A new feudalism?
I recently finished Techno Feudalism: What Killed Capitalism by Yanis Varoufakis, on audiobook read by the author himself. It offers an interesting perspective on modern capitalism or, in the opinion of the author, why capitalism as we know it is dead. Mr. Varoufakis writes from the left, which grants him a unique perspective inherent to that side of the political spectrum. Marxism is interesting primarily for its critique and diagnosis of capitalism’s structure, not for its purported inevitable end-result of a communist revolution. In this sense, Mr. Varoufakis’ book is an enlightening read.
The book argues that the economic system we live in today is something distinct from the capitalism the author grew up with and criticized as part of the wider and fundamental left-leaning objection to the exploitation of labor by capital. According to Varoufakis, capitalism has been replaced by a neo-feudal system of control and exploitation, controlled and marshaled by big tech companies and their enablers. Varoufakis is not the first author to examine the idea that modern-day capitalism contains elements of feudalism, but his perspective is unique in two ways: first, in how he makes a clear distinction between traditional physical (terrestrial) capital and cloud (non-physical) capital, and second, the way in which the latter derives its benefits mainly via its ability to extract uncontested rents—hence the link to feudalism—even with no or little “profit.” The book introduces the idea of “cloudalists,” who are distinct from the capitalists they have replaced.
It is worthwhile spelling out the difference between the two. Under capitalism, profits arise from competitive market activity, innovation, and, in the Marxist analysis, the exploitation of labor. Industrialists invest in production and capital goods, generating wealth by selling goods or services at a higher price than the cost of production. In techno-feudalism, wealth is extracted not through production but through control over digital platforms, which reside in the online cloud. These platforms act as gatekeepers, charging users—whether consumers or producers—for access to essential digital infrastructure. Cloud capital has the following distinct characteristics, according to Varoufakis:
Cloud capital consists of digital platforms, algorithms, and data that enable centralized control over decentralized economic activity.
Unlike traditional capital, which sought profits through market competition, cloud capital monopolizes digital infrastructure to extract rents.
The platforms' network effects make them natural monopolies, further entrenching their power.
In this new system, digital platforms like Amazon, Google, and Facebook have morphed into modern-day feudal lords, controlling access to marketplaces and extracting rents rather than producing goods or services. Because of these platforms’ market power, derived from the unique structure of online services in which network effects tend to offer one or two platforms total dominance, the ability of these feudal lords to extract such rents is almost uncontested. This rent-seeking behavior represents a parasitic relationship where platforms thrive by appropriating value created by others. More accurately, cloud capital has managed the trick of turning online communication and interaction into a commodity, from which platforms derive market power through network effects and extract rents.
This Faustian bargain between fragmented consumers and producers—operating in this context under the rules of “old capitalism”—and big tech platforms governing all access to all markets is well described and rehearsed in contexts unrelated to the dichotomy between traditional capitalism and techno-feudalism. But no matter what framework is used to describe it, it remains difficult to dislodge, let alone replace, even if a social planner wanted to do so. This, I believe, is linked to two interconnected processes noted above. First, cloud capitalism tends to produce extreme market concentration, in which one or two platforms dominate each market segment, powered by exponential network effects. This is true across the entire supply and value chain, starting with the crucial hardware needed to power cloud capitalism—NVIDIA, TSMC, ASML, etc.—to the software platforms—Amazon, Google, Microsoft, Adobe, Spotify, etc.—that are the ultimate producers of the cloud capital services increasingly making the world tick. Second, this market power allows cloud capitalists to “price” their services aggressively and, ultimately, in a way that bars any competitor from ever challenging their position under the normal rules of capitalism. This is linked to the point noted above: cloud capitalists are rent extractors rather than traditional profit maximizers. Under cloud capitalism, market power translates into rent-seeking, not monopoly prices above marginal costs as otherwise taught in economics textbooks.
How bad is it?
Yanis Varoufakis isn’t too impressed with the rise of cloud capitalists and the economic structure that undergirds their ascent. Specifically, he criticizes the system along three dimensions:
Power Dynamics: Techno-feudal lords (platform owners) wield disproportionate power over both consumers and producers. They control critical chokepoints in the economy and leverage data to predict and manipulate behavior.
Labor Exploitation: Workers are no longer merely employed; they are increasingly surveilled and controlled by platforms, whether they are gig workers (Uber, Deliveroo) or traditional employees subject to algorithmic management.
Loss of Autonomy: Consumers and producers alike lose autonomy as platforms dictate the terms of engagement, often enforcing asymmetrical contracts and extracting rents.
I would highlight two perspectives. Firstly, and in a roundabout way, it shows the kind of company venture capitalists dream of funding: a market- or segment-leading company keeping out competitors through the scaling of network effects, and the flow of steady “cloud rents” by monetizing access to and interaction within the network. Secondly, and more profoundly, techno-feudalism illuminates a potentially important negative externality of the otherwise seemingly positive economic effect of modern tech firms and the products and services they offer.
Here’s the elevator pitch in favor of big tech: In a nutshell, these firms produce ever-more desirable products and services at ever-lower prices—adjusted for quality—which, in an economic context, is the definition of a productivity boom, even if such productivity booms are difficult to quantify. However, the key point here is that if the rise of big tech and cloud capitalism is also associated with rent-seeking, economic theory tells us this is a negative externality that needs to be taken into account. One way—though undoubtedly not the only way—is by seeing the economy the lens of a new (techno) feudalism as presented by Yanis Varoufakis. For that reason alone, it is an interesting book.