The Secret Code of Capital and the Origin of Wealth Inequality
- "Capital is not a thing, but a social relation enforced by the law and the state. With the right legal coding, any object, claim, or idea can be turned into a wealth- or capital-generating asset. In her new book, Katharina Pistor analyzes the evolution of capital over the past 400 years."
Global capitalism is not a system that is detached from states or state law. Instead, it is rooted in select legal systems that have accommodated capital for centuries... capital and the system it has given its name was not designed by anybody in a coherent fashion, but neither can it be described as the product of natural evolution.
Katharina Pistor: The Code of Capital
Capital assets have been placed on legal steroids and the task to pick and choose the assets that are slated as capital and apply the steroids to them has largely been left to the holders of capital and their lawyers. They could not have done this without state power, but they are no longer dependent on a single state...
In the realm of private law, the major policing function is left to other private parties, who are often ill informed and for whom the costs of law enforcement may outweigh the benefits. Capital holders therefore have an important first-mover advantage, and with sophisticated master coders at their side, they have taken advantage of it.
- "Pistor argues for the central role of the law in shaping the distribution of wealth and makes a compelling case that it is law that creates capital itself." (video
)The Code of Capital by Katharina Pistor
- "The skeleton of her argument is this: The term 'code' is used to 'show how certain legal institutions have been combined and recombined in a highly modular fashion to code capital' using modules such as 'contracts, property, collateral, the law of trusts and corporations, as well as bankruptcy laws' which operate to grant assets with the attributes of priority, durability, convertibility, and universality. These attributes give their holders a 'comparative advantage in accumulating wealth over others.'"
Priority rights rank claims, privileging certain titles to an asset or others, such as secured over unsecured creditors.
Durability adds a temporal component to priority rights. Pistor tells us that "legal coding can extend the life span of assets and asset pools, even in the face of competing claimants, by insulating them from too many creditors." For example, if a corporation defaults on a loan, their creditors can seize assets, but shareholder's, or the shareholder's personal creditors, cannot.
Universality ensures "priority and durability will affect the parties who agreed to be bound by them" and "that these attributes will be upheld against anybody."
Lastly, convertibility "gives asset owners an explicit or implicit guarantee to convert their assets into state money when they can no longer find private takers," and is especially important for financial assets.
So Pistor is arguing that "capital is a legal quality that helps create and protect wealth." Therefore, choosing assets and imbuing them with the above attributes "is tantamount to controlling the levers for the distribution of wealth in society." Capital is linked with power because this process can only be achieved by the state or else "the legal privileges capital enjoys would not be respected by others."
High finance is wrecking the economy and the planet—but it won't reform itself
- Nice point - "You can see the hostility in the US about the corporate form in the statutes. I always give my students the 1811 New York incorporation statute at the beginning of corporations 101."
- Great point - "The call for more stakeholder governance of firms should be paired with a call government getting back into the business of governing."
- The American Corporation is in Crisis—Let's Rethink It - "Stakeholder governance will require not just tinkering with existing structures, but a fundamental re-orientation of a corporation's goals."
- A thread with the 19 proposals - "Few have more to say about corporate governance than Leo Strine who has served on the chancery and supreme courts of Delaware for decades."
- Thread on capital as legal category and national accounts - "Basically, national accounts define 'capital' as anything which enables one to transfer 'value' (purchasing power) from one period to another period. Cash, valuables, land, patents. But: there has to be an entity who/which owns this capital. Persons, companies, government."[2,3]
- Common sense for a social market economy - "I believe there are two truly effective policies to forestall a communist or communist-like movement: 1. Strong labor unions; 2. Land reform."
- Access to essential resources cannot be subjected to the pricing mechanisms - "Yes there should be a blank check for fundamental human rights. That's how a right should be. We'll figure out how to provision the resources once we have an absolute commitment to provision the resources."
- Rentier capitalism does not come with a reset button - "The reality is that the concentration of wealth and power in the hands of a few privileged rentiers is not a deviation from capitalist competition, but a logical and regular outcome... If history teaches us anything, it is that the wealthy and powerful have almost no incentive to limit their political and economic privileges – and the systems they have put in place will only serve to entrench them further."[4,5,6]
- "The establishment is waking up to the dangers of 'rentier capitalism' but more than cosmetic change is required."
With financialised capitalism grinding remorselessly onwards, it's hard to take the "reset" debate seriously. Nevertheless it does suggest that capitalists are nervous and looking for new ideas—as well they might, because the rise of political insurgencies, protectionism and authoritarianism all threaten globalised markets. We have been here before, as Karl Polanyi reminds us in a series of essays uncovered and first published by Prime, the research network I work through. In the inter-war period, "captains of industry undermined the authority of democratic institutions, while democratic parliaments continuously interfered with the working of the market mechanism. A sudden paralysis of both the economic and the political institutions of society was well within the range of the possible... This was the critical state of affairs out of which the fascist revolutions sprang..."
This economist has a plan to fix capitalism. It's time we all listened
Both the FT and even the Business Roundtable fret that hyper-globalisation has gone too far. A "sudden paralysis of both the economic and the political institutions" is a phrase that resonates today in Britain, the US, Hong Kong, Brazil and beyond. Such paralysis arises out of doomed and purely defensive attempts—and in many ways Brexit is a case in point—to protect society from the operation of "free" markets without thinking through clearly and from first principles the rigged way in which many of them operate.
- "Mariana Mazzucato has demonstrated that the real driver of innovation isn't lone geniuses but state investment. Now she's working with the UK government, EU and UN to apply her moonshot approach to the world's biggest challenges."
After the publication of The Entrepreneurial State, Mazzucato, an effervescent woman in her late forties, became a regular on current affairs programmes, often delivering devastating critiques of commonly held economic beliefs with eloquence. During a debate about the budget deficit on Newsnight in 2017, she berated Evan Davis for obsessing about it, explaining with exasperation: "Deficits matter, but what matters is what you're spending it on." When asked about Google's tax avoidance by Jon Snow on Channel 4 News, she retorted: "You know what? That's not the problem. The real problem is that people don't know about the backroom deals that the Googles and the Apples and the Glaxos and the Pfizers have with the treasuries around the world on tax policy."
Neoliberalism: a thread
- "Neoliberalism, as defined by its current adherents (rather than by its squawking enemies), views markets as the fundamental generators of prosperity, and government as the way to distribute that prosperity more equitably... I believe that government needs to do more than just redistribute the proceeds of free markets."[13
First, I believe the government can't shoulder the entire burden of equalizing the economy. Decades of successful Republican opposition to the welfare state have proven that. Instead, we need additional, quasi-independent institutions, like unions.
Second, seeing the problems of land, and the inequalities produced by land, have made me want to see some kind of land reform that goes way beyond what most neoliberals would endorse. Land value taxes, public housing, housing co-ops, downpayment assistance, etc. etc.
Third, I believe that industrial policy is underrated, both at the national and the local level. Neoliberalism under-emphasizes science policy, for example. I want a Big Push for science-driven growth. I've come to believe in export promotion, which is anathema to many neoliberals, since it's a restriction on free trade. Can the government "pick winners"? Yes. The government *must* pick winners. Green energy and other zero-carbon technologies being chief among the things we must pick.
I also believe in national health insurance, which is just straight-up nationalization of a major industry...
A visit with Ludwig Erhard, father of Germany's economic miracle
- Economics After Neoliberalism - "Contemporary economics is finally breaking free from its market fetishism—one focused on power and inequality and aimed at a more inclusive society." (forum; Democracy's Promise)
- Games Economists Play - "Historians make quite clear how a constructed ideological-political machine set about rolling back the New Deal and how crucial economists such as Friedman, Stigler, and Buchanan were to the construction and operation of that machine." (Milton Friedman debates Samuel Bowles)
- The Future of Political Philosophy - "For five decades Anglophone political philosophy has been dominated by the liberal egalitarianism of John Rawls. With liberalism in crisis, have these ideas outlived their time?"
In the years since the rise of liberal egalitarianism, the state has expanded, but it has also been privatized. The nature of capitalism and of work has transformed and will continue to do so, likely in dramatic and unexpected ways. The constituency of the least well off has been reconstructed, and both its composition and its place as an agent of change rather than a recipient of goods need to be again interrogated. Politics is changing, as authoritarians, radical movements, and new oligarchs battle in a novel international landscape shaped by unaccountable financial institutions, new media platforms, new technologies, and climate change.
- Economics Is the Materiality of Moral Choice - "Like Hayek, Polanyi is attuned to the materiality of moral choice, only he believes the question of costs and constraints is best mediated through moral and political arguments in the public square."
- We are Plan C: For a Practice of Politicised Commoning - "Attempts to create new forms of social relations and practices in direct opposition to the prevailing capitalist, colonial and patriarchal relations require rehearsals of other possible ways of living in common, and I emphasise the word 'possible'. How could this be otherwise?"
- Reinventing How to Govern Capitalism - "The basic argument is summarized here: Waves of Technical Change and Economic Governance."
While neoliberal capitalism has been extremely good at generating new wealth, it has been lousy at distributing those gains in a broad and equitable manner. A central challenge of contemporary economic governance is to design new institutions of asset ownership that give ordinary people access to wealth creation at its source. Such new institutions will both accelerate productivity growth and ensure that the fruits of this growth are distributed as widely as possible. Building on an account of how the American government has historically developed policies to ensure the broad distribution of wealth, this talk proposes a new "mutualist" approach to wealth sharing that we believe can govern an emerging era of capitalism whose technological underpinnings are themselves undergoing radical transformation.
- Marx's Capital after 150 Years - "Diverse perspectives and critical insights into the principal contradictions of contemporary capitalism, pointing to alternative economic and social models."
- "In Fürth, a sleepy Bavarian town, the seeds were first planted for German's post-World-War-II 'economic miracle.'"
Erhard created the social market economy. It was based on free market principals, but with the important addition of employee participation in key decisions like wages, benefits and working conditions through their presence on boards, and a strong social safety net.
A New Deal For This New Century: Making Our Economy Work For All
- "Toward fair and sustainable capitalism: A comprehensive proposal to help American workers, restore fair gainsharing between employees and shareholders, and increase American competitiveness by reorienting our corporate governance system toward sustainable long-term growth and encouraging investments in America's future."[16
To promote fair and sustainable capitalism and help business and labor work together to build an American economy that works for all, this paper presents a comprehensive proposal to reform the American corporate governance system by aligning the incentives of those who control large U.S. corporations with the interests of working Americans who must put their hard-earned savings in mutual funds in their 401(k) and 529 plans. The proposal would achieve this through a series of measured, coherent changes to current laws and regulations, including: requiring not just operating companies, but institutional investors, to give appropriate consideration to and make fair disclosure of their policies regarding EESG issues, emphasizing "Employees" and not just Environmental, Social, and Governance" factors; giving workers more leverage by requiring all societally-important companies to have board level committees charged with ensuring fair treatment of employees, authorizing companies to use European-style works' councils to increase employee voice, and reforming labor laws to make it easier for workers to join a union and bargain for fair wages and working conditions; reforming the corporate election system so that voting occurs on a more rational, periodic, and thoughtful basis supportive of sustainable business practices and long-term investment; improving the tax system to encourage sustainable, long-term investment and discourage speculation, with the resulting proceeds being used to revitalize and green America's infrastructure, tackle climate change, invest in American workers' skills, transition workers from carbon-intensive industries to jobs in the clean energy sector; and taking other measures, such as reform of corporate political spending and forced arbitration, to level the playing field for workers, consumers, and ordinary investors.
Deaths of Despair and the Future of Capitalism
- "The flaws in capitalism that are fatal for America's working class."[19
Case and Deaton tie the crisis to the weakening position of labor, the growing power of corporations, and, above all, to a rapacious health-care sector that redistributes working-class wages into the pockets of the wealthy. Capitalism, which over two centuries lifted countless people out of poverty, is now destroying the lives of blue-collar America.
The Welfare State Should Be More Than Just A Safety Net
- "We should ditch the 'safety net' metaphor for the welfare state. and instead think of it (in its ideal state) as a floor or foundation; a permanent support structure that everyone builds their lives on top of."From Baghdad to Kyiv to Haiti, people everywhere are rising up. The U.S. is a big part of the problem.
- "Mass protests engulf a stunning number of nations on every continent. The common link? Corruption. America has enabled this."[22
]"Avoiding Plutocracy Would Require a Political Change": Branko Milanovic on the Future of Capitalism
- "In an interview with ProMarket, CUNY Graduate Center economist Branko Milanovic discussed the differences and similarities between US-style and China-style capitalism and explained why, without major reforms, liberal capitalism could lead to plutocracy."[25
There is also an important similarity that might lead to a convergence of the two systems. In the "end of history" or "why nations fail" literature, the convergence is basically seen unilaterally: the terminus of history is liberal rule-based capitalism. But I think a very different convergence can be imagined, and I discuss it briefly at the end of the book.
Document Number Nine
With the current movement toward plutocracy in liberal capitalism, you have rich people who are able to influence the policies of national governments. Essentially, economic power gets conflated with political power. In the case of political capitalism like China's, it is political power that is often transmuted into economic power. The outcome in both cases may be the same: the concentration of both political and economic power in the hands of an elite.
- "China is about to become something new: an AI-powered techno-totalitarian state. The project aims to form not only a new kind of state but a new kind of human being, one who has fully internalised the demands of the state and the completeness of its surveillance and control. That internalisation is the goal: agencies of the state will never need to intervene to correct the citizen's behaviour, because the citizen has done it for them in advance."Preventing Digital Feudalism
- "By exploiting technologies that were originally developed by the public sector, digital platform companies have acquired a market position that allows them to extract massive rents from consumers and workers alike. Reforming the digital economy so that it serves collective ends is thus the defining economic challenge of our time."[28
]Three Big Things: The Most Important Forces Shaping the World
- "The three big ones that stick out are demographics, inequality, and access to information."[31
]Neither law nor machines eliminate the role of human judgment which exists at every step of the governance structure
- "Thus, we need more diverse decision-making structures with a wider array of perspectives and voices that enables us to focus on what is a core mission — to educate and create knowledge that makes a better world."