Sunday, 21 December 2014

Should charities take over private, not public, services?

I don’t know about other countries, but in Britain it has long been a mantra of the political class that charities should, alongside private companies, take over the running of public, or state, services. Way back in 2002, under Tony Blair’s Labour government, a Treasury review declared that voluntary and community organisations had “a crucial role to play in the reform of public services”.

Fast forward to December 2014 and the new Conservative minister for charities could be heard calling for billions of pounds of public services to be transferred to the voluntary sector.  Many services have already been put in the hands of charities, from work programme contracts, to probation schemes and even prison services, though they are often playing second fiddle to corporate lead contractors.

But news that a charity, dedicated to providing affordable housing, is to take over the running of the New Era housing estate in London after an American property company, which wanted to hike up rents, caved into pressure and sold it to them, raises an interesting question. Perhaps, and not for the first time, the political establishment in Britain has got everything the wrong way round, and it is in private, not public, services, that charities have a role to play.

Consider the New Era case. An American property development company, Westbrook Partners, wanted to quadruple rents and evict families, bringing rents into line with what the market would charge for properties near to London’s financial district (New Era is in Hoxton, East London). After months of protesting by tenants, the company threw in the towel and sold out to a charity whose philosophy is to “fix rents relative to people’s incomes and not relative to market rents”.

Are you thinking what I’m thinking?

Because the plight of the New Era tenants is obviously not unique. Britain is in the midst of a housing crisis. 4 million households in England alone rent from a landlord, compared to 1.9 million in 2001. Rents have risen by 21% since 2010. They often comprise 40% of income, and renters fear eviction if they ask for repairs. Terrible conditions, including pest infestations and mould or damp are often the norm.

If ever there was a sector in dire need of reform it’s the private rented sector. And here is where charities, dedicated to setting affordable rents, providing repairs when asked to, and not leaving tenants with the threat of a two month eviction notice hanging over their heads, come in. To use the language of the great unmentionable, use value in housing needs to be reasserted at the expense of exchange value (seeing flats and houses purely as assets to be exploited) which now reigns supreme, the baleful consequences of which are plain for all to see. Housing needs to be taken out the market and charities can help do that.

What has happened in the New Era estate, the transfer of ownership from a property development company to a not for profit charity, should be replicated a thousand times across the country. More than that, public agencies, local councils or charities, should buy existing privately rented homes, and convert them to secure social housing. The £100 million at present set aside for helping charities bid for public services, could be converted to this new purpose.

Boris Johnson et al are hoping what has happened at the New Era estate is a one-off, an unavoidable climb down after a campaign that became too visible to ignore. What it needs to be is the opposite, the spark for a new movement to end the tyranny of landlordism.

Tuesday, 16 December 2014

You don't have to believe people are altruistic to be left-wing

The Left is supposed to believe in an essentially benign human nature. Casting a nod to Jean-Jacques Rousseau and the noble savage, there is a strain of left-wing thinking that holds that beneath the perversions inflicted by our capitalistic, racist, patriarchal culture, there exists a basically cooperative, peaceable, altruistic human nature. This stance is traditionally invoked in contrast to that of the Right which sees human nature in an irredeemably pessimistic light.

A recent experiment by University College London which found that people were willing to sacrifice money to reduce the pain of others seems to lend credence to this optimistic view.

In the experiment, participants revealed themselves as ‘hyperaltruistic’ - they would give up a monetary reward in order to spare another person the pain of an electric shock. They were happy to take more electric shocks themselves to earn more money, but they were unwilling to raise the number of shocks if someone else was receiving them.

Inevitably, this experiment has been contrasted with the famous 1961 Stanley Milgram one in which participants inflicted what they were thought were painful, possibly lethal, electric shocks on a stranger, when ordered to do so. ‘Man is a wolf to man’, many have interpreted Milgram as demonstrating, while the recent UCL experiment seems to show an altruistic, sacrificial human nature on display. But actually the two experiments have more in common than you’d think.

They actually both demonstrate altruism at work. While the altruism in the UCL experiment is worn on its sleeve, altruism is also, paradoxically, an integral part of Milgram’s set up. What Milgram put on display was obedience, not sadism. Participants did not like giving the electric shocks (it should be pointed out also that a third of participants refused to give them); they sweated, they shook, they laughed hysterically, but they still gave the shocks because they bridled at disobeying the authority figure telling them to do so. Ironically what held them back from disobeying and not carrying out the shocks, was, in part, a strong desire not to undermine the authority figure. “It is a curious thing that a measure of compassion on the part of the subject, an unwillingness to ‘hurt’ the experimenter’s feelings, are part of those binding forces inhibiting disobedience,” wrote Milgram is his 1974 book, Obedience to Authority. Altruism, in fact.

But what both experiments prove, if that is not too strong a word, is not that the vast majority of people are inherently altruistic, but that they are not psychopaths. In the UCL experiment, “those with subclinical psychopathic traits … were more likely to inflict harm on others as well as themselves for a bigger payout.” When Milgram’s experiment was altered, so that people were told it was perfectly ok if they went up to the highest shock level, only a couple of, psychopathic, participants did so. Most delivered shocks below the level where the person they thought they were shocking would feel any discomfort.

I would predict that were you to conduct the UCL and Milgram experiments back to back with the same participants, you would end up with the same people refusing to shock and then agreeing to shock. Which sounds paradoxical, but isn’t.

What that would show is not that people have two sides to their personality but the realisation that non-psychopathic people, are, under certain circumstances, quite capable of acting psychopathically. Altruism and compassion can easily be subverted, overwhelmed, or channelled in specific directions (such as a desire not to hurt the authority figure’s feelings).

The reason why Milgram’s experiment still resonates is that it shows the overwhelming importance of institutions in shaping human behaviour; the power of institutions is such that it overpowers subjective feelings. In the Milgram designed experiment, cruel people did not shock more than kind people. And obedience, according to Milgram humanity’s fatal flaw, has become, if anything, more entrenched since he wrote Obedience to Authority in the early 1970s.

A political outlook rooted in the belief that people are essentially altruistic and decent is doomed to misunderstand the problem that confronts us. It would be futile to replace all the ‘bad’ people at the top with ‘good’ people. Either the good people would swiftly become bad, or they would be replaced by others who didn’t let ethical scruples get in the way. In order to effect real change, you have to address how the system works. You have to change how institutions behave, not the people that make them up.

Looked at another way, it is not psychopaths who are leading our elite corporate and governmental institutions astray. Apparently, 4% of corporate CEOs are psychopaths, four times the rate in the general population. But that still means that 96% of corporate executives are not psychopaths.

The mistake made by the researchers who have interpreted the UCL findings is that they assume that the subjective, altruistic, feelings laid bare will somehow “guide social decision making”. It is naïve in the extreme to assume that in the ‘democracies’ in which we live, our collective, unadulterated voices will determine social decisions. As things stand, the dominant voices belong to corporations and to governments. Most people are mute, except when they echo governing assumptions. Especially now, the views and interests of the 1% and 0.1% have an overwhelming influence, through think-tanks, the media (which they largely own), and the funding of political parties. And ideas, unlike wealth, trickle down through society.

Moreover, what the UCL experiment shows is that people don’t like hurting others face to face. This finding is reminiscent of the John Nash game theory experiments undertaken on Rand Corporation secretaries in the 1960s. They were expected to betray each other, but instead they cooperated. But with the anonymity of distance, dispensing hurt and hostility becomes much more possible. It is quite common for people to like immigrants they know, but hate immigrants in general or believe it’s a disgrace that the disabled person they know is waiting months for their living allowance, while thinking millions of others are faking it. This is why a media that accurately reports what is happening in the world is so crucial.

While altruism is real, human beings can be many other things as well. But our inner nature is not the problem; the giving away of power to amoral institutions is.

Tuesday, 9 December 2014

Inequality is terrible, so let's make it worse

Economic think-tank the OECD, has, we were informed today, “dismissed the concept of trickle-down economics” releasing a report showing that economic growth would have been much higher had inequality not grown immensely since the 1980s.

The Guardian newspaper helpfully put the report in historical context by explaining that, “trickle-down economics was a central policy for Margaret Thatcher and Ronald Reagan, with the Conservatives in the UK and the Republicans in the US confident that all groups would benefit from policies designed to weaken trade unions and encourage wealth creation.”

Apparently it was all the rage in the 1980s.

What the article neglects to mention is that trickle-down economics is as much an article of faith of the centre-left as it is among conservatives, and occupies a central place in western governments’ current response to financial turbulence. Trickle-down economics is not a misguided historical aberration, like some embarrassing Duran Duran album lurking in your record collection, but an all too contemporary ideological prison. And it’s getting more extreme.

I’m not referring to the bleak consensus over everlasting cuts to corporate income or capital gains tax, though they undoubtedly play their part, but to one policy in particular: Quantitative Easing (QE) – the way our governments of varying hues have responded to economic depression. 

It is no secret that QE has – definitely in Britain where research has been carried out – primarily benefited the top 5% of income earners. But how – and to what degree – less well known. QE – a carefully designed policy of government intervention in the market – works by raising the value of share prices and other assets, such as property. And (I know I’m getting into advanced economics here but bear with me) the more shares and assets you own, the more you benefit! Sky’s economics editor crunched the numbers and worked out that among the top 10 per cent, QE has increased wealth by £323,000 per household. Which makes the wealthy some of the biggest welfare beneficiaries in history.  The poorest tenth, by the way, who don’t own any assets, are £779 worse off.

It could be argued that because it reduces interest rates, QE has also benefited those who ‘own’ assets in the sense of having mortgages. But no such benefit accrues to those who rent their home. They get nothing.

Now, maybe I’m being simple-minded, but this looks suspiciously to me like a recently minted government policy (UK QE ended in 2012, US QE just this October) which has the effect of massively increasingly inequality. It is the polar opposite of economist Thomas Piketty’s inequality shrinking wealth tax; a gigantic injection of wealth, overwhelmingly adding to the wealth of the already very rich.

It is perhaps counter-intuitive, but nonetheless true, that inequality in the UK fell in the aftermath of the financial crisis precisely because the wealth of the 1% and 0.1% took a major hit. Government action, in the form of Quantitative Easing, ensured it recovered to an extent. That is the real story of the last six years. All the rest is ideology.

One US economist (and QE has been a huge part of the US government’s response to the Great Recession. It has lasted seven years and cost $4,5 trillion) describes Quantitative Easing as “fundamentally a regressive redistribution program that has been boosting wealth for those already engaged in the financial sector or those who already own homes, but passing little along to the rest of the economy. It is a primary driver of income inequality.”

But there is no mention of Quantitative Easing in the OECD report, only to the mistakes of the past.

Which is odd because QE represents the consensus of the present, uniting Barack Obama with Republicans in the US, and Labour with Conservatives in Britain*. And Europe, which has so far largely shunned QE, may well start partaking of it in 2015, as a response to continued stagnation.

It was Japan that pioneered QE in the early part of this century, and has been pursuing it more aggressively ever since. According to one study of the latest batch of QE in Japan under Prime Minister Shinzo Abe, “critics have stated that ‘Abenomics’ widened income inequality by benefiting already wealthy households and not the poor. Since Japanese households’ savings consist chiefly of bank deposits, they earn little interest on their savings, while facing stagnant wage growth or job losses. Thus, the benefits of higher asset prices are limited to those who own stocks and bonds which are typically upper income households,” the report concludes. This is, by now, a painfully familiar story to most of us.

There is apparently no other possible way to stimulate economies when they sink into depression, or stay there.

As the Japanese experience demonstrates, governments will habitually resort to more and more QE if it does not have the desired effect or economies relapse into recession. So we haven’t heard the last of it.

The OECD report makes the claim that redistribution of wealth to the poor doesn’t hurt economic growth. What they should have examined is redistribution of wealth to the rich. Because that is what 21st century trickle-down economics, aka quantitative easing, is doing.

*Quantitative Easing is actually a policy of independent central banks, such as the US Federal Reserve, the Bank of England or the Bank of Japan. As such, and although virtually all mainstream politicians back it, it is outside the realm of democratic politics. Despite QE being a policy of such huge redistributive effect, no-one voted for it. No-one could.

It's enlightening to look at QE in terms of its effect on social mobility. The OECD study is very concerned with improving life chances for the bottom 40%. It talks about increasing access to public services and whole life skills training and education. But as this article from social historian David Kynaston makes clear, in order to have real upward social mobility you have to have downward social mobility as well. And downward social mobility is the one thing our political system cannot countenance. Quantitative Easing is the perfect expression of this – through the natural workings of the free market, the incomes of the 1% and above took an almighty hit - so the government stepped in, casting laissez-faire to the winds, and made sure that those incomes were protected. Downward social mobility was not allowed to happen. To paraphrase Gandhi, capitalism is a nice idea.