I’ve finally found the perfect description for our late-capitalist, neoliberal milieu–predatory value extraction.
At Naked Capitalism, Hubert Horan examines the business model of Uber and finds that it represents the larger US political economy, where everything has been subjugated by Wall Street. He also discusses how Didi, the Chinese equivalent, has been treated in a far different manner by the Chinese government. Because this article is quite pertinent to my ongoing series on neoliberalism and the financialization of the US economy I’m going to quote big steaming chunks.
Horan says that, “US macroeconomic policy prioritizes the ongoing appreciation of equity values and a number of other similar asset classes. This has crippled the ability of capital markets to evaluate and price risk and has broken the link between corporate values and the creation of economic welfare benefits. No one cares what causes stock prices to go up as long as stocks go up, and the higher up they go the better.
Since it is far easier to boost stock prices by eliminating competition and exploiting workers and consumers than by developing new technologies or management processes that improve efficiency and quality, innovation declines while predatory value extraction increases. The financial world becomes dominated by artificially manufactured narratives, a far easier way to pump stock prices than complicated analysis of economic fundamentals.
This focus on equity appreciation is also largely divorced from any industrial policy considerations. As long as the stock market keeps rising it does not matter if massive investment has been funneled into the production of cat videos or if an excessive focus on short-term stock prices have crippled the semiconductor and aircraft manufacturing industries.
Years of non-enforcement of routine laws and regulations under laissez-faire, and the ability of a handful of tech companies to achieve unprecedented sizes produced an outcome where both political parties strongly support the interests of the tech industry. This effectively blocks policies (e.g. tax rules, labor laws) that could materially hurt the tech industry. It also means that it is virtually impossible to address externalities created by these policies. These include things like the rapid growth of inequality, the destruction of traditional channels of political discourse and the rights of individuals to privacy and to control their personal data. It also includes the awful, widespread fallout that would result if (when?) the Everything Bubble created by these policies bursts.”
Horan says that China, under the Communist Party, is determined to take a far different course. “Beijing may have come to believe that a system where the Jeff Bezos’ Mark Zuckerbergs and Travis Kalanicks of the world were given unfettered freedom to flaunt any rules they didn’t like may not have been producing efficient outcomes for the rest of society. It is one thing to allow investors who have developed major product and efficiencies to become rich, but a quite different thing if those investors suddenly capture previously unimaginable levels of wealth without actually improving overall economic welfare.”
What’s funny, in a perverse way, is that we’re only having this discussion about predatory value extraction, indirectly, because the Chinese government hasn’t been captured by the financial and tech industries like ours has. Of course, the corporate media is blaming the evil Chinese Communist Party for reining in the predatory value extraction in their tech and financial sectors. The horror. They should be more like us. Freedom and democracy.
Instead, Horan relates, “the tech industry plays a much different role in the economy in China than in America. When US tech companies were boosting their wealth and power into the stratosphere they were following a path that finance and other industry had already laid out. In China the Communist Party retained strong control over banks and most other major industries. The tech industry represents the breakthrough case where private capital accumulators could achieve enough power to circumvent or thwart central government policies they didn’t like, and industry leaders clearly wanted to entrench a US-type approach. This was the point where Beijing had to decide whether to reestablish some type of meaningful control, or allow the tech industry to pursue increasing US-style laissez faire freedom.
As the manager of the Chinese economy, the CCP appears concerned that giving greater control of the tech industry to more independent, less accountable people could undermine its ability to manage other parts of the economy. Much of the power and growth of the “tech” industry stems from the Alibaba and Tencent financial payments companies. Beijing may be fearful that increased power and independence could limit Beijing’s ability to control its currency and trade policies, or to fix problems with its fragile shadow banking system or to funnel capital to industries (such as semiconductors or Belt and Road investments) deemed to be major development priorities.”
You want to know the funny thing? China is doing, vis a vis its tech sector, what America used to do, under Teddy Roosevelt. Back then it was the Rockefellers and Carnegies and Vanderbilts, the muckraking press described as Robber-barons, who were reined in, (somewhat), by anti-trust legislation. That that was then and this now is approximately how far we’ve come on the road to oligarchy. Imagine if we could reign in the Zuckerbergs and the Bezos and the Kalanicks who are looting our country, while we watch helplessly? People like that would help let their own country degrade into a medieval slum so long as they were fabulously wealthy and powerful. Imagine if we could have sent them to a re-education camp like the Chinese Communist Party did to their enemies during the Cultural Revolution?
Instead, the US has embarked on a new Cold War with China because they are not following the “rule based international order”. I know, at this point I wonder how they keep a straight face. That’s the cover story, anyway, but Horan’s account only confirms that the real reason is that–the US attacks or overthrows foreign governments because they won’t allow our predatory banks subvert their economy.
Horan also strongly implies that US policies toward the tech industry involve elite impunity. (I know, huge surprise). “When Travis Kalanick blew off every inconvenient law and regulation, he was completely in line with the laissez faire policies that that national elites wanted. Uber’s investors were not only single-mindedly focused on personal enrichment but were focused on achieving corporate valuations wildly beyond what anyone could have ever imagined for a taxi company. Instead of stopping and asking for evidence as to how this might be possible, those elites became fanatical supporters. The sole objective of business was to create massive equity values. No one cared whether some of those personal gains might come from suppressing driver wages or openly destroying competitive alternatives. No one cared whether capital has been misallocated from much better uses. Both political parties were in full agreement that Uber was a wonderful company.
Uber has continued to survive despite terrible economics because it was the poster child for the elite policies that demonized any government oversight of business and lionized the monomaniacal pursuit of capital accumulation. Membership in those elites required fully supporting those policies, just as membership in Chinese elites requires a full commitment to support the policies of the Communist Party. Despite $25 billion in losses, no one from those elites can admit that Uber might have massively reduced overall economic welfare, because that would require admitting that their overall worldview was badly flawed, and their status as elites might have been illegitimate.”
Critics claim that the US doesn’t have an industrial policy but they are missing the elephant in the room. Our government has been captured by Wall Street and our industrial policy is predatory value extraction.