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Yanis Varoufakis is an economist, politician, and the former Greek Minister of Finance. Varoufakis is the author of Another Now: Dispatches from an Alternative Present and Technofeudalism: What Killed Capitalism.
In this week’s conversation, Yascha Mounk and Yanis Varoufakis discuss whether the extraction of “cloud rent” by Big Tech heralds a return to an earlier, pre-capitalist form of commerce; the technological and economic future of Europe (and of the European Union); and the geopolitics of a new cold war between China and the United States.
This transcript has been condensed and lightly edited for clarity.
Yascha Mounk: You have an interesting and distinguished political career and have also made a lot of forceful arguments in the public sphere. One of the interesting contributions you've made recently is to say that we live in a moment of “technofeudalism.”
To those of my listeners who think that's a catchy phrase but aren’t quite sure what it means, what does that entail? What makes this moment an instance of technofeudalism?
Yanis Varoufakis: Well, to get to that point we have to agree on where we were. Capitalism, as far as I'm concerned, is a socioeconomic mode of production that came out of feudalism and what characterises it is that we shifted from a society where power stemmed from owning land, land ownership granting you the extractive power to amass economic rent from your peasants and from vassals and so on to a situation where power stemmed from owning not the land, per se, but the machines—the electricity networks, railway networks and so forth. And then your wealth accumulation took the form of accumulating profits, which is not at all the same as rents.
The point I'm making, to cut a very long story short, is that in the last 10 years after the 2008 crisis, we have now shifted to another socioeconomic mode of production where it is the ownership of a particular mutation of capital which I call cloud capital (it's what lives in our phones, it's algorithmic capital, digital capital) is a very different, very brand new, unprecedented form of capital. That's why I call it a mutation. It is the ownership of that capital which allows you to have at your disposal cloud fiefdoms—that is, digital fiefdoms, which you can think of as digital platforms, and which are nothing like markets, even though they resemble markets. And ownership of those digital platforms or cloud fiefdoms gives you the right to extract rent. But this time it's not ground rent. It is what I call cloud rent. So this transition from capitalism to technofeudalism came about when the ownership of this particular form of capital, which does not produce anything except power to extract, allowed its owners—you can think of them as Big Tech bros or technofeudal lords, whatever you want to call them—to extract massive quantities of cloud rent, replacing markets with cloud fiefdoms and profits with rents.
Mounk: Now if you go back to feudal societies, you would have some people like bakers or clothing manufacturers or merchants that mostly accumulated wealth from something more akin to profits. They're kind of proto-capitalists, if you want. And then, obviously, the major fortunes came from aristocrats who owned enormous amounts of land and so on. In the same way, once you go to capitalist societies, we have all along had very important areas of rent: you have licenses to drive a taxi cab and you get that license for free or perhaps through a bribe or perhaps because your father had one when you could apply for them and then you inherited it. And because there's an artificially limited supply of cab drivers, you make a very good income in certain places, right? So that is you're extracting a form of rent in that context as well.
So when we look at the tech sector today—and I imagine that this idea of technofeudalism particularly focuses on the tech sector—it feels to me like there are certain areas where we really are talking about rent. Something like the Apple Store is a great example, right? Because Apple owns the platform that operates iPhones, in any transaction within that ecosystem the company takes, I believe, 25 percent. That is a form of rent that's concerning. There's other elements of profit that don't seem to come from rent in the same way in the tech sector—the element of Apple's profit that comes from the fact that I'm speaking to you through a MacBook and I'm making my backup recording for this conversation on an iPhone. I purchased those products because I find them to be superior to the competition. There's no monopoly. There's all kinds of other laptop brands that I could go to, but I just find this to be a superior product for the price that I have to pay for it. So how new is this development and how much of the tech sector's profits really come from rent rather than more traditional capitalist forms of profit?
Varoufakis: Before I argue that this is a brand new socioeconomic mode of production, let me agree with you entirely. The transition from one system, from one mode of production to another, is never neat and it is never exclusive. So capital always existed for centuries and centuries and millennia before capitalism. Capitalism produced means of production. The first fishing rod we produced as humanity was a form of capital, but there was no capitalism. Similarly, there were always markets. Slave societies had markets. There was a slave trade, there were markets under the Roman Empire, or indeed during feudalism. It's a question of quantity leading to quality.
To give our audience an example, take the great estates of medieval Europe, the feudal estates. Labor was not channeled through markets. So the peasants were not employed in the sense of getting a salary. They were not getting a salary. They were working and at the end of the harvest the lord would send the sheriff over to collect 50, 60, 70 percent of the produce. And what was left over was hopefully sufficient for those peasants to reproduce their lives. So you had production, then you had distribution, which was not through a market. And then at the end of the day, the lord, who wouldn't be able to eat all the wheat and corn that was produced by the peasants, would sell a large chunk of it in a marketplace, in a regional marketplace, and use this money essentially to be a usurer, a banker. So financialization came at the end. So there was finance, capital, markets, but this was not a market society. Similarly when we had the transition to capitalism in the United States, in Britain, in France, there was still a feudal sector in it. And indeed, the capitalist sector was parasitic on the feudal sector because the feudal sector produced most of the food, even under capitalism. And therefore there would have been no factories, no proletarians, no capitalists if there wasn't the feudal sector that was, however, subservient to the capitalist sector. Similarly, today, there is no doubt that, wherever you look, you see capital. And you see a lot of old-fashioned capital. You mentioned cars, whether they're Teslas or BYDs or Volkswagens, doesn't matter. They're traditional capitalist products produced in the traditional capitalist way. Indeed, if you look at my phone, it's a manufacturing product that has come out of a production line, which to all intents and purposes looks very Fordist, very similar to what Henry Ford initiated back at the beginning of the 20th century.
However, what makes Tesla—I will also add to that the Chinese version, BYD, and compare those two to Volkswagen, the German conglomerate—Volkswagen is worth what, three and a half billion? It is just a minuscule, minuscule amount compared to what Big Tech is worth, including Tesla. What is the fundamental difference? The fundamental difference is that the Germans, Volkswagen, have not invested at all in what I call cloud capital. Elon Musk purchased Twitter because he could see that if he had stuck to the old-fashioned traditional capitalist way of producing things then he would simply be left behind by the times. He understood the importance of Starlink. Very, very soon, Tesla is going to be making more money from the data that it collects while you're driving a Tesla than it will be making from the spare parts it sells to Tesla owners in order to maintain their cars. Indeed, very soon most of the value will not come from selling the actual car, but it will come from having encased all of us, those who drive their cars, those who use their cars, in what I call this platform or cloud fiefdom, which is not a market. I think the Apple Store is a fantastic example. Apple has such a huge valuation compared to Samsung. Samsung phones are just as good as Apple phones. But the difference is they don't have the Apple Store, in which thousands and thousands of people, both as consumers and producers, find themselves in what is effectively a fiefdom owned by Apple, and Apple just charges cloud rent.
So, to end my soliloquy with a direct answer to your question, how substantial is cloud rent in terms of GDP in the United States and in Britain? Well, it depends on how you measure it. My back-of-the-envelope calculation points to something like 30 to 35 percent today, especially in the United States; about 30 to 35 percent of value produced and added in the American economy is being siphoned off in the form of cloud rent. Now you may say, well, that's only 30 percent. Well, had we been having this conversation, let's say, 1860, and we’re wondering is this capitalism, feudalism, or a kind of industrial feudalism? Well, what percentage of value added in the West corresponded to profit in 1860? No more than 10, 15, 20 percent. So I think that we are well along the path of having made a break from traditional capitalism to what I call technofeudalism.
Mounk: So how do we distinguish between “This is an important element of what's happening today” and “This is the thing that should define this economic era”? Why is it that its significance goes so much beyond just the recognition that it's a big but limited part of the economy?
Varoufakis: Just look at the New York Stock Exchange. If you take out all of the Magnificent Seven—who are connected to cloud capital either because they are creating it as Nvidia does with its chips or because they are harvesting cloud rent directly—there's nothing left of the New York Stock Exchange to speak of. The rest is utterly insignificant. It's perhaps less significant than the London Stock Exchange is today. So clearly, the market values the power that stems from owning cloud capital far, far more than it does the power that stems from traditional forms of, say, terrestrial capital (to juxtapose it against cloud capital). And the third point is that this is not about technology. It's a mistake. Technology is everywhere. I mentioned Volkswagen before. If you go to a Volkswagen factory, it's very advanced technologically. The industrial robots that they use are the latest technology and they are very impressive. And yet it's bankrupt. And it's bankrupt because they have industrial robots that are not connected to cloud capital. You see, what I try to do in this book is not to think of it as machines or as forms of technology. They are all that. But to understand the historical moment in which we find ourselves, you have to understand what I called before a mutation of capital: You see, these singing and dancing industrial robots, the amazing technology that goes into aerospace, Boeing jets and Lockheed fighter jets and so on—this is all, from a technological point of view, quite astonishing. But it is no different, in a sense, to the fishing rod that I mentioned before. They are all capital goods in the sense that they are produced means of production, things we produced in order to produce something else. But cloud capital is not a produced means of production. It is something radically different than that—it's a produced means of behavioral modification.
Now, behavioral modification has always been around. This is not new: Every preacher, every author, every politician, every philosopher tries to modify our behavior. Every psychologist, every advertiser, for that matter, especially since the Second World War. What is new is that this has become automated. It has been given as a task to a machine. And not only that, but it is the most dialectical of machines in the sense that it is a machine that interfaces with you in real time, day and night. So you would take Amazon's Alexa or Siri, your iPhone Siri or the Google Assistant or any of these devices—essentially, you're training them. You're training Alexa to know you. You're training it to train you to train it better; to give you good advice, capture your trust, not so much your attention, but your trust with good advice that it gives you. And it does give you good advice, whether it is Spotify recommending music, or Alexa recommending books, or what to do on your night out. It gives you good advice and gains your trust. Once it has implanted into your mind a preference for a particular product or service, it actually sells it to you directly, bypassing markets. Now, if you conceptualize cloud capital like that, you realize that this, folks, this is no longer capitalism. Welcome to technofeudalism.
Mounk: I want to change topics a little bit and talk about the state of Europe and the European Union today. One of the links between the two topics is that the United States 20 years ago had a similar GDP per capita to many European countries and now, in part because of the tremendous growth of productivity in the tech sector, it is much richer than Europe is. Some of that is top heavy, some of that is because of the increase in wages for computer programmers or the increase in wealth of the owners of some of these companies. But a lot of it actually is that nowadays people doing similar jobs in the United States end up making a lot more money than those in Europe. So whereas America's share of global GDP has stayed roughly constant for the last 25 years, Europe's has rapidly decreased, and many countries in Europe haven't really had significant increases in their standard of living in 20 or so years. And now, of course, we see a new economic crisis brewing even in countries like Germany, which were supposed to be the economic powerhouses of the European Union but are now starting to look in many ways more like the sick man of Europe.
Before we get into particulars about the European Union, or perhaps touch on the debt crisis and the fallout of a great recession, how would you assess the state of the European continent? Why is it that Europe has proven to be so much less inventive than many other countries in the last years? Why has it had so much less economic growth? Why does its economic relevance in the world seem to dwindle so much faster than that of other countries? And are you worried about those things?
Varoufakis: I'm not just worried. I'm devastated by the state of Europe. Europe has entered not a recession, but a long-term structural slump from which I think it has more or less a zero probability of exiting anytime in the next 50 years. This is why I feel devastated. But let me explain why, though I feel everything you said is correct, I have a different explanation of why this happened. It's not that Europe suddenly decided not to be technologically advanced or not to invest in high-tech. Europe, after the Second World War, with the help of the United States actually surpassed the United States in terms of technological innovation. And this is why German factories were so far more competitive than American ones by the 1970s. Everything boils down to a common currency. If we had not created this common currency and instead we had done something quite different, then Europe would not be in the utterly debilitating and psychologically crushing situation in which we find ourselves. Allow me to explain that. We created the European Union as a cartel of big business. We were not even a confederacy. Remember the first name of the European Union was “European Communities of Coal and Steel.” So we're a bit like OPEC. We created in Brussels a management board, the purpose of which was to restrict output for coal, later electrical goods, and bankers were incorporated in that, large-scale farmers with a common agricultural policy. Now, a cartel like OPEC requires a common currency. Imagine now the United Arab Emirates and Saudi Arabia and Iran and Venezuela and Indonesia and so on try to coordinate their efforts to boost their profits from oil or rents from oil without having oil being equally denominated in dollars. It wouldn't have happened. So in the first two decades—
Mounk: Explain why that is. Why can't they just say, “Here's the quota of how many liters or gallons of crude oil you can sell. You can sell it for however much, but there's a limit on supply.” Why do you need the common currency? It's not immediately evident to me. It seems if you limit the supply, then you've dealt with that.
Varoufakis: Your mind has been polluted by Economics 101. In Economics 101, you're taught that once you fix quantity, then price adjusts itself on the demand curve. But that's only if you have perfect competition, and there's no such thing as perfect competition. So you have an Indonesian oil producer, right, striking an agreement with an American buyer for so much quantity at that price. And then there is a Saudi who tries to compete with another quantity at another price. Now, every cartel is utterly precarious because even though there's a common interest to stick to the agreement, your optimal strategy as a member of the cartel is not to stick to the agreement as long as others stick to the agreement. And if the others do not stick to the agreement, you do not stick to the agreement. It's a prisoner's dilemma. The only way of preventing the logic and the centrifugal forces of the prisoner's dilemma from collapsing the cartel is to have very strong monitoring of what each member of the cartel does. And if you have a common currency, it's much easier to police what is happening within the cartel than if you have fluctuations in real time of exchange rates and everybody sells their oil in their own currency. So this was exactly what was necessary in Europe in order to maintain the cartel of coal. And it was provided to Europeans by the United States of America under Bretton Woods, because under Bretton Woods we had fixed exchange rates. So if you don't have to have a common currency, as long as you have fixed exchange rates, as long as you don't have fluctuations, the cartel can be maintained. So when Richard Nixon on the 15th of August of 1971 blew up Bretton Woods, along with the fixed exchange rates between different currencies, between the dollar and gold, all hell broke loose. And the Europeans started planning a way of creating a Bretton Woods within Europe. First they called it the “snake,” then they called it the EMS, European Monetary System, then they called it the European Exchange Rate Mechanism. All those attempts at fixing exchange rates collapsed. So in the early 1990s they went for the nuclear option of creating a common currency, which effectively means to federate your money, your monetary systems, but without federating your fiscal policy and your politics.
With this federal money, but no federal government, we created a central bank, a major international central bank, the European Central Bank, that has no treasury to have its back, while we have 18 or 19 treasuries without a central bank to have their back because the European Central Bank is not allowed to have the back of our treasuries, unlike in the United States, Britain, and China. So the result was that we had, in order to save the banks after Wall Street triggered the sequential collapse of the German and the French banks and then the Greek banks, the Irish banks and so on, we create the system whereby we taxed the lower classes of Germany, of Holland, of Slovakia, of Greece and so on in order to bail out the bankers. Because we didn't bail out the bankers the way that America bailed out the bankers, effectively by printing money. We bailed out the bankers by taxing, essentially crushing the economies, in order to refloat the bankers. And then you had the domino effect, starting with Greece, which was the weakest link, and then going to Ireland, to Portugal, to Spain, to Italy, to France, and then eventually Germany, and you ended up with a situation where for 15 years we had zero investment. Why was there zero investment? Because when you have universal austerity from Greece all the way to Germany and at some point in 2014-2015 the European Central Bank to save the euro starts printing money like crazy, more so than the Fed was….
Where does this money go? It goes to the bankers and the bankers will have to lend it to big business. Deutsche Bank picks up the phone, calls Volkswagen and says “I have billions here for free. Do you want it?” Well, Volkswagen looks outside the window and sees impecunious people. He says “No, I'm not going to try to build a Tesla competitor because who's going to be able to afford it?” Volkswagen takes the money from the central bank via Deutsche Bank and goes to Frankfurt and purchases its own shares. So you had asset price inflation. You had price deflation and no investment. And the result was we missed out on one or two technological revolutions when it comes to green energy, to cloud capital. This is why the United States has surpassed and overtaken Europe, because it didn't have the structural problems that we had of federal money and no federal power.
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Mounk: This is a very plausible and convincing story about what went wrong in the Eurozone countries. But when I look at European economic development, I see stagnation not just in the Eurozone, but in non-Eurozone countries as well. So when you look at non-Eurozone countries in Central and Eastern Europe, they continue to grow quite robustly over the last 15 or 20 years in part because they are still emerging from the post-Communist economy and places like Poland in particular have had an astonishing economic development, perhaps helped by the fact that they’re not part of a single currency zone. But when I look at the United Kingdom, when I look at big parts of Scandinavia like Norway, when I look at European countries that have developed economies that never did join the euro, they don't seem to have had that much more growth over the last 20 years than countries that are in the Eurozone.
So how do you explain the stagnation of those countries? If the story is really about the single currency, you would think that European countries that aren't in the single currency would be going gangbusters because they could hoover up all of the economic opportunities that their neighbors are forgoing because they belong to the single currency zone.
Varoufakis: Well, let's begin with the cases of countries that entered from the East the European Union, not the Eurozone. And you mentioned some of them. I'll mention Poland, the Czech Republic, and Hungary. If you look at these three countries, they are the three countries that did the best out of entering the European Union. And they are the three countries that did not join the Euro. Essentially, what they did was they fused their own industries to the German manufacturing beast. All three countries, Hungary, Czech Republic and Poland, this is what they did. They did this very successfully and all kudos to them. They fused themselves to the German industrial machine. When the German industrial machine was roaring, it was doing really very well, they became an essential part of it. And indeed, because they had much lower costs, they took a lot of the economic activity from Germany, from Italy—I think a very good example is that there are no Alfa Romeos anymore being manufactured in Italy, they're all manufactured in Poland. I think that that's the story of it in its own right. But of course, once Germany inflicted so much self-harm upon itself through the policy of socialism for the bankers and harsh austerity for the majority of the people, including the people of Germany, not just the people of Greece, then, of course, because these countries are fused with the German industrial machinery, their growth rate starts coming down as well.
Now, the United Kingdom is a separate case. The United Kingdom had practiced self-harm in the late 1970s, early 1980s. I cut my teeth both as an academic and as a political actor in Britain during the era of Margaret Thatcher. And I have very vivid memories of her great political success story, which was built on the policy of industrial vandalism. What Thatcher did essentially was to close down industry. Just shut it down. And she did it. It was not an economic project for her. It was a purely political project because it was the trade unions of the steel sector, the coal industry, a major, major political player, the National Union of Mineworkers—she actually decided to adopt the Vietnam War US Army policy: If you want to get rid of the Viet Cong, you get rid of the forest. So you want to get rid of the unions, you get rid of these antiquated industries and you replace them with financialization and the service sector. And what did she do? 35 percent of people lived in council houses and she gave them the right to buy them with a loan from the bank. So she undervalued the council house, took a council house which was worth 20,000 pounds and sold it for 10,000 pounds, which meant that if you were eligible to buy it because you lived in one of them, then you would immediately get a loan because you were buying something that was worth 20,000 for 10,000. So collateral was more valuable than the actual value of the loan. And that, of course, created a spending spree on real estate. Real estate took off magnificently. The service sector took off. Then you had privatization. British gas was sold for half of its estimated market price. Little people bought shares, immediately they sold them. So again, these companies became private monopolies, but there was a lot of money in the economy that created a spending spree. So the great Thatcher revolution was essentially industrial vandalism. And you end up with a United Kingdom which has the City of London, which is essentially dealing in other people's money. Even until Brexit, it was handling all the capital flows that were Euro-denominated. But of course that leads to zero investment across the country. So for a very different set of reasons, the United Kingdom had no investment in productive activities and a Ponzi scheme based on the real estate sector. And of course, that is no model for catching up with the United States or with China.
In the rest of this conversation, Yascha and Yanis discuss the future of the European Union and the risk of war between the United States and China. This discussion is reserved for paying members…
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