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Sweating the Asset

Sean Byrne

Rentier Capitalism: Who Owns the Economy and Who Pays for It?, by Brett Christophers, Verso Books, 512 pp, £25, ISBN: 978-1788739726

The term “generation rent” is currently used to describe the large number of mainly young people in Ireland who cannot aspire to own a home and must rent their accommodation for decades or perhaps for their whole life. The everyday meaning of rent is a payment for housing, land, offices or other tangible property, but economists define it more broadly as income derived from the exclusive ownership and/or control of a scarce asset under conditions of limited or no competition. Those who acquire income from such assets are referred to as rentiers, a French word which, though first used in 1798, summons up images of the pre-revolutionary French aristocracy living in luxury on the sweat of the impoverished workers on their estates.

Over the past thirty years, economists have used the term “rentier capitalism” to describe an economy where more wealth is derived from the ownership of tangible and intangible assets than from the production of goods and services. In a rentier economy huge unearned incomes are derived from the ownership of assets for the use of which others must pay. The revealing term “sweating the asset”’ is used to describe the process by which the owners of the assets, who produce nothing, increase the income they derive from them. Brett Christophers’ Rentier Capitalism: Who owns the Economy and Who Pays for It is a masterful and deeply researched account of how the UK has developed into such an economy since the 1970s.

Christophers distinguishes seven classes of assets from which rentiers derive their wealth: land, natural resources, infrastructure, intellectual property, digital platforms, financialisation and service contracts based on outsourcing. The sector with which most people associate rent, land ownership, is as Christophers points out “almost comically profitable” in the UK due to the removal of most restrictions and the enormous privatisation of public land that has taken place since the “Thatcher Revolution” (Christophers’ previous book, The New Enclosure, showed how the mass privatisation of public land in the UK had enabled huge speculative development while making houses less affordable). The Thatcher “revolution” also led to the privatisation of much infrastructure. Christophers begins his book with a description of a company called Arqiva which most people in the UK have never heard of but to whose profits they contribute every time they use their mobile phones. Arqiva controls most of the UK’s broadcasting transmission sites and telecom towers. It is paid for the use of the infrastructure by broadcasting and telecoms companies and its revenues are therefore derived not from what it does but from what it controls. In the UK water and energy infrastructures have also been privatised.

Christophers shows how under Margaret Thatcher’s governments the UK economy was radically transformed from being highly regulated with a large state sector, not into the competitive free market economy which was touted as the better alternative but into one characterised by varying degrees of private monopolies. Under Thatcher, ports, shipbuilding, telecoms, steel, oil, gas, coal, electricity, rail, air traffic control, defence technology and nuclear power were privatised. In many cases the privatised companies were acquired by global consortiums or investment funds and holding companies controlled from outside the UK. Consumers who were promised greater choice and lower prices often found they faced higher prices and less choice.

In the case of natural resources, private companies are granted licences to exploit natural resources such as minerals, oil and gas, which give those companies what economists call “natural resource rents”. The granting of oil and gas licences and of outsourcing contracts are examples of purely legal forms of rent creation and both are examples of the central role of government in creating rentiers.

The most recent and most powerful and profitable additions to the panoply of rentier institutions are the “platform” companies including Amazon, eBay, Paypal and the stock exchanges which control the means by which much of the world’s trade takes place. The stock exchanges are central to the “financialisation” of so much of the economy, including the housing stock since the 1980s. In Ireland this financialisation of housing had recently emerged in the floatation on the stock exchange of Real Estate Investment Trusts (REITS).

Christophers argues that the contradiction at the heart of contemporary British capitalism is that, while the advocates of the free market economy constantly boast of the benefits of competition, in reality the British economy, and to a lesser extent other “free market economies” are characterised by varying degrees of government-protected or -created monopoly. This has resulted in reduced innovation and weakened the bargaining power of labour against the controllers of assets, which in turn has led to lower productivity and economic growth and increased inequality. Rentiers prefer to extract rents from their existing capital rather than risk it in new productive investments. Christophers, in contrast to other radical critics of UK capitalism, argues that financialisation is not central to the malaise but that financial assets are one of several types of assets from which rents can be extracted. He refers to John Maynard Keynes’s criticism of the finance rentiers whom he wished to see “euthanise”’ and whose role he believed would wither away as capital became more abundant. Yet as capital has become ever more abundant the role of finance has increased, as it sucks into its maw every sector of the economy.

While Brett Christophers gives a compelling account of the extent of rent-seeking in the British economy his thesis that rent-seeking is the central force in contemporary capitalism is less persuasive. He defines rent as “income derived from the ownership, possession or control of scarce assets under conditions of limited or no competition”. This definition is so broad as to encompass most economic activity, because, as every first year economics student learns, perfect competition exists only in the dreams of economists, while most real-world markets are characterised by varying degrees of inefficiencies and inequalities. But even perfectly competitive markets, like all markets, would be social institutions operating in conditions of unequal distribution of wealth and power. The issue of how ownership and control of resources was gained is more fundamental than how goods are produced and exchanged.

From the end of the nineteenth century, the UK economy had grown more slowly than other European economies, particularly Germany’s. Christophers shows that while the Thatcher “revolution” was predicted to increase economic growth and prosperity, the UK continued to lag behind Germany after the wave of privatisations and deregulation. With state involvement in the economy and the power of unions no longer available as scapegoats for poor economic performance, EU membership was then blamed for Britain’s economic problems and Brexit was proposed as the solution. People in the north of England whose living standards had fallen since the 1970s deindustrialisation were persuaded that their plight was due to EU membership rather than domestic policy failings. They are now discovering that Brexit is more likely to worsen than to improve their situation as the UK positions itself to compete not with Germany and Japan, but with China and India.

Brett Christophers deals only with rent-seeking in the UK but there have been many examples of the phenomenon in Ireland. The scandal of property speculators bribing local politicians to rezone land for housing is an example of the Tullock Paradox identified by the British economist Gordon Tullock in 1967. Tullock argued that rent-seeking involves manipulating the political environment in which economic activity occurs rather than creating new wealth. Tullock pointed to the fact that a rent-seeker wanting a political favour can bribe a politician for a much lower cost than the value of the favour he receives. The surprising aspect of the land rezoning scandal in Ireland was not so much that so many councillors were corrupt, but what a low price they put on their power to enrich property speculators.

The most spectacular triumph of the rentier system in Ireland has been the acquisition of thousands of apartments and houses by foreign-owned property companies. This process began when the National Asset Management Agency (NAMA), with the encouragement of then minister for finance Michael Noonan, sold off property portfolios to US vulture funds, thereby facilitating the greatest transfer of Irish property to foreign owners since the Cromwellian confiscations. The Irish government has also given substantial tax breaks to Real Estate Investment Trusts (REITS), which now control large numbers of houses and apartments. The state is also leasing thousands of properties for social housing from property companies under a scheme whereby the state will pay the mortgage for twenty-five years, when the houses will revert to the ownership of the property company.

Brett Christophers’ book is a rigorously researched and theoretically insightful account of how large areas of capitalism have changed from “doing” to having. To reverse this trend, he argues that governments must act to break up monopolies, increase taxes on asset wealth. increase state investment and spend more on public services. He also proposes the rather utopian idea of the decentralised and democratised control of community assets.

While the negative effects of rentier capitalism make much of Christophers’ book dispiriting reading, the author is encouraged by the fact that since 2000 there have been over five hundred successful examples of privatised enterprises taken back into public ownership across Europe in water supply, energy, local transport, waste collection and social care. All have resulted in improved service and in many cases lower prices to consumers, which disproves the ideology that markets are always more efficient than public provision.


Sean Byrne is lecturer emeritus in economics at Technological University Dublin.




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