The digital revolution may be returning us to hi-tech serfdom

On the longest of our long weekends, it’s good to have something different to think about. Try this. Could it be that the information revolution – big tech, big data, the internet and social media – is changing how the economy works in ways we’ve yet to understand and won’t like?

The world abounds with economists repeating their conventional wisdom about how the economy works and will keep on working. But one economist politician thinks that digitisation is changing the economy in ways that could lead us back to a new kind of feudalism.

Yanis Varoufakis, former Finance Minister of Greece.Credit: Alex Ellinghausen

He is Yanis Varoufakis, who lectured at Sydney University for some years before returning to Greece and briefly becoming its finance minister. He visited Australia earlier this month as a guest of the Australia Institute.

In the Middle Ages, feudalism was a system of reciprocal military and economic obligations running from the king to his land-owning lords, whose vassals managed their land worked by serfs.

In Varoufakis’s dystopian vision, the digital revolution, led by a few big technology companies – Meta (Facebook), Alphabet (Google), Apple, Amazon and Microsoft – is turning capitalism into “technofeudalism”. Hence the title of his book, Technofeudalism: What Killed Capitalism.

In the internet’s initial phase, it was characterised by open protocols and decentralised networking, focused on information sharing and communication.

Now, however, it has evolved towards more commercialised, centralised services, including social media, e-commerce and cloud computing. His metaphor for the changed parts of the economy is the “cloud”.

The capitalists – owners of physical capital - are being replaced by “cloudalists”: individuals or businesses that control the major digital platforms (such as the Facebook, Google and Twitter sites) and related infrastructure, which allows them to extract “cloud rent” from the consumers and businesses using their platforms.

“Fief” is the feudal word for land. But “cloud fiefs” are Varoufakis’s term for the digital domains and platforms controlled by the cloudalists. These can be specific services, apps or platforms where the cloudalists have significant control, allowing them to extract “cloud rent”.

This process is similar to the way feudal lords controlled land and extracted ordinary rent from those using it.

Economists used the word “rent” – economic rent – to mean prices people are required to pay in excess of the price a business (or a skilled worker) would require to keep them providing the good or service.

Why are sellers able to charge these higher prices? Because you can’t get that same thing anywhere else. Why do fans pay a fortune for tickets to a Taylor Swift concert? Because they don’t want to settle for some other singer.

So cloud rent is payments made by “cloud serfs” to cloudalists for the use of digital platforms and services. This rent is a form of income for cloudalists, derived from their control over these digital assets, rather than from the production or sale of conventional goods and services.

Thus, whereas capitalists seek to make a profit by selling goods and services, cloudalists seek extract rents from cloud serfs – the users and businesses that depend on the digital platforms and apps the cloudalists control.

Workers at big tech companies could be building their own AI replacements.Credit: Bloomberg

Cloud serfs are akin to the serfs in feudal times, bound to the platforms and subject to their terms, often contributing their personal data or content while having limited autonomy and receiving fewer benefits.

Get that? The rent many serfs pay isn’t money, it’s their personal data about their purchasing habits and preferences, and their geographical movements, which can be of great value to businesses trying to sell them things.

Of course, cloud serfs aren’t to be confused with “cloud proles”. Huh? In Varoufakis’s vision, these are the people who work directly for the cloudalists such as Amazon. They’re often highly supervised, with little autonomy, and can even be managed by algorithms.

The modern equivalent of the lord of the manor’s “vassal” managers are the businesses that operate on the cloudalists’ digital platforms. They are subject to the cloudalists’ terms and conditions. While they may own their businesses, they must pay a portion of their earnings as rent to the platform owners and must adhere to their rules.

Between 2010 and 2021 the paper wealth of two men – Jeff Bezos and Elon Musk – that is, the market price of their shares – rose from less than $US10 billion to about $US200 billion each.

Getting past all these new names for things, a key point Varoufakis makes is the way the digital revolution has moved us from one-way advertising to two-way algorithms.

Although advertising could instil in us the desire to buy stuff we hadn’t formerly known we wanted, this is just a one-way street. With cloud-based, Alexa-like devices, the cloudalists can not only induce us to buy things, they can also modify our behaviour.

Knowing so much about our weaknesses, they can make us addicted to doing things that benefit them more than us – even just capturing our attention for protracted periods.

Varoufakis says algorithms have already replaced bosses in the transport, delivery and warehousing industries. Workers find themselves in a modernist nightmare: some entity that is incapable of human empathy allocates them work at a rate of its choosing before monitoring their response times.

This is no longer a market in any meaningful sense. Everything and everyone is intermediated (brought together) not by the disinterested invisible hand of the market, but by an algorithm that works for the cloudalist’s bottom line and dances exclusively to their tune.

Finally, Varoufakis argues that, thanks to all money created out of thin air by the rich world’s central banks during their resort to “quantitative easing” in the global financial crisis and then the pandemic, big tech was able to greatly expand its cloud capital without needing to borrow at great expense, sell large parts of its businesses to others, or generate large profits to pay for new capital stock.

Between 2010 and 2021, he says, the paper wealth of two men – Jeff Bezos and Elon Musk – that is, the market price of their shares – rose from less than $US10 billion to about $US200 billion each.

Even without the fancy jargon, this stuff is hard to get your head around. In 10 years’ time, we’ll know if it was fanciful or prophetic.

Ross Gittins is the economics editor.

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