Markets won’t save humanity

In his series of books (Banking Across Boundaries, Rentier Capitalism, The New Enclosure, Our Lives in Their Portfolios) Brett Christophers has provided a forensic analysis of the fundamental plumbing of the global and (especially) UK economy. For example, the first of these identified the statistical construct of ‘financial intermediation services indirectly measured’ (FISIM) as an artefact inflating the apparent contribution of the financial sector to the economy and thus enhancing its political lobbying power. He was the first researcher to point out this consequence (and is cited in my GDP book). Our Lives in Their Portfolios assembles evidence on the scale and scope of private equity ownership of assets in the US and UK, and the adverse consequences for the ability of key infrastructure to provide continuing services.

He continues this grand project of analytically dissecting the neoliberal economic order (even before it has entirely died) – at its most extreme in the UK – in his new book, The Price is Wrong: Why Capitalism Won’t Save the Planet. The book is a persuasive assault on the idea that renewable energy generation has become cheap enough that capitalist self-interest will ensure the green transition without continuing government subsidy and regulation. The analysis has three key points.

First, as the legacy industry fossil fuel generation has high sunk costs and low investment needs, whereas renewables need upfront financial investment as high fixed and low marginal cost generators. Second, the once vertically-integrated electricity business now has a separate wholesale market into which generators sell power, so investors in renewables need to earn their return from selling electricity to the grid. Third, the habit (it seems to be no more) of pricing wholesale electricity at the highest marginal cost makes the potential return to renewables investment dependent on highly volatile prices. Without either feed-in-tariffs or contracts-for-difference to reduce the volatility, a more important purpose than subsidising the renewables generators, it is hard for the rate of return calculation to stack up.

The book has a lot of fascinating detail about the structure of electricity markets, in India China and elsewhere as well as the US, UK and EU. Other design details matter. For example, it matters who bears the cost of connecting new generators to the grid – if it is they themselves rather than spreading the cost over the industry, that is another obstacle to investors earning an adequate return on wind or solar. For wind and solar farms are generally located where land is cheap and the power has to get to where people live, but land is expensive.

All these factors mean that the data point underlying the claim that renewable energy is cheap enough for the market to deliver the energy transition is misleading. This is the ‘levellized cost of energy’ (LCOE) or average net present cost of electricity generation for a generator over its lifetime. Although their zero marginal cost (because the fuel is free) makes renewables attractive on this measure, it ignores the hurdle of the initial and separate calculation of the expected rate of return on the investment in generating capacity. A wind turbine is cheap to operate but costly to install – so how will the developer doing the installation make a profit?

The message I take away is the need to be super-careful about market design in energy. These are state-organised markets (as indeed are all, but even more so in this case). The detail sometimes swamps the thread of the argument, but I’d commend The Price is Wrong to anybody interested in energy transition, and in more broadly in the dysfunctions of modern capitalism.

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Who owns Kent?

Brett Christophers has become the leading expert on the role the financial sector has played in shaping the UK economy – for better or worse, usually the latter. I first came across his 2013 Banking Across Boundaries, where he was the first person to point out the pernicious effect of the ‘FISIM’ (financial intermediation services indirectly measured) construct in flattering the contribution of finance to the economy – a point later taken up by others. Subsequent books have looked at UK land ownership (The New Enclosure) and rentiership (Rentier Capitalism).

His new book, Our Lives In Their Portfolios: Why asset managers own the world, lives up to the high expectations established by the earlier ones. The subject is the scale and scope of the ownership of physical infrastructure – mainly in the UK but with examples from the US and Australia too – by large and generally little-known asset managers. Take Kent for example: water and wastewater infrastructure is controlled by Macquarie and Morrison, while the gas network is owned by Global Infrastucture Partners and Brookfield. Blackstone, Harrison Street and Safanad own much housing. EQT Partners owns the charging stations for electric vehicles. And so on.

In short, a group of global asset management companies act for investors such as pension funds and companies, creating funds that invest in real assets and buy in services to operate them. However, while the investors have long term horizons and look for steady returns (such as rents or fee income), and the infrastructure itself is long-lived, the funds set up by the asset managers coming in between are short term – a few years at most. Ownership of the assets by different managers churns frequently, and the managers have every incentive to cut maintenance costs and raise charges or rents. As all the operational aspects are contracted out to service companies, the asset managers are neither energy or water companies, nor investors in such companies: they are pure rentiers. The risks are borne entirely by others – and particularly the people experiencing crumbling homes or essential services.

Despite the large impact this subterranean ownership structure therefore has on people’s lives – through lack of maintenance and repairs and rising costs – there is scant public information. One of the major contributions of the book is the evidently huge amount of work that has gone into stitching together what information is available: “Researching and writing about asset-manager society is sometimes much more like detective work than it should be.” There is a shout-out here to the FT’s Jonathan Ford, who has done some excellent reporting on various UK rentiership scandals. The book organises the material by considering the asset classes (housing, energy, farm land, transport), the geography (where are the investments mainly located – US, UK –  and where do the asset managers headquarter), and who are the major commercial players.

PFI projects clearly boosted the asset manager business no end, and there are continuing pressures for the government to bring more private long term investment into infrastructure, given that the state has seemingly abdicated from such investments in the country’s future. While I don’t have a problem with the idea of private money coming into infrastructure investment, there is a clear incentive issue: as Avner Offer’s excellent recent (2022) book Understanding the Private-Public Divide set out, private money will always require pay-back faster than a major piece of infrastructure can deliver, so there are challenges in structuring the investment and governance. And the lack of transparency and failures of governance over the maintenance and operation of infrastructure and housing, resulting from the financialized structure of the investment through asset managers, are shocking. I defy anyone to read this book without being at least a bit scandalized about the blatant disregard for the people using these essential services.

What to do about it? Not clear, but the first step is clearly the disinfectant of light. Our Lives in Their Portfolios is an essential start. The book is out in late April.


Rawls, reloaded

A few weeks ago I read Thomas Aubrey’s All Roads Lead to Serfdom, which argued for an alternative philosophical foundation to simple-minded utilitarianism for economic policy, if market liberalism is to survive. In Free and Equal: What Would A Fair Society Look Like, Daniel Chandler offers a modern interpretation of Rawls as an alternative to Aubrey’s Ordoliberalism.

The first part of Free and Equal is a clear and useful summary of what Rawls said. It’s over 40 years since I read A Theory of Justice, so this was a terrific refresher. And indeed for a liberal-minded person there is much to like in the Rawlsian approach, which is presented here as both comon sense and yet quite radical given where we are.

The second part of the book takes the themes – freedom, democracy, equality of opportunity, shared prosperity and democracy at work – and analyses the current state of the world in the light of each. It has many policy recommendations, many of them familiar such as UBI, worker rights in gig jobs, proportional representation in elections, all justified in terms of the underlying Rawlsian philosophy. Again, there are some unexpected overlaps with the ordoliberal case for power dispersion: Chandler writes: “Properly understood, the difference principle is concerned not just with the distribution of income and wealth but with the concentration of economic power and control.”

It seems hard to disagree with the contention that both wealth and power have become too concentrated in the western democracries and some things badly need fixing. But reading Free and Equal so soon after All Roads Lead to Serfdom crystallised for me an uneasiness I have with both underpinning philosophies, namely their individualism. Take Universal Basic Income for instance. Chandler is an advocate, but recognises there are critiques – such as undermining the sense of purpose people get from work, or the cost. The one critique he does not address is the one I’m going to label the Coyle Critique: you can’t buy a public realm – transport services, decent schools, waste collection – with your UBI.

Both books have plenty of specific recommendations, and a fine liberal individualist philosophy, but no positive account of the public realm. Improving economic and social outcomes will require a shift in public philosophy away from the bankrupt post-1980 set of assumptions; while there is much to like and much sense in Free and Equal, it doesn’t achieve this, although recognising the need to get away from the false dichotomy of market fundamentalism vs statist socialism. It argues that Rawls’ ‘difference principle’ lays the foundation for “a richer and more nuanced conversation about our economic structures,” but for me it doesn’t add up yet to “a new and inspiring political economy.”

Still, it’s unfair to expect a ready-packaged answer. Free and Equal makes an important contribution to the conversation, also explored in the recent special issue of Daedalus and elsewhere. It’s an optimistic take, and it’s interesting to revisit Rawls in such depth.


One of my long weekend reads (alongside a detective novel – Death Before Evensong – and Metamorphosis, amazing memoir by Richard Douglas-Fairhurst about his diagnosis with MS) was Henry Dimbleby’s Ravenous: How to get ourselves and our planet into shape. The three sections cover health, nature, and what to do. Much of the material it covers is in his terrific Food Strategy document, which the government commissioned and ignored. But here it is written in compelling manner – this is an excellent and anger-inducing read. In short, the food system is making us obese and diabetic (because processing food is so profitable and is under-regulated), massively contributing to global warming, the depletion of biodiversity and other environmental harms (fertilizer use, red meat eating), lacks resilience to shocks (including because of near-monoculture production), and is inhumane to animals and birds that are industrially farmed and processed.

The food strategy has many sensible recommendations, reproduced here, including the use of taxes to cut the use of sugar and salt, more free school meals, changing the approach to farm subsidies and land use, and starting to tackle the UK’s unhealthy food culture. It is not an easy task though because there are several policy aims and some trade-offs. The aims: better health, greater equality of nutrition in an unequal society, more nature-friendly farming and food trade/consumption, improved food security, better treatment of farmed creatures. For instance one implication of several of these is that food prices should be higher – but this works against reducing food inequality and shifting the British diet to a healthier mix. So while some policies are no-brainers (tax sugar in food processing!) others are less obvious.

The first chapter starts with obesity as a system outcome rather than a failure of individual willpower. Not the ideal read as one tucks into an Easter egg (where lack of willpower definitely comes into play). Still, I hope the book makes some impact – not least shaming the government into action despite the lobbying by the food industry.




Saving liberalism

I liked Thomas Aubrey’s short book, All Roads Lead to Serfdom: Confronting Liberalism’s Fatal Flaw. It could alternatively be called, Confronting the weaknesses of the Anglo-Saxon economic model. But it does this in a thoughtful way, contrasting the utilitarian tradition of UK/US economic policy with (West) Germany and the “underlying ordoliberal principle of power dispersion.” It is quite a philosophical book, which concludes that private and public power must be dispersed across labour markets, product markets and the activities of the state (as well as the liberal market basics of secure property rights and a stable currency). As well as stressing the importance of ideas, though – and I wholeheartedly agree – the book calculates power dispersion indices (“to provide a potential alternative framework to the current utilitarian welfarist approach”) and has a serise of proposals for how to disperse power in the three domains.

The empirics turn out broadly as you might expect. Canada, Switzerland, Denmark and Sweden turn out to have widely dispersed state power, as does the US, and the Scandinavian countries cluster near the top of all three rankings. The UK is near the bottom of all three rankings, while the US is near the top for state power dispersion but not labour or product markets. This seems to me to understate the traction economic power delivers in terms of political power, albeit through sometimes indirect channels.

The book’s compare and contrast with the German model is interesting although Aubrey concludes Germany itself has not delivered on ordoliberal ideals. I rather agree with its final conclusion: “If liberalism is to have a future, it will require those who believe in liberal values to make the case for an alternative ethical foundation; one where freedom and equality can be contsnatly manufactured by the continuous dispersal of public and private power.” Ideas are indeed important for winning hearts and minds. The naive utilitarianism underlying the eocnomic policy playbook of the past 40 or 50 years has lost hearts and minds. But I’m not sure framing what’s needed in terms of ‘ordoliberalism’ with all its free market and Hayekian baggage will be an easy sell, hearts and mind-wise. (And the book has been priced only for libraries by its publisher, Bristol University Press, so it won’t even get much chance to influence people.)A1e0JCBaNuL._AC_UY436_QL65_