This was posted in the Financial Times over the weekend but remains well worth sharing because of its broader significance:
Parts of South Africa's largest city have been without running water for almost a fortnight, a reminder to voters of the parlous state of the country's infrastructure just two months out from a general election.
Africa's most industrialised economy has been buffeted by power blackouts, transport problems and a crippling failure of service delivery that threaten the rule of the governing African National Congress.
That largest city is Johannesburg. The problem does undoubtedly have local dimensions to it. But it also has portents within it that are well worth noting.
Firstly, and most obviously, it should be apparent that we, as a society and, more particularly, as an economy within that society, are utterly dependent on the delivery of essential services for our survival. We cannot exist without water, energy, food and housing. We also need (and it is often forgotten in this list) clean air. We have taken for granted that these things can be delivered. The warning from Johannesburg is that the assumption that this might continue to be the case might be seriously misplaced.
The supply of basic infrastructure services in South Africa, the UK, and many other countries are at serious risk of failure.
We have not invested enough for many decades to ensure their continuity of supply, not least in the face of growing demand. We have assumed that they will be supplied. We have not guaranteed that they will be.
We have failed to heed warning signs. Most especially we have ignored the risk of flooding, which I now think to be very significant, but about which almost nothing is still being done when the evidence that sea levels are rising is very obvious. Just about the only sector that I can see that is reacting appropriately to this risk is nature conservation, where right across East Anglia new inland reed beds are being created to replace those on the coast that it is known will have to be abandoned soon. Sizewell nuclear power plant is next to one that will, almost inevitably, be lost to the sea.
We also continue to presume that our past failings, reaching back over decades, can now be made good without any impact on our ability to consume. It is presumed that even if we must invest more, which will impose real new costs on us because we have been paying too little for these essential services in the past because, firstly, we have not priced in the cost of our destruction of nature, and, secondly, we have not priced in the cost of replacing life expired infrastructure, this will have no impact on our disposable income. As a matter of fact, it will.
Supplying essential services is going to cost more in proportion to income in the future. Clean water has a price. So, too, does sustainable energy. And, come to that, so too do houses that do not flood. That price is quite high. That price will be plenty high enough to be utterly economic disruptive. By that, I mean that it will be sufficiently high to force many households into poverty, shortage, and maybe destitution unless other fundamental reforms to our economy take place.
There are those who say that as a result we should do nothing about these matters. They are on the economic right wing. This will be a major part of the Reform Party's offering now and in the future in the UK. Others, like Trump, will be saying the same elsewhere. It is not hard to work out why this will be appealing.
It is also not hard to work out why they are doing this. Their actual aim is to keep in place the returns paid out of household incomes that fuel the inequality in our society. So, they want to perpetuate high-interest payments, high rents, and high wealth extractions in the form of profoundly profiteering activity, which is much of what the addiction to tech subscriptions fuels. Together, these absorb large parts of income whilst perpetuating our deeply divided society. That division can only be maintained if there is the means for these payments - all of them rents in one form or another - to be made. When the need for additional payment for our essential costs of living rise - and they need to and are going to if we are to survive - then something has to give if society at large is not going to collapse.
During recent energy price crises what gave way were government tax revenues. Subsidies to cover energy costs were paid. Now there is a backlash against that, with the claim being made that we must suffer crumbling public services as a result. That is clearly not sustainable.
What needs to be cut is the return to bankers, landlords, monopolists, oligopolists* and others who exploit our current society at a cost to most who live in it. In other words, what must give way to provide the means for settlement of the additional costs of the investment required to make good mechanisms that ensure that everyone can meet their basic needs in life are those things that have been created to exploit the surpluses that ignoring this necessary investment has created.
The belief that we have had an economic good life that has become commonplace among some over the last few decades has resulted in increasing costs of rent, interest, financial services more broadly and in exploitation by profit gouging. It is these activities that must give way to permit the additional costs that necessary investment to make good past deficiencies in investment will now require.
This is not a capital versus labour conflict, not least because the one thing that we most definitely need is more capital.
It is, however, a rentier versus the people struggle. Who will survive in the face of the need for running water in Johannesburg, and essential services in the world at large? Will it be the landlord or the people? That is the question. It will define the new economic and the new politics that we need.
* Oligopoly exists when a small number of firms control a market. They successfully prevent competition from other firms and, as a result, keep prices above those that an open market might otherwise set. Oligopoly is widespread within the modern economy.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
From the point of view of the UK, and in particular the Thames water region with its growing population, it sounds like we better get cracking on that new reservoir near Abingdon in Oxfordshire then.
We just need to identify the barriers to that investment and then methodically remove them.
There is an obvious question that the rich might like to contemplate which is what will happen to them if and when essential services start to break down
Time for a change.
Replace
“it’s the economy, stupid” with “It’s the inequality, stupid”
This is what happened in a real electricity grid breakdown
https://en.wikipedia.org/wiki/2021_Texas_power_crisis
https://en.wikipedia.org/wiki/Northeast_blackout_of_2003
It is remarkably difficult to think of any significant piece or pieces of infrastructure that been conceived and built since 1979.
There have been no new reservoirs.
Gas and electricity grids haven’t been touched.
The motorway improvements of the 1980s were conceived and finance identified in the 1970s.
Best draw a veil over what has happened to the railways.
What has been attempted seems almost invariably to end only in evidence of national decline and corruption.
The Channel tunnel only kept afloat by public bailouts and the French.
French built and Chinese financed Nuclear power stations in the country that first developed this technology.
The rentier bonanza that is PFI.
And HS2. Will it ever be finished?
There must be some innovative, well managed, well built achievement that the people of this country can be proud of you think, but I struggle to think of one.
There was a feature on this morning’s BBC news that said that National Grid is projecting to spend £58 billion on new infrastructure for transmitting the power from new sources such as offshore wind farms. The cost of that will be added to everybody’s electricity bills.
According to a report by National Grid investment in the electricity network is set to add an average £18.4 billion to GDP every year between 2024 and 2035. So look out for a new pylons in your back yard.
We need pylons if we come off gas
But they last for many years
That fact needs to be reflected in pricing.
“We need pylons if we come off gas. But they last for many years.”
And as we are not really into on-shore wind, but practically only off-shore, we need more pylons than otherwise we would have.
If we had decent, enforced, planning obligations for really low energy new housing with rooftop solar, batteries for load levelling; and revised regulation of the (local) grid so that community energy could really take off (as in the Local Energy Bill) we’d need fewer pylons. More offshore wind could power industry in the nearby coastal regions (Teesside?!) and not have so many lines of pylons marching across the countryside. And seriously,van we still continue our car-centric systems and simply go to EVs?
I suspect we need to change our political class’ dependence on the rentiers in society. Both major parties have recently demonstrated their “need” for big donations from unpleasant people, who presumably expect a return on that investment….
I wonder if the banning of second (& greater) home owners from both houses of parliament might be helpful.
Most are second home owners because they need to be….
Not strictly true, Richard. MP’s need 2 places to live, but they don’t have to own them both. How about MP’s London homes being owned by the public?
Maybe….
How about MP accommodation being part of care homes and homeless shelters, so they can appreciated the people they serve? Then ensure that they have to use public transport to get to work.
Can we be serious?
There are many safeguarding issues arising from that which suggest it to be a really inappropriate idea.
If MPs’ London housing were provided by government, it could be very convenient for listening in on the rebel factions plotting against the PM… (Sorry, I’m not being serious, but it does somewhat echo a soviet style organisation.)
It’s exploitation by financial instrument – rent, debt, licence, subscription. At least when it was workplace exploitation there was an element of productivity and ‘wealth creation’ – and the labour movement knew how to organise against it. How do we organise against this insidious, personalised, behind-closed-doors, grotesque guise capitalism has now taken?
First we need the ideas
Here’s an interesting take on getting rid of landlords. It is something I have often wondered. Why does landlords selling up and getting out of the ‘game’ mean less housing – the housing is still there!
https://www.theguardian.com/lifeandstyle/2024/mar/19/end-of-landlords-surprisingly-simple-solution-to-uk-housing-crisis
I agree – landlords do not leave the market by destroying their properties
Perhaps we need a scheme to make rentier landlords less profitable and desirous of an acceptable exit; which would be offered through purchase by the local authority (repurchase in quite a few cases, perhaps?); who could then refurbish (retrofit energy saving measures, so new tenants weren’t in fuel poverty); and restore the stock of affordable, social housing?
Rent controls would make sense
Apologies for an off thread observation, but in Scotland the BBC is insistent in turning the FM’s statement that the SNP wish to see all Scottish Conservative Party MPS rejected in the general election into something far more sinister. The sinister spin is being promoted by the Scottish Conservatives; but BBC Scotland has spun this in their morning phone-in, to mean that the SNP wish to disenfranchise Scottish voters. Gary Robertson, a BBC Scotland journalist has then taken up this theme to argue that 700,000 voters (based on history – but they would be unlikely to lose all the seats; he takes no account of a fall in the Conservative votes cast in response to the failure of Sunak’s government). He questioned an SNP spokesman, not by putting the point as a Scottish Conservative claim, but as a general attempt to disenfranchise the Conservative voter, as they would have no MPs.
The facts are these. In 2010 there was only one single Scottish Conservative MP returned. In over 50 seats Conservative MPs had nobody to represent them. It was contingent, not necessary that a single Conservative MP was returned in Scotland. Nobody complained; not the Scottish Conservatives, not the BBC. It was taken to be the Scottish Conservatives own fault as electoral failures. But the scandalous nature of this by the BBC is worse. The reason for Conservative voters having nobody returned in 2024 has nothing to do with the Scottish National Party. The reason is, the FPTP voting system. The SNP are strong advocates of proportional representation (PR). Under PR the Scottish Conservative voter would almost invariably have representation; it is under FPTP alone that Scottish Conservatives would have nobody representing them. FPTP is only supported by the two main Parties in Westminster; Conservative and Labour (Labour currently has only one MP, and still backs the system – and would have backed it if they had no Scottish MPS). SNP, LibDems, Greens all reject FPTP. They do not want this bad system that produces the results the Conservatives and the BBC are trying to lay the blame at the door of the SNP. This is Conservative and Labour policy. That is the real fact. They support FPTP solely because it is in their narrow Party political interest in Westminster. It is how they control power in elections. Conservative and Labour do not care about the representation of Scottish voters.
The BBC is perpetuating a Conservative Party fraud. It is a misuse of their Charter. It is appalling. It is time to call out the scandal. Thee BBC should retract the trash they are peddling – in an election year.
Thanks. John.
If ever there was a perverse example of rentierism it’s the BBC! We’re paying for this biased trashy propaganda. It’s not a good deal outside of their non-political programmes!
Scottish Tories and BBC Scotland are very welcome to campaign for PR for Westminster elections in which case they’d practically be guaranteed seats. Why aren’t they?
PR would destroy the conservative-Labour Westminster cartel. It is FPTP that alone guarantees large majorities for the two main parties. PR would almost certainly lead to low majority governments which would require to compromise in order to govern. The mess we have in Westminster is a function, principally of FPTP. It is how the system works. The Conservative Party doesn’t give a fig about Scottish seats, because they do not need them to have a majority; and PR is the end of their political dominance. Everyone really does have to understand how the voting system works. Clearly this is not the case, and that is why we are in such difficulty.
It is basic realpolitik. If you wish to understand the system ask first; for whom does it work? Then ask why it is so difficult to remove a Government as rotten as this one; that is collapsing in fron of our eyes, causing untold misery to millions; and we cannot be rid of them, until they want to go. We could have nearly a year more of this: all because of FPTP.
Peter, likewise Labour too would be almost certainly guaranteed more than one Scottish seat in Westminster elections if PR were used. The reason that Tories and Labour don’t advocate PR is, as John S Warren has pointed out, FPTP guarantees both parties a controlling interest in UK politics to the exclusion of all other parties. There are other reasons: Scotland is resource-rich and the current Block Grant system guarantees that far more value is extracted from Scotland than is returned by the Block Grant (likewise in Wales) and in addition SNP MP’s have little chance of influencing UK Gov policy; they are effectively side-lined.
The BBC’s position is dictated by its beholden-ness to the UK Gov’t and its policies reflect that political control (as indeed does the bulk of the rest of the MSM). Scottish Independence is supported by at least 50% of its population, but there’s only one newspaper in favour of Independence and it’s American-owned via a London-based subsidiary. Here’s how stark the bias is: 97-98% of Scottish MSM represents the views of less than half the populace.
One reason for optism here in Devon: https://www.theguardian.com/commentisfree/2024/mar/20/revolution-britain-politics-devon-tory-mps-afraid
Indeed
I live in Australia where voting is compulsory and we have forms of preferential voting at all levels. None the less, the 2 major parties intend to stitch the game up to prevent the incursion of organised independents and the expansion of the Greens, and this is how (warning – Oz language): https://www.youtube.com/watch?v=N3WTlyuhDs0&t=119s&ab_channel=thejuicemedia
We could use the help of the two Australian women in the video in Scotland, and their scriptwriters (they would have a field-day with the Scottish Parties); instead of the po-faced plodders in the BBC, who lack judgement or discernment, never ever ‘smell a rat’ from conservative or Labour, and simply regurgitate the PR of the Party in power.
I have not raised Party funding as an issue, but I follow David Hume; all political parties are just factions, and they will always corrupt the electoral system in the service of their own interest; they can’t help it, they think it is the only way the system works. In Party politics, the first (and only) rule is very, very simple. Party comes first. If a Party has power it will spend all its time, and everybody’s money; do anything or say anything to stay in power, and look after the interests of the Party first, last and always; and before anything or anyone else.
Once you understand that, and resist the toxic, sick-making phoney moral puffery they indulge in, and on which Party always constantly feeds and manipulates, simply to deceive the gullible; the rest of Party politics is easy to understand. Just don’t trust them, ever. vote for them if you must; but never, ever trust them. you will live to reget it, whether you are aware they have cut your purse, deceived you or trapped you, or not. They do not care.
“Clean water has a price. So, too, does sustainable energy. And, come to that, so too do houses that do not flood. That price is quite high. That price will be plenty high enough to be utterly economic disruptive.”
“During recent energy price crises what gave way were government tax revenues. Subsidies to cover energy costs were paid.”
Sustainable energy, for the most part is lower in cost (on a kWh basis) compared to fossil (or nuclear) energy. In the case of houses – don’t build on a flood plain or near rivers that may flood (& yes I know that greed & lack of gov regulation still results in this happening) is perhaps the best low-cost/no-cost approach? What to do about those that exist? Dunno.
Moving back to energy. The build out of renewables has up-front capital costs – where does the money come from? BoE, I’m looking at you. Or bond markets etc etc.
The recent prices rises (gas, followed by elec) were a function of a gov failing to regulate gas prices (50% of UK gas comes from the North Sea – & it costs circa 2pence/kWh to extract). In the case of elec the intention to stick with marginal pricing for elec is a systemic failure to understand that fixed-price renewables (with prices fixed for anything between 10 and 15 years) don’t work with marginal markets. The conf I organised last week had a market-fundamentalist trying to justify marginal pricing – he lasted about 30 secs and was torn to pieces/rendered mute by the economist I work with.
On a related note, there is a consultation out now on elec pricing by Dept Energy and Net Zero. It is packed to the rafters with lies and delusional thinking. I won’t even bother responding, the imbeciles that wrote it have already made up their minds – thus demonstrating regulatory capture.
Where I agree is: “What needs to be cut is the return to bankers, landlords, monopolists, oligopolists*” – elec market reform and gov as an investment partner are steps in the right direction. This will not happen with the current gov, or with a LINO gov.
As for the clean water, I have some work-around solutions (not perfect but doable – fast) – which nicely integrate with the move to renewables.
Mike
I agree with you, but all the announcements being made on these issues appear to imply that those who are planning to invest the significant sums involved in the creation of the new economic resources that we need to achieve sustainability wish to pass on the cost of those investments as if they are current expenditure onto the bills of consumers at this point in time. Economically, we know that this is illiterate because the expected life of many of those investments is considerable, and the cost of them should be spread over that life meaning that the impact on current bills should be small, as you imply. But this is not the way that today’s market participants see the issue. They do not believe that it is there a role to bring private capital into use for public benefit. Instead, they appear to think that it is their role to impose upon the consumer the cost of creation of new capital that will benefit their shareholders in the long-term. That is the economic challenges that we face.
Richard
I understand and agree – total & complete gov failure & regulatory capture.
On a related note: thanks for the intros the other week – things are moving apace –
LINO and the tories are going to be very very unpleasantly surprised.
🙂
Mike – despite your reservations, I’d encourage you to reply to the consultations. At least a dissenting expert would be on record so to speak.
From small acorns do oak trees grow and all that…
Thanks Richard. I agree with what you say, including,
“What needs to be cut is the return to bankers, landlords, monopolists, oligopolists and others who exploit our current society at a cost to most who live in it.”
However I think finance and real resources are usually conflated (not by you) both through ignorance and design.
So, yes we most definitely do need to cut the rentiers return. We need this to reduce inequality which is throwing sand in the works of our society. However, even if we reduce the income and wealth of the elite I doubt this will make a huge difference to consumption. Firstly that’s because the elite are few in number. But also, even if their income and wealth were substantially reduced, I doubt it would make much difference to their expenditure. Hence it may not reduce their real demand on the economy. That’s because they have so much excess income and wealth that their propensity to spend is little affected by even drastic changes to their income; most of their money is saved not spent. They will still buy the most expensive houses (even if the price is lower), and cars, and indulge in expensive, carbon releasing travel.
Reducing inequality is both necessary and good. It will address fiscal issues. But it won’t release the large real resources needed after years of neglect.
As you point out, if our society is to survive, people must accept a change in their standard of living. I say change, not reduction. Yes there may be fewer shiny baubles from the throwaway consumer society. But these can be replaced by things that matter, better infrastructure, healthcare, education, justice and so on.
Even though this might only be a hiatus in our consumerist standard of living, I see little attempt to explain this by any politician. Nor, in the absence of explanation, does there seem any willingness by the population to accept even a temporary change to their standard of living (understandably, given it’s recent reduction).
Perhaps perceptions will change soon.
Tim
I think you confuse my concern
£85.6 bn was paid to private landlords last year https://www.mpamag.com/uk/mortgage-types/buy-to-let/uks-annual-rent-total-hits-856-billion-in-2023/469733
I am not so much worried about what they do wih it, or its impact on their consumption.
I am worried about the fact that this sum, and growth in it, is what is constraining the ability of many of those in rented accommodation from affording the essentials in life. The same is true for many with newly excessive mortgage obligations, which they could never have reasonably anticipated. The need to cut rents and mortgage payments is not to punish the recipients of those payments: they already have enough to manage, and so are not my concern. The reason for cutting these payments is to make it possible for those who are on the edges of destitution to survive, because they are my concern.
Will, constraining, rents and mortgage payments help in achieving the goal that I wish for, which is the limitation of poverty? I don’t doubt it will. It will also stop the pointless subsidy provided through the benefit system to landlords. That is estimated to exceed £20 billion a year.
These are material sums.
Richard
I’m afraid I am still a tad confused, though I think we want the same objectives.
But there’s lots of comments. So I’ll read through your post and the comments again and have a think. 🙂
I think I understand better having read this Guardian article:
https://www.theguardian.com/lifeandstyle/2024/mar/19/end-of-landlords-surprisingly-simple-solution-to-uk-housing-crisis
An interesting mention of Oligopoly Richard.
Many years ago I read that the old UK Monopolies commission used to consider it likely that monopolistic manipulation of the market place was likely to be taking place if 5 or fewer companies had 60% of the market.
These days that appears to apply to the majority of markets supplying UK goods and services.
Margaret Thatcher got rid of the successor organisation to the monopolies commission after repeatedly ignoring its decisions.
It would be a useful reform to see the re-introduction of a monopolies commission with real teeth.
Agreed