I review Joel Kotkin’s The Coming of Neo-Feudalism.
The consolidation of economic power in Facebook, Apple, Amazon, Microsoft, and Google has been sudden and striking. It has confounded those of us who looked at the Internet revolution as a phenomenon that would empower smaller enterprises by decreasing the importance of physical capital.
Shouldn’t the term feudalism be reserved for state enforced monopsony in regional labour markets?
Serfs tied to the land in Tsarist Russia would be feudalism but big tech is not.
You could reasonably say that feudalism is characterized by ownership of the vast majority of a society’s productive capital (formerly land, now more varied) by a small elite that also controls its political systems.* So the future could well be trending toward feudalism, by a reasonable definition.
*The elite may rise from the military and use force to seize assets or may rise from business and use wealth to gain control of political structures. Either way, the end result is similar.
That’s feudalism in the modern vernacular sense of the term. Actual historical feudalism (in Europe at least) wasn’t just ‘a few rich people own all the land.’ Ownership of land by aristocrats was tied to hereditary titles (duke, count, etc.) with political authority enjoyed at the leisure of the king, who technically owned everything, and thus buying and selling of land was heavily regulated (indeed often prohibited outright) even between aristocrats or from aristocrats to commoners.
Nobody is suggesting that the future will exactly re-capitulate historical feudalism, just that it may share significant commonalities. That’s why it’s “neo”-feudalism.
One of those commonalities will likely be hereditary transmission of power. Powerful parents will always try to pass their advantages on to their kids; that’s one of the most reliable rules of human nature. Social positions often start out as open to all who earn them but get captured by their incumbents and become hereditary.
Excellent review.
As Dr Kling writes, the book ends with a whimper, without any real solutions advanced. And the apparent impending demise of the bourgeoisie is indeed a threat to innovation and democracy.
So what explains both the rise of the tech industry as well as the threat it imposes to the bourgeoisie? After all, an economy is not a zero sum game.
The success of one industry does not necessarily have to take away from other industries. So what is the actual means of this “redistribution of wealth “ as Kotkin writes? And what why do we have a situation leading Dr Kling “It has confounded those of us who looked at the Internet revolution as a phenomenon that would empower smaller enterprises by decreasing the importance of physical capital.”?
What can explain both the concentration of wealth in the tech industry and the absence of any empowerment to domestic small enterprise?
One obvious answer is the uniquely wretched and distortion-producing USA tax system. Incentives matter and the horror show of mis-incentives produced by the tax system is never-ending:
*The crushing incidence of taxes on labor incentivizes off-shoring. Thus shrinking the tax base but not the demand for government services which must be shouldered by a smaller subset of the population in the form of higher tax rates further discouraging employment and small enterprises.
*What little people are able to save is nudged by 401k tax rules to be invested in index funds that favor equity in publicly traded companies who, being assured of a captive demand for their shares , need not pay dividends but instead devote revenues to acquisitions of smaller would be competitors and otherwise indulging their founders’ megalomaniacal impulses.
*Taxing profits exclusively leads the tech behemoths to over invest in acquisitions and adventuring their companies into all manner of sideline businesses for which they are ill-equipped to manage and grow but which they nevertheless crowd out opportunity.
*The tax code incentivizes public utility monopolies to adopt inefficient electricity generating technologies that increase the cost of power in many areas of the country further discouraging domestic investment and incentivizing off-shoring.
*Smaller enterprises have no real economies of scale on line so smaller enterprises that do endure remain tied to
physical capital and real estate that is taxed heavily while the virtual real estate of the internet has no property tax.
*And the USA’s massive accumulated debt and unfounded liabilities, along with its institutional inability to reform and modernize its tax system means any domestic investment is made under a cloud that limits up-side returns. Our mediocre public intellectuals are unable to comprehend any tax reform other than “soak the rich” and “carbon is bad, tax carbon.”
And so the promise of the USA withers.
Personally I would eliminate payroll and income taxes and replace with a VAT and a Georgist tax on virtual real estate. Far fewer economic distortions.
But that is too radical to be immediately persuasive, so how about looking around the world to examples we might learn from?
Canada has the happy situation that most of its public intellectuals move away to the USA so its people are largely able to exercise common sense and competence. Unsurprisingly they are successful. According to investopedia:
“According to the most recent numbers in 2019 from Credit Suisse’s annual global wealth report, Canadians’ middle class or median wealth of $106,342 outranked the same median income figure of $61,670 for Americans.”
What kind of taxes does Canada have? Generally payroll, corporate and income taxes are lower and are supplemented with a VAT, the Goods and Services Tax (GST) or the Harmonized Sales Tax (HST) varying by province.
Australia has a good pro-domestic growth tax system as well and its bourgeoisie benefits from a modern and competent retirement savings system. According to the same 2019 Credit Suisse report:
“High average wealth is combined with relatively low wealth inequality in Australia. The Gini coefficient is just 66% and only 7% of Australians have net worth below USD 10,000. The latter figure compares with 17% in the United Kingdom and 27% in the United States. The high average wealth boosts representation at high wealth levels despite the low inequality. The proportion of those with wealth above USD 100,000, at 66%, is one of the highest in any country and about six times the world average.”
See page 59: https://www.credit-suisse.com/media/assets/corporate/docs/about-us/research/publications/global-wealth-report-2019-en.pdf
I’d stay away from Investopedia as a reference tool. My only interaction with them has been from students referencing the site, but many of their economics articles are of very poor quality. Maybe the rest are fine, but there are definitely a lot of landmines.
Yes, I hear you. I went to the Credit Suisse report that they referenced but didn’t what they were saying about Canada in the report so I thought it was possibly something ginned up from the data book that was released along with the report. Table 7.1, page 162 of the data book shows median wealth per adult of US$117,093 for Canada and $65,904 for the USA. And table 7.5, page 168 shows that in Canada, the top 10% of adults have 57.9 percent of national wealth, whereas in the USA it is 75.9 percent. So the investopedia statement appears at least plausible.
Link to data book: https://www.credit-suisse.com/media/assets/corporate/docs/about-us/research/publications/global-wealth-databook-2019.pdf
Of course, the redistributive distortion in the USA tax system is compounded by the predatory price discrimination that allows the credentials peddling industry to appropriate significant shares of family wealth in the USA and spend it on non-productive activities with minimal economic returns.
Kotkin has been beating this same drum for years but his whole framework is a kind of fanciful and unfounded conspiracy theory of secret class war that lacks any rigorous demonstration.
As far as I can tell the only reason Kotkin gets as much amplification for this message as he does (in City Journal, American Affairs, National Review, etc.), is because it satisfies the demand for novel attempts to intellectually circumvent the ideological minefield. They are all too clever by half.
It’s another species in the genus “progressivus hypocritus” containing the equally impotent, “Democrats are the *real* racists”, and now Kotkin says they are also the real class enemies, the modern equivalent of some combination of landed aristocracy and capitalist exploiters.
Consider that perfectly accurate description of life in large parts of greater Chicago, San Francisco, or Detroit as “a depopulated ruin or a dangerous netherworld of crime.” However he defines “yeoman”, it is mostly not folks near the median that live in those places.
Now, which of these models sounds like the more realistic explanation
1. The rich and elite progressives live well in their tony suburbs and gleaming cosmopolitan towers and have provided for their own convenience and safety such that that due to greed and callousness and a desire to keep all the good stuff for themselves, they have no genuine interest in the welfare and security beyond their gilded garden enclaves, and so have a collective consensus to refuse to allocate sufficient resources of policing and education to those poor people, the lack of which provides the primary explanation for why they are doing so poorly.
2. The progressives have a completely insane view of the causes of crime and consequences for leniency, and since the late 1950’s have burdened the criminal justice system with absurd requirements and polluted the air with their racial hangups such that it has become impossible to provide basic law and order in many areas in an efficient and humane manner.
When areas start to get dangerous and local public schools become “Lean on Me” jungles, human capital that can afford it flies away and takes their social and financial capital with them, in a vicious cycle of “creaming” that leaves you with very low quality neighborhoods. Meanwhile the progressive political formula is such that the denizens of those ruins are great vote banks and while the lives of most of those individuals would be vastly improved by reducing crime to their pre-revolutionary levels, they are caught up in the false consciousness of wanting to be liberated from oppressive and racist law enforcement.
Meanwhile, “Average is Over” and most of the creation of affluence and new lucrative jobs are near the few Big Winner Cities, and so people who don’t want to live and raise their kids in ruins and jungles have to bid up the prices of real estate in quality neighborhoods to the very limit of affordability, which makes life much more of a financial struggle and erases all the surplus and gains of other economic and technological developments.
It used to be that the “quality neighborhood” contribution to the value of residence was minor and easily affordable because the state was able to provide this efficiently as a public good. The progressives got the state to give up on that, so it has become scare and thus so expensive so as to arguably dominate the prices of some real estate. Thus, “the struggle is real” and “the rent is too damn high”.
The “Neo-Feudalism” is feudalism thesis is truly dumb, but that’s the big problem we’re in. The whole point of all the third rails is to neutralize the possibility of opposition by intelligent, coherent argument. If you are going to try to argue, you have to use dumb, nonsensical arguments, just like the progressives do. Kotkin has risen to that challenge!
I am not sure that your model 1 of the city is an accurate description of how Kotkin sees the new elites.
Quoting from the book:
“The modern clerisy often claim science as the basis of their doctrines and tout academic credentials as the key to status and authority. They seek to replace the bourgeois values of self-determination, family, community, and nation with ‘progressive’ ideas about globalism, environmental sustainability, redefined gender roles, and the authority of experts. These values are inculcated through the clerisy’s dominance over the institutions of higher learning and media, aided by the oligarchy’s control of information technology and channels of culture.”
This sounds more like your second model.
When I read the following observation in the AEIdeas interview, ‘Why does Silicon Valley seem to love Democrats and dismiss the GOP? A long-read Q&A with journalist Greg Ferenstein’, in May of 2016, I remarked that this was a revitalization of feudalism.
“I found crucial to what is distinct between libertarians and valley folk that Silicon Valley’s ideology is pro-market but it is not pro-liberty. Liberty is not a value. They are highly, highly, collectivist. They believe that every single person has a positive obligation to society and the government can help people or coerce people or incentive into making a unique contribution.”
Socialism is really neo-feudalism. Feudal lords, who were granted the liberty to accumulate and use productive capital to generate wealth for themselves, with appropriate tribute to their king. For most of history, the grant of the liberty (capitalism) was restricted to the “high born”. Even the grants to the Church of lands for monasteries, nunneries, etc. came with the grant of the liberty to retain and use that which was in excess of subsistence to generate wealth for the order. The lower born were severely restricted in their ability to accumulate wealth for themselves. Always at risk of the “high born” appropriating what they accumulated. Under socialism, you need connections to accumulate wealth and power. Even then if you fell out of favor, all you had could be taken. That it is the name of the state, instead of the king, is of little consequence.
Social media has shown wealth can be accumulated on their “lands” only as long as they please and they will take what you’ve accumulated when they please. Fall out of line enough, and you are driven off the lands into the wilderness, but if you succeed, you risk them coming to acquire your lands before you grow big enough to resist.
They are in cahoots with the department of domestic spying. Hence both government and tech companies have permanent access to our data. The tech companies want ad income the government wants to prevent digital bearer assets., known as digital cash. The problem is a drag on the economy.
Internet services consolidation occurs because switching costs have become much smaller for online activities. Nobody is stuck with the second-best web-site or application for something, they can switch to the best almost effortlessly.
That means the “best” fit gets almost all the business, but it also means that as soon as, like MySpace or Yahoo, they are no longer the “best” for someone, that someone can switch to a new provider, so there are limits on their ability to take advantage of that position via actions which harm their customers.
Yes, this explains the seemingly paradoxical desire for the tech giants to welcome government regulation of the industry. Which is the greatest threat to your existence? A regulatory regime that will hinder your growth or a competitor that can make you the next MySpace?
I read Kotkin online from time to time. While he does have some interesting insights, I feel like he’s bringing along some baggage that he cannot seem to let go. He longs for the middle income blue collar town of days past that captures the imagination of many on the right and the left. (Being before my time, I’m not sure how much of this is real and how much is fantasy.)
With this as his ideal, his insights into what is going on today aren’t as helpful. This is probably why his book ends with a whimper. If you’re ideal society is perhaps fictional then it would be difficult to outline a convincing path to achieve it.