Monday, 15 November 2010

Respublica discovers the "Social Rentier"

Respublica launched a campaign today, To Buy, To Bid, To Build: Community Rights for an Asset Owning Democracy that encourages giving away public land assets to help social enterprises get going. Remember, the golden rule is: Tax comes out of rent. Subsidy adds to rent.

Its seems like a good effort but what was not asked by the project is why entrepreneurs cannot buy at market prices in the first place before proceeding. If we consider the law of rent its because rent comes out of earnings before they can be made, so they can never accumulate a surplus to buy their own assets. And if you have acquired a location by whatever other means you can accumulate capital that much the more easily by charging rent. We can also then see that worse still, speculative rents force tenants wages down to a minimum.

The danger is this campaign is treating symptoms with more poison rather than seeking a cure for a chronic economic disease. And encouraging these lucky new asset owners to be victims become perpetrator.

What this "encouragement" is actually doing is creating a new kind of rentier. A social rentier. The low value sites are public assets being given away, essentially free land, so that the entrepreneur can start up. If we look across the panorama of history we can see that a poor man becomes a millionaire once the community has developed around originally free land, through ever increasing privately collected rent. But the location value arises because of the community created value, not any effort of the landowner.

The good Canon and I went to see Mr Blond last year to explain all this to him but he doesn't seem to have remembered.

My question was the usual before a 100 strong audience of courageous social entrepreneurs at 1 Plough Place:

These are noble goals and we have spent much time blaming monopoly power in the public sector. Yet the biggest monopoly power of all, the institution of private property in land within the PRIVATE SECTOR, will take anything extra produced by the skill and enterprise of all those here today, in higher rents. Wages and profits must fall in proportion and the wealth divide problem you want to resolve will intensify. Do you all understand my question and what are you going to about it? 

I showed the wage theory graph as evidence. Real Reform: Who is getting your wages ? Mr Blond sort of agreed and made a very big noise about rentier monopoly power again and how bad it all was. Great! But then did an enormous U turn and said:

Some unearned incomes are fine!

Whaattt! As if to say, well if they cant be a rentier by the monopolised private market then we'll give it to them by public monopoly, and we'll socialise it too. I never got the chance to reply. It would have been:

So who did earn those incomes then. And by what right did the beneficiary appropriate them? Any rents taken by the new entrepreneurs will certainly be unearned. Someone else we working for them, for free and will not be able to accumulate their own capital... Can you see where I'm going with this?

The question is rhetorical because there is no answer that stands the test of justice. I'd like to hear Mr Blond explain himself here. The scheme cannot possibly work for all ... in the end the result will be the same, low wages, concentration of capital, strife and a few more wealthy landowners.

The Secretary of State, Rt Hon Greg Clark MP, Minister for Decentralisation, didnt understand it but was kind in response to my question. The campaign director, Steve Wyler, behind it all didn't answer but did seem to know what would happen without seeming to see the consequences and said:

Won't it be great to see rents going up again!

Arghhh! Afterwards I was surrounded by folks going yes you are right, this is more insanity, tell us more. Including an agent of a leading think tank, a very well informed barrister and ministry officer.

I went to the School for Social Entrepreneurs training class earlier this year. The main theme was that they needed rent free land to start up. Enormous subsidy. Tax payer funded. Looks like they will get it. One day they too may be rentiers. Social Rentiers.

Where will it all end?