No. 4: April-June 2012

Ahmed Henni

Rent Capitalism

Academic Foresights

How do you analyze the present status of rent capitalism?

The current situation is characterized by the domination of rent-earners and the upstaging of manufacturing activities. After building up a powerful material force thanks to industrial capitalism (1850-1970), developed countries have imposed their monetary sovereignty on the world (1971 in the case of the United States of America). This has allowed them to issue as much money as needed to buy foreign goods with paper and to borrow and consume without limits. This monetary seigniorage makes it possible to consume without producing and to live on credit owed to the rest of the world. It is an annuity. The process of material production is thus relegated to some exotic countries (e.g. China). The money in these rents deriving from the exercise of an undisputed sovereignty over the world and guaranteed by unprecedented military strength is supplemented by other rents which are linked to currency movements and are amplified and multiplied by electronics. In turn, the security of currency movements requires a sovereign hegemony forcing other states to let the income and capital flow in and out freely.

Such a freedom ultimately provides the opportunity to invest and get people to work all over the world while safely repatriating the profits. That is why industrial companies can globalize by splitting up their production cycles across different countries. The result is a de-industrialization of a few countries getting rich on sovereignty benefits. While their manufacturing industries decline, they are replaced by high-level scientific rent-seeking activities that allow them to reap royalties on patents (software, molecules, etc..). Therefore, the monetary seigniorage rents initially generate financial, scientific and cultural annuities through a powerful guarantor of various sovereignty rights.

In your analysis, how will the situation likely evolve over the next five years?

One might have thought that a globalized world would be divided into two spheres with, on the one hand, rentier countries with a hegemonic monetary sovereignty (USA, Europe) deriving their wealth from military power, monetary seigniorage, strong financial systems and scientific and cultural creative strengths and, on the other hand, so-called emerging countries where manufacturing would be relegated and where only material production would be confined. Such was the case until the 1980s when the "dragons" (Japan, Taiwan, Singapore, Hong Kong) simply copied products.

That is no longer the case. In China, one can now observe a momentum similar to that experienced by war-torn European countries which reconstructed themselves by first copying and which, from the 1960s on, entered an innovation economy and started to compete with the U.S. in the fields of aviation, automobile, chemical industry, etc. Not only does China copy U.S. products, it also copies America financially, culturally, scientifically and militarily. In the next five years we can imagine that, through their military superiority, the United States will still retain their monetary seigniorage and the annuities that come with it, and that, in the absence of hegemonic power, Europe will find it difficult to maintain its euro-related sovereignty rents and will be forced to align more with the United States; and, finally, that China will partially enter into the world of technological rent, without being able to draw financial and cultural rent. It is the European situation that generates the most pessimism. Although it is in a similar situation, Japan remains a country of material production, which is not the case for the Eurozone.

What are the structural long-term perspectives?

If these trends continue over time, changes in the economy of patents and knowledge will be observed. China seems to move towards an intensification of its research efforts in all sectors. Russia may also emerge in this area. But within the next twenty years, these two countries will not yet be able to construct globally attractive banking and financial systems or arouse the enthusiasm of people worldwide for the Chinese or Russian cultures. Nor will they, over the same period of time, be able to build a hegemonic sovereignty over the world with military forces able to intervene anywhere and everywhere to bend those who are recalcitrant to their knees. Monetary seigniorage will remain a matter for the United States. However, they may have to restrict its dimensions and give it some limitations.

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Ahmed Henni holds a PhD in Economics from the Pantheon-Sorbonne University in Paris, France. He is Professor of Economics at the Université d’Artois, France. As a specialist in monetary and fiscal matters he has served as Director General of Taxes in Algeria and has been a member of the Algerian Council of Money and Credit. His most recent publication is Le capitalisme de rente (Paris: L’Harmattan, 2012).

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