A Level Economics 48: Nationalisation

Nationalisation refers to the process in which the government takes ownership and control of privately-owned companies, industries, or assets. It involves transferring the ownership and operation of these entities from private hands to the public sector.

Argument for Nationalisation: The argument for nationalisation is primarily based on the belief that certain industries or services are best managed and operated by the government to serve the interests of the public and the nation as a whole. Proponents of nationalisation often cite the following reasons:

1. Public Interest and Welfare: Nationalisation aims to ensure that essential goods and services, such as healthcare, education, and utilities, are provided to all citizens at affordable prices and without discrimination. It prioritizes public interest and welfare over profit motives.

2. Natural Monopolies: Some industries, like water and electricity distribution, have natural monopolies due to high fixed costs and economies of scale. Nationalisation can prevent private monopolistic practices and ensure equitable access to such services.

3. Strategic Importance: Nationalisation is often advocated for industries considered strategically important for the country's security, economic stability, or technological advancement. This includes sectors like defense, energy, and transportation.

4. Market Failure Correction: Nationalisation can address market failures, particularly when private firms fail to provide essential services adequately or when industries experience excessive volatility.

5. Long-term Planning: The government's involvement can facilitate long-term planning and investment in infrastructure, research, and development, which may be challenging for private firms with short-term profit goals.

6. Income Redistribution: Nationalisation can be seen as a mechanism to redistribute wealth and reduce income inequality by ensuring profits benefit the wider population rather than private shareholders.

Historical Examples of Nationalisation:

1. Post-World War II: After World War II, the UK undertook significant nationalisation efforts, bringing key industries like coal mining, railways, and steel production under public ownership. The goal was to rebuild the nation's infrastructure and secure critical industries.

2. 1970s Oil Crisis: In response to the 1970s oil crisis, several countries, including Venezuela and Mexico, nationalised their oil industries to gain greater control over energy resources and protect national interests.

Current Examples of Nationalisation:

1. Healthcare: Countries like the United Kingdom and Canada have nationalised their healthcare systems to provide universal healthcare to all citizens, regardless of their income or social status.

2. Public Utilities: In some countries, utilities such as water and electricity supply are nationalised to ensure that these essential services are accessible and affordable to the entire population.

Evaluation of the Argument for Nationalisation: The argument for nationalisation has both strengths and weaknesses:

Strengths:

• Ensuring Essential Services: Nationalisation can guarantee essential services for all citizens and reduce the risk of profit-driven price increases or exclusions.
• Strategic Control: In certain industries, nationalisation provides greater control and stability, safeguarding national interests and security.
• Long-term Planning: Nationalised industries can prioritize long-term investments and research without short-term profit pressures.

Weaknesses:

• Efficiency Concerns: Nationalised industries may suffer from inefficiency and bureaucratic practices, resulting in suboptimal performance and higher costs.
• Budgetary Burden: Nationalisation requires significant government funding, which may lead to increased public debt or budgetary challenges.
• Lack of Competition: In some cases, nationalisation may lead to a lack of competition, hindering innovation and consumer choice.

The debate over nationalisation is complex and often depends on specific circumstances and industries. Some proponents argue that nationalisation is essential for the provision of crucial services and strategic control, while opponents stress the potential inefficiencies and risks of excessive government control. A balanced approach might involve a combination of private and public ownership, with appropriate regulation to ensure the best outcomes for the economy and the welfare of citizens.

A Level Economics 45: The Need for a Competition Policy

The need for a competition policy arises from the recognition that while free markets can be efficient and effective in resource allocation, they may not always operate optimally. Here are some reasons why the free market principle can fail, leading to the necessity of competition policies:

1. Market Failures: Free markets may encounter various market failures that prevent them from achieving allocative efficiency and promoting consumer welfare. Some common market failures include externalities (e.g., pollution), public goods (e.g., national defense), and information asymmetry (e.g., lack of information for consumers). Competition policies can help address these market failures and correct the inefficiencies they create.

Example: Consider a situation where a manufacturing company releases harmful pollutants into the environment. The free market may not account for the negative externalities imposed on society, resulting in underpricing and overproduction. A competition policy could regulate the company's environmental practices, internalizing the cost of pollution and encouraging cleaner production methods.

2. Monopoly and Market Dominance: In some cases, markets may naturally lead to the emergence of monopolies or dominant firms that have significant market power. These firms can exploit consumers, limit competition, and inhibit innovation. Competition policies aim to prevent and regulate such monopolistic practices to ensure a level playing field for all businesses.

Example: The dominance of a single social media platform may lead to limited competition, allowing the platform to control user data and impose restrictive policies. A competition policy could impose regulations to promote data portability and interoperability, fostering competition and protecting users' rights.

3. Collusion and Anti-Competitive Behavior: Without proper regulations, firms may engage in collusive behavior, cartels, or price-fixing, leading to higher prices and reduced consumer choice. Competition policies seek to prevent collusion and promote fair competition in the market.

Example: In the banking sector, banks might collude to set higher interest rates on loans to maximize profits at the expense of borrowers. A competition policy can enforce laws against such price-fixing practices, promoting a competitive interest rate market.

4. Barriers to Entry: Certain industries may have high barriers to entry, preventing new firms from easily entering the market and competing. This lack of competition can lead to reduced innovation and higher prices for consumers. Competition policies aim to remove or reduce barriers to entry, encouraging new entrants and promoting a competitive environment.

Example: The pharmaceutical industry may have high research and development costs, making it challenging for new companies to introduce generic medications. A competition policy could facilitate the approval process for generic drugs, increasing competition and reducing drug prices.

5. Exploitative Market Power: In the absence of competition policies, firms may exploit their market power to engage in unfair or predatory practices, harming smaller businesses and consumers.

Example: A dominant technology company may require app developers to use its payment system, charging high fees for transactions. A competition policy could investigate and address potential abuse of market power to protect smaller app developers and promote a more competitive app ecosystem.

In conclusion, the failure of the free market principle can lead to various market distortions and inefficiencies. The implementation of competition policies is essential to correct these failures, ensure a fair and competitive environment, and safeguard consumer welfare while promoting innovation and economic growth. By addressing market failures and regulating anti-competitive behavior, competition policies play a vital role in maintaining a balanced and dynamic economy.

Vaccines were developed with Government Money - So how come patents?

 

Should the Big Four accountancy firms be split up?

Natasha Landell-Mills and Jim Peterson in The Financial Times

Yes - Separating audit from consulting would prevent conflicts of interest.

Auditors are failing investors. The situation has become so dire that last week the head of the UK’s accounting watchdog said it was time to consider forcing audit firms to divest their substantial and lucrative consulting work, writes Natasha Landell-Mills. 

This shift from the Financial Reporting Council, which opposed the idea six years ago, is welcome. But breaking up the Big Four accountancy firms — PwC, KPMG, EY and Deloitte — can only be a first step. Lasting reform depends on auditors working for shareholders, not management. 

Auditors are supposed to underpin trust in financial markets. Major stock markets require listed companies to hire auditors to verify their accounts, providing reassurance to shareholders that material matters have been inspected and their capital is protected. In the UK, auditors must certify that the published numbers give a “true and fair view” of circumstances and income; that they have been prepared in accordance with accounting standards; and that they comply with company law. 

But audit is failing to meet investors’ expectations. The failure of Carillion, linked to aggressive accounting, is just the latest high profile example. And this is not just a UK phenomenon. The International Forum of Independent Audit Regulators found that 40 per cent of the audits it inspected were sub-standard. 

Multiple market failures need to be addressed. The most obvious problem is that audit quality is invisible to those whom it is intended to benefit: the shareholders. It is difficult to differentiate good and bad audits. Even with the introduction of extended auditor reports in the UK (and starting in 2019 in the US), formulaic notes about audit risks often hide more than they convey. 

Even when questions are raised about the quality of audits, shareholders almost always vote to retain auditors, with most receiving at least 95 per cent support. Last year, 97 per cent of Carillion shareholders voted to re-appoint KPMG. Lack of scrutiny creates space for conflicts of interest. Auditors who feel accountable to company executives rather than shareholders will be less likely to challenge them. These conflicts are exacerbated when audit firms also sell other services to management teams, particularly if that consultancy work is more profitable. 

The dominance of the Big Four in large company audits is another concern: when large and powerful firms are able to crowd out high quality competitors, the damage is lasting. 

Taken together, these failures have resulted in a dysfunctional audit market that needs a broad revamp. Splitting audit from consulting would prevent the most insidious conflict of interest. When non-audit work makes up around 80 per cent of fee income for the Big Four (and just over half of income from audit clients), the influence of this part of the business is huge. 

Current limits on consulting work have not eliminated this problem. They are often set too high or can be gamed, while auditors can still be influenced by the hope of winning non-audit work after they relinquish the audit mandate. 

There is quite simply no compelling reason why shareholders should accept these conflicts and the resulting risks to audit quality introduced by non-audit work. But other reforms are necessary. 

Auditors should provide meaningful disclosures about the risks they uncover. They need to verify that company accounts do not overstate performance and capital and that unrealised profits are disclosed. 

Engagement between shareholders and audit committees and auditors should become the norm, not the exception. Shareholders need to scrutinise accounting and audit performance, and use their votes to remove auditors or audit committee directors where performance is substandard. 

Finally, the accounting watchdogs must be far more robust on audit quality and impose meaningful sanctions. Even the best intentioned will struggle against a broken system. 


No — Lopping off advisory services would hurt performance 

The recent spate of large-scale corporate accounting scandals is deeply worrying and raises a familiar question: “Where were the auditors?” But the correct answer does not involve breaking up the four professional services firms that dominate auditing, writes Jim Peterson. 

Forcing Deloitte, EY, KPMG and PwC to shed their non-audit businesses would neither add competition nor boost smaller competitors. Lopping off the Big Four’s consulting and advisory services would degrade their performance, weaken them financially, and hamper their ability to meet the needs of their clients and the capital markets. 

Although the UK regulator is raising competition concerns, the root problem is global. The growth of the Big Four, operating in more than 100 countries, reflects their multinational clients’ needs for breadth of geographic presence and specialised industry expertise. 

 The yawning gap in size between the Big Four and their smaller peers has long since grown beyond closure: even the smallest, KPMG, took in $26.4bn in 2017, three times as much as BDO, its next nearest competitor. If pressed, risk managers of the smaller firms admit to lacking the skills and the risk tolerance even to consider bidding to audit a far-flung multinational. 

The suggestion that competition and choice would be increased by splitting up the Big Four is doubly unrealistic. Forcing them to spin off their non-auditing business would not create any new auditors. We would continue to see dilemmas like the one faced by BT last year when it set out to replace PwC after a £530m discrepancy was uncovered in the accounts of its Italian division. The UK telecoms group ended up picking KPMG for want of alternatives, even though BT’s chairman had previously been global chairman of KPMG. 

Similarly, Japan’s Toshiba tossed EY in favour of PwC in 2016, only to suffer disagreements with the second firm — this led to delays in its financial statements and an eventual qualified audit report. Wish as it might, Toshiba has no further choices, because of business-based conflicts on the part of Deloitte and KPMG. 

A split by industry sector — say, assigning auditing of banking and technology to Firm A-1, while manufacturing and energy go to new Firm A-2 — would be no better. Each sector would still be served by just four big firms. If each firm were split in half, the two smaller firms would struggle to amass the expertise, personnel and capital necessary to provide the level of service that big companies expect. 

Splitting auditing from advisory work is a solution in search of a problem. Many jurisdictions, including the UK, EU and US, restrict the ability of firms to cross-sell other services to their audit clients. Concerns about inherent conflicts of interest are overblown. 

The enthusiasm for cutting up the Big Four also fails to recognise how the world is changing. The rise of artificial intelligence, blockchain and robotics is reshaping the way information is gathered and verified. Auditors will need more — rather than less — expertise. 

Warehouse inventories, crop yields and wind farms will soon be surveyed rapidly and comprehensively in ways that could easily displace the tedious and partial sampling done for decades by squadrons of young audit staff. But to take advantage of these advances, auditors need to have the scale, the financial strength and the technical skills to develop and offer them. 

These tools will also deliver data that management needs for operational and strategic decision making. If auditors are to be barred from providing this kind of advisory work, the legitimacy of methods that have prevailed since the Victorian era is under threat. Investors will require some sort of audit function, but who would provide it? Splitting up the Big Four will achieve nothing if they fail and are replaced by arms of Amazon and Google. 

Auditors should be held accountable for their mistakes, but these issues are too complex for simplistic solutions. Rather than a quick amputation, we need a full-scale re-engineering of the current model with all of its parts.

Why Bank of England employees are reading my A-level economics textbook

Alain Anderton in The Guardian

A Freedom of Information request by the Times, showed that Economics, my A-level textbook and the “bible for those seeking a handle on basic economics”, was the most issued book from the library of the Bank of England. Since it was first published in 1991, the book has been the bestselling text in the A-level economics market. Generations of economists have learned their basic economics from studying it. However, it isn’t the economists at the Bank of England who are borrowing the book now. The bank has helpfully explained that it provides development for secretaries, graduates and school leavers. Panic over – the Bank of England is not being run by economists consulting a school textbook.

What is good about this news is that it means the Bank of England is serious about education and professional development. In Economics, you will find out that these are essential for the growth of the economy. They raise productivity levels of workers and contribute to our national wellbeing. Other topical points raised in the book include the fact that increasing the supply of oil on to world markets will lead to a fall in the price of oil; if you cut government spending, at least in the short term, aggregate demand will fall and so will GDP; that global warming is the result of market failure; and that directors and managers of companies might be more concerned with maximising their own benefits than the benefits of the shareholders of the company.

It is also good news that people want to find out about economics. Since the financial crisis of 2008, the numbers of people studying A-level economics have more than doubled, suggesting that these uncertain times have sparked the curiosity of 16- to 18-year-olds about the world in which they live.

Economics at A-level is fundamentally about studying models: ways of looking at the world and making sense of it. But it is also about evaluating the world around us. Was there an alternative for the UK to fiscal austerity in 2010? Does it matter that the UK persistently runs a current account deficit on the balance of payments? Should we regulate banks more? Would a significant rise in the minimum wage be good or bad and for whom? In A-level exams, only candidates who can show they understand basic economic models and appreciate that there are many sides to each issue will get top marks.

Should our politicians be studying some basic economics? The answer to that is obviously yes. What is particularly disheartening about much current political discourse is the failure of politicians to admit that there will be costs and disadvantages to their policies. Our adversarial system means that any such admission is seized upon by the media and blown up out of all proportion. The simple fact is that almost any economic decision has its costs and benefits.

The first concept an A-level student may well learn is the principle of opportunity cost. If you buy a car, you lose the benefits of what you could otherwise have bought with that money. If the government cuts taxes, what are the benefits that are going to be lost as a result of that decision, benefits like higher government spending or a lower national debt? However, to some extent we get the politicians we deserve. Too many people seem to think that there are simple answers to complex problems; we don’t want to pay for the choices we make. For example, we want high-quality public services but we don’t want to pay for them in taxes.

Our grasp of economics would be more mature if the acceptance of costs and benefits that are being acknowledged in classrooms were also being acknowledged at our dinner tables, in our local council chambers and in parliament.

Britain’s housing crisis is a human disaster. Here are 10 ways to solve it

Rowan Moore in The Guardian

“Every day I cry,” says an activist on a stall in Stratford, east London, that is shared by housing campaign Focus E15 and the Revolutionary Communist party. “How many thousands of people are suffering?”

Mark Carney, governor of the Bank of England, has said that problems with housing are the “biggest risk” to the UK economy. The CBI agreed, saying: “A perfect storm is brewing in the housing market. Now is the time for action.”

If there is one thing that revolutionary communists and bankers can agree on, it is that there is a housing crisis in Britain. There are too few homes, usually costing too much, often in the wrong places, and often of poor quality. The crisis damages lives, breaks up families, blights employment prospects, reduces mobility and slows the economy. 

This, you would have thought, would be a gift for any political party. Housing is a matter of vital importance to voters. At a time when all parties struggle to offer alternatives to each other, this would be a opportunity to be distinctive and take the lead. Yet all the main parties’ offerings on the subject are piecemeal, gestural and unambitious.

Back in east London, the young mothers of Focus E15 became celebrities when they occupied vacant council properties on the edge of the Olympic Park in the London borough of Newham. They had been told by the Labour council that they were to be rehoused outside the capital – part of a city-wide tendency to send its homeless people to places as far-flung as Bristol, Hastings and Stoke-on-Trent.

Their protest won them a reprieve, but thousands of others are not so lucky: at the Focus E15 stall you hear of families evicted by council-hired bailiffs who break in at 6am, often acting on tenuous legal authority. You hear of schooling disrupted, jobs lost, support networks broken and relocation putting impossible distances between friends and relatives.

The price of housing is a problem that runs across most social classes. In London, the south-east, much of rural Britain and several of the more desirable cities, you can be young, employed and even well-paid and have little prospect of acquiring a decent home. Britain was once famous as a country of houses with gardens, accessible to manual workers and clerks, but in many areas this is now a distant fantasy to those without property-rich parents to help them.

If the most conspicuous issues are about homes costing too much, there are also places where they cost too little. In Accrington, Lancashire, a two-bedroom house might be worth £40,000, which is less than it would cost to refurbish and repair it. This means that it is not worth the owners – often absentee landlords – investing in their maintenance. Roofs leak, mould grows on walls, condensation forms and heating bills rise in poorly insulated buildings.

According to Daniel Klemm of the north of England housing association Together Housing, which is working with property company Better Places, “a spiral of decline sets in”, where the physical environment deteriorates, which further deters investment. Those who can, leave, and those who stay have few prospects of employment. In a place like this you can have a home but no job; in high-value areas you can have a job, but no home.

FacebookTwitterPinterest Terraced homes in Accrington, Lancashire, before and as it is expected to look after a renovation by PlaceFirst. Photograph: PlaceFirst

The housing crisis is an accelerating human disaster. It is creating exploitative landlords, overcrowding and poor-quality homes. Private renters spend 40% of their income on housing. It is shocking that many people in their 20s now regard it as an accepted fact that they will never have much by way of a home.

It is wrong that having a home in many rural areas, or in London, should be regarded as a luxury. This applies even to traditionally poor London boroughs. “If you can’t afford to live in Newham,” the borough’s mayor told the Focus E15 mothers, “you can’t afford to live in Newham.” But these people hadn’t asked for their neighbourhood to become a high-performing investment asset, and they gain nothing from the change.

High house prices, which owe much to policies promoted by Margaret Thatcher’s government, pervert the promises of Thatcherism. If you work hard and are thrifty, she said, you will be rewarded. Yet people who own property can make more money from sitting on it than by doing a job, while others will never get on the property ladder however hard they strive. If you get on your bike to look for work, as her minister Norman Tebbit urged, you might have to pedal a hundred miles or more back to where you live.

Property values are distorting human values. But if politicians are incapable of making an argument based on ideas of a fair or fulfilling society, there are also economic reasons for addressing the problems of housing. It’s hard to run a business if your employees find it hard to get a home. If people on low and middle incomes are pushed out, big cities will in course lose those who make, maintain and repair things, who care for the ill and old, who clean, who cook and wait in restaurants, and who look after and teach children. The creative and inventive types, currently such a big part of London’s sales pitch to the world, will go too.

The most obvious cause of Britain’s housing is the simple operation of supply and demand. The country’s population is increasing, and we like to live in smaller units than in the past. A figure of about 240,000 is consistently estimated as the amount of new homes Britain needs each year, and with equal consistency it is never achieved. In 2014, fewer than 120,000 were built. The most commonly given reason for this undersupply is that Britain is short of land and that it has a planning system which, for good reasons, wants to protect the beauties of the countryside.

These arguments are only part of the story. Another reason is that inflation in housing – so taboo when it comes to other commodities – has since the 1980s been celebrated by governments and encouraged by policies on taxation and borrowing. Prices are pushed up further by recent initiatives such as the changes to pension pot rules which allow people 55 and over to invest theirs in property. Meanwhile, the Thatcher government stopped local authorities from building more housing. Right To Buy took affordable homes out of the available stock and were not replaced. Some were resold as investments, and rented out for profit. A wasteful loop was created, whereby councils now find themselves paying high rents to private landlords, in order to house their homeless in properties that once belonged to the council.

It is also too simple to say that Britain is short of land. “The notion that there is no land left really is nonsense,” says David Orr, chief executive of the National Housing Federation. “Nine per cent of the country is developed and that includes roads, factories and so on: only 2% is housing.” The challenge is rather to find places that do not affect somebody’s view, somebody’s dog-walking route and somebody’s property prices.

The combined effects of demand, government stimulants and restrictions on supply consistently push house prices above other forms of inflation, making residential property an attractive speculative investment. The investors might be British individuals who take the perfectly rational decision to buy and rent out homes as a way of providing for their old age. They might also be overseas investors who, also rational and encouraged by, among other things, non-dom tax breaks, see British property as a safe bet.

The crisis in house prices is therefore not an act of pure economic fate but constructed and willed by policy over decades. As such, it can also be defused by policy, if not easily or quickly. So far, the main government response has been to try to relax planning rules and to encourage the market with measures such as Help To Buy which, presented as much-needed assistance to first-time buyers, tend to push up prices further.

There is a confusion here between the problems of availability and affordability. If the only way to encourage building in larger numbers is to put up prices, this is no help for the people who cannot afford a home. The underlying belief is that the market will provide, if only it were properly stimulated and enticed, but it is one unsupported by evidence. At no time since the second world war has the private sector built at the rate now required, and usually it has fallen a long way short. The only time when the total housing numbers exceeded those now thought essential was in the 1950s and 1960s, when council housing accounted for half the figure.

By itself, the market does not provide. One reason for this is that never, not even in the wildest libertarian fantasy, will there be no planning. It is something that, despite criticisms, everyone wants: we complain about faceless bureaucrats, but when something we don’t like comes down our street, we want them to defend us. Where there is planning, the market cannot operate as freely as it would in trading, say, ironmongery. The other factor is called absorption: if developers start building in sufficient numbers to make homes cheaper or slower to sell, they stop.

The public sector has to build more itself. It also needs to plan more constructively and actively, creating positive proposals for what new places could be, which also recognise and allay the reasonable fears of existing residents. The idea of greater public involvement will raise spectres of the famous failings of mass public housing in the past, but this is to ignore the successes of postwar public development (in many new towns, for example, and in several now sought-after council estates) and to assume that it is impossible to learn from and improve on mistakes.

FacebookTwitterPinterest Council housing should be built to suit a range of incomes. Photograph: Jess Hurd/reportdigital.co.uk

The Homes for Britain campaign, which brings together housing associations, private house builders, landlords, planners and architects, is holding a rally in Westminster. It aims to solve the housing crisis “in a generation”, which is a realistic time frame, given that it has taken a generation to create the current situation. It would be foolish of anyone to suggest that the solutions are easy and obvious, but a party serious about improving the housing of the country should consider these:

1 Make zero inflation a target

In the same way that targets are set for retail prices, it could be stated that it is desirable to stop house prices rising. In real terms they would slowly fall to affordable levels, and the heat would be taken out of speculation, but no one would be put into negative equity. Inflationary incentives like Help To Buy should be ended, and taxation should be used to deflate property bubbles.

2 End the obsession with owner-occupation

Good though it is for many people, owning your own home is neither desirable nor possible for many. It also encourages an approach to development that relies on continuing increases in value. Other options, such as renting from private or public landlords, should be equally attractive and viable.

3 Use every tool in the box

Politicians of all main parties have declared their wish to create garden cities. This is well and good, but requires a level of will and expertise not so far evident, and only goes so far. The scale of the need also requires every option to be considered. This includes building on ex-industrial land, in many small increments as well as through large plans, and increasing the density of existing cities and suburbs.

4 Build – carefully and well – in green belts

Restricting urban sprawl and protecting natural landscapes, the country’s green belts are one of the triumphs of British planning. But some of their land is of little environmental or economic value. Last year planning consultancy Urbed showed that green belts can be built on responsibly, allowing more people to live close to nature. There is no good reason not to realise some of these ideas.

5 Make neighbourhoods

The University of Cambridge, faced with the impossibility of housing its staff in an expensive city, is working with local authorities to create well-planned, good-quality new neighbourhoods, with high environmental standards and well designed communal spaces. Examples like this, which show that new homes do not have to be a form of pollution, should be followed across the country.

6 End discounts on right to buy

At a time when some people are being ejected from their homes in the name of austerity, it is grotesque that others are being offered lavish discounts to buy their local authority homes – often so that they can resell them for a quick profit.

7 End vindictive benefit cuts

The benefit cap unfairly punishes people living in areas that have become expensive by making it impossible for them to pay their inflated rents. The bedroom tax is mean-spirited and destructive. Both should end.

8 Act regionally

The needs of Lancashire, Cambridge and Newham differ widely. There should be the ability to make different measures in different areas.

9 Put a secretary of state for housing in the cabinet

As the renters’ campaign group Generation Rent has proposed, the issue is big enough to be represented at the highest level of government.

10 Let councils borrow to build

For the first time since the 1980s, councils are now allowed to build housing again. To do this more and better, they should be able to borrow money against their considerable assets, rather than form partnerships with private property companies who take 20% of the proceeds in profit. New council housing should not be a last resort only for those in the most desperate need, but suited to a range of incomes.

FacebookTwitterPinterest Greener pastures … Welwyn Garden City, Hertfordshire. Photograph: Graham Turner for the Guardian

The obvious objection to some of these proposals will be that there is no money. But money is already being wasted – on paying housing benefit to private landlords for example, on right-to-buy discounts, and on the profits developers make on publicly owned land. It is partly a question of spending it better.

There is also what Ebenezer Howard, the inventor of garden cities, called the “unearned increment”, which is the uplift in value when land becomes available for housing. It was the basis on which postwar new towns were built. Currently it is being squandered – when the government, for example, relaxes planning constraints on certain properties, or makes it easier to convert offices or shops into homes they drench the lucky owners of such places in cash, without asking for much in return.

House price inflation is an addiction. It is destructive and divisive. It is a tax by the haves on the have-nots, and by the old on the young.

It makes for more losers than real winners – if you own your home, its rising price is of little use to you unless you want to downsize, in which case you can never return to your previous position on the ladder. The only real beneficiaries are those who own more property than they need for their own living.

Thatcher’s property-owning democracy has run its course. It is time for a new model.

Ebola and failing markets tell us that we need to work together

Governments must heed the warnings of our brightest minds and reshape our societies to help those most in need

• 
• • Will Hutton
  • The Observer, Sunday 19 October 2014

Janet Yellen, the chair of the US Federal Reserve, who said last week that inequality is un-American. Photograph: Cliff Owen/AP

Last week, the world’s stock and bond markets swung wildly. They worried about the threat of world deflation, falling oil prices and further systemic weaknesses in the financial system. But perhaps they were most concerned about whether spooked governments had the will to do anything, even if those governments could agree on what that should be. If they can’t manage a co-ordinated response to Ebola or one against the cruelties of Isis, then it is hardly likely they are going to find common ground in managing the fissures in the world economy.

It is not as though there is not the beginning of a policy and intellectual consensus about what is wrong. Inequality is increasingly understood to be poisoning everything; governments cannot continue with business as usual policies; interdependencies have to be recognised and acted on. The problem is doing any of it.

Thus only last week, Janet Yellen, chair of the US Federal Reserve, joined one of her predecessors, Alan Greenspan, and the governor of the Bank of England, Mark Carney, in arguing that the growth of inequality was not only wrong morally but having increasingly baleful economic consequences. Then there were the strictures of the managing director of the IMF, Christine Lagarde.

Inequality, they all say, fosters fear, creates too much demand for credit to compensate for squeezed living standards, drives asset price bubbles, catalyses financial instability, weakens banks and, by displacing too much risk on to those who cannot bear it, undermines the legitimacy of capitalism. You have to blink with incredulity – and then blink again at markets falling because they want to see purposeful government action.

But governments everywhere seem paralysed, relying on central bankers’ promises not to raise interest rates to keep everyone calm and buy time for a few more months. No electoral majority can be mustered for even common sense, centrist radicalism that might address inequality or put economies stricken by the legacy of too much private debt and low demand back on their feet. They are stymied by their terror of going beyond the comfort zone of business as usual, as if the world had not changed after the financial crisis. It demands thinking – and doing – the hitherto unthinkable. Austerity remains the conventional wisdom.

In any case, rightwing populists challenge any such imaginative action as wrong. It’s not the aftermath of the financial crisis that’s the problem for them. It is foreigners, immigrants and the EU. We don’t need to look out for others, act purposefully to reshape our economies to lower inequality or accept interdependencies, declaim the world’s Nigel Farages. We are going to look out for number one, lock out foreigners and the rest of the world will meekly accept our assertion of self-interest.

This incubus goes far beyond economics. Thus the Ebola crisis has been gathering force for over a year. But it has taken the prospect of 10,000 new cases a week by December in Liberia, Sierra Leone and Guinea for it to become a global threat. It’s taken this to shock world governments into a response that even now is grudging and inadequate. To stem the epidemic, burials have to be safe and more than 70% of new sufferers immediately isolated, but for that there has to be a vast expansion of the health infrastructure, along with thousands of doctors and nurses.

West Africa has neither, nor is any crash mobilisation yet in prospect. Governments have been more preoccupied with stopping cases arriving in Europe, Japan and the US than getting involved in the messy and expensive business of tackling Africa’s health inequalities, the root of the epidemic. Only in the past week has there been some movement, with Britain committing £125m to Sierra Leone and others beginning to make common cause. But only $100,000 of the $1bn UN fund has been subscribed. The reality of interdependence, even before a global epidemic, is hard to accept.

If this is hard, it is much harder to accept the interdependency of global finance and beyond that the interdependencies of whole societies such as our own. Nobody is dying a horrible death. But it is very striking how difficult it is to convince the financial, political and intellectual elite that what happened in 2008/9 changed everything. For a generation, western societies in general, and Britain in particular, relied on the massive growth of private credit to mask the dysfunctionality of their capitalism. There was too little attention paid to ensuring the mass of people had economic opportunity in businesses that invested, innovated and grew. The assumption became rooted that the state was the problem and that business and markets would provide, which they could as long as private debt levels doubled every 20 years.

What is so chilling about George Osborne’s approach to running the economy is that he really believes he can go back to those times. So do Republicans in the US and so in her way does Angela Merkel. As Martin Wolf, chief economics commentator of the FT, writes in his magisterial account of today’s global economy, The Shifts and the Shocks, the elites have not been disabused of the notion that global finance can continue as before. The vast overhang of private debt is depressive, he argues. Governments must spend and borrow more for perhaps another decade. Central banks must continue with extraordinary monetary policies. Banks and banking need wholesale reform. Deflation, not inflation, is the threat.

Wolf applauds the world’s governments for acting so positively for 18 months after the crisis – and lambasts them for thinking all was well too soon and cutting spending when the co-dependency of state and market and need for extraordinary measures have never been more apparent. The result is self-defeating secular stagnation threatening to topple into worse – in essence, this is what spooked the markets last week.

Finance needs further reshaping; we need purposeful action to lower inequality, which will involve raising taxes on the wealthy, while governments have to borrow and spend, with infrastructure spending being an easy win. Parallel policies are needed abroad.

Europe or foreigners are not the cause of our ills. Ukip and the Tory right will make things worse, not better. Just as the best in the world can see what needs to happen in West Africa, so the best are dissociating themselves from the prescriptions of the right. Nigel Farage and the British right have to be understood for what they are: the political equivalent of Ebola – a virus that threatens our economic and social health.