Technofeudalism: What Killed Capitalism

by Yanis Varoufakis

The panic of 2008 had killed off the demand for money to be invested, causing an oversupply of money that depressed interest rates. The more interest rates fell, the greater the investors’ conviction that things were so bad it would be madness to invest. And yet, trillions of dollars of central bank money continued to pour into finance, and so the doom-loop continued, with interest rates going further and further south: to zero or below.

Aghast at the poverty of the masses, they scorned real investment and used it to buy back their own shares.

Every great transformation brings with it a new type of crisis.

Even though the life cycle of fossil fuels has been extended, ruinously for the planet, cloud-based green energy is growing – and, with it, so is the relative power of cloudalists.

Recall how until the Nixon Shock of 1971, any non-American with large quantities of dollars could exchange them at will for gold owned by the US government at a fixed price of $35 per ounce. For as long as America sold more stuff to Europe and Asia than it imported from them, as it did between the war’s end and 1965, this trade surplus meant that every time America sold a jet or refrigerator in France or Japan, the foreign-held dollars that paid for them would be repatriated and America’s gold reserves would remain untouched. However, by the mid-sixties the United States had turned into a deficit country, buying goods of greater dollar value from foreigners than it sold to them. This led to a torrent of dollars leaving America for Europe and Asia and not coming back. And the larger the US trade deficit, the more claims foreigners had over America’s gold. In time, they grew anxious that the US government did not have enough gold to match their dollars and there was a run on America’s gold. To prevent losing it all, on 15 August 1971, Nixon told the world that they would no longer exchange foreign-held dollars for gold at that fixed price. In other words: no more gold for you from our vaults. Our dollars are now your problem.

Non-American central banks suddenly had no alternative than to use dollars instead of gold as reserves to back the value of their currency. The dollar began to resemble an…IOU. After the so-called Nixon Shock, the global financial system was, effectively, backed by IOUs issued by a hegemon who could decide what the foreign IOU-holders could do with their IOUs – and what they were not allowed to do with them. America was now a deficit country but was nothing like any other deficit country. ‘Normal’ deficit countries, such as France, Greece or India, had to borrow dollars to shore up their currency and to raise interest rates domestically to stop money outflows. America did not need to do any of that. It had, in other words, found the magic formula every empire had hitherto only dreamed of: how to persuade wealthy foreigners, and foreign central banks, voluntarily to finance simultaneously its government and its imports! This is how the Minotaur arose. Rather than sell the world goods, America offered it an alternative use for their dollars: invest them in Wall Street. They had created a mechanism that could recycle Asian and European surpluses (mainly Chinese and German) into productive investments for the USA. With these tributes to the Minotaur, peace and prosperity for all continued – until of course it all collapsed in 2008.

From the 1970s onwards, globalised capitalism was founded on this fascinating recycling of, mainly, Asian manufacturing profits into American rents, which in turn sustained the American imports that provided Asian factories with sufficient demand.

As mentioned at the start of the chapter, when the bottom fell out of Wall Street, China stabilised global capitalism by cranking up domestic investment to more than half of China’s national income. It worked, in that Chinese investment took up much of the global slack caused by Western commitment to austerity.

the post-2008 investment drive went hand in hand with the inflation of house and land prices across China.)

enormity and nature of China’s Big Five cloudalist conglomerates – Alibaba, Tencent, Baidu, Ping An and JD.com – consider the following thought experiment.

The key here is the seamless integration of communication, entertainment, ecommerce, foreign investments and much else with online financial services: the portal to cloud rent.

If cloud capital is a produced means of behaviour modification, Chinese cloudalists have accumulated cloud capital beyond the wildest dreams of their Silicon Valley competitors

China’s cloudalists have already acquired a power that US cloudalists are struggling to emulate: the power stemming from a successful merger of cloud capital and finance – or cloud finance.

Federal Reserve froze hundreds of billions of dollars that belonged to Russia’s central bank but kept within the dollar-payment circuit that the US controls fully. It was the first time in capitalist history that a major central bank’s money had been, effectively, confiscated by another central bank.

because such a move would deter anyone from ever stashing their wealth within the US-controlled dollar payments system again. Then the inconceivable happened: four days after Putin’s troops invaded Ukraine, Washington seized more than $300 billion belonging to Russia’s central bank and evicted anyone transacting through Russia’s central bank from all international payment systems.

In this way, Chinese cloud finance began little by little to establish itself as a viable alternative to the dollar-based international payments system.

And so it was that on 7 October 2022, under the guise of national security concerns over China’s development of sophisticated weaponry, President Biden declared a total export ban on anything that might help China develop top-notch microchips. Since microchips are the building blocks of any advanced economy, and the ban on selling chips to China extended to non-American companies that wanted to do business with American ones, Biden’s ban amounted to total economic war.

soon after it was born, and despite its youth and vibrancy, capitalism demonstrated an inherent inability to generate domestic markets sizeable enough to absorb all of the goods that local capitalist industries were producing.[13] The result was aggressive expansion overseas – a new type of imperialism motivated not so much by an urge to plunder faraway lands but to secure and corner faraway markets for the commodities produced domestically. As several capitalist nations competed for the same turf, in Africa, Asia and the Americas, these neocolonialist conflicts led to the repulsive blood-letting of the late nineteenth-century in Europe and ultimately, in the first half of the twentieth, to two world wars. Capitalism’s rise, in short, inspired industrial-scale carnage at a planetary scale.

Fair?

Under the spell of the war in Ukraine and the Great Inflation, which are enhancing poverty, climate change and an atmosphere of fear, the world is dividing into two, mutually antagonistic, super cloud fiefs – one American, the other Chinese.

the Minotaur, that is – which was diverting to America more than 70 per cent of European and Asian capitalists’ profits. Every such crisis left Europe weaker, more divided, more reactionary.

Simply, while they may wish to protect themselves from its shifts and shocks, they have no actual desire to be free of their pact with the US, which allows European capitalists to profit from the demand generated by America’s trade deficit and to turn these profits into US assets. Could anything worse afflict a Europe dependent on the Dark Deal than the Dark Deal’s demise? Yes, there is something even worse: the gradual, worldwide shift of money and power from the capitalist to the cloudalist sphere. If my hypothesis is right, that cloud capital is overpowering terrestrial capital, sucking cloud rent increasingly out of the global value chain, then Europe is in deep trouble. Because Europe is not China. It lacks a single Big Tech company that can compete with those of Silicon Valley and its financial systems are wholly reliant on Wall Street. Europe’s lack of cloud capital means that the New Cold War, along with the energy shock[17] that the war in Ukraine inflicted upon its manufacturers, has already rendered Europe geostrategically irrelevant.[18] At least Europe is still rich and, in theory, able to look after its weaker citizens. The same cannot be said for Sri Lanka, Lebanon, Pakistan, India, most of Asia and the whole of Africa and Latin America. The rising price of food and fuel caused by the Great Inflation has pushed the Global South into a debt crisis as gruesome as that of the 1970s and 80s. Having been encouraged for decades to borrow dollars to import raw mate...

Their new debt crisis is forcing the Global South’s ruling classes to pick a side.

given capitalism’s inherent tendency to deplete the commons, it was always going to take an enormous one for our species to escape climate catastrophe.

In the shadow of this New Cold War, the best we can now hope for are two separate green transitions, one in each super cloud fief – a bifurcation of the global green agenda which, I fear, will play into the hands of fossil fuel conglomerates who will find ways to play one off against the other, allowing them to keep drilling.

our energy systems have been surrendered to oligarchs with a vested interest to entangle energy in the web of financialisation. As this web becomes increasingly fused into cloud finance, we forfeit what is left of our capacity as a demos (a community, a society, a species) to choose the energy practices that might avert climate disaster. It is why I am anxious to convey, especially to the young, the disturbing news that the greater the power of the cloudalist class, and the faster the march of technofeudalism, the less we, the demos, can do to avert climate catastrophe.

saw their incomes quadruple but became almost as suicidal as Indian farmers whose livelihoods were destroyed when their crops became dependent on Bayer-Monsanto’s genetically engineered seeds.[23] Even in America, the greatest beneficiary of globalisation, millions succumbed to deaths of despair.[24] These contradictions were the direct consequence of the Dark Deal. By mobilising America’s trade deficit to turn China into a capitalist powerhouse, enriching capitalists and rentiers worldwide, underinvestment-induced misery migrated to the Global North while overinvestment-induced wealth migrated to the Global South.

Profit’s conversion into rent has always hindered capitalism’s dynamic, created bubbles that burst, and plunged weaker people and states into toxic debt.

poly-crisis, to borrow the neologism economic historian Adam Tooze concocted out of two Greek words.

Apple is not manufacturing in China because of cheap, skilled labour but because, since 2007, it has built an entire ecosystem of manufacturing processes which blend human, terrestrial and cloud capital in ways that cannot be emulated on American soil.

Peace is the obvious victim of this process but not the only one: given the magnitude and the nature of the power wielded by the very small band of cloudalists on both sides of the Pacific, anything resembling actual democracy seems increasingly farfetched.

the only political force that can do anything to keep the cloudalists in check and thus the hope of democracy alive is the Chinese Communist Party.

Curating an identity online is not optional, and so their personal lives have become some of the most important work they do.

they are taught implicitly to see themselves as a brand, yet one that will be judged according to its perceived authenticity. (And that includes potential employers: ‘No one will offer me a job,’ a graduate told me once, ‘until I have discovered my true self.’)

Every experience can be captured and shared, and so they are continually consumed by the question of whether to do so. And even if no opportunity actually exists for sharing the experience, that opportunity can readily be imagined, and will be. Every choice, witnessed or otherwise, becomes an act in the curation of an identity. One need not be a radical critic of our society to see that the right to a bit of time each day when one is not for sale has all but vanished.

You once told me that finding something timelessly beautiful to focus on, as you did by choosing to lose yourself among the relics of ancient Greece, is our only defence from the demons circling our soul.

But as power shifted from industry to finance after the death of Bretton Woods in 1971, European social democrats and American Democrats alike were lured into a Faustian bargain with the bankers of Wall Street, the City of London, Frankfurt and Paris. The bargain was crude and simple: social democrats in government freed bankers from the shackles of regulation: ‘Go crazy! Regulate yourselves,’ they told them. In return, financiers agreed to hand over the crumbs from their substantial table, in the form of a small portion of their gargantuan gains from rabid financialisation, to fund the welfare state.[5] In Homeric terms, the social democrats had become the era’s lotus eaters. As they gorged themselves on financialisation, they became intellectually soft and morally complicit in its practices.

regulation. Today, cloudalists do not fear powerful unions because cloud proles are too weak to form them and cloud serfs do not even consider themselves producers. As for regulation, that has worked by putting a lid on prices or by breaking up cartels. In the Age of Cloud Capital, cloudalists feel safe in the thought that neither makes any sense. Price regulation is irrelevant when the services that consumers need to be protected from are either free or the cheapest on the market already.

Under technofeudalism, trading is centralised and takes place not in markets but in cloud fiefs (e.g. Big Tech platforms) created and run by the algorithms of cloud capital which match buyers and sellers

The extractive power it affords derives from the social relations between people with property rights over (and, therefore, autonomous access to) means of production (capitalists, landlords) and the rest. The asymmetry in capital ownership leaves those who do not own capital no alternative but to sell to capitalists their commodity labour (see 1.2.2), for a wage, and, in the process, to generate surplus value (see 1.4) for the capitalists.

Rent is any price paid by a buyer above the price which most closely reflects the exchange value of the commodity (1.1.2). An equivalent definition of rent is as monies paid for a commodity in excess of the minimum price necessary for that commodity to have been produced. Four types of rent are prevalent under capitalism:

The two linchpins holding capitalism’s circulation process together (see Figure 2) are: 3.1 Profit and Private Debt as capitalism’s main fuel 3.2 Markets as value’s decentralised distribution mechanism Profit fuels capital accumulation, motivates capitalists, and lubricates capitalisms’ cogs and wheels,[7] while Private Debt (created by financiers from thin air)[8] allows capitalists to finance the large fixed costs involved in building up new plants and networks of physical capital.[9]

CRISES Two main forces cause capitalism to enter into crises. 5.1 Falling rate of profit Falling profits depress the capacity of firms to invest in new capital, consequently limiting future surplus value. At some point, the weakest firms go bankrupt. The workers fired as a result reduce their consumption which, subsequently, depresses further the profit of firms that just managed to hang on – some of which also go bankrupt thus precipitating a doom-loop, a domino effect of bankruptcies causing, and being amplified by, related financial and real estate sector slumps.[11] 5.2 Debt crises During the good times, the financiers’ rents rise geometrically – if not exponentially. Caught up in a gold-fever-like mentality, they lend burgeoning sums to capitalists – which they borrow from the future. At some point the present cannot produce enough value to repay the future, the bubble bursts, and the psychological pendulum swings the opposite way, causing financiers to go on a credit strike. The result is a domino effect of collapsing corporate, FIRE (finance, insurance and real estate) and, often, public debt.[12]

It is in the nature of every class society that one or more of the numerically smaller classes, by owning and controlling the dominant factor of production, manage to extract value from the other classes; and, thus, to accumulate wealth and power. 6.4 Capitalism’s class system

Note: Under feudalism, land was the dominant factor of production and ground rent (paid to landlords by peasants and vassals) was the main income stream on which political and social power was built. Feudal class societies contained a variety of subservient classes (artisans, peasants, vassals, etc.) but only one dominant factor of production (land) yielding a single ruling class (landlords) and a uniquely powerful income flow (ground rent). Under capitalism, land was replaced as the dominant factor of production by capital, the fief was replaced by the market, and ground rent was replaced by profit.

Brute Force: the power to command by exercising (or credibly threatening) different forms of physical violence. 7.2 Political (or Agenda Setting) Power: the capacity to determine (a) who is represented in the forums where collective decisions are reached; (b) what is being debated, discussed and decided upon in these forums; and (c) what issues remain unspoken, tacit, buried across society. 7.3 Soft (or Propaganda) Power: the power to shape what others think, are prepared to tolerate, to wish for and, ultimately, to do. Capitalism introduced a fourth type of extractive power, which helped it reshape the world: 7.4 Capitalist Power: the power vested in owners of capital (i.e. capitalists) to command those lacking capital voluntarily to generate surplus value for the capitalists within their firms.

new economic sectors whose purpose was to modify the behaviour of workers and of consumers respectively. These highly professionalised behavioural modification sectors significantly enhanced capital’s power (its second nature more precisely). 8.1 Labour Command Service Sector – Located in and around the workplace, these professionals applied well-researched, scientific management procedures to speed up the labour process and to squeeze more experiential labour out of a given quantity of commodity labour. Their techniques included Taylorist organisation of the factory floor, sophisticated surveillance, Fordist production lines, Japanese management practices (co-opting workers to the company’s ideology), etc.

Consumer Command Service Sector – Brimming with advertisers, marketers, copywriters and

creative types (epitomised in Chapter 3 by the fictional Don Draper), this sector helped maximise brand rents by manufacturing consumer desires for the large firms’ branded products – thus underpinning their power over both con...

Market for Professionalised Influencers – A new type of manager began to dominate the conglomerates, pushing aside the engineers who used to rise through the company’s ranks. A whole market for their services, and for training them (e.g. the cult of the MBA), extended from traditional industrial sectors to Wall Street and even to public administration. Market for People’s Attention – The Consumer Command Service Sector was dedicated to capturing the attention of television and radio audiences before selling it on to advertisers (see Chapter 2 – Attention markets and the Soviets’ revenge).

Cloud capital is, physically, defined as the agglomeration of networked machinery, software, AI-driven algorithms and communications’ hardware criss-crossing the whole planet and performing a wide variety of tasks, new and old, such as: Inciting billons of non-waged people (cloud serfs) to work for free (and often unconsciously)