Wednesday, 8 November 2017

Epic neo-liberal propaganda fail.

From the BBC:

Could giving property rights to the world's poor unlock trillions?

They are not talking about 'property' in the legal sense, they are using it as shorthand for 'land'.

And no, all that would happen - as the article makes clear - is that banks will tap in to the rental value of land via loans. That's one of the reasons why the Homeys hate council housing - the banks can't earn anything from it.

In 1970s China, for example, where the Maoists weren't the rebels but the government, the very idea that anyone could own anything was seditious, bourgeois thinking. Farmers on collective farms were told by Communist Party officials that they didn't own a thing. Everything belonged to the collective...

This approach worked terribly: if you don't own anything, why bother to look after it... collective ownership of land left farmers in desperate, gnawing poverty.

So, in Xiaogang in 1978, a group of farmers secretly met and agreed a daring plan. Instead of farming as a collective, they would informally divide up the land, and each keep whatever surplus they produced after meeting collective quotas. It was a treasonous agreement in Communist eyes: discovery risked execution.

In fact, they were found out thanks to their conspicuous success: their farms produced more in one year than in the previous five years combined...

The experience in China shows that even informal property rights can be incredibly powerful. If you know your neighbours respect your boundaries, you can feel confident investing time in weeding your vegetable plot, or building a house.

Bullshit. This has bugger all to do with land ownership, it has to do with ownership of the food produced (the results of their initiative and work done, thus truly 'private property').

It is basic human nature. It's like piecework. If you pay an individual $x for each unit he or she produces, most will try and produce more units. In that case, neither the raw materials nor the finished product is ever the property of the workers, but they are paid for the labour element they add (their 'private property').Take a large group of people and tell them they get paid the same, regardless of how many or few the group produces, the ultimate outcome is that little or nothing is produced.

Clearly, with farming, you need some security of tenure (be that long leasehold or freehold) because it is a long term thing, which is why arable farm tenancies tend to be very long. Conversely, sheep farmers are happy to rent pastures very short term, because it's just naturally growing grass. Actually being able to sell the land (i.e. use it as collateral) is irrelevant; or else there would be no tenant farmers.

But in one critical way, it doesn't help me that my neighbours agree that I own my house. If I want a loan - to improve my house, or build a business - lenders need collateral.

Ah right, so the first thing you do if you want to start a business is buy some land, to be able to borrow against it? This is madness. What about the majority of people who don't own land? In real life, you build up a business or find some other way of earning enough money to buy land, just like any other consumption good.

Tenants are quite happy to pay for improvements if they know they have a secure/long term tenancy, I've seen it plenty of times (in Germany or people in social housing). In the UK however, no residential tenant in his right mind will pay for improvement because a
a) he could be kicked out within six months and
b) the improvements automatically belong to the building i.e. the landlord, so
c) the landlord can increase your rent to make you pay for the improvements you made yourself.

And land or buildings make particularly good collateral because they tend to increase in value, and it's hard to hide them from creditors. But the lender needs to be confident it could take the house away from me if I don't repay the loan. So, I need to prove that the house really is mine. That requires an invisible web of information that the legal system and the banking system can use.

For Hernando de Soto, this invisible web is the difference between my house being an asset - something useful that I own - and being capital - an asset recognised by the financial system... 

But how do assets become capital? How does the invisible web get woven? It needs a government. Enforcing property rights is one of the few things pretty much everyone on the political spectrum agrees a government should do, except perhaps the Maoists.

Here we get to the neo-liberal nub of the matter, dressing up land as 'capital'.

De Soto couldn't actually give a shit about third world farmers, he's a shill for the banks (which is why the Cato Institute give him such a glowing write-up). Loans and interest can only be repaid out of the future income/profit from that land anyway.

Farmers can afford to buy most of the stuff they need every year out of their savings from the previous year (by definition) and if they need something bigger, like a tractor, there is such a thing as hire purchase.

Borrowing any more than that, purely backed by the value of land is a recipe for disaster for any kind of economy, agricultural or developed capitalist.

He also inadvertently makes the Georgist point that 'land ownership' and 'government' are more or less synonymous. It is only governments who can really say who owns land (until and unless they are overthrown or the country is invaded).

Utter, utter twats.


Lola said...

In the UK a 'freehold' is an infinite tenancy from the Crown with no rental payment (hence why LVT is 'the right tax').

The crucial bit here is that the security of tenure enables farmers to improve their land to grow more crops - increase production'. Which is as you say the important bit. from which they benefit. Incentives matter.

And why do people think property rights only means real estate? It's a thing I have to put my customers right on all the time.

( Not really relevant but. A good illustration of the lunacy of bank lending. I needed new servers. I didn't need to but I thought I'd ask the bank for a BD loan. About £25K. Very reluctant to lend indeed and at 9%. Then I asked them to lend me £25K to buy a car. Certainly Mr L. 4% flat to you...Lending for consumption in preference to lending for production. It's madness).

mombers said...

@L isn't the different rate due to the security of collateral? A car with a loan on it can't be sold whereas there's no such thing a state register of hardware ownership. Also, if stolen, it can be tracked down by the police a lot easier. And although both depreciate, I'd posit the computer hardware depreciates faster? The real elephant in the room is that it's most profitable and easy to lend against land and hence that's what banks mainly do

Lola said...

Momber. All true. But, the difference is lending for consumption - the car. Or lending for production - the servers.

Steven_L said...

A car with a loan on it can't be sold

Actually, not true. If a consumer buys a car with outstanding finance on in good faith, they still get good title and don't we a bean on it. See Schedule 4 of the Consumer Credit Act 1974 amending Section 27 of the Hire Purchase Act 1964.

Steven_L said...

From time to time you get a dodgy car dealer that doesn't settle the outstanding HP on part exchanged motors, sells them on, spends the windfall and leaves the consumer who part exchanged the car owing two lots of HP with only one car to show for it.

If you ever part ex a car with outstanding finance on it, only do so at a solvent main agent dealership. Take out a new finance agreement for the new car even if you intend to pay cash. If the dealer settles the finance on your part ex, cancel the new HP agreement during the cooling off period and pay cash instead.

If the dealer hasn't settled your outstanding finance by the last day of your cooling off period cancel the new finance agreement, sell the new car (you have good title) settle the old finance yourself and give the dealer the change.

This is the only sure fire way to protect yourself.

Alternatively you could 'do things properly' and try your luck with the FOS on the grounds that the dealer was an FCA regulated credit broker / provider, and hope that if the dealer declares an insolvency (or just does a runner) that the FOS will do what they need to do to ensure you are compensated via the FSCS (while you keep paying HP on a car you no longer have every month).

Mark Wadsworth said...

So, HPI check website says:

"Most finance agreements/loans will grant the lender ownership of the vehicle until the debt has been paid. The debt stays with the vehicle not the borrower. Even if you bought the vehicle in good faith, if the finance hasn’t been settled then the lender could repossess the vehicle, meaning you could lose the car and the money you paid."

How does that square with your comments?

Bayard said...

"Ah right, so the first thing you do if you want to start a business is buy some land, to be able to borrow against it?"

This is, of course a particularly pernicious Economic Myth: that everyone starting out in business starts, not with cash put into the business in return for a stake in the business (the old way), but with a loan from a bank (the new way). You start in debt and, with luck (from the bank's POV) you will remain in debt for ever.

Mark Wadsworth said...

B, agreed.

Lola said...

B agreed. I started my business with an idea and no money. I had a house with a mortgage and a spare room, but i really ran it from my car, a pager and the home landline. No land involved. When it grew i rented offices.

Mark Wadsworth said...

L, exactly, so did most people. As to the interest rate conundrum, I can only second what Mombers says.

However it is not true to say that a loan for business servers is financing production and a loan to buy a car is for consumption. We've discussed this before, car loans increase the number of new cars bought i.e. the number of new cars produced, so car loans are also financing production.

Lola said...

I disagree about the financing production / consumption thingy. The car manufacturer borrows to finance production. People take out finance to consume the cars they make. I use the servers to 'create wealth' - the surpluses of production - so that I can save up to buy the car. Then there's VAT. 20% of that new car price is tax. And that's a further complication - 20% of new car finance is off-balance sheet government borrowing.

Mike W said...

Thanks Mark. Really good discussion.Have been following your recent 'economics series' and have got a lot out of them. Even handed contempt for UK political left and right appreciated.

'Borrowing any more... is a recipe for disaster' Or bank induced 'Tulip Mania' as we like to call it.

Powerful conclusion too. 'It is only governments who can say who owns land...' Wholey agree. Before anyone jumps in: or when in doubt, reverse above, and then you work out who the government actually is!(+ bung in, who says what the currency will be) :)

Lola, Bayard et al, yes when wife and I started small business, it was (seemed)efficient use of spare bedrooms, two PCs, phone/modem and fax machine. (young people Google: fax machine, moden 28k, telephone, etc)owning the house or renting did not make a difference. We did the same 'business plan' based on renting and later a mortgage. Only a 'proper economist'/banker could think of reversing the order.