Cory Doctorow: Capitalists Hate Capitalism

In conflict, we find clarity.

We all hold contradictory views: We love our families, but they drive us crazy. We want more housing in our cities, but we don’t want our property values to decrease with expanded supply. We want better schools, but we recoil from a 0.1% municipal levy to fund them.

It’s normal to hold contradictory views, but when those views come into conflict, how we act shows us how these different views stack up in our own priorities. When the chips are down, you find out what really matters to you.

Take politics: One common refrain is that ‘‘I don’t even know what right or left even mean anymore, they’re just tribal identities.’’ Many years ago, I said something very like this to Steven Brust, who skewered me with his response:

‘‘‘Left’ and ‘right’ mean the same thing today that they’ve meant since the French Revolution. Ask someone, ‘What’s more important: property rights, or human rights?’ If they answer: ‘Property rights are human rights,’ they are on the right.’’

In other words, the right’s ideology holds that if you’re starving and I’m incinerating a bunch of bread that would save your life, my property right to my bread trumps your right to not starve to death. That may seem extreme, but every time you pass a shivering unhoused person in a city where apartments or houses are being left empty by speculators waiting for their value to appreciate, you’re living through a right-wing tradeoff, where the property right to a home as an asset trumps someone else’s right to a home as a home.

You can deplore starvation and recoil in horror from the prospect of someone dying of exposure on the streets of your city, but if you take the side of the owner of a vacant home over the right of the person sleeping on its doorstep, you’re taking the side of property rights over human rights. You value both human rights and property rights – but you value property rights more than human rights.

This isn’t just about politics – it also applies to economics. Last year, the economist Yanis Varoufakis published Technofeudalism, a book that argues that capitalism has been slowly replaced by feudalism, in a Twi­light Zone twist on the 150-year-old Marxist prediction that capitalism would someday destroy itself. For Varoufakis, the error he and his fellow Marxists made was in assuming that capitalism would be succeeded by socialism, rather than feudalism. For Varoufakis, capitalism turns out to be a transitional stage between feudalism, and… feudalism.

Varoufakis’s argument turns on an important distinction between two types of income: profits and rents. These terms have colloquial meanings that are widely understood, but Varoufakis is interested in the precise technical definitions used by economists.

For an economist, ‘‘profit’’ is income obtained by mixing capital – tools, machines, systems – with your employees’ labor. The value created by that labor is then divided between the worker, who draws a wage, and the capitalist, who takes the rest as profit.

‘‘Rent,’’ meanwhile, was income derived from owning something that the capitalist needs in order to realize a profit. In feudal times, hereditary lords owned plots of land that serfs were bound to, and those serfs owed an annual rent to their lords. This wasn’t a great deal for the serfs, but it also needled the nascent capitalist class, who would have very much preferred to have those lands enclosed for sheep grazing. The sheep would produce wool, which could be woven into cloth in the ‘‘dark, Satanic mills’’ of the industrial revolution. The former serfs, turned off their land, could be set to work in those factories.

Capitalists hated rents. Adam Smith, capitalism’s most important thinkfluencer, railed against rents, calling for ‘‘free markets.’’ For Smith and his contemporaries, a market was ‘‘free’’ if it was free from rents – not free from regulation.

For capitalism’s philosophers, the rent/profit distinction was key. Rents bred complacency and stagnation. The feudal lord got the same rents no matter what. There was no incentive to re-invest those rents in better agri­cultural tools or advanced training for serfs. If your serfs invented a better scythe that let them bring in the harvest in half the time, you, their lord, got no benefit from it. What’s more, the lord on the next estate over faced no threat from the competitive edge your serfs’ bold innovation conferred.

But profit was always subject to competition. For capitalism’s theoreti­cians, competition undergirded capitalism’s virtues. The fear of a rival taking your business with a product that’s better and/or cheaper sets the capitalist on a continuous hunt for efficiencies and in­novations that deliver better products at lower prices. The fear of a rival luring away your best workers – who are not bound to you the way that serfs were bound to their lord’s land – forces you to find ways to keep your staff happy and thus loyal.

To understand this distinction, think of a capitalist who operates a coffee shop that is put out of business by a newer, better coffee shop down the road. That coffee shop tempts away the capitalist’s customers, poaches their best baristas, and eventually the capitalist is un­able to pay rent and goes out of business. The capitalist is ruined.

But what about the landlord who owns the build­ing that the coffee shop once occupied? They’re great. After all, they own a building on the same block as the hottest coffee shop in town. They didn’t have to do any work, but the value of their asset went up, and the next capitalist who comes along will have to part with even more of their profits in order to pay the rent on that asset.

For Varoufakis, the digital era is defined by the primacy of rents over profits. Uber drivers invest in assets (cars), infuse them with labor (driv­ing), and pay a third to half of their income to the Uber company as rent for the app that passengers use to summon their cars. App makers create the apps that we use, but must give 30 percent of their income to Apple or Google as rent for being listed in their app stores.

Amazon, Varoufakis writes, might seem to be a vast bazaar where tens of thousands of merchants operate their own little storefronts. But in reality, a single company owns all those storefronts, and charges rent to the tune of half of every dollar the merchants bring in. Amazon decides which products we shoppers can see, and in which order, and whether certain items can be sold at all.

This is what Varoufakis calls ‘‘technofeudalism’’: the subordination of rents to profits. In his 2022 book Survival of the Richest, Douglas Rushkoff calls this ‘‘going meta’’: the contemporary business wisdom that prefers creating the platform to selling on the platform. Even better than creat­ing the platform is investing in the platform. Better still than investing is buying options on that investment. Best of all, is eschewing options for derivatives of options. Go meta.

Rushkoff identifies something important about the aspirations of capi­talists. Capitalists hate capitalism. They don’t want to be exposed to the risks entailed by competition, and feel the goad of that insecurity. They want monopolies, or platforms, or monopoly platforms. They want assets, not businesses.

They want to be able to fire employees at will – but they want those same employees to be bound to them just as surely as serfs were bound to their lords’ land. How else to explain the proliferation of noncompete ‘‘agreements’’ in American business, which locks millions of workers to their employers? The median noncompete subject works at a fast-food restaurant, where their employer has secured the right to destroy them if they switch from flipping burgers at Wendy’s to working the fry-trap at McDonald’s for an extra $0.25/hour.

It is not necessary for rents to displace profits entirely for our system to be called postcapitalism and technofeudalist. Rents and profits always co-exist. Long before the industrial revolution, there were capitalists who combined capital with their workers’ labor to derive profits. And of course, the industrial revolution didn’t lead to the abolition of rents.

Likewise, most technofeudalists earn profits in addition to rents. Applesells phones and creams 30 percent off the apps that run off those phones. Amazon sells its own goods and goods from independent merchants. Google sells phones and charges rent to adver­tisers.

The thing that determines whether a system is feudal or capitalist is how conflicts between rents and profits are resolved.

When the first factories were built, they were hamstrung by shortages of wool and labor, both of which were controlled by feudal lords. The feudal lords’ rent from lands and serfs conflicted with the capitalist’s demand for grazing land and proletarianized ‘‘free’’ labor. Adam Smith and his colleagues railed against this system, describing it as fundamentally unjust.

So long as Smith and co. were losing that fight, the system they operated under was feudal. The conflict between rent and profit was settled in rent’s favor, to the detriment of profit.

We tend to think of the industrial revolution as the triumph of machines – automated looms and steam-engines. But the industrial revolution was also about the defeat of rents. The enclosure of lands, the proletarianization of serfs, the subordination of rents to profits. The event that signaled the transition from feudalism to capital­ism was the reliable victory of profits over rents.

Today, rents reliably triumph over profits. Every business school advises tomorrow’s would-be corporate leaders to seek out ‘‘IP’’ – by which they mean, ‘‘an intangible asset that confers the right to control your customers, competitors, and critics.’’

Every expansion of IP is accompanied by the same excuse: ‘‘Who would invest in creating something new without the assurance that some­one else wouldn’t copy and improve on it and put them out of business?’’ Five years ago, there was a mercifully brief mania for independent genre authors seeking trademarks on shopworn cliches: one romance author took out a trademark on the word ‘‘cocky’’ in titles, then a fantasy writer applied for a trademark on ‘‘dragon slayer’’ in titles. The zenith of this silliness was an applica­tion for a trademark on any book cover featuring a human figure holding a weapon (no, really).

All these would-be rentiers sang the anticapi­talist anthem: ‘‘If I invest in this, why shouldn’t I be able to protect myself from competition?’’ In other words, they viewed the things they cre­ated as assets, not businesses. They wanted the feudal lord’s insulation from competition. Let the people who licensed these trademarks com­pete with one another – as far as these would-be rentiers were concerned, the first person to reach the US Patent and Trademark Office with a claim on ‘‘dragon slayer’’ acquired an asset, and with it, the feudal certainty of a cash in the form of ‘‘passive income’’ derived from others’ hard graft.

This is the same song we hear from defenders of noncompete agreements: ‘‘If I invest in train­ing an employee, they become my asset. Why should someone else get to earn income from that asset? It’s mine. Who will invest in creating skilled employees if a rival can poach that worker merely by offering higher wages and better work­ing conditions?’’

In their heart of hearts, capitalists know this isn’t true. After all, noncompetes are illegal in California, incubator of the majority of the world’s high-tech startups. Fairchild Semicon­ductor – who made the first viable silicon chip – was founded by engineers who defected from Shockley Semi. Then, eight of Fairchild’s top engineers quit and founded Intel. Both of these companies managed to find willing investors despite their inability to shackle their workers to noncompetes.

Likewise, the white-hot AI investment bubble has not been noticeably deterred by the possibil­ity that workers might hop from one employer to another. One of OpenAI’s most important competitors is Anthropic, founded by a brother-and-sister team who were formerly top execs at OpenAI. Not only that: When OpenAI’s board tried to get rid of founder Sam Altman, Microsoft offered to hire him – and 700 of his technical staff – away from the company. If AI companies can operate in an environment where PhD engineers can job-hop to rival companies, surely PetSmart can survive the departure of pet groomers for competing salons.

And yet, PetSmart has perfected a new form of modern serfdom, by levying four-figure penal­ties on workers who quit, nominally to recoup the cost of training them to do their jobs. These ‘‘training repayment agreement provisions’’ (TRAPs!) seek $5,500 repayments from work­ers who quit, get laid off, or are fired within two years of their start dates. The four-week training course this $5,500 nominally pays for only lasts three weeks, and consists primarily of unpaid janitorial work, as trainees sweep the floor.

The point of a TRAP isn’t to recoup costs, and the point of a noncompete isn’t to keep valuable trade secrets from walking out the door. The point of both is to bind the serfs to the land, to convert from a profit-generating enterprise to a rent-generating one.

When rents and profits clash in today’s economy, rents are apt to emerge triumphant. Take patent trolls, firms that register low-quality patents with the USPTO on things like ‘‘sending a job to a printer over WiFi’’ or ‘‘tapping a screen to open an app.’’ These firms have a friendly venue in the Eastern District of Texas, where low-rise dusty buildings are home to thousands of ‘‘busi­nesses’’ that consist of a serviced mailbox and a claim to rents from productive businesses (that is: ‘‘a patent’’).

These patent trolls extract rent from profitable firms. When a patent troll takes Samsung, Apple, or Google for hundreds of millions of dollars in the Eastern District of Texas, that’s rents beating profits. The patent troll makes nothing. Its only product is lawsuits.

While the Big Tech companies the patent troll gets those eight-figure judgments against also extract rents (from their own IP portfolios, their app stores, and their other chokepoints), the judgment here is specifically a transfer from profits to rents. Remember, an economy need not abolish rents to be capitalist, and the existence of profits doesn’t mean a society can’t be feudal.

Technofeudalism isn’t exactly like feudalism (for one thing, under feudalism, lords were obliged to muster men-at-arms for the king – this is more like manorialism). ‘‘Capitalist’’ doesn’t exactly mean someone who only gets profits and never rents (the more precise term for a profit-seek would be ‘‘entrepreneur,’’ while a rent-seeker is a ‘‘rentier’’). But analogies are never precise – they are analogous.

Capitalists have always hated capitalism. Who wouldn’t want to get off the competitive treadmill? What capitalist wouldn’t love to stop watching over their shoulder for upstarts wait­ing to put them out of business? Any executive would prefer a world where your workers stayed put because they weren’t allowed to leave – not because you figured out how to inspire their loy­alty. Any executive would prefer a world where your income wasn’t tied to your ability to make your customers happy by making better things at lower prices.

That’s why Warren Buffett has such a heroic priapism for investments with ‘‘moats and walls’’ that prevent other companies from competing with them. He’s an old guy. He wants to take it easy. Who wants to compete for profits when you could have rents rolling in every month as others – capitalists seeking profits and workers toiling for wages – improve your assets?

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All opinions expressed by commentators are solely their own and do not reflect the opinions of Locus.

This article and more like it in the February 2024 issue of Locus.

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