Rents and tears

I recently had the pleasure of sharing a platform with David Boyle of the New Economics Foundation, and we will be together again on Thursday. The focus of interest for both of us, and for those who invite us to speak, is the strange death of the real economy in the UK and the need to rebuild and revive our local economies.

David edits NEF's newsletter radical economics and has an article in the most recent issue called 'The Unbearably Empty Economy'. He highlights the hollowing out of the British economy so that businesses are 'little more than packaging for computer programmes, call centres and contract staff, while the corporations have divested themselves of most of their skills and activities except financial services'. He also asked the question: 'When was the last time you were in a shop where the person serving you knew more about the product that you did yourself?'

His concern was the loss of meaning in the economy but the more serious aspect is the loss of ownership and control. The economy is now being driven by a very small number of very large investors simpy as a mechanism to extract maximum wealth for them. This is the real 'unbearable lightness' at the heart of 21st century capitalism. The classical economists would have despised this from of economy, since they recognised the rentier class as parasites who obstructed useful economic activity. But now, whether by gambling on the stock-market or watching our house prices rise, we are all being encouraged to ape the rentier mentality rather than engaging in useful productive activity.

The latest wheeze of the late-capitalist wizards is the private equity company which profits by investing borrowed money. Public listed companies, those whose stock is sold on stock markets, are subject to some degree of regulation and auditing. Life is easier for the footloose private equity company, usually headed up by a dashing young Turk, who can persuade a bank to lend him a laughable sum of money which he uses to buy out a public company. He can then sell the assets of the company, or rent them back to the main business, in the case of shops, for example. The cash thus realised is used to pay off the loan, leaving the private equity company owning the real business.

Recently bastions of our economy such as the AA (formerly a mutual), Debenhams and NCP have been hollowed out in this way. Now the private equity players are aiming at Sainsburys, an attractive target because of its large land bank, and possibly British Airways. Because such buyouts are supported by borrowing rather than capital investment there are also huge tax advantages involved in acquiring assets in this way.

This is just the most recent form of asset-stripping, sucking money out of the real economy. We need to respond urgently and our response needs to be in the form of bringing about mutual or community ownership. This is particularly important in the case of land, which has become a target of speculation recently and has doubled in value over the past year. We need to work to build up a network of Community Land Trusts, and on the production side to establish and maintain our own businesses as co-operatives, and use our consumer power to support the co-operatives that others work for.

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