Talking about the future

One of the things I like about Brett Christophers’ books is that they always make me think, and always provide an immensely well-informed critique of aspects of economics that economists don’t interrogate enough themselves. His new book, Rentier Capitalism: Who Owns the Economy and Who Pays for it?, is no exception. It’s an essential read for anyone thinking about what UK governments might need to do differently as the pandemic upends the economy, and people’s jobs, without doubt feeding an appetite for some significant change in the philosophy of public policy.

The new one is a natural follow-up to the author’s previous book, The New Enclosure: The Appropriation of Public Land in Neoliberal Britain, on the inequalities and inequities of land ownership in the UK. Landowners are one form of rentier. The new book argues that rentiership has, however, spread to many parts of the economy, and particularly so in the UK. At one level, the argument is a compelling attack on the way successive governments have taxed (or rather failed to tax), regulated (or failed to regulate), and generally favoured big companies and their ever-wealthier executives at the expense of the public good – in other words, the rest of us. We pay more for shoddier goods and services, either directly or as taxpayers, than we should.

It’s hard to argue with any of the targets skewered in the book: extractors of mineral wealth, the financial sector, the big outsourcers – whose incompetence is getting another outing in the test, track’n’trace fiasco – the gatekeeper digital platforms, the private equity firms running so much infrastructure, the exploiters of patents and ludicrously long copyright periods. Indeed, the book kindly quotes things I’ve written myself on some of these outrages.

Having said that, I have one small issue and one bigger issue with the analysis. The small issue is about the way he defines rentiership – as the earning of income from an asset whose ownership confers monopoly power. Assets can be intangible as well as tangible of course, but I’m not entirely convinced that everything presented as an asset in the book is one. To my mind, an asset is something with a stock, which can be depleted or augmented, providing a flow of services over time. Land, or oil, or physical infrastructure, for sure. Digital platform markets – probably. Outsourcing contracts – not so sure, it depends. Perhaps as a competition economist I see everything as a competition problem, but I think the common issue in all these examples is monopoly power and the artificial scarcity it creates, and we should be analysing monopoly rents, and their regulation.

The bigger issue is about the way the concept of an asset is becoming more or less demonised in some areas of social science, as an effective synonym for the use of money in inappropriate domains. Debate about the limits of markets is time-honoured and I have no problem with it. But if it is now inappropriate to regard anything as an asset, how on earth can we think about sustainability? To give a specific example, I can understand why some people think it is morally wrong to put a market price on clean air or biodiversity, even while making the economist’s counter-argument that refusing to do so imposes an implicit price of zero, which is even wronger. However, if we don’t think about nature as an asset, whose stocks we should steward, I find it hard to see how to embed concern for the future in policy choices. In my work thinking about how to get beyond the policy short-termism of a focus on GDP growth, measuring and understanding the whole range of assets available to people has been key.

There have been a number of books recently criticising ‘assetization’ so Brett is not alone. My questions to the various authors, all I think people inclined to the left of politics, is a serious one. How does ‘assetization’ differ from ‘monetization’? Are the arguments about it really distinct from those about monopoly power, as made for example by Thomas Phillipon? And above all how are we to think about, and name, those things in which we should be investing, or at least not depleting, to have regard for the future?

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Assetization, economists and others

Assetization edited by Kean Birch and Fabian Muniesa (a geographer and a sociologist) is an intriguing book. Given that we have the Wealth Economy project at the Bennett Institute, I wanted to understand why they and the authors included in the collection see assetization of the economy – distinct from marketization, financialization and commodification  – as a Bad Thing.
I must confess that I still don’t really understand these distinctions made between different aspects of the neoliberal capitalism being critiqued. There are some differences among the authors in the volume in how they understand assetization. The introduction sets out seven features of assetization: the creation of property rights; new kinds of property rights for intangibles; ability to extract rents; uniqueness of the asset making for monopoly power; valuations that depend on the actions of the owners; and that depend too on institutions and politics. While this is fine as a definition of an asset, albeit slightly different from the focus in economics on investment in something that exists as a stock and can give a flow return in the future, it isn’t obvious why assetization is inherently bad.
So I think the objection boils down to the classic one of putting a monetary value at all on things with intrinsic value, plus the dimension of power of the asset owner over those renting it. The time dimension of assets, and potential for better stewardship, doesn’t really feature in the book, or only as a way for the economic advantage of asset owners to be sustained rather than one-off; yet our project is interested in thinking about the economy in terms of assets or wealth because it will help embed sustainability, a concern for the future, more effectively in business and policy decisions.
The book has some very interesting chapters. My favourite was the one on the market for seeds in Germany, which is packed with institutional detail about how it operates, and the tensions between the interests of seed breeders and farmers – seeds with distinctive features enabling the breeder to charge a higher price get turned into corn which has to be a standardised commodity to trade on the market. It reminded me of one of my favourite books, John McMillan’s Reinventing the Bazaar. The chapter on natural capital seemed to consider the debate about natural capital accounting in the measurement and environmental economics communities as being concerned with assigning property rights to nature, which is not the case. The chapters in the first section concern intangible property rights, a very interesting area. It was a bit surprising not to see reference to cases like John Deere, whose tractors farmers think they are buying, but John Deere’s claims of IP over the software has turned these transactions into rentals rather than transfers of ownership.
So on balance, having found it a very interesting read, I conclude that we are speaking different disciplinary languages. However, the language choices we economists make are delicate if we want to engage in a good debate with those who see economics simply as the handmaiden of actually-existing capitalism: I’ve been mulling over the standard economists’ use of ‘human capital’ in the light of BLM: Jacob Mincer, an originator of the concept, was apparently uneasy about the term and many people, reasonably, find it offensive. But is there a neutral (shorthand) way of talking about putting resources now into people’s future opportunities?
The concept of an asset whose value inheres over time, and depends now on what kind of future we create, is fundamental to building a sustainable economy. But are there other words for things you can invest (either time or money) in for both the present and the future? If there were, it would help economists have a better conversation with other disciplines and the public about what we value (not just money!), how and why.
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The long run is now

Among my Christmas present books was Ta-Nehisi Coates’ We Were Eight Years in Power, a powerful read. This passage spoke to me:

“A nation outlives its generations. We were not there when Washington crossed the Delaware but Emmanuel Gottlieb Leutze’s rendering has meaning to us. We were not there when Woodrow Wilson took us into World War 1 but we are still paying out the pensions. … ”

The more I think about the broad sustainability issues I wrote about in the Economics of Enough, the more important I believe paying attention to the long run to be. Hence the new project we just launched at the Bennett Institute on improving measures of natural and social capital. My goodness, we – certainly all the western countries – have been destroying both, and it looks like the bills are starting to come due.

Another extraordinary essay in We Were Eight Years in Power is about the incarceration of African-American men: “The US now accounts for less than 5% of the world’s inhabitants – and about 25% of its incarcerated inhabitants.” The rise and fall of crime in the 20th century was a common, broad pattern to many countries. Only in the US did the rate  of imprisonment climb as crime fell – other countries saw their crime rate fall without creating a prison state.

The book is great – he’s an outstanding essayist.

 

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True wealth

I’ve been meaning to write about National Wealth: What is Missing, Why it Matters edited by Cameron Hepburn and Kirk Hamilton. This volume (in which I have a chapter, The Political Economy of National Statistics) looks at different types of wealth from a number of perspectives. The opening set of chapters look at the link between wealth and sustainability (measurement of assets being essential to take the future into account) and the link between wealth and well-being, as well as my paper looking at how one might move from a GDP/income flow to a wealth measurement standard. Part two covers the historical perspective on wealth. Part 3 looks in more detail at the measurement of specific components of wealth, and part 4 at sustainability.

As the editors write, “Policies that create wealth go beyond increasing output; they involve investments today for returns in the future … A focus on wealth generation … shifts policy away from supporting immediate consumption.” There are plenty of ideas and an increasing amount of data making it possible to start accounting for wealth, and specifically the change in real wealth. The challenge is the policy challenge of getting consensus about the need to change the focus.

With my co-author Benjamin Mitra-Kahn, we suggested how to go about this as our entry for the inaugural Indigo Prize, which we were honoured to win jointly with Jonathan Haskel and his colleagues. Their ideas for improving GDP are excellent; but Ben and I still think priority needs to be given to the sustainability-enhancing potential of a wealth focus rather than an amended GDP focus. Wealth and sustainability are “joined at the hip,” as National Wealth puts it.

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Stewardship for the future

This week brings my first meeting of the Natural Capital Committee, to which I was recently appointed. This is the Committee’s second phase (set for five years), its first running from 2012-2015. As part of my homework, this weekend I re-read chair Dieter Helm’s book

.

51MeUzEvTLL._SX333_BO1,204,203,200_It’s a very accessible and clear explanation of why it’s important to value natural capital and how to go about it. As Dieter explains, there’s no doubt that economic growth has for some time been unsustainable. To be clear, that means that future generations (which could include our older selves) will have lower living standards because we have depleted by so much the capital stock providing economic services. (I would add infrastructure too, as part of the sustainability challenge, and there are similar issues as looking at renewable natural capital.)

The book presents the case for re-investing in natural capital in order to enable sustainable growth – it argues against the ‘no growth’ environmentalists. The mechanism it proposes is an aggregate natural capital rule: “The aggregate level of natural capital should not decline.” If there is damage done in one place, it has to be made good by compensating gains elsewhere. The rule can be applied to renewables, and can be extended to non-renewables by requiring a natural capital fund to compensate for extraction (much as the Norwegians do for their oil and gas extraction).

This is a radical change when you start to look at the amount of money that might be involved. The book suggests it is of the order of at least 4% of current GDP. And of course the details are extremely complicated. To state just two hurdles: we do not have good statistics on natural capital, although the Office for National Statistics does have a programme of work on this; and it is hard to value non-marketed assets and transactions, especially when there are substantial externalities, non-linearities and system interdependencies. Cost-benefit analysis – the only tool economics has to offer – applies to marginal (linear) changes and in practice does not try to value external benefits.

One of the book’s examples about habitats and how to think about the trade-offs compares great crested newts and nightingales. Both are protected species, but nightingales’ habitats are much harder to recreate elsewhere, arguing for a higher barrier to developing the kinds of woodland where they live. I can’t resist recounting an anecdote about newts. If you visit construction sites, as I sometimes have, there will often be a fence half a meter high around the work – to keep out the newts, which have to be carefully relocated from inside the site to outside. In my BBC Trust days, I was quizzing the great Sir David Attenborough about the fate of the poor great crested newts. He said (and who knows, maybe he was joking) that the newts had only got into the legislation by accident and the little creatures are not at all rare. Indeed, he had some in his suburban garden. If you were a newt, isn’t that the best garden you could pick as your home?

Male Great Crested Newt (Triturus cristatus) with breeding colours, underwater, captive UK

Male Great Crested Newt (Triturus cristatus) with breeding colours, underwater, captive UK

Anyway, I’m delighted to have been appointed to the Committee. It speaks to my own pre-occupations with sustainability (

) and measuring the economy (
). This is exciting territory in terms of the economics, and profoundly important in terms of all our futures.

[amazon_image id=”0691156298″ link=”true” target=”_blank” size=”medium” ]The Economics of Enough: How to Run the Economy as If the Future Matters[/amazon_image]  [amazon_image id=”0691169853″ link=”true” target=”_blank” size=”medium” ]GDP: A Brief but Affectionate History[/amazon_image]

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