The Rentiers Are Here
In the past few decades, the world's largest corporations have increasingly been extracting profits from the economy instead of generating them through innovation. Reversing this trend is essential for future growth and social cohesion; but it won't be easy.
GENEVA – Since the 2008 financial crisis, policymakers and international institutions have regularly expressed concerns about widening income inequality and its unwelcome political consequences. More often than not, they attribute the problem to “exogenous” factors such as global trade and new technologies.
While policymakers have intensified their focus on trade and new technologies, they have missed an even more potent driver of inequality: the endemic rent-seeking that stems from market concentration, heightened corporate power, and regulatory capture.
Rent, broadly defined, is income derived solely from the ownership and control of an asset, rather than from innovative, entrepreneurial deployments of economic resources. When the British economist John Maynard Keynes anticipated the “euthanasia of the rentier” in his 1936 book The General Theory of Employment, Interest and Money, he was referring to a financial class that served no purpose other than to exploit scarce capital for its own benefit. But over the last three decades, financial rentiers have taken their revenge. Through private credit creation and financial alchemy, they have amassed huge gains that are wildly disproportionate to the social return of their activities.