Ch. 12 Economic Extractionism

"Extractive economic institutions

concentrate wealth and power in the hands of the few,

stifling innovation and economic growth."

- Daron Acemoglu and James A. Robinson
from Why Nations Fail

The term "Economic Extractionism" has been mentioned several times already in previous chapters, but we haven’t taken the time to explain what it means.

The Urban Dictionary defines Extractionism as “taking money/value from others without creating anything of value; anything that produces economic growth or improves our lives.” (urbandictionary.com)

This definition would certainly apply to things like High-Frequency Trading (HFT), a trading method that uses powerful computer programs to transact a large number of orders in fractions of a second. In my opinion it also applies to blockchain and crypto mining. 

But I want to push back a little on that particular definition. Specifically the part where it says “without creating anything of value”. I think there is a better definition. One that is provided by Rolf Pechukas in his excellent article Extractionism...

“The true enemy is extractionism.
The theft of wealth from the great working population of the planet
into the coffers of the accumulating few.”

(Extractionism medium.com, 2019)

Even if you are creating some “value” you can still be participating in Economic Extractionism. 

Perhaps the distinction is this...

First, if you are extracting much more value than you are providing. 

Second, if you are taking that extracted value, and using it as leverage to extract more and more and more value, and then heaping it up and hoarding it for yourself. 

Now. Let’s be honest. Any capitalist who read the above paragraphs would scratch their head and wonder what the heck I was blathering about. This is a pretty fair description of a capitalist system. That is exactly the point of the capitalist system. Right? To make more money than you put in. To grow your individual wealth. 

The idea of ever growing profits is just business as usual. Completely normalized. 

Fair enough, but consider the impacts of these beliefs, values and behaviors. 

Capitalists are, without a doubt, using the enormous amounts of wealth they’ve accumulated (in most cases inherited), to extract even more wealth from the communities around them. 

But it’s not just about money. It's also about resources. 

Our natural resources (forests, pastures, minerals, fuels, water etc.) are extracted every day, commodified and sold. And often they aren't replaced, or even replaceable. 

Our public resources (highways, bridges, internet, fire services, law enforcement, public works etc.) are being utilized every single day to facilitate the capitalist crusade to extract and sequester wealth from the communities around them. (Those communities who paid for these public resources through taxes.) 

And let's be clear... The capitalist cannot do business without these resources. The most high end Tesla car would be a gigantic, useless lawn ornament without the roads and bridges that you and I pay for. Amazon would be utterly worthless without the internet that our taxes paid to develop. But despite this undeniable fact, the elites who profit the most from these resources, are invariably the ones who are doing their best to avoid paying any of the taxes that fund them.  

Let's look at a real world case of the impacts of Extractionism, using an example that sort of straddles the domains of capital and resources...

Housing

Wall Street, as well as numerous foreign investors, are buying up enormous numbers of houses. 

They’re willing to pay as much as millions of dollars above market prices, just to get another home in their portfolio (Perlman). This often, understandably prices everyday buyers out of the market. The housing market is driven up at such speed that the average working class family can't keep up with it. 

According to the Federal Reserve, the average home price of a single family home was 2.2 times the average annual income in the 1950s. 

In 2021, that number grew to 10 times the average annual income. 

Keep in mind, that for the middle class who can afford to own a home, their home accounts for 60% of their wealth.

Because of these changes in the housing market, there are now two whole generations of young people (Millennials and Gen Z)  who are largely unable to afford to buy a home. This will ultimately keep them from climbing into the middle class. 

It doesn't stop there. There are cascading effects of these extractionist practices. 

With higher housing prices, also comes higher rent. In communities where rent costs rise to more than 32% of monthly income, there is a measurable impact. People are literally priced out of having a home at all. 

“Communities where people spend more than 32% of their income on rent can expect a more rapid increase in homelessness.” (Zillow Research). 

Increases in homelessness translates to higher taxpayer funded subsidies, such as food stamps, public assistance, temporary housing, law enforcement, medical, etc. 

And remember, these deep pocketed investors who can afford to pay millions over asking price, can also afford to sit on empty houses. Because lowering the supply of available housing drives up prices. Basic supply and demand. In fact, there are currently over 16 million investor houses that are sitting empty in the US (Richardson). 

So we now have a situation in this country where there are many times more investor owned empty houses, than there are homeless people. 

This is how Economic Extractionism works. A handful of wealthy elite, extracting wealth from the community around them, at the average taxpayer’s expense. 

Is this really the best way do business? Is this the best we can do as a nation?

Please consider that there is a better way to organize our economy. Perhaps there is a way to work together to change our economy from one of Economic Extractionism, to one of community wealth building. 

But before we begin to explore new ways of doing business, we first have to dig a little deeper and explore the philosophy and values that fostered this current system. If we don't understand the beliefs behind it, how can we hope to change our own thinking?