Saturday, December 29, 2018

Philanthrocapitalism IV: The Messianic Rich (2018)

From the August 2018 issue of the Socialist Standard

The concluding article of our series on ‘philanthrocapitalism’

No such thing as a free gift
A significant motive driving philanthrocapitalism has to do with the tax incentives involved in charitable contributions. In most countries in the world, taxes constitute the primary source of government revenue (government borrowing, mainly through the bond market, is another important source). Paying less tax may be good for the businesses concerned but it obviously impacts on government revenue and, hence, the state’s capacity to finance reforms such as social welfare programmes. That in turn has consequences for private charity and the scale of the task it faces.

Some philanthrocapitalists appear to have grasped this point well enough. An example of this is the Boston-based project, Responsible Wealth – a ‘network of business leaders, investors, and inheritors in the richest 5%’ of the US population. It lists amongst its supporters Warren Buffet and Bill Gates Snr and is an offshoot of the aforementioned ‘United for a Fair Economy’ which it describes as ‘an organization that supports workers to organize and advocate for policies that make our economy more fair and equitable’ (

Amongst other things, it calls for higher taxes on the very rich and an increased level of public investment. However, the bizarre spectacle of billionaires taking up apparently left-wing causes might not be all that it seems. There is undoubtedly an element of self-interest involved, based on a recognition that the way things are panning out might not be good for the long-term stability and prosperity of capitalism itself. Though a system of cut-throat competition tends to foster ‘short-termism’, that does not rule out the possibility of sections of the capitalist ruling class rising above their circumstances to take a longer-term perspective.

Given that the state, famously described by Marx as the ‘executive committee of the ruling class’ has more leeway than capitalist corporations in what it is able to do within the context of market constraints, it is not surprising that such a longer-term perspective has tended to be associated with, and organised around, a more statist-oriented prescriptive approach. An example of this would be the kind of thinking that led to the setting up of the modern welfare state.

Germany under its distinctly non-left-wing chancellor, Bismarck, in the late 19th and early 20th centuries, was the first country to truly implement this idea of a welfare state. As Germany began to overtake Great Britain as an industrial power around this time, sections of the British capitalist class, alarmed by this development, began to take a serious interest in Germany’s state welfare programme. They began to see a connection between this and Germany’s growing industrial strength. Years later, in 1943, the millionaire Tory industrialist, Samuel Courtauld, articulated such thinking when he strongly endorsed the Beveridge Report’s proposal to set up a welfare state in Britain too on the grounds that ‘Social security of this nature will be about the most profitable long-term investment the country could make. It will not undermine the morale of the nations’ workers: it will ultimately lead to higher efficiency among them and a lowering of production costs’ (Manchester Guardian, 19 February 1943).

However, there is always that current of short-term thinking, generated by market competition, against which this longer-term perspective has to do constant battle. Economic boom conditions can, to some extent, shore up the latter perspective, by making state welfare programmes more affordable and, also, by empowering workers in their bid to increase the social wage. But when boom turns to bust as it did in the 1970s, ushering in an era of neoliberal austerity, philanthrocapitalism was then able to play a more prominent role, filling the vacuum created by the retreat of the welfare state. Philanthrocapitalism came to be increasingly identified as the bearer and nurturer of this longer-term perspective which the neoliberal state appeared to have abandoned in its bid to cut costs and restore national ‘competitiveness’. Hence the title of Bishop and Green’s book, Philanthrocapitalism: How the Rich can Save the World, referred to earlier. The thinking behind this was that enormous fortunes of the super-rich to some extent cushioned them from the short-term exigencies of cut-throat competition, giving them the freedom to spend their money on whatever they chose

The economics of philanthrocapitalism    
Though philanthrocapitalists may profess to adopt a long-term perspective of wanting to ‘save the world’, their actions all too often belie the image they are intent upon projecting. Take the case of taxes. While some philanthrocapitalists such as those involved in ‘United for a Fair Economy’ seem intent upon advocating higher taxes for people like themselves, this does not apparently prevent them trying to run their own businesses in a manner deliberately designed to avoid paying taxes as far as possible, knowing full well the fiscal impact of this on a state’s budget and on the state’s ability to fund social welfare programmes.

This incongruity might seem puzzling but it is quite predictable in terms of game theory. Our ‘selfless’ philanthrocapitalists are quite willing to pay more taxes providing everyone else – meaning their market rivals – does as well. Until then, they will strenuously seek to avoid paying taxes as far as possible just like their ‘selfish’ counterparts in the capitalist class (who they will also try to emotionally blackmail through such stratagems as the ‘Giving Pledge’ to ensure the costs of philanthropy are shared more evenly). After all, taxation is ultimately a burden on the capitalist class, not the working class, and the squabble over that burden essentially boils down to a conflict of interests and perspectives between different groups of capitalists over how a capitalist economy ought to be administered.

Tax avoidance, unlike tax evasion, is of course perfectly legal under current legislation. The higher the taxes the stronger the incentive to avoid them, since taxation eats into profit margins and impairs the ability of businesses to compete on an increasingly globalised market. The significance of this to philanthrocapitalism lies in the fact that charitable donations are one of the ways in which the payment of taxes can be avoided.

In America, perhaps contrary to impressions, corporate taxes have been historically amongst the highest in the world (although Trump’s recent tax reform bill will cut these to a level just below the global average as well as reducing some personal taxes). Large US-based transnational corporations are particularly adept at tax avoidance, engaging in such sharp practices as transfer pricing and intra-corporate loans, and being able to employ expensive legal terms to ensure everything appears hunky dory and above board. Huge sums of money are offshored into tax havens or reinvested in other foreign operations. As Farok Contractor notes: ‘The accumulated, but unrepatriated, profits of American multinationals’ foreign subsidiaries—which have legally escaped US taxation—are estimated between $2.1 and $3 trillion’ (Rutgers Business Review, Vol. 1, No. 1, pp. 27–43).

As stated, making charitable donations is just another form of tax avoidance. Indeed, some of the most notable philanthrocapitalists are associated with businesses with a notorious record of tax avoidance. One example is Bill Gates. According to a report by The Independent: ‘Microsoft has reportedly avoided up to £100m a year in UK corporation tax by routing its sales through Ireland’ (19 June 2016). Over £8bn of revenues from computers and software bought by customers in the UK has been diverted to Ireland since 2011, under an arrangement agreed with HM Revenue & Customs.

Another example is Mark Zuckerberg. His corporation, Facebook, has been severely criticised for its tax avoidance stratagems and, like Microsoft, has resorted to funnelling profits through Ireland. In 2014, Facebook paid only a paltry £4,327 in corporation tax on an annual profit of £1.9bn (though the company has more recently agreed to pay several millions in taxes).

The case of Zuckerberg and Gates epitomises a trend in philanthrocapitalism. Instead of philanthrocapitalists giving directly to charities, they are increasingly setting up foundations of their own as a vehicle through which they can exercise ‘social entrepreneurship’, funnelling money to causes of their choosing. Some like Buffet seem to be the exception to this trend. In his case, his charitable donations have mainly gone to the Gates Foundation, the largest of its kind in the world, thereby amplifying its already enormous power and reach.

Indeed, the Gates Foundation is said to contribute about 10 percent of the total budget of the World Health Organisation which, critics claim, gives it undue influence on policy making. In a special report, the ‘Global Justice Now’ campaign group comment on the nefarious workings of the Foundation: ‘We argue that this is far from a neutral charitable strategy but instead an ideological commitment to promote neo-liberal economic policies and corporate globalisation. Big business is directly benefiting, in particular in the fields of agriculture and health, as a result of the foundation’s activities, despite evidence to show that business solutions are not the most effective’ (LINK.).

How philanthrocapitalism goes about financing various causes, gives us more clues as to its real nature and intent.

While attention is focussed on the huge sums of money involved in charitable giving, it is easy to overlook what all that money is spent on. Quite a significant chunk of it is spent, in the first instance, on administrative costs and fundraising (which is, of course, indispensable in a capitalist money-based economy). According to a report by the Daily Mail (12 Dec 2015), one in five of the biggest charities in the UK are ‘spending less than half their income on good work’ and, in a few cases, as little as 1 percent.

It is difficult to avoid the conclusion that many of these charities are little more than a lucrative gravy train for those employed in them. Indeed, the New York Times, (29 March, 2008) refers to a report on the fraudulent misuse of charitable money for personal gain in the United States. The authors of this report estimated that the overall costs of fraud came to a staggering $40 billion for 2006, or some 13 percent of the money given to charity in the US. In early 2007, another report by the Center on Philanthropy at Indiana University (partnered by Google) provided some revealing data on the subject of what charitable money is spent on. According to the report, less than one third of the money that the American public gave to non-profit organisations in 2005 was focused on the needs of the economically disadvantaged. Of the total of $250 billion donated that year, less than $78 billion explicitly targeted those in need.

While we tend to think of charity as essentially an endeavour seeking to ease the plight of precisely those in need, this can be quite misleading. Ginia Bellafante in the New York Times (Sept 8, 2012) notes that:
  ‘Nationally, 32 percent of the $298 billion given away last year went to religious institutions, 13 percent to cultural organizations and 12 percent to social services, according to a report issued annually by the American Association of Fundraising Counsel. But if giving were conducted with the greatest consideration paid to the most urgent needs of the society, then Yale, a private institution with a $19.2 billion endowment, would arguably never receive another 50 cents.’
According to a Wikipedia entry on the billionaire Koch brothers: ‘Charles’ and David’s foundations have provided millions of dollars to a variety of organizations, including libertarian and conservative think tanks. Areas of funding include think tanks, political advocacy, climate change scepticism, higher education scholarships, cancer research, arts, and science’ (LINK). That climate change deniers and the advocates of free markets should count as the recipients of philanthrocapitalist charity speaks volumes as to the supposed efficacy of such charity in addressing the needs of the poor. It is precisely the poor of the Global South, above all, who stand to lose most as a result of the very climate change which its deniers are unwittingly enabling.

However, it is arguably when charitable donations are funnelled into for-profit enterprises that the very term itself becomes most particularly questionable. As Matthew Reiz notes in his review of Linsey McGoey’s book, No Such Thing as a Free Gift: The Gates Foundation and the Price of Philanthropy (2015), there is a long-standing tradition of donating money to for–profit businesses in America and it has become more pronounced in recent years. McGoey’s book gives examples of this such as the Gates Foundation’s donations to Scholastic Inc, a large publisher of education material. Another recipient of the Foundation’s money was a project called M‑Pesa, for ‘which Vodafone and its subsidiaries built, in Kenya and then Tanzania, a system that allowed villagers access to mobile phone banking’ (LINK).

As an article in The Economist put it, one of the things revolutionising American philanthropy is the ‘blurring of the distinction between the profit and the non-profit sectors. In health care, and even in education, for-profit companies are increasingly doing things that used to be reserved for non-profits. And non-profits increasingly model themselves on profit-making businesses. Business schools put on courses for voluntary workers. Non-profits hire managers from the private sector, and pay them accordingly. Some non-profits even charge for their services or spin-off profit-making subsidiaries’ (28 May 1998).

Though the sums of money involved in charity donations are substantial – in America for example, by 2016, total giving to charitable organisations had risen to $390.05 billion, 72 percent of this coming from individuals compared with 15 percent by foundations and 5 percent by corporations and the rest by bequests – it is still small by comparison with state expenditures on welfare programmes. In America, if you include both federal and local government spending, the latter comes to about $1 trillion per year. Given that only a fraction of charitable giving in the US (which itself represents only 2.1 percent of GDP) is actually targeted on the needy this further underscores the utter absurdity of such brash claims about the super-rich wanting to ‘save the world’.

Philanthrocapitalism is not about saving the world. It is about saving capitalism through a face-saving attempt to justify what cannot be justified. It is about promoting the patronising belief that the poor depend upon the super-rich when the reality is the complete opposite.
Robin Cox

Rear View: Koch & Co. (2018)

The Rear View Column from the July 2018 issue of the Socialist Standard

Koch & Co.
Socialists have long said that political parties of the left, right and centre exist to preserve the status quo. ‘The Republican and Democratic parties . . . are the political wings of the capitalist system and such differences as arise between them relate to spoils and not to principle. With either of these parties in power one thing is always certain and that is that the capitalist class is in the saddle and the working class under the saddle …The ignorant workingman who supports either of these parties forges his own fetters and is the unconscious author of his own misery’(Eugene Debs, 1904). Recent evidence supports this view. Capitalist Shri Thanedar is in the race for governor of Michigan. Differences in policy between the two main parties are of little concern to him and apparently his decision to run under the banner of pseudo-socialist Bernie Sanders is based purely on advice that Independents and Republicans are less likely to win. And, ‘the political arm of the Koch network, long reputed for championing conservative causes and politicians, has launched an ad campaign thanking a Democratic Senator up for re-election in a red state for her work in passing a financial deregulation bill’ (, 4 June). The brothers are actively opposed to Trump’s tariffs and other issues of concern to capitalists.

Dumb & Dumber
The comedian John Oliver has been taken to task in a recent article (, 3 June) by José Niño of the Mises Institute. Both agree that ‘socialist’ countries exist, but the advocate of a dystopia known as free market capitalism objects to remarks made by Oliver on his TV show such as there are ‘plenty of socialist [sic] countries that look nothing like Venezuela’. This country has long been the bête noire of the Institute and other right-wing groups (with the opposite being true for supporters of state capitalism) and José, unsurprisingly, adds Cuba and North Korea for good measure before insisting that price controls are an essential feature of ‘socialism’. He then delivers what he clearly thinks is his coup de grâce: ‘For those that remain skeptical about Venezuela’s socialist status, they can look no further than the second section of the Communist Manifesto, “Proletarians and Communists,” to understand the government’s true nature. Marx sums up the socialist program with ten essential tenets.’ The measures ranging from nationalisation to a heavy progressive or graduated income tax may have had merit in 1848 but not today. Indeed, Marx and Engels in their joint preface to the 1872 edition state: ‘No special stress is laid on the revolutionary measures proposed at the end of Section II. That passage would, in many respects, be differently worded today.’ Besides, as Rosa Luxemburg said succinctly: ‘without the conscious will and action of the majority of the proletariat, there can be no Socialism.’

More huff and puff from Hedges
Chris Hedges, the Pulitzer Prize-winning journalist, New York Times best selling author, former professor at Princeton University, activist and ordained Presbyterian minister, has given talks on Red Rosa –although even viewing the YouTube videos after reading a recent essay of his titled Teaching ‘Les Misérables’ in Prison (, 27 May) may leave you in doubt.  Hedges writes in his introduction: ‘the socialist [sic!] British Prime Minister Lloyd George said “Les Misérables” taught him more about poverty and the human condition than anything else he had ever read and instilled in him a lifelong ambition “to alleviate the distress and the suffering of the poor.”’ There follows a reasonable summary of the book and comments from some inmates, but no call for a world without the prison industry, no mention that the 99 percent worldwide remain in chains: ‘earning a wage is a prison occupation’ – D H Lawrence, or acknowledgement that ‘the paradise of the rich is made out of the hell of the poor’ –Victor Hugo.

No leaders, no led
‘I am not a Labor Leader; I do not want you to follow me or anyone else; if you are looking for a Moses to lead you out of this capitalist wilderness, you will stay right where you are. I would not lead you into the promised land if I could, because if I led you in, some one else would lead you out. You must use your heads as well as your hands, and get yourself out of your present condition; as it is now the capitalists use your heads and your hands’ ( Debs, pre-1908).

The Rich Stay Rich (2018)

From the July 2018 issue of the Socialist Standard

Part Two

Part three of our series on ‘philanthrocapitalism’

If ‘self-made billionaires’ tend to be ‘more willing to give their money away than those who inherit their fortunes’ as Bishop and Green contend then, seemingly, the prospect of philanthrocapitalism making a larger impact on society depends to some extent on a relative increase in the proportion of wealthy individuals who allegedly made their wealth in this way. In other words, on the degree to which individuals are able to become upwardly ‘socially mobile’. On current trends, however, this seems unlikely. If anything, what seems more likely is that the significance of inherited wealth is going to grow in relative terms.

What helps to sustain the myth of ‘self-made men’ is precisely the belief that we live in a socially mobile society in which inheritance plays only a negligible role. This discounting of the importance of inheritance is a characteristic feature of conservative sociological analysis and its barely concealed aim of wanting to justify the existence of gross inequalities. Such inequalities will tend to be more tolerated insofar as it is assumed they reflect the workings of a meritocratic principle. The rich are rich because of hard work, runs the argument. That’s quite true, of course, except that it omits to mention that it is other people’s hard work that made them rich.

In a sense, then, the argument about the role of inheritance in perpetuating gross inequalities is a distraction. Whether the capitalists inherited their wealth or ‘made’ it, that wealth overwhelmingly derives from that portion of the labour performed by working people that is effectively unpaid or unreciprocated. The only virtue in drawing attention to the significance of inheritance in modern capitalism is that it helps to clarify this point and make it all the more obvious.

How significant a role does inherited wealth play in modern capitalism, then? This is a difficult question to answer. Partly this is because what is called ‘inheritance’ is not simply what it is often imagined to be asLisa Keister and Stephanie Moller explain in their article, ‘Wealth Inequality in the United States’:
  ‘We know very little about how wealth is actually inherited because data on inheritance is virtually nonexistent. Indeed, Menchik & Jianakoplos (1998) estimated that between the 1970s and 1990s, as little as 20% and as much as 80% of total wealth may have been inherited. Those who study inheritance typically refer to three forms of inheritance: inheritance at the death of a parent or other benefactor, inter-vivos transfers of money and other assets, and transfers of cultural capital (Miller & McNamee 1998:3) While we typically think of inheritance as occurring at the death of the benefactor, Kurz (1984) estimated that inter-vivos transfers account for nearly 90% of intergenerational wealth transfers’ (Annual Review of Sociology, August 2000, Vol 26: 63-81).
Study after study has confirmed that, far from ‘social mobility’ in America (and elsewhere) increasing, it is on the wane (and, along with it, faith in the ‘American dream’). This seems to have gone hand in hand with the steadily widening gap between rich and poor. If you are born poor today you are more likely to remain poor than was the case with your parents or grandparents but the corollary of that is that, if you are born rich, your offspring are more likely to remain rich, too. Meaning that the role of inheritance is likely to loom ever larger as an explanation for the extremely skewed distribution of income and wealth. Consequently, if it is true that the ‘self-made’ super-rich give more to charity than those who inherit their wealth, this would seem to imply that a relative long-term decline in charitable donations from the super-rich is in prospect.

According to Thomas Piketty, author of the best seller, Capital in the Twenty-First Century (2013), the recent growth in inequality augurs a return to the ‘patrimonial capitalism’ of the Gilded Age and the dynastic wealth of a rentier economy.In America, for example, the share of total wealth owned by the top 0.1 percent increased from 7 percent in late 1970 to 22 percent in 2012. This is approaching levels of inequality to be found in the era of the Robber Barons.

What is driving this process, argues Piketty, is the simple fact that the rate of return on capital has been consistently exceeding the rate of economic growth over the past few decades, meaning the super-rich have been appropriating a steadily growing slice of the economic pie. A kind of positive feedback loop is at work which ensures that, to those who have, shall more be given, simply by virtue of the fact that they have the capital to invest which the rest of us don’t. If you are securing a rate of return that exceeds the rate at which the economy is growing, then, logically, that can only mean you are accumulating wealth at the expense of others who lack capital. Inequalities in the distribution of wealth and income will thus grow. That, in turn, acts to slow down or impede social mobility and thus boost the significance of inheritance. The recipients of this inherited wealth not only benefit directly but indirectly too by capitalising on all advantages that great wealth bestows upon them in terms of social capital, having connections with the right people and so on.

The problem is, as Piketty suggests, that while some of the super-rich might claim to have earned their wealth by the sweat of their brows, plainly the same could not really be said of their offspring inheriting this wealth. The corollary of reduced upward mobility is obviously reduced downward mobility – meaning an increased capacity for the super-rich to hang on to their huge fortunes and thus to pass them on to their heirs.

Inheritance is thus the cuckoo in the nest of capitalist ideological legitimation. With the rich getting increasingly richer at the expense of the rest, more and more discrediting the myth of upward social and intergenerational mobility, it is going to be increasingly difficult to justify their huge fortunes in the face of these stubborn realities. The disconnect between ‘merit’ and ‘reward’, which were never closely linked to begin with, will become ever more apparent.

This is where the ideological significance of philanthrocapitalism comes into the picture. It represents an attempt to shore up a failing mechanism of ideological legitimation by projecting an image of the philanthrocapitalist as a generous benefactor and of capitalism itself, as a system that can be philanthropic, working for the good of mankind  ( It is the application of a fresh lick of paint on a crumbling façade that barely conceals the stark structural reality of capitalist exploitation.

Exploitation and charity
While philanthrocapitalism focuses on what the rich give to the poor it would be far more to the point to focus on what the poor give to the rich. According to Barbara Ehrenreich the appropriate response to such giving ought to be one of ‘shame’:
  ‘shame at our own dependency, in this case, on the underpaid labor of others. When someone works for less pay than she can live on — when, for example, she goes hungry so that you can eat more cheaply and conveniently — then she has made a great sacrifice for you, she has made you a gift of some part of her abilities, her health, and her life. The “working poor,” as they are approvingly termed, are in fact the major philanthropists of our society. They neglect their own children so that the children of others will be cared for; they live in substandard housing so that other homes will be shiny and perfect’ (Nickel and Dimed: On (Not) Getting by in America, 2001).
However, the problem with Ehrenreich’s way of framing the whole question is that it is seriously misleading. She is focussing only on the lowest paid members of the working class, those who are ‘underpaid’. The presumption seems to be that were they not ‘underpaid’ but paid at the going rate they would have no cause for grievance. Her perspective is the suppressed view of a ruling class which she faithfully echoes in talking of ‘our’ dependency on the ‘underpaid labour’ of others. She ignores completely the unpaid labour that workers in general contribute towards the accumulation of capital even when they are not ‘underpaid’. Her sympathy for the ‘working poor’ is the sentiment of a guilt-ridden liberal trying to eradicate the more unpalatable aspects of contemporary capitalism and to soften some of its rough edges.

What makes the working class – not just Ehrenreich’s ‘working poor’ – ‘the major philanthropists of our society’ is the brute fact of surplus value, the value which our class creates over and above what it receives by way of a wage. As Friedrich Engels put it: ‘It is infamous, this charity of a Christian capitalist! As though they rendered the workers a service in first sucking out their very life-blood and then placing themselves before the world as mighty benefactors of humanity when they give back to the plundered victims the hundredth part of what belongs to them!’ (The Condition of the Working Class in England, 1845).

But even if we look at philanthropy in its more conventional sense as the voluntary donation of money and effort to others, it is quite misleading to portray this as the prerogative of the rich alone. Workers likewise give handsomely in this sense.

Indeed, according to one survey, individuals with incomes below $25,000 gave away around 4.2 percent of their income while those on an income of $150,000 or more gave away around 2.7 percent. Research carried out by Dacher Keltner revealed that ‘lower class people just show more empathy, more prosocial behavior, more compassion, no matter how you look at it’ (LINK.)
Robin Cox

(Next month, concluding article: No Such Thing As A Free Gift)

The Value of Value (2018)

Book Review from the July 2018 issue of the Socialist Standard

The Value of Everything. Making and Taking in the Global Economy’. By Mariana Mazzucato. (Allen Lane. 384 pages. £20, hardback)

Mariana Mazzucato follows up her previous book, ‘The Entrepreneurial State’, with this fascinating look at how theories of value shape policy and economic behaviour. She reprises the core of that previous book in a chapter of this one, showing how much of the innovative success of capitalist firms in recent decades (such as the internet, GPS, etc.) actually stemmed from investment by the state, and only after the risky stage of product development did private capital swoop in to enormous rewards.

She begins with a brief history of national accounting, and how the question of the productive boundary – what is and is not a productive endeavour – gets brought into measuring these accounts. She notes that how we define this productive boundary shapes how we assess economic performance. She gives examples of difficulties: cleaning up pollution caused by industry adds to the productive side of the economy, but is actually correcting a major damage caused by cost saving by another firm. She notes that there is no economic accounting for housework and child rearing. She also points out that despite the role of the state in investing and driving innovation, the state is seen as inherently unproductive.

Her goal is not to define a new way of looking at value, but to open up the debate on why a theory of value is needed. She notes that the current orthodoxy, marginal utility theory (which essentially sees value as deriving from how useful the next additional unit of a good is, rather than how useful a good is in itself). Essentially, as she notes, this resolves into saying that the value of a good is whatever anyone is prepared to pay for it (and thus any good or services anyone pays for is productive). As a theory it abolishes any standard of value to measure prices by (it doesn’t allow for the concepts of bargains or rip-offs) and justifies the idea that markets are the most efficient measure of demand.

As she notes, marginal utility theorists maintain there is no unemployment, just a rational choice between income and leisure. As there is no measure beyond the market, it means that financial industries, that were once considered unproductive and merely distributive of wealth, can claim to be part of the productive economy. She passes into a quick mention of the idea that banks create money, with the added and helpful twist that sees that alleged ability deriving from the near monopoly of banks created by the state licensing system. This means, in effect that it isn’t private banks creating money, but the state.

She also gives a brief schematic account of the labour theory of value, and an account of Marx’ place in the history of the discussion of what is productive. She gives one of the better accounts of Marx’ theories you’ll likely find in any popular economics book. Marx noted that any activity that generates a surplus value for a capitalist was productive. What Mazzucatto misses in her account, is that Marx was clear that this was productive for capitalists and within a capitalist economy. This ‘valuable, for whom?’ is missing in most of her account, although she clearly gives hints that she would rather see a system of value accounting that gives a positive role to the state.

Her perspective is broadly Keynesian, seeing the struggle between the rent seeking of finance and the productive capacity of industry, and siding with productive capital. One aspect of her narrative that seems to undermine her case for stricter financial regulation, is that she recounts how the banks broke out of their previous regulated regime, and basically forced deregulation. Where there are profits to be made, they will be sought.

This is a useful read, and an opportunity for socialists to get involved in a debate about ensuring that the best way forward is to put an end to economic value through common ownership and the production of an abundance of wealth for use rather than exchange. We would still need mechanisms to assess resources and effective use, but we wouldn’t need a singular measure of personal wealth like a private market economy requires.
Pik Smeet

Rising land prices: another housing problem (2018)

From the July 2018 issue of the Socialist Standard

Housing is a permanent problem under capitalism basically because houses are built primarily not for people to live in but to be sold or let for profit. The private ownership of land adds to the problem in that the price of a house reflects not just the cost of building it but also the price of the land on which it is built. As land is not the product of human labour its price depends entirely on the effective demand for it, the key element in which is its location.

Land in the middle of a city is more in demand than land in some remote rural area. This is why the Duke of Westminster, who owns land in central London, figures as No. 10 in the latest Sunday Times Rich List, while the Duke of Buccleuch, who owns vast estates in Scotland and is in fact the largest landowner there, only comes in at No. 530. At a much lower level, it is why houses and rents near a tube station in London are more expensive, like for like, than those further away.

It also explains why so many decidedly far from noble property speculators are in the Rich List – these wide boys got rich by buying land at one price and selling it at a much higher one along with whatever they had had built on it. House-building in Britain is overwhelmingly in the hands of such ‘developers’ who will only build if they calculate they can make not just a normal profit but also a capital gain from the rise in the price of the land. As the Times (21 February 2017) put it:
  ‘Ultimately, building houses is not rocket science and profits are not driven as much by the cost of supplies or labour as by a company’s skill at acquiring land at the right price.’
Obviously land can’t change its location. However, its use can. Some areas of central London or near to it which have traditionally been inhabited by lower-paid workers have become desirable as places to live for higher-paid workers with jobs in the City or in government departments in Whitehall. This change has been called ‘gentrification’ but this is misleading. Historically, the ‘gentry’ were the English equivalent of the classic French ‘bourgeoisie’ whereas the higher-paid workers moving in are part of the working class in the proper sense of anyone forced by economic necessity to sell their labour power to an employer for a wage or a salary.

The higher effective demand has pushed up the price of land and so of housing there. This has had various consequences. It has provided an incentive for private landlords to improve their property so that they can let it at a higher rent, meaning that it becomes impossible for lower and even average paid workers to continue to find accommodation in the area at a rent they can afford. It has also put developers in a position to bring pressure on local councils to let them ‘redevelop’ or ‘regenerate’ the area by demolishing old, lower-rent housing to replace it by newly-built, more expensive housing.

In fact so profitable is this – in terms of increase in the price of the land compared with what they paid for it –that the developers are able to offer sweeteners to local councils, in the form of providing libraries, health centres and council office space, as a way of getting planning permission, offers which cash-strapped councils cannot afford to refuse. Councils do have some power as it is them who have to give planning permission. They use this to ask that the developers include an element of ‘affordable’ housing in their scheme. They don’t do much more than ask as if they insist too much the developer will simply walk away. In any event, ‘affordable housing’, defined as up to 80 percent of the average market rent in an area where market forces have driven rents up, is still not affordable for most people.

There are also let-out clauses under which, after permission has been given and construction commenced, developers can plead ‘unforeseen’ costs or other difficulties for not being able to provide as much such housing as originally agreed, as in this example:
  ‘A developer has called on Kingston Council to remove an affordable housing clause from its development plans. The Battersea Development Company has submitted a planning application to “seek a revised affordable housing obligation” for Willow Court in Cambridge Road, Kingston.
In a letter to the council its agent states: “The affordable housing obligation as currently agreed makes the proposed development scheme unviable in current market conditions. Our client wishes to amend the affordable housing obligation”‘ (Surrey Comet, 15 June 2015).

There is ‘social’ housing – the modern equivalent of the 1890 Housing of the Working Classes Act – in the form either of council housing or of not-for-profit housing associations, both of which can charge a maximum of only 80 percent of the local market rate. These days, what’s left of council housing is generally low-quality accommodation used for housing people councils have a legal obligation to house. Housing associations, under pressure to balance their books, have begun to behave like property companies, even resorting to private landlord scams like charging a rip-off fee for renewing a tenancy contract as well as paying their top managers bloated salaries. As a Liberal Democrats candidate in the recent London borough elections lamented:
   ‘Even housing associations are now more interested in speculative development than in looking after their elderly and vulnerable tenants’ (Ham, Petersham & Richmond Riverside Comments, No. 242, February 2018).
Easily promised
Those who imagine that this particular housing problem – which is essentially an affordability problem – can be solved within the framework of capitalism offer various solutions.

One is a tax on rising land prices, or a Land Value Tax as its advocates call it. This would certainly put an end to developers (but also ordinary homeowners) speculating on the price of land rising. It would transfer the benefit of this to national or local government which could be used to reduce other forms of taxation, but it would not stop land and so housing prices from rising in the areas concerned and which make housing there unaffordable for low-paid workers.

Why not let local councils acquire the land that developers hold and use it to build houses and flats to let at a rent that lower and average paid people can afford rather than luxury flats? To many that might seem to be an obvious solution and it’s what the reformists of the Labour Party and the Green Party propose. But this is easier promised than done because under capitalism everything has to be paid for. Doing this would be hugely expensive, if only because the land would have to be acquired, even if compulsorily, at the going market rate inflated as it is by the increased effective demand for it.

Where is this money to come from? Most of what local councils have to spend comes from the central government in the form of grants (for current spending) and loans (for capital spending). House-building would be capital spending, so the councils’ debt repayment burden would go up (many are still paying off the capital plus interest for council houses they built in the past). This would be at the expense of other services unless the government increased the grants for these. But how likely is that?

As housing on the acquired land could command a higher rent than would be charged, doing this would amount to a rent subsidy for some workers. But capitalism is not a system geared to meeting people’s needs or even making things easier for people. It is a system that runs on profits under which profits and conditions for profit-making have to come first. For the past ten years governments everywhere have been committed to cutting, not increasing, state spending so as to reduce the burden of taxation on profits in the aftermath of the Great Crash of 2008 and the ensuing slump. This is not a political choice that could be reversed by a different choice, but something imposed on governments by the economic forces of capitalism that dictate that priority has to be given to profits over everything else, including social measures to benefit workers.

Even in times of boom capitalism is not a system geared to meeting people’s needs and cannot be reformed into this. This can be, and has been, attempted by Labour and reformist governments in other countries but it has always ended in tears. It is conceivable that a future Labour government under Corbyn and McDonnell might adopt a land purchase and subsidised rent scheme to deal with the problem of housing for lower and average paid workers being unaffordable in areas of rising land prices. If so, they are likely to finance it by recourse to the printing press. The resulting higher inflation and economic slowdown would sooner or later force them to do a U-turn.

The plain fact is that there is no solution to the housing problem for workers within the framework of capitalism. It will always exist, in one form or another, for as long as the capitalist system of class ownership and production for profit does.
Adam Buick