A brief history of rentierism

An interview with Brett Christophers, author of 'Rentier Capitalism: Who Owns the Economy, and Who Pays for It?'

In an interview with the Fairness Foundation’s Jack Jeffrey, Brett Christophers (Professor of Human Geography at Uppsala University) argues that Britain’s post‑1970s “neoliberal” turn was less about rolling back the state and more about actively reshaping ownership, monetary policy and regulation to create protected zones of rent extraction, particularly in housing, land and infrastructure. He explains how stagnation, rising asset prices and post‑crisis monetary policy have entrenched rentierism and asset manager power, leaving governments dependent on private capital for investment and with few credible alternatives short of compulsory or quasi‑nationalised investment.

Jack Jeffrey (JJ): You suggest that neoliberalism in Britain — and I promise that’s the last time I’m going to use that word — wasn’t really a project of deregulation, but more an active political construction of secure, protected zones of rent extraction through monetary and fiscal policy, and asset ownership regimes. The conventional post-1970s story is of a state retreating from the economy, rather than, as you say in Rentier Capitalism, actively redesigning it in ways that advantage particular asset holders. I’m interested, just to kick things off, in why that is?

Brett Christophers (BC): I don’t like to oversimplify things, but I think a big part of the reason is that once David Harvey had written A Brief History of Neoliberalism (2005), which was one of the first books on the subject, the slew of books that followed had it that neoliberalism was very much centred around the rise of a market society. The story became about the ways in which key resources in societies come to be allocated and distributed, and the question of ownership of resources and assets disappeared somewhat.

One part of what I’ve been trying to do over the last decade or so, but particularly in Rentier Capitalism, is to say: hang on a second, there’s an important story about ownership here. It’s always seemed to me that if we want to call the period since the 1970s in the UK the neoliberal period, the transformations in patterns of ownership were much more significant than transformations in the ways in which resources were or weren’t distributed and allocated. The emphasis on marketisation is not so much wrong, but rather only part of a wider story. In the British case, more so perhaps than elsewhere, this is a story where the default model of ownership became private ownership by capital. This had been a part of Harvey’s book – the restoration of class power was essentially about ownership – but it wasn’t made explicit.

JJ: I think people are slowly staring to understand this. Your work, alongside others like Common Wealth, has done a very good job of shifting the focus onto questions of ownership. You can even see it on parts of the right too — a suspicion of foreign capital buying up large swathes of British industry, and so on. I think this is not just a left or right issue now.

BC: Yeah, absolutely. Getting away from the UK context, if you look at Donald Trump coming out and saying that we need to ban institutional investor ownership of single-family housing in the US, that’s another great example of what you might call a populist politics of ownership transcending traditional political boundaries. I remember when I first started to write about institutional investment in housing, I had political actors on the right reach out wanting to talk about my research – I said no. But it is unsurprising that this issue does cut across traditional political boundaries, in so far as it is completely trampling on the home ownership dream that is so integral to rightwing politics.

It’s slightly different in the UK. Big institutional investors as owners specifically of housing is less of a problem than ownership of other types of critical infrastructure — energy, transport, water and wastewater.

That idea of a property-owning democracy worked for a long time in a UK context, because the effect of deregulating and liberalising housing finance, and the Right to Buy scheme, had a kind of democratising effect, whereby you did open up the possibility for home ownership to a wider social spectrum. From the early 1980s until the mid-2000s you had growing rates of home ownership, from around 55 per cent, when Thatcher came to power, up to a peak of around 70 per cent. That reinforced Thatcher’s argument about a property-owning democracy.

What then happened was all of that entailed a massive increase in house prices. You reached a point by the mid to late 2000s where affordability constraints kicked in, particularly among young people. That was when you saw the home ownership rate peak and begin to come back down. But it wasn’t just about affordability restrictions kicking in. It was also about the growth of the buy-to-let market. Potential young homeowners were now competing not just with one another, but with buy-to-let investors.

We’re now at the point where, unless you’re in banking or consulting or a few other very highly paid professions, if you’re in the London and the South East and you’re under 40, you have no hope of buying housing unless you have parents who can leverage their own home ownership. The housing market has become a vehicle for the reproduction and exacerbation of class inequality through generations. And that is only going to become a more significant social phenomenon over time.

JJ: I’m really interested in this. There is obviously a lot of momentum behind the agenda of taxing extreme wealth. There is something I find sympathetic in that narrative, but I’m much more convinced by arguments from people like Lisa Adkins in The Asset Economy — that one of the things Piketty that misses in Capital in the 21^st Century is that lots of people, not just billionaires, are implicated in this economy, in this political economy, that has organised more and more of itself around asset ownership. That’s the problem.

And especially in the UK, we have a culture in which people have been encouraged to speculate on the housing market. Which, as you say, has had catastrophic effects on those who aren’t already participating in this system. But unlike in the US, where blame can more easily be directed at large institutional investors, it seems a lot more difficult to identify a single obvious bad actor in the British context.

BC: The buy-to-let market in the UK is a fascinating case. I think there are now around three million people in the UK who own a second, or more, residential property. The vast majority of them are not super-rich people. If you look at the data, the median income before rental income of most buy-to-let investors is pretty average, or even below average.

As I see it, these people look around them at a chronically stagnant UK economy and think about how they can better their own circumstances. The Fairness Foundation has done some really interesting research on this issue. A few years ago, they asked people about five or six different hypothetical wealthy characters — a sports person, someone who inherited their money, an entrepreneur, a financial investor, and a landlord — and asked what people thought of them. Did they get their money fairly? Did they get it through hard work? Is this type of wealth generally available to people? And the landlord came out pretty well. That doesn’t surprise me, and I think it’s really telling. Eighty years ago, if you’d asked the same question, everyone would have been relentlessly negative about the landlord. But people now see buy-to-let investment as one of the few ways to get ahead.

I do not think moralistic takes on buy-to-let are very helpful, because buy-to-let is a symptom, not a cause. It tells us something about the kind of political economy Britain has become. To say that landlords are simply terrible people is to miss the point. The more important question is why rent extraction has become such a central feature of economic life. Many buy-to-let investors are simply trying to secure themselves in an economy where other avenues for security have disappeared. It is a more interesting, more socially significant, and more complex phenomenon than many critics, especially on the left, are willing to acknowledge.

JJ: The relationship between rentierism, growth, and productivity is one of the most important questions in contemporary political economy. How robust is that relationship, and what is its causal direction? Does rentierism actively produce stagnation by channelling capital into extraction rather than innovation, or does prolonged stagnation encourage rent seeking as economic actors adapt to a low growth environment? I suspect it works both ways.

These are particularly important questions in the British context, where political debate is now dominated by the language of growth. But a lot of that discourse treats growth as an abstract imperative rather than asking more fundamental questions about Britain’s economic model, and why it might be organised in ways that systematically frustrate genuine wealth creation.

BC: I’ll begin by saying that I’m by no means an expert on the statistical or quantitative nature of that relationship. But what I will say is that it obviously, as you say, works both ways.

There’s clearly a relatively strong argument, which has been around for a long time now, that a slowing of economic growth itself encourages rentierism. A big part of the literature on what changed in the economies of the Global North from the 1980s onwards was that you had declining rates of profit and economic stagnation, and that was why financialisation occurred. You get these cycles where, once mature economies go into stagnation in the productive economy, investment shifts into the unproductive financial or rentier economy. I have a lot of time for those arguments.

But the way I looked at it in Rentier Capitalism was the other way around. Yes, stagnation in productive investment can shift investment into unproductive investment, but it also works the other way: once your economy becomes more focused on ownership and control of monopolistic assets of various kinds, that in itself tends to create economic stagnation. You have actors who become principally interested in protecting those existing assets, policing them, trying to ward off competition to the income-generating qualities of those assets. That creates a very stagnant environment in which you’re not getting much by way of innovation and productive growth. It’s classically symptomatic of that kind of environment that, in the UK’s case, the data suggests that the biggest source of economic growth in recent decades has been precisely land, and the buy-to-let sector. That could only happen in a scenario in which the rest of the economy is doing dreadfully. You would be unlikely to see that almost anywhere else in the world.

JJ: One of the things that struck me across both your work on rentierism and your more recent work on the asset manager economy is the central role of monetary policy, particularly quantitative easing and the prolonged period of low interest rates after the financial crisis. Central banks appear repeatedly to have acted in ways that sustain asset prices and, in doing so, to have reinforced both rentier incomes and the business models of asset managers. How far do you see central banks as having become key institutions through which rentierism and asset manager power are reproduced?

BC: That was obviously a really important period. When I was working on Rentier Capitalism and looking at rentier dynamics in different parts of the economy — finance, intellectual property, natural resources, infrastructure, land and housing — I kept seeing the same types of actors across all these different sectors, namely asset managers, specifically private equity-type asset managers like Blackstone, Macquarie Group, Brookfield and others.

I wanted to understand more about these financial institutions – which is why I wrote Our Lives in Their Portfolios – and to figure out why it was that in the UK, but not only in the UK, they had seemingly become much more important as owners of key types of physical infrastructure in society, including housing, but not only housing — energy infrastructure, water and wastewater infrastructure, transport infrastructure, telecommunications infrastructure and so on.

What I found when I was doing the research for that book was that this had become a particularly significant phenomenon, as you say, after the financial crisis in the 2010s. That’s not to say that these institutions weren’t investing in housing and municipal waterworks and gas transmission systems before then, but the growth of that investment really surged after the financial crisis. And, as you say, a big part of that was the new macroeconomic environment.

A useful way of thinking about this is to think about the nature of financial investment and what institutional investors are looking for. They’re looking for two different things, in varying combinations. First of all, they’re looking for capital gain. They want to invest in something and then, when they sell it later, they want to sell it for more than they bought it for. But they’re also looking for income. Ideally, when you hold an investment, you want it to generate an annual yield. Different types of investors are interested in different combinations of capital gain and income, but historically investors looking for income have relied principally on fixed-income financial securities, i.e. bonds. They would buy government treasuries or, in the UK case, gilts; they would buy corporate bonds; and those bonds would pay an annual coupon — anywhere between 3-7 per cent roughly — and provide an annual yield, alongside some dividends from stocks. But it was primarily bonds that supplied that annual income.

After the financial crisis you had a long period where interest rates globally fell to zero or close to zero, in some cases below zero. Suddenly, big institutional investors and asset managers were faced with a situation where bonds weren’t providing meaningful annual income anymore. In that environment, investors asked themselves, where could they find that annual income? Real estate and infrastructure were a big part of the answer. Instead of investing in bonds paying 1 per cent annual income, you could invest in housing or commercial real estate, which would provide annual income because of the rents being paid. Or you could invest in infrastructure because of the fees being paid by users of that infrastructure, whether toll roads or mobile-telephone transmission towers or whatever else it might be.

That was a huge part of the reason for the massive growth of real-estate and infrastructure investment by institutional investors, and in particular asset managers, in that post-2008 period. There was this turn to physical assets — so-called real assets — as a reliable and substantive source of income. You can’t understand what happened there without paying significant attention to monetary policy.

As I hinted at earlier, in the UK, this was principally an infrastructure story. For example, a lot of money in the UK went into the water companies. When privatisation happened in the water sector — and also in the electricity sector, to use another example — it principally happened through what had been state-owned public enterprises being floated on the stock market. What then happened was that those public companies were taken private by asset managers. They were delisted and became private. Thames Water would be the classic example. Macquarie Group became the majority owner of Thames Water in 2006 and owned it up until 2017. Obviously today, Thames Water is a basket case, but in many ways it’s a quintessential example.

Elsewhere in the world, as I mentioned, it was more of a housing story. In the US, Germany and Spain there are very significant examples where asset managers became, and remain today, huge owners of residential property. I think the reason that hasn’t happened in the UK yet is that, along with countries like Australia, residential housing ownership is incredibly fragmented in the UK. There aren’t many big owners of rental housing, by which I mean entities that own significant portfolios of rental housing. Most of the UK’s private rental sector is in the hands of small buy-to-let landlords.

The UK’s biggest private-sector residential landlord is a company called Grainger, which I’m sure almost no one will ever have heard of. It owns only about 11,000 rental homes, which compared to the portfolios of big investors in the US, Spain and Germany is chicken feed. The fact that the big asset managers are not significant owners of housing in the UK is not because they don’t want to own housing. It’s because the opportunities to buy large portfolios — which is their modus operandi — simply aren’t there.

If you’re a big asset manager, you’re not in the business of spending £100,000 here and £200,000 there. You’re in the business of spending hundreds of millions. It’s not transactionally efficient to do piecemeal acquisitions.

That’s why, in the UK, when you hear about these guys, you hear more about the build-to-rent market. But what they’ve also realised is that building housing isn’t particularly profitable. It’s much more profitable to own portfolios of already-existing housing and rent them out than it is to build them.

JJ: Just one last question on the monetary landscape. Now interest rates have ticked up a little bit, do you think that will change anything going forward? Are the conditions for that asset manager society disappearing?

BC: On the infrastructure side — and I’m focusing here not just on the UK but internationally — it definitely has made a difference. When I wrote that book, which was written in 2022, interest rates were just rising again because of the uptick in inflation. Central banks tightened monetary policy, interest rates went up, and while they’ve come back down a bit, they’re still higher than they were during the 2010s. That has definitely had an impact on infrastructure investment by financial investors. We’ve definitely seen less of that in recent years, and those big investors have only been willing to continue investing in infrastructure where it has been made particularly favourable for them to do so. This is where the language of de-risking comes in. What they’ve said is: we will continue to invest in infrastructure, and potentially develop new infrastructure, but only if governments make it really favourable to us by taking the risk off our hands, and guaranteeing certain levels of revenue.

On the housing side, the market has remained much more robust internationally. Once asset managers got into housing in a big way in the 2010s, they realised what a good business it was. They realised just how profitable it was to be owners of rental housing, particularly in parts of the world that are supply-constrained. In cities where, because of various zoning restrictions, there are significant constraints on new construction, those constraints obviously help put upward pressure on rents. They’ve realised that it can continue to be profitable to own portfolios of rental housing even though interest rates have gone up.

The other thing worth mentioning is the way they’ve tried to boost profitability by seeking out cheaper sources of debt financing in that higher interest rate environment. The main such source has been private credit funds. Historically, if you were Blackstone and you wanted to invest in infrastructure or in housing or commercial real estate, around 40 per cent of the money for that investment would be equity, but you would borrow the rest — around 60 per cent — in order to leverage the investment and enhance the returns. You would go to banks for that debt financing. But what’s been happening in recent years is that increasingly you would go to non-bank debt financiers, namely big private credit funds. They provide a much cheaper source of debt financing, which is a way for asset managers to boost their equity returns.

In short, they’ve found ways of maintaining the profitability of this real-asset investment even in a higher interest rate environment.

JJ: Sticking with asset management, in a paper that you co-authored with Benjamin Braun, you make a distinction between three related issues. You have asset managers as profit-making firms in their own right; secondly, as shapers of other capitalist enterprises; and thirdly, as shapers of capitalism and society at large. Why are those distinctions analytically important, and how are they held together?

BC: I think they’re important simply because otherwise the discussion can, and does, get very confused. There’s lots of terminological and conceptual slippage when people talk about asset managers. We tried to draw that distinction as a way of imparting a bit of order into how we collectively as commentators and scholars talk about asset managers and their role in contemporary capitalist society. It’s clearly the case that asset managers have become enormously more significant within capitalism in recent decades. And it’s worth saying a bit about why that is and putting some numbers on it.

At a very basic level, an asset manager — despite the almost infinite variety in operating model, size and investment focus — is a financial investment institution distinguished by the fact that most, and sometimes all, of the money it invests is not its own. Asset managers invest other people’s money, whether that’s retail investors like you and me, or institutional investors, particularly pension funds, insurance companies and so on. Most of the money that BlackRock or Blackstone invest is not their own money. The vast bulk of it is money that they are investing on others’ behalf for a fee — or, in reality, for various different types of fees: management fees, performance fees and so on.

If you go back to the 1970s, the total amount of capital that asset managers globally had at their disposal — the amount of money they managed on behalf of others — was in the order of about $1 trillion. Today it’s over $100 trillion. Asset managers have gone from very insignificant institutions to very significant institutions, purely measured by the amount of capital at their disposal, the amount of money they are managing.

Why has that happened? Two things have changed between the 1970s and today. First, there is simply more surplus capital swilling around the world now than there was then. The big sources of that growth in surplus capital are pension funds, sovereign wealth, and insurance companies. There are more retirement savings now than there were then. Pension capital has become much more significant. There is more sovereign wealth around — a lot of this is to do with oil wealth, but not only oil wealth. And insurance has become a bigger business, and the premiums we pay represent capital that insurance companies manage and invest in order to make a profit.

The second thing, which is equally significant, is that those ultimate holders of surplus capital invest that money not themselves but through asset managers. Pension funds, sovereign wealth funds and institutional investors now routinely hand much of their money to firms like BlackRock and Blackstone, on the grounds that these firms have the expertise, scale and infrastructure to allocate it more effectively. The result is that investment decisions are increasingly mediated by a relatively small number of asset management firms, which earn fees for deciding where capital should go.

You put those two trends together — more surplus capital, and more of it being outsourced to asset managers — and that’s how you get from $1 trillion to over $100 trillion.

Now, in what ways have they become more important? What matters first is that asset managers have become major capitalist institutions in their own right. So one line of analysis is simply to treat them as a sector of accumulation: how do they make money, how much money do they make, and what is distinctive about their business models? In other words, asset management is not just a conduit through which capital passes. It is itself a profit-making sector that needs to be understood on its own terms.

Second, asset managers matter because they invest in, and thereby shape, the rest of capitalism. They do not simply sit outside the productive economy; they are deeply embedded in it through ownership and control. Sometimes that means outright ownership, as in private equity. Sometimes it means large minority stakes, as with BlackRock, State Street and Vanguard. The classic numbers are that the average S&P company is around 9 per cent owned by BlackRock and around 30 per cent owned collectively by BlackRock, State Street, Vanguard, Fidelity and so on. Even where they do not own firms outright, they can still exert significant influence over how companies are run, what strategies they pursue, and what counts as acceptable performance.

The point about BlackRock and the other large index managers is not that they control every company in some simple, unified sense. It is rather that, through the growth of index funds and diversified holdings, they have become “universal owners”: institutions with a stake in a vast swathe of the corporate economy. That changes the ownership landscape even where day to day control remains indirect.

The third question is broader again. Once asset managers have become central both as firms in their own right and as owners of other firms, we need to ask what this does to capitalism as a whole. How are industries reorganised when asset-manager logics become more pervasive? How are states, regulators and macroeconomic policy shaped by their preferences? How does the wider political economy change when these institutions become central nodes in the allocation of capital? This is the broadest analytical register in the paper you mentioned, not just asset managers as firms, or as owners of firms, but as institutions that shape the wider organisation of capitalism and society.

These three levels are analytically distinct, but they hang together. Asset managers are profit-making firms; they make those profits by investing in and influencing other firms; and as those relationships become more widespread, their priorities and business models begin to shape the wider contours of capitalism itself. That is why it makes sense to separate the questions, but also to see them as parts of a single process.

One obvious way that this broader power appears is in politics. When people once thought about the political clout of finance, they mainly thought about banks. Now, increasingly, they think about asset managers. The symbolic shift from Goldman Sachs to Larry Fink or Steve Schwarzman tells you something real about how power within finance has moved. The financial sector has changed, and with it the key institutions to which political leaders increasingly orient themselves. That does not mean that banks no longer matter. It means that asset managers have become central enough that they now have to be understood as major political-economic actors in their own right.

JJ: Last question. A lot of these institutions have incredible amounts of capital to deploy. Combine that with a scenario where states don’t have the capacity and resources that they once did to build infrastructure. What do we do in that scenario? Politicians are, for understandable reasons, desperate for these institutions to invest in Britian, but that comes at a price.

BC: It’s one of the most salient questions of our age. We live, on the one hand, in a moment where asset managers control the bulk of surplus capital available for investment. That’s the first thing. The second thing, as you say, is that we also live in an age of extreme fiscal conservatism, where governments believe — or have allowed themselves to be led to believe — that they can do much less in terms of public financing and public investment than was historically the case.

I don’t want to get into too much detail about the extent to which that belief is true or false. I’m definitely not one of those people who says it’s all a myth, and that governments can still borrow cheaply and freely and won’t be punished by bond markets. There is a degree of financial reality we shouldn’t dismiss out of hand, not least in the Global South, where fiscal constraints are even more severe than they are in the Global North. In any case, whether it’s based on economic fundamentals or not, governments now have to a significant extent taken public financing and investment off the table.

The third thing, as you say, is that we are in a situation where, not least in a country like the UK, a huge amount of investment is required in infrastructure and particularly climate infrastructure for both mitigation and adaptation purposes.

Put those three things together and it really isn’t surprising that the likes of Reeves are cozying up to asset managers. Once you take public investment off the table, what else are you going to do? You turn to private capital if you want to get anything done.

Certain colleagues of mine on the left will insists that if private capital is the only answer, let’s discipline private capital. Let’s not de-risk that capital. Let’s say its investment is welcome, but conditional, and impose robust conditions on the terms on which it invests and the amount of profit it can make. That’s a nice story in theory, but the reality is that as soon as you say that, they threaten to take their money elsewhere. That’s the political-economic reality. I think this idea of conditionality is very nice, but it conflicts pretty gruesomely with the political reality we are facing.

You see this in sectors such as water. Historically, whenever Ofwat has signalled that it intends to take a tougher line — recognising that water companies have been abusing the situation by continuing to release effluent into rivers, and that the response must involve more serious fines and more robust regulation — large institutional investors and asset managers have been quick to warn that they may withdraw from the UK. And of course, as soon as they say that, the government panics and capitulates And I do kind of get it. We are caught between a rock and a hard place. I’m not sure what else governments can do if public-sector financing and investment is taken off the table. You are just left with private capital, and it is very difficult to discipline private capital when private capital can go on capital strike.

The only alternative, as I see it, is basically — if not nationalising industry — then quasi-nationalising it through compulsory investment of various kinds. People often like to use wartime analogies when they talk about climate. In wartime, governments force capitalists to invest in certain ways. Are governments in the Global North even close to forcing capitalists to invest in certain ways today? No, they are not remotely close.

That’s the only alternative, as I see it. But right now we are in this very unfortunate situation where public investment isn’t happening, and private investment only happens if governments de-risk it sufficiently to guarantee a certain level of profitability.

That is exactly where clean energy investment is in the UK. Big offshore wind investment is only happening because the UK government is guaranteeing a certain level of return sufficient to call forth that investment. And, to be clear, if the choice is between, on the one hand, de-risking private investment in clean energy and allowing major investors to earn guaranteed returns of 9 or 10 per cent, and, on the other, refusing to do so on principle and thereby failing to deliver the investment at all, I would choose the former every time. The regrettable part is that these have come to seem like the only options available. That’s the best way I can put it.