How to extract a surplus
When you paid through the nose for a black cab, or had to cycle in the rain to get to work during a Tube strike, did you ever stop to consider how it ended up like this? To find an answer, one must look further back than the latest inflation shock, or the privatisation of the railways. Believe it or not, an answer can be found as far back as the earliest human settlements, and perhaps earlier. Those early agricultural societies, whose people settled in small villages around productive farmland, would not have been alien to surrendering a portion of their ‘hard-earned’ to someone who, perhaps, did not merit such a price.
Nascent agricultural settlements were particularly prone to nomadic raiders who would steal their grain and ransack their settlements. A small village had little choice but to hand over a portion of its produce, or be forced to pick up the pieces. Eventually, the raiders learned that settling close to, or among the farmers themselves would allow them to demand an annual tribute, forcibly extracting a surplus every year – instead of plundering a village once, the bandits could plunder in perpetuity.
Over time, some of these bandits, or strongmen, established themselves as elites – call them kings, queens, or an aristocracy. Positions of influence helped them extract a surplus from the population, which they could use to build shrines, temples, pyramids, castles and palaces. They established laws, courts, and institutions that cemented themselves in place, and kept the workers in their place.
One of the oldest written texts is the Babylonian Code of Hammurabi, written around 1750 BC. It is a legal text, and, significantly, it has six laws regarding the escape of slaves alone. The Babylonian elite had codified the extraction of a large surplus from their workers, enshrining in law what their forebears had for centuries prior.
This thread can be traced right through to modern times. Laws have repeatedly been written to favour the property-owning elite over the workers who generate wealth. For example, by 1820, England had more than 200 offences carrying the death penalty, many of which protected elites and their property. These offences ranged from treason, to horse theft, to grand larceny – defined as stealing an item worth more than one shilling (or about 5% of a worker’s weekly wage at the time).
Over time, governing powers have become more representative of the people they govern, and their powers of extraction have subsequently diminished. Those old elites, who made more than a living from eking out a surplus from those around them, have moved on to other pursuits.
Unique and valuable workers are the most prone to exploitation, and London is home to many of the UK’s most productive workers. It is one of the wealthiest cities in the world, and home of the creative, legal and finance industries, among many more. These are industries that thrive on human interaction and face-to-face networks. This makes the punitive strikes by London Underground workers particularly effective – a prime example of an organised group using their influence and oligopolistic position to extract a surplus from the local population.
Transport for London has 28,000 employees and pays £2.3bn a year in wages, on average £81,500 per person, including National Insurance and pension contributions. They are already paid double the national average for working a 35-hour week, 39 weeks a year. Nevertheless, they have learned that their control over London’s transport system is one they can exploit for their own gain, and they are demanding more plunder.
London’s underground transport workers might not be considered elite by today’s standards, but they continue to demonstrate the same extractive powers. They are not the only old-style ‘elite’ extracting a surplus from the population. Many exist in the private sector, but they seem to be entrenched in the public sector where their predation is assisted by unionisation. Occasionally though, the extractive power of an ‘elite’ is broken up. The black cabbie in London was one such group that lost much of its power. Protected by regulation and the “knowledge” exam, the black cab drivers were allowed to extract a surplus. The advent of Uber and other ride-hailing apps opened their service to new entrants charging much lower fees. The black cab drivers, their regulators, and the news media put up a stout rear-guard action, but Uber’s extraordinarily deep pockets, unrelenting leadership, and popular support overcame that opposition.
It may take political backbone to introduce new technology to the London Tube network, but the writing is on the wall. We have had driverless trains on the Docklands Light Railway for 40 years and in places like Delhi, India the transport authority has introduced driverless trains on two major lines and hopes to expand their driverless service in the near future.
In today’s paper-money world, inflation is one symptom of our collective failure to deal with the extractive bandit-elites, as governments fail to balance the books. Governments have often resorted to printing new money, ultimately eroding its value. Inflation is a further way of transferring wealth from savers to pay the extractive bandit-elites their tithe.
It may take crisis to shake-up and reduce the power of the entrenched elites that reduce our capacity for growth and wealth creation. If however, we want to avoid a crisis then it will take engagement from all of us. In the meantime, we should review our finances to ensure we are not tied into any extractive bandit-elite unnecessarily, like for instance onerous contracts imposed by monopolistic utility providers. We should also review our stored wealth, our investment portfolios, with our investment advisors to ensure that the income and capital is not plundered by inflation or taxation.
Please be aware that the value of investments may go up or down and you may receive back less than you invested originally. Past performance is not a guide to the future.
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