30 September 2013

How Rising House Prices Serve George's Friends in the City

There is a lot of controversy about the potential of the Help to Buy scheme to restart the housing bubble. I must say that I share this concern and am disturbed by the thought that Osborne may be deliberately reflating the value of the housing market to enable himself to portray the government as having tackled the problem of the deficit. To portray this policy as one of compassion for the homeless, and to encourage homeowners to celebrate rising house prices, as Cameron did on the Andrew Marr show yesterday, is disingenuous.

The PM  may sanguinely say people can afford these high-proportion mortgages but how much do interest rates need to rise until this is no longer the case? Cameron used the example of two people earning £20,000 or £25,000 per year and an average house price of £200,000. Leaving aside the 5% deposit to make the maths simple, the BBC mortgage calculator indicates that if interest rates rise to only 3% this couple will now be paying nearly £1000 a month to fund their mortgage.

Clearly the Tories think that offering young people homes financed through large amounts of debt will be politically popular, but the historic pattern in Britain of high and rising house prices and high rates of home ownership financed through a mortgage actually serves the financial sector much more than it serves British citizens. The explanation is simple: if your house costs twice as much you pay the bank twice as much in interest.

Useful data from the land registry indicates that the house price index has risen to more than 250 compared with January 1995 (the graphic indicates the ratio of prices to earnings during this period). At its peak before the crash the index reached nearly 300, which means that prices had undergone a threefold increase net of price inflation. As I teach my students, because of the compounding nature of interest, you are likely to pay back something like double the principal when you take out a loan over 25 years. This means that when house prices double, twice as much is paid back to financial corporations in interest. No wonder that those with friends in the City encourage us to celebrate house price rises.

House price inflation serves financiers and those who welcome the increasing value of their home as though it were an asset are missing the point. Those who still have mortgages are simply celebrating an increase in their housing costs; if their house is a home then they have no greater value from it even if its financial value has doubled. As it turns out in Britain the house is not a machine for living in, as Le Corbusier once suggested, but rather a machine for increasing bank profits.

28 September 2013

How Public is Public Money?

Of the many deceitful slogans which the Conservatives used when they came to power the 'bonfire of the quangos' has perhaps had the least justification in practice. A whole range of boards and partnerships are creeping back into existence, responsible for public money, but with no clear sense of how the public view will be represented or how they will be accountable to the public.

My own particular source of concern is the Local Enterprise Partnership. These were first mooted some 18 months ago, at which point they had no clearly defined powers and there was apparently no funding to accompany the establishment of such bodies. I remember thinking how unlikely it was that anybody would take on the challenge of local economic regeneration without any financial support. How foolish I was, and how cunning others were, because over time large amounts of public money have been promised to these bodies that those with foresight or perhaps inside information made their own.

The GLEPs are supposed to represent the country's 'natural economic areas', although there is no theoretical consideration about how such economic areas might be defined. The work that the LEPs might undertake is limited by the narrow and pro-growth conceptualisation of the problem we face according to the government rubric:

'Our economy is currently too dependent on a narrow range of industry sectors. We need an economy driven by private sector growth, with business opportunities evenly balanced across the country and between industries. We also need to reduce burdens for businesses, particularly in terms of lower tax levels, planning and other administrative burdens.'

While this is the rhetoric, the reality is that those who have always had their snouts in the trough of government subsidy to business have created structures to funnel public money in their direction, resulting in a map of meaningless and unplanned areas on the government website.

In Gloucestershire our LEP is called G1st LEP, G1st being an unsuccessful regional development company that has already received large amounts of money from the county but with no clear evidence of its having created jobs or brought prosperity. But it cleverly included the letters LEP in its name, built a new website, and was accepted by the Business Secretary as being the regeneration body for the whole of our county. At this stage, remember, there was no indication that money was coming and so it had no serious competitors.

But money has certainly followed and with increasing speed since the publication of the Heseltine report No Stone Unturned--In Pursuit of Growth, a report which has only proved that under those stones lurk a regiment of people who have made a career of parroting the same pro-growth, pro-business catechism without the need for a track-record of success. All money to be invested in regeneration by central government, or £2 billion of it in 2015-16, will now be funneled through these bodies. Yet there has been no opportunity for the public to become involved in discussions about how they might like to see regeneration happen, whether economic growth is in fact beneficial for local communities, whether we might focus on resilience and sustainability instead, or whether bioregions might be better natural economic areas than the curious regions illustrated in the map.

In Stroud we are particularly angry that money which was originally our money is now to be sent to the LEP, to be controlled by people with no democratic authority over this money, and we have to make a case to have some of it spent in our area. When the government cut our central funding grant they told us that in future we would receive money through a New Homes Bonus, already requiring us to build new houses in order to be properly funded. But now 40% of this New Homes Bonus will go to the LEP directly and we will not see any of it back unless we subscribe to the sort of view of economic development that this unaccountable body dictates. There is also talk of funding for further education institutions similarly passing through the LEP before being received by them.

Martin Whiteside, one of our district councillors here in Stroud, has referred to the birth of the GLEP as the immaculate reconception of the quango and, while we feel the parentage of our county body is particularly unclear, the accountability of these bodies that will use public money according to their own political priorities and without proper accountability should be questioned everywhere that LEPs lurk.


23 September 2013

What Price Democracy?

The politics of austerity has many political objectives but an important one you learn about quickly as a local councillor is its use as a mantra to incapacitate you. Anything you might want to do cannot be done, you are told, because we are living in a time of austerity and nothing can be afforded. With many Tory councillors in Stroud this appears to extend to democracy, which itself must be undermined and diminished because it is just too expensive.

In Stroud we are presently being subjected to a boundary review, triggered because one of our wards had slightly more than the 10% above the average number of voters per representative that is considered acceptable. So the Local Government Boundary Commission for England has fallen on our heads to undertake a review (curiously there is no problem with funding their work in spite of the austerity we hear of daily). While you might expect them to begin their work with objectives such as improving local democracy, enhancing citizen participation, or making representatives more accountable, in fact they have one aim: to reduce the number of councillors.

This caused me to question how well we are represented compared to our European neighbours: how much do we, as the home of democracy and children of the mother of parliaments, invest in our elected representatives? You will be shocked to read the comparisons in a report carried out recently by academics at Birmingham University. In France there are 118 citizens per elected member, which rises to around 600 in Italy and Spain, and 1075 in Greence. In the UK it is 2603: the largest number of any EU country. We are the least well represented of all, and yet the politics of austerity is being used to reduce our representation even further.

Anecdotally I have also received a lot of evidence about the disastrous levels of connection between citizens and their councils in some of the vast new unitary authorities that have been introduced under the Tory aegis. In both Wiltshire and Cornwall people report that they have no idea who to contact about local services and that the geographical areas they are supposed to identify with make no sense to them. The mantra of austerity is matched by the chorus of complaints about the quality of politicians, yet how can local politicians perform well when the areas they represent make no sense and are too vast to be comprehended?

I have reached a point of fury in debates over the cost of democracy when I have to bite my tongue to stop myself pointing out that Mussolini may have appeared cheap but the less-than-immediate costs were rather higher. The fact that this thought even occurs suggests the desperate state of our democracy and the way the politics of austerity is being used to undermine it further.

18 September 2013

Relieved of Debt

When the decision finally came that the Green Party would be adopting a policy that cuts the link between money creation and the parallel creation of debts it came as a huge relief. Following more than a decade of pondering, discussing, educating and campaigning the party's activists were convinced that they could believe in the possiblity of public credit creation to end the centuries of capitalist privatised money and replace it with money produced for the common good. The motion was passed on Sunday at the annual conference in Brighton by 110 votes to 90.

Key to the change of heart of the Green Party have been two members of Kent Green Party, both of whom might be described as 'outraged of Tonbridge'. Brian Leslie has been a campaigner for monetary reform all his life and he recently recruited to the cause Andrew Waldie, who is a tall, softly-spoken accountant with a Scottish accent - exactly the sort of person you want to be on your side in a debate about money. From this most unlikely centre of radicalism has come what Andrew called the final part of the trinity of radical economics policies, taking its place alongside Land Value Tax and Citizens Income on an economic platform that has the potential to liberate working people from the oppression of wage slavery.

I am reproducing Andrew Waldie's proposal speech in full here: read and rejoice!

'This motion strikes a blow at the heart of financial capitalism by removing from banks their power to create money - and restoring the supply of our national currency to democratic and public control. Through their lending, banks create 97% of the money we use in the form of credit.  This gives them enormous power to direct the economy and shape our society - without any form of democratic accountability.

'Our banking system is also unstable.  History shows that debt-fuelled booms and speculative bubbles inevitably turn to bust.  Governments bail out banks that have become “too big to fail” – and the price of these bail outs are savage cuts in public services. The burden of servicing the debt on which our money is based also increases inequality and drives unsustainable growth.  These are issues which are of fundamental concern to the Green Party.

'Simply bringing the banking system under "Social Control" is not enough - more radical reform is required.  Leading green economists have advocated reform based on the principles set out in this motion. The motion avoids the fundamental conflict of interest that has corrupted the current banking system.  It separates the power to create money from the power to decide how that money is first used.  A National Monetary Authority – NMA - appointed by Parliament, would manage the supply of national currency.  Its decisions would be protected by law from influence by financial or other special interests.

'Elected governments would decide how currency created by the NMA is first spent.  This currency would then circulate freely at all levels of society.  Saving and borrowing would continue.  Local currencies could circulate alongside the national currency.  The major benefit of the system we propose is that people would no longer need to go into debt to keep money circulating in the economy.

'Over a transition period of 20 years, the NMA would convert the stock of debt-based money by issuing the same amount of national currency to the Government as additional revenue.  The value from transferring the endowment of our currency to public control has been estimated at £50 billion per year – that’s enough to fund the construction of 300,000 new homes – for each year of the transition period.

'Restoring the supply of our currency to public control would deliver a huge prize that could finance the transformation of our society.  Today, we have the opportunity to commit our party to seizing this prize by passing this motion.'

13 September 2013

Why We Should Not Privatise Royal Mail

I spend a lot of time travelling by train. I have experienced first-hand the way the railways have changed through my lifetime from being a public service to being a private business.  This has brought many subtle changes but it has also brought some significant reductions in service which are relevant to the decision about whether to privatise Royal Mail. Here I consider three ways in which we, the service users, will lose out by, analogy with the railway: through the transfer of costs to the individual; increasing stress for the individual; and the gaming the market.

As an individual traveller we are unsupported and receive barely any personal service from the skeleton staff employed by the private rail companies. They used to sell us tickets, check our tickets, and give us information about rail services. Now we do these things ourselves. As they make their pricing structure more complicated we struggle to keep up and reduce our costs. As a Professor of Economics I have enough money not to worry too much about this but I am obviously mean as well as principled and I try to hold my local company First Great Western to their advertised pledge that they will help me find the cheapest ticket. I also ought to have the mental agility to split my ticket and use cards and discounts to reduce my travelling costs but it astonishes me how much time and mental energy this takes, making me physically sick when juggling so many variables.

So how might this transfer of costs work in the postal service? The process has already started with parcel deliveries that are not delivered but left at a distant sorting office, cost savings having led to the centralisation of services in fewer locations. This may be efficient for Parcelforce but it is deeply inefficient for the individual who is waiting for a package especially if, like me, they don't own a car, and the parcel is heavy. In future we can expect to see a more complex pricing structure with the universal service, let's say around £1 per letter, so long as you are prepared to have your letter carried by donkey and arriving after a long delay. The services that make money, the services used by bizniz, will be efficient, rapid and competitively priced; the services used by you and me will become residualised.

The ticket barriers are a classic example of the attack on jobs that privatisation always brings and the way that stress and effort are transferred to the 'customer' and away form the corporation providing the service. Because I travel on railways across Europe I am sensitive to how offensive these barriers are compared with the personal service of a ticket collector. Such an individual also implies that there is some degree of management and control of the rail system as a whole and, in most European countries, rail staff are proud of the national service they work for. What a contrast to the precarious, deskilled workers found throughout our rail system and who our postal workers will soon resemble.

One of the conditions for a free market to work efficiently is that there needs to be what economists call 'perfect knowledge'. The farce of this in the case of rail travel is plain to see: most rail staff themselves are unaware of how to travel for minimum cost and what the validity and availability of the various tickets is. In the case of Royal Mail the removal of the cost from the face of stamps was a classic example of undermining the passengers' knowledge. I bought a huge batch of second-class stamps before the latest exorbitant price increase and was recently horrified to find that a second-class stamp now costs 50p. Hidden charges and subtle price changes will no doubt become a feature of the future postal service, causing us wasted hours and vertigo unless we give in and allow ourselves to be exploited.

Oyster is part of the Transport for London system and so because of its ownership structure does not return value to shareholders. Yet even there money is taken from you without your knowledge. Sometimes the machines fail to register you touching out and you are charged the penalty fare. It is your responsibility, I am told, to check a print-out of your use every evening to ensure that you have not been over-charged. If you notice that something is amiss it becomes your responsibility to stand in a queue and request that it is resolved. Time and stress passing to the passenger again.

I travelled to Brighton this morning for Green Party conference. I travelled in what is defined as 'peak time', a self-defined period that keeps extending with no apparent relationships to the way we travel or when we work. It was immediately apparent that the Brighton-to-London peak works in that direction only. My evidence is that the train I was travelling on was nearly empty and of the dozen ticket barriers only three were open in my direction. People travel from Brighton to London to work but very few travel in the reverse direction so there was no justification for my having to pay £20 extra and being prohibited from using my Network Card.

This is an example of gaming the market that is inevitable when there is a natural monopoly and profit-seeking executives pit their wits against under-resourced regulators. How might such an impulse express itself in the case of the postal service? The most important target of gaming is sure to be the universal service which, like the concept of 'peak travel time', will be used by politicians to limit outright profiteering. As soon as Royal Mail is free of the constraint to serve the public interest the finest minds will be turned to stretching and undermining the meaning of a 'universal service' whether by reducing frequency or geographical extent. Perhaps old ladies in the Hebrides will be required to walk a mile to a neighbour's house to collect letters, or will be offered a weekly rather than daily 'universal service'. Or perhaps clever young men will find a way to redefine what daily means. You get the idea, and you also see that I am not cut out for that sort of game.

I have grown tired of discussing whether there is any economic theory to support the privatisation proposals of successive governments. In the case of natural monopolies like the Internet and sewers there is no reason why we might expect efficiency rather than profiteering from the companies that run them. The same applies to the railways and the post: services fundamental to a functioning society are committed to the tender mercies of profit-seeking executives. We will be conned and over-charged and the value we lose will pass to the same shareholders who gave us the financial crisis. We would be made to vote for this, and madder still that people we voted for are imposing it on us.

4 September 2013

The Wind is Ours

I was very pleased to be present at the August meeting of Stroud District Council's development control committee where we had an important item to discuss: planning permission for two wind turbines in the southern part of our district. The proposal came from the Resilience Centre, a renewable energy company based in the Forest of Dean. They had previously applied for planning permission for the turbines but permission had been rejected. This time, however, they had the support of the planning officers and were hopeful that permission would be granted.

As ever with such applications there was considerable local resistance from the community living close to the proposed site and the ward councillor for Hardwick also spoke against the application. Representatives from the Resilience Centre and from the community of Kingswood both spoke and the debate was well-informed, respectful and inclusive. Although the final vote will split it was in favour of permission being given and the key deciding factor was the fact that a large dividend will be paid to the community and local people will be offered the opportunity to buy shares in the wind turbines. So everybody in the community affected in Kingswood will benefit and in addition a local investment vehicle will be created.

On Saturday I saw plans for a much larger and more ambitious proposal to build a large array of wind turbines off the south coast of England close to Bournemouth and Poole known as Navitus Bay. In many ways this proposal could not be more different from that which had been agreed at the planning meeting. It has aroused huge local opposition much of which, like the opposition in Stroud, is apparently the result of the potential impact on the landscape. In the case of Bournemouth, this is interpreted as an economic objection rather than a social one, since the argument is that tourists will be put off by the 'towering' turbines.

However it seems to me that the real objection is much work closely connected with ownership than it is with the appearance of the windfarm. The Navitus Bay wind array is being proposed by a consortium between EDF energy's renewable subsidiary and the Dutch-owned Eneco Wind. This appears to be a bizarre reversal of our colonial past where we exploited the energy resources of other countries, originally of course those of Wales to fuel the industrial revolution that made Britain the economic driving force of global capitalism. But now, with a desperately unimaginative government and an economy focused on finance rather than the productive sectors, we seem incapable even of using our own energy resources in the national interest.

This is such a striking contrast with the situation in other EU countries, famously Denmark and Germany, where government is creating a framework for communities to emancipates themselves from energy corporations and have take genuine ownership over there in renewable energy resources.  Because of the focus on community and publicly owned renewables Denmark is the European leader in renewable generation and also consequently turbine manufacture.During the 1980s the Danish government funded 30% of all investments in wind turbines with the result that by 2009, 28% of Denmark’s electricity came from renewable sources.  While the economy has grown by 78% between 1980 and 2009 energy consumption has not increased, indicating significant advances in energy efficiency.

In the period of initial expansion some 80% of turbines were owned by families or co-operatives and 28% of Denmark’s energy coming from renewable energy. This has also led to impressive regeneration with the country now manufacturing half the world’s turbines, with the parallel creation of 20,000 jobs (all data from Andy Cumbers's excellent book Reclaiming Public Ownership. As document by the excellent Energiewende website, the transition away from fossil fuels and nuclear in Germany is even more impressive in its speed and again it is being driven by social ownership. The graphic shows that, in stark contrast to developments in Bournemouth, around half of German generating capacity is now owned by private individuals.

Germany is providing an inspiring example of the speed with which the transition to a renewable energy future is possible. These developments are in the possible because of the genuine engagement of local communities and their ability to take real rather than metaphorical ownership of their energy resources. What a sad contrast to the situation in the UK, with an emphasis on fracking and nuclear new-build to increase our dependence on yesterday's energy sources and to generate privatised profits for the few rather than energy liberation for the many.

2 September 2013

The Gypsy Rover, the Norman Yoke and the Land Value Tax

I have always loved the folk-song The Whistling Gypsy. In fact, I like it so much that I have been known to sing it in those situations of cultural exchange where, far from home and in a foreign language zone, you are called on to share something. But I have always been rather disappointed by the heroine who, although following the gypsy rover, convinces her father to accept her decision by pointing out that he is 'Lord of these lands all over'.

But, like many aspects of folk culture, it occurred to me recently that this is a song of great subtlety. It is not that the gypsy is also a land-owner and therefore deserves the hand of the lady whose heart he has won, rather he considers himself lord of the land that he roves through. He has, in other words, gone through exactly the sort of mental reinterpretation we need to go through as a society. This takes some effort because it requires  us to throw off the shackles of a thousand years of feudalism.

Andy Wightman has done great service in the case of Scotland in challenging the legal effort that has been invested in constructing the reality of land ownership to the extent that the land we should share is littered with 'Trespassers will be prosecuted' signs and the authors of those signs are paid large sums of EU money for the privilege of having sole use of what is our national economy's most valuable resource. His books Who Owns Scotland links the rise of the lawyer's trade and their wealth to the need of warlords to provide written justification for their ill-gotten gains, and in an era when literacy was a rare privilege a legal document could exclude almost everybody from the argument.

This is my reason for supporting a Land Value Tax and this is what I will be arguing when I come up against Vince Cable on Tuesday evening at an RSA Screens event. He and John Christensen will find other reasons to support the taxation of land, some pragmatic and some rather dangerous--based in arguments about the 'inefficient' use of land. Property development is perhaps the most egregious current example of private profit at social cost and returning a large proportion of the gain from planning uplift to the community is an immediately appealing consequence of introducing LVT.

But for me our alienation from the landour economys most valuable natural resourceis at the root of our alienation from nature itself and from our own freedom. This does not mean that we all need to be peasants but it does suggest that the way of the whistling gypsy may be a surer route to happiness than the way of the suited business executive or the zero-hours-contract worker for whom he creates a job.