Seeking Alpha
Bonds, dividend investing, economy
Profile| Send Message|
( followers)  

We’ve been trying to develop a theory about the financial sector versus the real economy and how it relates to the financial reform battle.

First off, boo to the Federal Reserve for raising the interchange debit swipe-fee cap behind the scenes, almost certainly violating the Dodd-Frank law. A win for finance over the real economy. More from Zach Carter and Adam Levitin on the issue.

Second, Kevin Drum directs us to a battle over whether or not the financial sector will be able to challenge and exempt itself from abusive patents easier, yet another place where it's in conflict with the rest of the real economy. Here Drum collects some quotes:

Andrew Ross Sorkin is outraged. This provision “is perhaps the most blatant demonstration of the lobbying power of Wall Street and, just as important, the willingness of Congress to support the interests of the banks, even in the face of clear evidence that the law has no purpose other than to benefit the financial services industry.”

Felix Salmon is a lot less outraged. ”Sorkin’s attempts to defend the idea of financial business-method patents ring pretty hollow …. The law will benefit the financial services industry. No one is arguing that point. And it will hurt rentiers with patents. The important question is whether it’s a good idea from a public-policy perspective. Sorkin ducks that question entirely. But the fact is that if we want a level playing field in financial services, getting rid of business-method patents is an extremely good idea.”

So when it comes to profits, the real economy won’t challenge the financial sector. Either because the CEOs are hired by Wall Street, the financialization of the economy has made business lines so similar it is tougher to distinguish a company like GE from Lehman, or because of a solidarity among the rich and the elites against regulation, or something else.

But they fight quite viciously when it comes to rents. I consider interchange a rent – the government has a responsible for the payment system working correctly, and people who control the crucial nexus of how we exchange goods and services can extract a lot of value from people trying to lead their lives. Patents, by definition, are rents -- rents designed to create innovation.

I think it is helpful for us to step back and get a generalizable theoretical framework for conflicts between profits and rents in the post-industrial world. I’m going to quote at length from Michael Hardt’s recent The Common in Communism (pdf) to get such a framework going (my bold):

…. [P]assages from Marx’s 1844 Economic and Philosophical Manuscripts … In the first passage, titled “The Relation of Private Property,” Marx proposes a periodization that highlights the dominant form of property in each era. By the mid-19th century, he claims, European societies are no longer primarily dominated by immobile property, such as land, but instead by mobile forms of property, generally the results of industrial production. The period of transition is characterized by a bitter battle between the two forms of property …. Marx considers it inevitable that mobile property would achieve economic dominance from immobile property …

[T]he triumph of movable over immobile property corresponds to the victory of profit over rent as the dominant mode of expropriation. In the collection of rent, the capitalist is deemed to be relatively external to the process of the production of value, merely extracting value produced by other means. The generation of profit, in contrast, requires the engagement of the capitalist in the production process, imposing forms of cooperation, disciplinary regimes, etc. By the time of John Maynard Keynes profit has such dignity with respect to rent that Keynes can predict (or prescribe) the “euthanasia of the rentier” and thus the disappearance of the “functionless investor” in favor of the capitalist investor who organizes and manages production…

Today, however, it is clear that industry no longer holds the hegemonic position within the economy …. Industry has to informationalize; knowledge, code, and images are becoming ever more important throughout the traditional sectors of production; and the production of affects and care is becoming increasingly essential in the valorization process …

If we focus on the new struggle between two forms of property implied by this transition we can return to Marx’s formulations. Whereas in Marx’s time the struggle was between immobile property (such as land) and moveable property (such as material commodities), today the struggle is between material property and immaterial property – or, to put it another way, whereas Marx focused on the mobility of property today at issue is centrally scarcity and reproducibility, such that the struggle can be posed as being between exclusive versus shared property. The contemporary focus on immaterial and reproducible property in the capitalist economy can be recognized easily from even a cursory glance at the field of property law. patents, copyrights, indigenous knowledges, genetic codes, the information in the germplasm of seeds, and similar issues are the most actively topics debated in the field …

The neoliberal strategies for the privatization of the “artificial” common are much more complex and contradictory. Here the conflict between property and the common is fully in play .… In general, though, capital accomplishes the expropriation of the common not through privatization per se but in the form of rent .… The core insight of this analysis of the emerging dominance of rent over profit, which I find very significant, is that capital remains generally external to the processes of the production of the common.

Much of the modernization that Marx triumphed over was a victory of profit-makers over rent-holders. What Hardt argues is that, as the economy becomes more and more about information, the crucial ends of capital holders is to take things that could belong to the commons and instead appropriate them as property rights and sell them off. The implies a prioritization of rent-holders over profit-makers in terms of power over the economy (also implying a regression back from the future that Marx thought would come after profit-makers – take that, Hegelian Marxism!).

If we look at some of the major economic battles taking place, they are over patents, how the risks and rewards of large, systemically important public-utility style financial institutions are distributed and who gets to control the residual over the delegated ends of the government with the mad rush for the privatization of government resources and responsibilities. These are all, in some way, about rents. And the battle over these will determine a lot about who gains in the future of the economy.

As such, they are the only place where the financial sector and the real economy fight it out.

Source: Rents vs. Profits in the Financial Reform Battle and Post-Industrial Economy