Mark Supply Agreement Made Easy

Mark interest transfer agreement

[Music] hello i'm mark blyth i'm the director of the rhodes center for international economics and finance at the watson institute at brown university and this is the road center podcast on this episode i talk with brett christopher he's a political economist and author of rentier capitalism who owns the economy and who pays for it in his new book brad explains how neoliberalism and financialization have led to an explosion of rent-seeking businesses in sectors ranging from finance and natural resource extraction to social media and hospitality and while this roni economy allows some companies to thrive brett argues that it mostly stifles innovation hurts competition defangs of what's left of organized labour and leads to low growth and low investment in brett's view this new model of capitalism is one of the key economic challenges we face after reading his book you might agree it was a great conversation so without further ado here it is hello brett how's it going it's going well mark it's nice to see you or at least nice to hear you exactly so um you wrote this book that where you said to me there's an awful lot of rent out there i had no idea how much until i read the book so just break it down for people who really don't think this way what's a rent what's a wrong to you yeah so the three kind of categories that i work with in the book so one is rent as you say the second one is rontier and then the third one which is obviously the title of the book is rontier capitalism and so to start with the kind of the core category which is the category of rent what i suggest in the book is that we can think in terms of two main understandings one of which is most common within mainstream or orthodox economics which thinks of rent in terms of excess so rent for mainstream economics is the excess occasion by any departure from a competitive market scenario now for heterodox scholars rent is income derived from ownership or control of a scarce asset of some kind and then originally in kind of classic economic theory there was only really one such asset which was land so land is the quintessential classic rontier asset but what various people who have written about rent and ronterism from this perspective have argued is that since then there's been a kind of proliferation of types of assets over which control enables the owner or controller of that asset to generate income and really the book is about showing that proliferation and really showing how those different types of assets and different types of rents have come to dominate the uk economy but the reality of the economy today certainly in the uk is that far and away the biggest rontiers and far and away the most dominant and important rontier income streams and not those accruing to individuals they're those accruing to companies so it's corporations that are the big rontier interests today and then last of all rontier capitalism is the situation you are in when capitalism becomes predominantly about rent and rentiers so a renter economy a renter capitalist economy is a run is an economy really structured or scaffolded around these key types of assets and the income streams the rents that they generate so two words that come to mind in this conversation the first one is neoliberalism right and the other one is the f word financialization and what you're actually able to do in the book which i think is one of the nicest moves is to say actually yes neoliberalism is a process it's how we've created these assets that we now are able to generate all these rents from and that's taken an outside position in the uk economy then there's the whole notion of financialization americans love financialization because you know credit card nation on a micro level stock buybacks on a macro level all the rest of it but you say actually financialization's just in a way the leading edge of wrong tierization can you give us a little bit of color on that tell us how that fits how you would think about those complex of issues so you're right i mean i think the book while the book is about wrong and wrong terrorism it's also it is also about financialization and neoliberalism and i think that those three things though often you know often they get thrown around pretty indiscriminately and often kind of to stand in for one another certainly in my interpretation they mean different things so if we think of the development of the capitalist economy towards becoming more and more dominated by rent and renters then that if we want to use the term can be thought of as a process of run tierization well one of those types of assets and rents that have clearly become more important across the capitalist world not least in the uk is financial assets and financial rents and certainly not all but when a lot of people write about so-called financialization what they're talking about is the development of an economy that is more and more dominated by financial assets and by incomes generated through financial channels it is probably the leading edge so it's kind of been the kind of in in a way the kind of pioneering um vector of broader volunteerization so that's financialization so sure financialization is important but it's part of a broader process rather than than the totality thereof neoliberalism and i guess what i'm arguing in the book is that we think about neoliberalism as kind of as a field of ideology and practice and policy and governance that has emerged over the last 30 or 40 years then it's that kind of matrix that has helped put in place the conditions of possibility of over on theorization so it's a really near liberalism has been kind of the soil the the ideological and policy and political soil within which ronts have flourished over that period and so our question i try and ask is why has the uk been such fertile territory um for the development of volunteer capitalism and the answer is that well the uk has been fertile territory for neoliberalism and a lot lots of the types of developments that have um have led to the emergence of this frontier economy are precisely what we call neoliberalism so what you basically point to and what other people like thomas philippon and others have pointed to is the fact that capitalists hate competition but capitalism thrives on competition competitive markets drive down margins make firms more efficient create possibilities for innovation and competition and if you're actually a firm you don't want any of that you want to be the only game in town monopoly or monopoly you want barriers to entry and you want people to basically have to license what you've got without you ever giving up that's the core of it now let's do a walk through the key sectors of the uk economy in this way start with north sea oil well if you want to understand rontier capitalism i suggest that the way to do that is to go into company accounts and look at balance sheets and if you go to the balance sheet of big natural resource companies whether they're oil and gas companies or whether they're copper mining companies or whatever else it might be if you go to their balance sheets what you find are pages and pages and pages of so-called reserve statements and reserves are essentially natural resources over which they have secured some form of right of control to explore and extract and process that material through agreements with mineral rights owners and they've come to some sort of agreement also about any taxation that will be applied now in the uk what happened in this in the in the 1970s in particular that carried on through the 1980s was that the uk government really put in place this almost ideal so-called fiscal regime whereby the natural resources lying under the north sea were turned into incredibly valuable reserves for a very very small number of major oil and gas companies in terms of cheap or free rights of exploration in terms of very very long concessions in terms of having to pay you know lower rates of petroleum taxation than almost anywhere else in the world but really north sea oil was crucial to the development of the uk political economy not just the economy in the late 70s and the early 80s for all sorts of reasons you know the the most superficial reason was that it started generating a lot of income so in terms of gdp and so on it became more important in in that kind of very simplistic measure but i think more fundamentally it was important because it enabled the thatcher administration to weather the storm uh that was unleashed by um the i guess the deindustrialization of the heartlands and also the the the attack on the mining communities as well i think there's a really open question as to whether the shift from uh whatever you want to call what came before towards a more neoliberal uk and the economy would have held whether it would have uh survived in the form that it did if it wasn't for what was occurring in the north sea and the relationship between the north sea and the rest of the political economy and so not only did i guess the natural resources rontier domain emerge as kind of a quintessential case of capitalist ranterism but in a sense it was structurally important to the rest of the development of the uk economy as well so let's move on to the next sector that you talk about it's also quintessentially british in the way that we think about it now which is finance so essentially um as i've written about elsewhere many people have written the whole point of the big bang the whole point of financial regulation in the minds of the conservative government of that period was not to de-industrialize the country it was in a sense to free up flows of capital to reinvent british capitalism and of course what happened was the huge growth of finance the de-industrialization of the country and then the consolidation of the industry into basically four banks whose asset footprint is four times gdp now i always think that if mrs thatcher were still alive and could actually see this process unfolding she probably would have been horrified because that's not what was meant to happen but that is what's happened now here's the interesting finding and it's kind of common sense and everybody will get this one but you you nail it very well so here's the thing interest rates have been falling since well depends on whose paper you look like but forever inflation is nowhere to be seen essentially since the financial crisis big british banks have been able to borrow at zero why am i still paying 22 on a credit card isn't that pure rent-seeking this was in a sense the kind of the the puzzle i was trying to solve or at least offer some sort of answer to in that chapter which was as you know it was to go back to keynes and keynes wrote about ron tears but he was talking specifically about financial wantees that was his narrow definition thereof and cain's as many listeners i'm sure will know basically made the argue that if you increase the supply of capital sufficiently the rontier the individual company that exists by exploiting the scarcity value of capital will no longer be able to thrive in the way that they did in the past but obviously the supply of capital has increased enormously in the period since then and has done so as you pointed out in recent years at any rate to the extent of pushing down interest rates to near zero and real interest rates to well below zero and yet if you look at the income statement of big british financial institutions it's still dominated by interest income and what you see is around the time of the financial crisis when lending rates for banks stayed high and borrowing their borrowing rates plummeted so basically they've opened up this huge spread between the rate at which they're able to borrow and the weight the rate at which they're able to lend and it's that that has enabled the classical financial wanted to stay in business and and i guess the simple argument i make in the book is that we can only interpret that in terms of power we can only interpret that in terms of an inordinate amount of market power that is held by those major financial institutions and certainly if you look at any kind of crude measures of concentration of assets for example since around 2005 to today asset concentration in the british financial sector has increased massively so let's move it to a couple of sectors that people are familiar with but they don't really think of as a rentier paradise right so you finance obviously carbon leases you can kind of intuitively see why this is about winner take all monopoly whatever right but people are now very concerned with digital platforms but you make a really interesting point at the beginning of this chapter which is well this is actually just one type of platforming you know the basic business model that is involved there is nothing new to the digital world you know this is basically about controlling the platform whereby capitalist trade of various types takes place so it's about controlling the relationship the interface of the relationship between different parties into trading with one another whether it's advertisers on on google's various properties trying to interface with people they want to see their adverts or whether it's owners of shops or people running shops that are trying to interface with the people that visit the shopping centers we're all fundamentally about control over the spaces of trade and you know in google and facebook what they are trading in is consumer attention their customers are you know something like 99 of of facebook's um revenue comes from advertising and and i think google's is only slightly less than that um but basically they are trading consumer attention that's what they're doing um and uh as as various people who have written and i and i kind of summarized this work it's certainly not new work by me in the book is that there are all sorts of really powerful reasons why once um businesses in the digital platform space begin to to develop a market advantage begin to develop leadership it becomes impossible for anyone else to compete and you'd often hear people talking about things like network effects and economies of scale and economies of scope and so on and i i discuss those issues at some length in the book um so yes digital platform the ownership or control of a digital platform is absolutely the control of a scarce asset that generates income you you make money from trade between other parties because you control the asset through which that trade takes place but this also goes much deeper so let's delve into a couple of other sectors a large part of mcdonald's profits doesn't come from burgers it comes from building the restaurant and then getting the rent payment literally the rent payment from the franchisee who is already paying you a franchise fee and ultimately the way that that franchise is going to make that money is by basically trying to minimize their costs which ultimately means this is a put at the end of the day on labor and this is something that you begin to see spreading through the whole economy another example in the book is on hotels let's see you think you walk into a hilton hotel a hilton owns hardly any buildings so other investors pool together and then buy or rent buildings and then subcontract all the services so someone may have a hilton badge when they're letting you into your room in your hotel but they're about 10 times removed now there's this wonderful quote from an outsourcing lawyer that you have in the book where he says well if it wasn't about basically squeezing labor there would be no point in doing this model do you see this as basically an unstoppable force it's like an acid eating through the economic structure of the country once you start on this train it just keeps going it's very very hard to see how the uk digs itself out of the of the rontier capitalist hole into which it sunk itself i think there are all sorts of i think there are all sorts of good reasons for that and i think and i like the way you describe that sort of sub-contracting of wanteers to other volunteers because i think that that's absolutely the way it works um and you also write that you know the the whole outsourcing story is certainly is certainly a part of the books for those that don't know much about this field the uk has been really the kind of the pioneer of what we can think of as neoliberalism terrorism of outsourcing whereby companies outsource pretty much everything they can outsource to others but also the public sector does that as well and the public sector is far and away the biggest contractor out and those contracts that it contracts out through become the prized assets of outsourcing companies and what i argue in the book is that kind of perversely outsourcing becomes more about winning contracts than it does about actually fulfilling them and sure you have to keep fulfilling them in order to keep winning contracts but you certainly can't fulfill one without winning one in the first place and the people that are really prized and elevated at those companies and not the people that fulfill them you know that clean the streets under the street cleaning contract it's the people that win the 20-year multi-billion dollar contracts and those become the assets and again you just have to go back to the balance sheets of these companies and look at the look at the balance sheet statements under assets and it's these contracts and it's about the ability of these companies to re-win these contracts the the renewal rates the average contract length those are the key metrics on which these companies are being judged because the city recognizes that that's what they are that's what their assets are certainly ain't the people that are doing the that are doing the contract fulfillment absolutely i think that's an important part of the story of the book and and certainly the the labor or worker related implications of ronterism are as visible in that sector as in anywhere else of the economy for precisely the reason that that that employment lawyer that i cite uh pointed out if you can't squeeze labor by outsourcing then why bother why bother outsourcing so this is an explanation then that not only allows us to get a handle on why the economy has become so concentrated across sectors why in those concentrated sectors profits are high but wages are low which speaks of debates on inequality it also tells us about falling productivity because the major metric for this is labor productivity but really that's a bit of a cannot because labor productivity depends upon actual capital investment and if i'm around here the whole point is sweat the asset it's not innovate it's not do something different it's swept the asset as much as possible which is the process you've been describing so we have falling investment and therefore following productivity rising inequality in incomes but crucially also in profits and in wealth all of which sums to slow growth some people focus on inequality some people focus on productivity you say if you want to understand why it is that rich countries are slowing down part of it may be demography part of it may be bad policies but a very large part of it's probably the degree of wrongtism that's in the economy as a whole yeah no if you want to understand kind of the increasing woe within the uk economy um that much of it can be understood in terms of the uh the shift towards run tierization obviously it doesn't account for everything but i think that all of the major trends that we have we have seen can be substantially explained in terms of the intensification of this frontier economy i mean in terms of what can be done i mean i think what i do in the conclusion is i point to four areas which are certainly connected to one another but where you know meaningful steps certainly could be taken that would i think lead to some form of of incremental um ameliarization of the situation so one of those is probably not surprising is competition policy and i and one of the arguments i try and make in the book is that one of those important reasons for doing that is not necessarily just to aid consumers but it's about helping workers as well you know there's lots of good work that's been done in recent years about monopoly rather than monopolies that the fact that market power exists in uh markets where companies buy service as well as as well as the where they sell products and services and particularly where they buy labor and it's no it's no surprise to my mind at any rate that um some of the most monopsonistic sectors in the uk economy happen to be volunteer sectors water utilities mining and so on i think if you used competition policy in a way in a much more aggressive way than has been the case in the uk over the last three or four decades you can definitely do things to reduce the the ability uh to for rent seeking the second area is the tax system so the tax system could be hugely um beneficially reconfigured to um to make life more difficult for volunteers and i think if you make life more difficult for ron to use in a sense you incentivize companies and individuals potentially to actually invest in non-volunteer activities and then it boosts government coffers as well and that i guess leads on to the third thing that i talk about um which is government investment you know i think that relying on an economy that is led by private sector investment um has it has been shown to be you know very a very problematic path in the uk and i think given some of the significant challenges ahead um you know a greater role for government investment so not just in terms of government nudging private sector investment in in particular directions but the government actually taking up the mantle itself and becoming heavily involved in investment and as a kind of an entrepreneur itself you know people like mazakata have written about that i think is also very important and and then the fourth one and i guess in a way the most important one of all would be ownership changes you know a volunteer economy is is an economy in which private sector ownership of all assets is become sacrosanct where it's the default um ownership status for more or less everything that can be thought of as an economic asset you know so one of the reasons why there are you know where we started this discussion you know there's a heck of a lot of rent out there well one of the reasons there's a heck of a lot of assets out there that weren't private sector assets 40 or 50 years ago because land infrastructure assets whatever else it was spectrum was owned by the was owned by the state so a change in ownership away from the private sector being the kind of default owner so the assets can be owned also by the public sector but i don't think it should ever be a sort of a straight public sector versus private sector thing i think the the the conversations moved on from that you know we need to be thinking about worker ownership of companies we need to be thinking about community ownership of land rather than thinking in terms of kind of dogmatic um one side or other is is is i think a much more productive and useful way of of going forward and also more politically viable so just to close it out then well i will try and summarize it this way you first of all you need a bunch of assets that aren't recognized as assets you need to turn things into assets and you need to basically privatize liberalize integrate globalize and do all the things but particularly privatize you need to create a stock of private assets you need to have a legal regime that not only empowers iprs and other monopolistic protections you need to have a legal regime that allows the a very easy extraction of rents correct this of course boosts the value of the assets ever more so you become ever more valuable in doing this and you just then put the icing on the cake by not paying any taxes and that is that's it this this is your picture of the uk economy now when we talk normally about the uk economy none of those features right it's about skills and it's about mobility and it's about the efficient use of capital and it's entrepreneurship and it's new products yeah and what you're saying is that's just nonsense none of that i mean that stuff may be going on but the real story is here asset volumes rent extraction rent levels asset values tax avoidance that's what it's really all about that's the core it is absolutely right it's about creating assets for the private sector it's about making sure they are not subject to any meaningful competition and it's about making sure that the income that gets extracted from those can be extracted with almost no meaningful fetters in terms of taxation and so the uk i mean one of one of the people i cite in the book is the financial times journalist jonathan ford and he describes the uk as a renters paradise and that's exactly what it is i think we'll leave her at that point brett it's been great talking to you you too thank you very much mark it's a pleasure i'm really grateful for you taking the time this episode of the road center podcast was produced by dan richards for more information go to watson.brown.edu rhodes thanks for listening you