 The panel that we're doing today is really about the biggest topic here at Davos and the biggest topic around the world, and that is inequality. And in particular, we're going to be talking about rentier capitalism, and we're going to define it. We're going to talk about how it's getting worse, and then hopefully we'll address a little bit some of its potential solutions for the rentier economy. So the IMF has told us that we're in this unprecedented period of growth. We have 120 countries around the world that are doing better in the past year. They're growing more and thriving, and yet at the same time, inequality in both the western world, the developed world, as well as other countries in the developing world continues to get worse. So I've heard many CEOs. I was just on a panel with some of the banking CEOs and the head of Barclays Bank. He made the case that for him, the biggest problem in the world today is not the next financial crisis. It's inequality. So this is clearly on the minds of everyone at Davos right now. To get into these issues more, we have two incredible panelists with us, a guy standing a British professor who lives here in Switzerland and thus was ready for the snow with his great snow boots. He is a professor at the University of London and is also the author of The Corruption of Capitalism, a book that I think he'll share more with us throughout the conversation. And here we have Ricardo Hausmann from Harvard University. He heads the Center for International Development there. He was also born in Venezuela and was a minister for several years in Venezuela and brings that perspective as well. So to kick it off, what is rentier capitalism? R-E-N-T-I-E-R capitalism. We're going to ask you to try to give a 30 second definition, so almost like an elevator speech and then we'll get into more. Guy, let's start with you. Well, thank you very much for coming. It's difficult to compete with Modi, so we're very grateful for you being here. I think what's happened is the neoliberal experiment that started in the 1980s created the conditions for the emergence of a regime of intellectual property rights, property rights in various form, and the growth of monopolistic, pricing monopolistic capitalism. And essentially one can define rentier capitalism and I wanted to call the book that title, but the publisher said not sexy enough because nobody will understand rentier capitalism. Rentier capitalism is about the existence of a system in which the return to private property rights exceeds the return to production. And I think that what we've seen is a huge shift in the distribution of income, in the functional distribution of income, where the shift has gone more and more to profits, as we all know, that's the Piketty story. But if you look at the data, forms of rental income have been extracting more and more of the total. And even within the shrinking share going to labor, the share going to forms of rent for the top groups within the labor market have been growing. So you've got a double whammy taking place and I think we'll discuss that as we go through. Ricardo, how do you tell your classes at Harvard what a rentier economy is? Well, we have the sense that there is some relationship between effort and reward, that whether you know you reward work, you reward savings and so on. But when you look at the way value gets distributed, a lot of it gets captured by things that are in very short supply or inelastic supply and where you have property rights on that. So I mean, the reason why the Gulf countries are so rich is because oil reserves are in short supply and people have property rights on that. It's not that the money came from discovering how to find oil or how to extract oil or how to refine oil or what potential uses of oil. A lot of engineers, scientists and so on developed all of that, the invention of a car, the invention of all these things that use oil. But a lot of that innovation that is part of that value chain, all of that gets in some sense captured by the owners of the asset that is inelastic supply. So natural resources is one example of things that are inelastic supply. Others are things like real estate where central positions of land in a city. So in Piketty's book, I mean, Daniel Quinn has shown that if you redo the numbers of Piketty, a lot of the income to capital was the appreciation of real estate in land. So it means that you don't produce anything. You just own a structure that was already there. But that structure, because it's so central in a network that is becoming more valuable, captures a lot of the value that is there. And then there is this third thing that captures value, which is standardized systems like credit cards. There's only Visa and MasterCard or there is Microsoft and Apple. And there's Google and Apple as two platforms. So things that become, there's a natural monopoly around them. They tend to capture a lot of the value. And this is in some sense exacerbated by legislation because property rights and intellectual property rights by the belief at least of many economists have been overprotected. Let's pick up on that because that's what makes rentier capitalism different today in these technological aspects. When I first heard this term, I immediately thought of the 19th century of the land barons and of course they owned all the land and the property and most people were working for them on the farms. But what you're describing is something very different today that it's going beyond just property rights or oil rights, these things that have been around for many decades, if not centuries. Can you, what's different today with this rentier capitalism? Well, I think what happened is that the neoliberal experiment led to an incredible domination by financial institutions or financial capital. And the US administration, encouraged by Goldman Sachs and the like, created an international architecture for an intellectual property rights regime. The key event was the passage of trips in 1995. Can you spell out trips first? Trade related aspects of intellectual property rights. And before trips, fewer than one million patents were filed with WIPO, the World Intellectual Property Organization, per year. 2016 was the first year when over three million patents were filed. Now each and every patent gives a monopoly income to the holder of patents for 20 years or in the case of pharmaceuticals for 40 years and there are various ways of extending it. And the income attributable to patents has multiplied seven-fold. Rough estimates put it at the stock value of patents today globally is something like $20 trillion, phenomenal amount. And it has been cemented by the fact that we have over 3,000 trade and investment agreements in force, most of which have entrenched intellectual property rights. They also have copyrights, which have been vastly extended, particularly for corporate copyright, where it gives a guaranteed monopoly income for 95 years, listen to that, which gives phenomenal property rights and monopoly income. You have trademarks, which have expanded, and you have industrial designs that have expanded. And at the top, the cherry on the cake is what's called the ISDS, the investor-state dispute settlement process, which is most undemocratic way of guaranteeing corporate income. If any government introduces any policy that affects the profits and the opinion of the corporation, they can sue the government and they get to appoint two of the judges in effect, of the three. It's a system which is really boondoggling for rentiers. And we have a system where intellectual property rights have extracted so much of the income that you get the growth of monopolies in the United States in particular, the five platform corporations, who have blocked competition by buying up potential rivals. In the last 10 years, those five platform corporations have bought up over 500 other corporations. So as soon as they become potentially competitive, they buy it up. And they've been hoovering patents. So Google, for example, bought Motorola at $6 billion, sold it two years later for $2 billion. Everyone thought, wow, they made a loss. What they've done is they kept their 6,000 patents, adding to their thousands and thousands of patents. But the big story, of course, is the emergence of China. Because China has become the leading country in the world filing patents. Last year, it filed more patents than the United States, South Korea, Japan and the European Union combined. And it is becoming the rentier economy. And I think that partly explains the Trump type lurch to protectionism by the United States. Ricardo, I want to give you a chance to jump in. You have long been warning the world that property rights are key to any sort of development. But what do you respond to what Guy's saying that really we've moved beyond property to this patent and IP world? So it depends on whether you want to focus on the rentier side of things or whether you want to focus on the inequality side of things. Because if you want to focus on the inequality side of things, a lot of the inequality in the world is between countries. And if you want to explain what makes countries unequal, its differences in their access to, in their implementation of technology, that countries are less productive. What makes a region more poorer than another region is that they're also less productive. They have implemented less technology. If you look at neighborhoods in the city, well, poor people tend to work in informal sector on their own and so on. They're disconnected from the more modern, more technologically advanced part of the economy. So a lot of the story of inequality is inequality in productivity. And a lot of inequality in productivity is inequality in access to the modern technological economy if you want. So if you focus on inequality in developing countries, you would focus your attention in expanding the scope for technological diffusion. Now here, so that more, so people can work just more productively. Now an important patent is one way of measuring the output of R&D. It's also a way of measuring the definition of obstacles for the next innovator. And here I think we have to see the good and the bad about patenting. The good and the bad about patenting is that it means that you're coming up with something that somebody decided was relatively new. The bad thing about patenting is that whoever wants to build on it now has to negotiate with you if he doesn't want you to compete with him. He can block you and so on and so forth. We do exactly the opposite in the academic world. We, when we come up with something, we publish it and we get excited by the number of citations we get. So citations in patenting imply that one patent owes money to another patent and it's sort of like there's a claim on future innovation. So a very important question is, is this over patenting, are these patenting trolls bad or good for technological development? And I think the consensus among many economists is that they have gone overboard in protecting patents to the point that there are companies that do no innovation, nothing. They just trade in patents as ways of maximizing their value and extracting maximum rent from that. So I'm on the side of rethinking intellectual property protections, so as to facilitate technological development. But some of the rentier characteristics of a lot of these companies, you call them platform companies, they would still probably be there, even if you took many of those protections away because they're just held together by these enormous economies of scale when things get standardized. That if everybody uses the same platform, it's easier for them to communicate. And that those structures might be there. So I would even consider not disrupting those platform companies per se, but just taxing them. Okay, so a more direct redistribution to help inequality. Guy, you obviously are one of the biggest champions in the world of universal basic income. So it sounds like perhaps you would agree with Ricardo on redistributing income, taxing and redistributing, or is there more to it? Well, I wrote my first book on the other side of the coin in 2011. And I said unless the inequalities that are being generated by rentier capitalism are addressed and the problems faced by the precariat, the book was on the precariat, we're going to have the emergence of a political monster. That's on page one, book 2011. Been translated in 20 languages and you will not be surprised that in November 2016, I received an enormous number of emails saying your monster has arrived. I think what the growth of rentier capitalism has done is led to a growth of what you could call, and it's not too strong a word, a plutocratic fiscal and monetary policy, in which the plutocrats who've gained from rentier capitalism are able to shape the democratic forces through funding politicians, through lobbying, through command of the media, etc., etc., and have shifted fiscal policy decisively towards giving huge, huge subsidies to the rentiers. We have a subsidy state at the moment where tax cuts are being given for rich corporations, rich individuals, huge tax cuts, tax reliefs and various forms of tax holidays, and a beg-a-my-neighbor type of competitive policy. We cut our corporation tax to attract that multinational to our company or keep them there, and then it has to be responded. So we've had corporation taxes halved in the last 20 years and it will go down further as a result of the U.S. tax reform that we've just had. So we have a subsidy system which has created budget deficits, and the budget deficits have led to this horrible word of austerity. We need to cut our public debts, therefore we're going to cut public spending. Public spending that's easiest to cut are social benefits, welfare, housing, infrastructure. So you've had a decline of the sort of incomes that the precariat need desperately. Meanwhile, because of globalization and the technological revolution and the rentier capitalism, wages in real terms have been stagnating for the past 30 years. But at some point the election of Donald Trump, at least in my country, was really driven by this precariat or members of it getting upset and feeling that he could help them. So what you're describing is you're saying that Trump or other leaders who have been elected in this populist wave may not actually help these people. So is there going to be another uprising and another monster to come? Yeah, I think so because I think the precariat is not a homogeneous group. There is part of it, the old working class and old working class communities. These are the people that are turning out for Trump and Marine Le Pen and various other populists. But there's another part of the precariat and this is the group that I'm finding myself address all over the world, which are the young educated who were sent to university told you will have a career and a future. And most of them are coming out with huge debts, with prospects of no career and they're getting angry. They're not going to vote for the neo-fascists. A lot of them have not been voting at all, but they're beginning to articulate and develop a progressive politics. That's about another session that I'm addressing. But I think the inequalities have been vastly intensified by rentier capitalism and the structure. There's a disregard for monopolies. If there's one thing that probably Ricardo and I have a slight difference on is I think that antitrust mechanisms have to be greatly strengthened. I think it's horrifically dangerous when you have billions and billions of dollars going to a very small handful of extremely powerful corporations who are able to manipulate knowledge, information, communications, extracting rent from every time we use the big data, etc. I think that these are powerful robber barons of the 21st century. Ricardo, there's a lot to respond to there. You can sort of take your pick. I don't know if you want to respond to the last point or if you want to help us understand more what's happening. He's described the situation in the United States and in the United Kingdom and parts of the developed world of the reaction in those countries to rentier capitalism. Maybe you can walk us through what might come to pass in more of the developing world. I'm not so sure that the reaction in the U.S. is to rentier capitalism. I think the reaction in the U.S. is a bit to globalization, that the U.S. had a comparative advantage in a bunch of industries that have now diffused technologically. You had to be in Detroit if you were to make cars. Now, even if you were to make cars in the U.S., you don't need to be in Detroit. You can be in Mississippi. You can be in South Carolina. You can be in West Virginia and they make cars there. So this sort of like worker monopoly that was shared between Ford and the auto unions was disrupted because technology became more accessible. So part of what's happening in the world is that technology has diffused, making other people able to enter the industries that you used to make your living off. So that aspect has disrupted a bunch of mid-sized cities and towns in the U.S. and every city needs to live off of some kind of export industry because export meaning that it sells stuff to people who don't live there, who live outside the city because the city needs to import a lot of stuff that they don't make. They need to pay that with things that they sell to people who don't live there. And if you disrupt the quote unquote export industry of a city, it's not just those jobs that gets lost. It's the grocery jobs. It's the barber. It's everybody else in town that feels the hit and then has to leave. So part of what I think has been happening in the U.S. is this reduction in global inequality. This reduction in global inequality, which is, if you want to talk about inequality, this reduction in global inequality that means that the Indians of the world and the Chinas of the world have seen these rapidly rising incomes as technology becomes accessible to them, disrupting livelihoods in the rich countries. That's why it's sort of like in the U.S. has this right-wing flavor of being anti-trade, anti-immigration because it's sort of like we are in the defensive. Our livelihoods are being threatened by browner people, people who we feel should be poor because that's where they belong that suddenly are catching up with them and this is very uncomfortable. So a lot of the unhappiness is not necessarily to the 1%. It's to the people with less power than yourself. Well, let's shift back to a discussion about potential solutions to these deep inequality problems we've been talking about. You know, we're sitting here in Davos, Switzerland with some of the most powerful people in business and in politics on this planet. What do you both hope that they start doing, that they're not doing right now? How can we potentially change these situations that you're describing? All right, we'll start with you for once. So first, I think that when we talk about rent here, we have to separate two things. Temporary monopolies that bring innovation and change and transform things versus guys that try to stifle innovation and competition to maintain their rents. So I think that that's an important divide, sort of like incumbents versus newcomers. And I would put it to you that whatever is, there's a lot of innovation and part of the shell shock and a lot of the discussion at Davos is that is the fear that innovation will be too quick, too rapid for social absorption. That, you know, there'll be automation and a lot of job losses in parts of the economy and so on and that societies might not be able to cope. So it's not that progress is being stifled by rent here, it's that innovation might disrupt too many industries at the same time. So that's one part of the discussion. A part of the discussion that is less present is a fundamental question that will determine whether these new technologies will enhance equality or enhance inequality. And that has to do with the diffusability of these new technologies. That is, can you install them in a mid-sized town in Africa or in Latin America or in Asia? Can they participate in 3D printing? Can they participate in AI? Can they just, if they have a minimum connection to the cloud and so on, do a lot of things? Or do they have to have a lot of stuff simultaneously there so that only very advanced places are going to be able to implement these technologies and this will constitute a new divide? And to make that happen, is there something that business and political leaders could do to ensure that that 3D technology does make it too a part of? Well, I think that probably nobody, the important thing is that nobody knows what the new industries are going to be, what the new possibilities are going to be. This is going to be an exploration. But we need to be aware that these new things can either allow countries to leapfrog because these technologies, the factor will be, in some sense, simpler to implement. And that means that it will be good for global equality, but it will be bad for the incumbents. And the incumbents might be the plutocrats. So in some sense, if you look at the world from the south, you would say we're all for this technological progress as long as we find a way to participate in it and that this does not become a new divide. And that the fear is that the ones that are in the game now, the incumbents, might want to slow it down, stop it so that they can maintain the status quo and keeping the rest excluded. And what about you, Guy? What's your main message here in Davos to the leaders? My main message here, first of all, is we should have a war on subsidies. We should be rolling back subsidies. They are regressive, they're distorted, and they are costly, and they help to drive down the incomes of the precariat. Second, I think we need a real reversal. We haven't talked about this, but I'm talking about it in another session, of the plunder of the commons, which is taking place at the moment. The commons, which the neoliberals regard as having no exchange value and therefore free for exploitation, are actually vitally important for the precariat and we need to address that that's taking place. And the third and what I've been working on for many, many years and have books on it and we've done pilots around the world, is we need to move to a new income distribution system as such in which a universal basic income of some sort has to be the anchor of that system. It's affordable, it has positive dynamic effects, socially and economic effects, and I think it's a vital part to deal with the chronic problems of insecurity. Whether global income inequality is falling or not, and I have some problems with the data, without a doubt income inequality within countries has been growing all over the world. No more, more so than in China where the huge precariat has been growing and we need to find new forms of income distribution because millions and millions of people in the precariat, however hard they work, they're in full-time jobs, their incomes do not give them adequate subsistence. That's a reality and it's not a reality of since the financial crisis, it's a reality for the past 30 years and when the global labor supply is quadrupled in that period, it's going to persist in the OECD countries as a major problem of distribution and is affecting productivity, growth, et cetera. So I think we need to be much more thinking out of the box of how we reform our income distribution system as such. Now you mentioned income redistribution earlier, the potential to tack some of these companies that are stifling innovation, pulling onto their patents and not actually doing much. Is universal basic income something that you agree with or does it take a different form in your mind? Well, if you look at the world from the south, it's a non-starter because fiscal structures, tax structures are so weak that they're insufficient to fund basic things like the extension of water system, road systems, electricity systems. It's not that you would have to improve taxation and so on to a huge extent before you have enough of a tax base that you can redistribute much. There isn't much to tax to begin with. If you have a country that's at an income per capita of $730, that's $2 a day per capita for everyone. So if you redistribute perfectly, everybody will be poor. So it's not feasible, but if a country like Switzerland finds itself at an income per capita of $60,000 and they don't want to see people around that are living at $15,000, they can make sure that everybody lives at $15,000. But if you have an income per capita of $2,000, you cannot guarantee everybody an income per capita of $15,000. So that's just the realities of the thing. But it is important, and here's another important point to make. I am still more interested in taxing land. A lot, see, I would tax land more, just land because land is not going to run away. No, land, you don't tax the business, you just tax land. You want to use land, you pay it land tax. You don't like the land tax, well, you can't take the land away, the land is there. So that's a pure rent. And it's where a lot of things get captured. For example, a lot of them, you'd say, what is the secret of the wealth in China? You'd say, well, China, all these manufacturing industries that export so much and so on. But if you look at the wealth in China, it's being captured by real estate and real estate and those that finance the real estate. So that part of the economy. So I think that part of the economy can tolerate more taxation. And there I'm in agreement with Guy that probably there's more, we need to make sure that we tax the government adequately and that we try to, you know, taxing rents is less distortionary than taxing effort. So I think that there's a good efficiency reason in the top of a redistributive reason to tax rents. Maybe we'll try to wrap it up on a more positive note. And what's the most encouraging thing to maybe a discussion or interaction you've had here with Davos, I know you're both in demand, you're both on a lot of panels, a lot of CEOs wanna talk to you both to try to understand any quality better and what they should be doing. Have you had any breakthrough discussions or anything that gives you hope that some of these changes might happen? Yeah, we did a pilot basic income schemes in India where we provided thousands of people with a basic income, very modest and did a randomized control trial and we found huge improvements in nutrition, health, schooling, economic activity, and gender equality. And I was very encouraged by the fact that after we had done these pilots and we had a conference in New Delhi, the Minister of Finance of the Government of India tabled a report in Parliament alongside his budget on the 31st of January last year saying, in India, a basic income is affordable, is affordable, listen to that word. And all we would need to do is roll back most of the regressive subsidies that exist, energy, fuel, unnecessary, very corporate subsidies that are going, because at the moment the Indian government spends over 8% of its GDP on regressive subsidies. That's not including those that are regarded as progressive. And so I think a lot of countries are in those circumstances where moving towards a basic income is affordable. The big challenge is political and getting this debate legitimized. I'm enormously encouraged, enormously encouraged. Just come from giving a talk on this to the World Bank in Washington and I'm enormously encouraged by a large number of people in the corporate world who are coming round to say whether it's robots, whether it's rentier capitalism, whatever, we need to move in this direction because the political imperative is saying if we allow the existing inequalities to continue to grow, our own sustainability is under threat. I think that's enormously encouraged. I don't care what's the reasoning, but in a sense for Mark Zuckerberg and people like that to come out in favor, I think it's helping, and I've talked to Christine Lagarde and they're now much more open than they were as a development tool, not just for the rich industrialized countries. So I do plead that we need to be more open and I think this is happening. And if they wanna read more, can you just say your book again, your title of your book? Well, the corruption of capitalism, but there's also a book called Basic Income which has just come out. Great. And Ricardo, final thoughts from you that you're hearing in these last few days. Well, the first thing I want to say is in response to Guy's suggestion, I think that most countries in the world spend too much money subsidizing things and not enough money subsidizing people. And I wouldn't call subsidizing people, I would call investing in people. That is, it's the adults of the future have to be fed, have to be educated, have to be taking care of their health and so on. And if the current family isn't able to do it, society has an interest in making sure that the future labor force is adequate. And so as a consequence, I would call it not so much from the point of view of rights and so on, but as from a point of view of development of inclusion that society should worry that everybody gets to participate in the economy and so on. So I think that an agenda for inclusion is critical. I think it's very important. And I think that reducing indirect subsidies to fund more direct subsidies is an important avenue going forward. But I would want to put the emphasis on where I started. The largest source of inequality in the world today is inequality in productivity. And the largest source of inequality in productivity is the uneven diffusion of technology because technology requires technology. That is, the use of one technology implies the previous diffusion of other technologies. I can diffuse TV remote controls, but a TV remote control is not useful if you don't have a TV and it's not useful if you don't have electricity and it's not useful if you don't have other things. So the problem of development is making sure that these different technological platforms get the fuse to more people so that we can make more economic activities feasible for more people so that their productivity comes up. And as their productivity comes up, there will be people in the North that get upset. And we have to manage the fact, the political tensions arising from the reduction of global inequality. Great. And in your book, you have several, but if people wanna read more, what would you recommend? The Atlas of Economic Complex. Great. Thank you so much and to our viewers around the world for tuning in. Thank you very much. Thank you. Thank you. Thank you.