that socialized the risk while providing high profits for investments that would in many cases have been cheaper with no private participation. With much of the earnings flowing to “offshore” entities outside the reach of UK taxation.

Then there is the old-style rentiership of land ownership, with 1% of the British population owning 50% of the land because no land reform has been carried out in Britain, and in the 1600s to 1800s the landed elite utilized the parliament that they dominated to steal the “common lands” from the general populace. With extensive tax “reliefs” for landowners and farmers. In contrast to the protestations of Clarkson’s Farm, only 2,568 very large farms own 25% of all English farmland. Then there are the legal “trusts” through which inheritance tax can be avoided.

Smith calculates that the level of economic rent in the UK has trebled, from 11% to 33% of GDP, from 1970 to the present day. While the tax burden has remained at about the same at 38% of GDP. That level of tax though produces a lower level of services because the state is lacking the rent income from the assets sold off so cheaply and also has to pay the investors in the PPP contracts, many of which last for decades. At the same time, tax rates have been reduced for corporations and the rich wile being increased for the average citizen.

This is the Ricardian prediction realised in full: when the owners of rent- generating assets are freed from public accountability and taxation, the surplus flows upwards to them, and the tax burden to fund public services is shifted downwards onto labour and consumption. Britain taxed its workers and its consumers ever more heavily to pay for the consequences of deindustrialisation and the social costs of inequality, while the rents generated by its infrastructure flowed to foreign shareholders.

With government debt, and the related interest payments, being ballooned by the banking and corporate bailouts post-GFC and during COVID (including very obvious large-scale corruption that has not been dealt with) together with the massive subsidization of energy company profits during the 2021-2023 energy crisis. With the massive inflow of fossil fuel royalties that started in the late 1970s being used to subsidize cheap asset sales and reduced taxes for corporations and the rich, rather than to build the infrastructure and productive base. Norway has a massive sovereign wealth fund, specifically designed to keep fossil fuel revenues away from everyday spending. Britain has no such thing, rather an ever-increasing government debt:

• 1990: 30% of GDP
• 2000: 37%
• 2010: 75%
• 2020: 106%
• 2025: 103%

The payments of interest on the debt had been kept low in the 2010s due to the very low interest rate policies post-GFC, but with interest rates rising in the past years the interest on the debt has become a greater part of overall government expenditures. Interest payments on government debt more than doubled from GBP 41 billion in 2020 to GBP 85 billion in 2024. Up to a third of that debt is owned by overseas entities, producing a flow of interest payments that leaves the country.

The Conservative governments destroyed much of the industrial base of the UK with the high interest rates and massively overvalued exchange rate during the 1980s and 1990s, removing significant sources of taxes. Then the government assets that captured economic rents were sold to private owners, ending up in many cases in foreign hands, reducing the funding base of the government and producing flows of rentier earnings into foreign hands and non-taxable entities. At the same time the vast lands of the British elite continued to be provided with preferential tax treatment, and taxation shifted from corporations and the rich to the general populace. And on top of that, PPE arrangements suck large amounts out of the public purse and in many cases flow abroad and into non-taxable structures. Within the NHS, some regional trusts are paying up to 10% or more of their total spending on such contracts and the English NHS has over GBP 40 billion in total PPP payments that will not be completely paid off until 2040. Although the whole PPP mess have been acknowledged as a “huge expensive mess” which in the shape of the Private Finance Initiative provided GBP 13 billion in investment but GBP 80 billion in total committed payments, there has been no move to use the government’s powers to rescind at least the most egregious of them. And to that can be added to utter lack of oversight of the selling of major British corporate assets to foreign entities, especially in the US.

So now the British masses pay higher taxes for reduced state services, while being told that greater sacrifices are needed so that war spending can be increased to 5% of GDP when Britain lacks any real foreign threats. War spending which will in reality just provide another government profit trough to UK and foreign corporations.

In China, the Party-state owns all urban land while rural land is collectively owned by collective entities such as village communities. Land can be leased from the state, which captures the land rent and increase in value. The Party-state also owns the “natural monopolies” as well as the banking system and heavy industrial enterprises such as iron, steel and shipbuilding. It also quite strictly enforces competitive markets and restricts corporate activities that it sees as exploitative. In this way, economic rent is either captured for the common good, or greatly restricted. Government revenues from the remitted profits of State Owned Enterprises have greatly increased over the past decades. Out of total state revenues, RMB 21.6 trillion were from taxes and fees, RMB 12.6 trillion Social Security fund payments, land sales provided RMB 5.8 trillion and SOE profit remittances RMB 0.86 trillion. Taxation as a share of GDP is much lower in China, in the low 20% range when excluding state-owned enterprise profits and land sales revenues which would be paid by the general population to the state or to private rentiers. By either capturing economic rent for the state, or greatly inhibiting the possibility of economic rents, the Party-state keeps the basic costs for both the general population and the productive forces lower.

Russia inherited a rapacious and extractive rentier oligarchy that had practised widespread primitive accumulation during the disaster of the 1990s. Those not willing to make a new compromise with the Putin state were removed, but this still left a rentier focused oligarchy that would not look kindly upon state intervention to build up competing economic sectors. The Military Industrial Complex, overseen by the siloviki was not subjugated by either foreign forces or the oligarchs and maintained a separate power structure with its own manufacturing capabilities, but still with an appreciable amount of corruption. Substantial raw material assets were moved back into state control, with the state capturing the economic rents; with re-nationalization accelerating after 2015. The reaction of the Western powers to the Russian attack on Ukraine (in response to an imminent invasion of the Donbass by the Ukrainian army) allowed Putin’s faction to gain greater control and to also flush much of the corruption from the MIC, as well as making the oligarchs more dependent upon the Russian state. Even so, rentier activities still take a significant part of the Russian GDP with oligarchs monopolizing sectors such as nickel, steel, fertilizers and mining. The state has significantly reduced the level of rentier income but it is still substantial.