Present negative trends in China’s financial system and economy were accurately predicted by me three years ago as occurring if there was any influence of policies of the World Bank Report on China.
While China has made major steps forward in areas such as the Asian Infrastructure Investment Bank and New Silk Road (‘One Belt One Road’) unfortunately in some areas World Bank policies did acquire influence. As predicted they led to present negative trends.
There should also be clarity. China has the world’s strongest macroeconomic structure so these trends will not lead to a China ‘hard landing’. But they are a confirmation that no country, including China, can escape the laws of economics. As long as there is any influence of World Bank type policies, which are also advocated by Western writers such as George Magnus and Patrick Chovanec, there will be problems in China’s financial system and economy.
The article I wrote in September 2012 which was published under the original title ‘Fundamental errors of the World Bank report on China’ is republished without alteration.
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The World Bank’s report China 2030 has, unsurprisingly, provoked major criticism and protest. I have read World Bank reports on China for more than 20 years and this is undoubtedly the worst. So glaring are its factual errors, and economic non-sequiturs, that it is difficult to believe it was intended as an objective analysis of China’s economy. It appears to be driven by the political objective of supporting current US policies, embodied in proposals such as the Trans-Pacific Partnership.
Listing merely the factual errors in the report, of both commission and omission, as well as the elementary economic howlers, would take up more column inches than are available to me. So what follows is just a small selection, leaving space to consider the possible purpose of such a strange report.
The report has no serious factual analysis of the present stage of China’s economic development. On the one hand it is behind the times and “pessimistic”, saying China may become “the world’s largest economy before 2030”. This is extremely peculiar as, by the most elementary economic calculations, (the Economist magazine now even provides a ready reckoner!) China will become the world’s largest economy before 2020.
On the other hand, the report greatly exaggerates the rate at which China will enter the highest form of value added production. As such, the report calls for various changes in China, and bases its calls on the rationale of “when a developing country reaches the technology frontier’. But China’s economy, unfortunately, is not yet approaching the international technology frontier, except in specialized defence-related areas. Even when China’s GDP equals that of the US, China’s per capita GDP, a good measure of technology’s spread across its economy, will be less than one quarter of the US’s. Even making optimistic assumptions, China’s per capita GDP will not equal the US’s until around 2040, by which time China’s economy would be more than four times the size of the US’s! Put another way, China will not reach the technology frontier, in a generalized way, for around three decades, so this rationale can’t be used to justify changes now.
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Oireachtas committee reports aren’t usually very exciting or overtly progressive. This one is different: the Report on Low Pay, Decent Work and the Living Wage produced by the Joint Oireachtas Committee on Jobs, Enterprise and Innovation should be read by everyone concerned with these issues. This should feature highly in the upcoming election debate. It should also be a template for progressives; what can happen when we all pitch in.
Here are just a few of the 28 recommendations:
- The Low Pay Commission consider the findings of the Irish Living Wage Technical Group to make the minimum wage a Living Wage by increases in the minimum wage and investment in public services.
- The Low Pay Commission should include the living wage as a key target and explore how it can be reached when making its recommendation of an appropriate minimum wage.
- The state should become a living wage employer and that payment of the living wage should be stipulated as mandatory in government procurement contracts.
- The Government should set a goal for the elimination of low pay and set a target for halving the number of workers affected by in-work poverty within their term of government.
The Committee makes a number of other recommendations; if you don’t have time to read the full report, at least look at the recommendations on page 13 of the text. They go beyond just the Living Wage – they address low pay and working conditions. Just to recap:
- The Living Wage is €11.50 per hour – it is estimated that 345,000, or 26 percent, of all employees earn below this amount.
- The low pay threshold is €12.20 per hour – it is estimated that over 400,000, or 30 percent of all employees earn below this amount. The low pay threshold is two-thirds of the median wage which, in turn, is the wage at which 50 percent earn above and 50 percent earn below.
The Committee has gone further than just calling for the Living Wage (though it has done that), it has called for the end of low-pay itself. This is truly a far-reach recommendation.
How did we get to this point that a parliamentary committee made these proposals? Let’s go through the elements of the campaign.
- Early in 2014, the Living Wage Technical Group began work on estimating the Living Wage. This was led by the Vincentian Partnership for Social Justice, based on their work on the Minimum Essential Standard of Living which they had been researching since the 1990s. They were joined by the Nevin Economic Research Institute, Social Justice Ireland, TASC, SIPTU and UNITE. They produced the Living Wage for 2014 – at €11.45 per hour. A key element of this estimate was the detail and robustness of the methodology. Though opponents tried to undermine the concept and the method, they were unable to find any fault.
- Several sections of the media immediately took this up because the Living Wage seemed so darned fair. What could be more common sense than that people who work full-time should be paid a wage that ensures they don’t live in poverty. This should remind us that the media in its entirety is not some right-wing conspiracy against the people; there are many journalists, presenters and producers who are progressive and many more who are concerned that issues are thoroughly explored and all sides presented fairly.
- Civil society groups immediately took up this issue – those working on poverty, migrants’ issues, and community concerns. In particular, the trade union movement got involved with many unions producing policies in pursuit of the Living Wage. ICTU, in particular, played a strong role. The theme of its 2015 Biannual Conference was ‘Living Wage, Strong Economy’; they further produced a Workers Charter incorporating the Living Wage and which they asked general election candidates to sign up to.
- Political parties which straddled the Government / Opposition divide contributed to the growing support, creating a broad progressive front in political society. The opposition parties – Sinn Fein, PBP-AAA, including independents – were joined by the Labour Party in supporting the Living Wage. Parties outside the Dail (e.g. the Workers Party) also joined in support. A particular intervention was made by the Minister of State for Business and Employment, Ged Nash.
- He sponsored a Forum on the Living Wage which brought together trade unions, employers and civil society groups to listen to the arguments. The Forum featured UK employers who supported the Living Wage and which made our own employer representatives uncomfortable. This shows that while you may oppose a particular government, this doesn’t mean you can’t work with supportive elements in that government.
- Individuals and groups contributed through social media – with websites, Facebook pages and Twitter being used to promote the Living Wage and various proposals to further its implementation. Many used official channels to put forward the case – for example, submissions to the Low Pay Commission.
- Such was the robustness of the method, the fairness of the proposal and the broad support it received, opponents were put on the defensive. Business representatives, in particular, have never been comfortable arguing against it; ‘we don’t have enough money’ is becoming less credible as the economy experiences a tsunami of growth, profits and spending (and the notion that profits grow while the employees who help create those profits live in poverty seems particular miserly). Even Fine Gael, who wouldn’t usually support overt interventions in the labour market (at least, not on behalf of labour) has had to respond; though its proposals to subsidise employers from public funds is poorly thought-out, potentially very expensive and ultimately unworkable. All this led to the Committee report. That it was supported by all members – including Fine Gael and Fianna Fail members – again should remind us to avoid the trap of seeing political opponents as some impenetrable hegemonic force. With a robust, fair and common-sense proposal, unified opposition can be undermined and support gathered across a broad spectrum. This helps us to isolate the opposition.
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Feel like your pay rise, if you get one, is barely covering the cost of living? That the tax cut you’re going to get next year will only bring you back to where you were this year? Feel like you’re running just to stand still (if you’re lucky)? Welcome to the great Hamster Wheel where you can run and run and go absolutely nowhere.
Christmas is coming and Santa is bringing a big bag of price increases.
Health Insurance: Now is a busy time for health insurance renewals and Charlie Weston reports a series of price increases. Aviva is to increase prices by 5.1 percent in January.
‘The Aviva price adjustments come just months after similar hikes. At the start of the year, the insurer announced a rise of 3.5pc. And in the summer, it announced rises of 5.1pc, effective from the start of last July.’
Other insurers have also announced prices increases.
The health insurance market is getting more complicated. 72 Aviva health plans (yes, 72) will experience increases, many won’t while 47 plans will be withdrawn. These will entail increases of €150 to €200 per year for many policy holders. Weston quotes one independent broker as saying that most plans only have a life-span of 12 months. Sign up if you will but realise that your plan may not exist after 12 months.
Hands up all those who would just rather pay for their health through social insurance – one plan to cover all contingencies – and share that cost with employers.
Public Transport Fares: urban bus, Luas, rail and Bus Eireann fares are going up, though some travellers will experience a decrease with a number of zones being merged. Some of the increases will reach 15 percent meaning an additional €70 per year. But while there will be winners and losers in these price increases and changes, over the last four years public transport has experienced considerable inflation:
- Rail fares: 17.3 percent
- Bus fares: 21.4 percent
- Overall inflation: 1.6 percent
That’s a substantial gap.
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The launch event takes place in Connolly Books (East Essex St, Temple Bar) at 6 pm on Wednesday 9th December.
How are social movements doing in Ireland? What kind of real change might be on the cards, here and in Europe or further afield? What are the key issues that we should be thinking about if we want to see it happen?
Co-written with Norwegian researcher on Indian movements Alf Gunvald Nilsen, my book We Make Our Own History: Marxism and Social Movements in the Twilight of Neoliberalism (Pluto, 2014) draws on the Maynooth tradition of activist research in social movements to read Marxism as a reflection of the learning of popular struggles and uses this approach to explore how movements grow out of the struggle to meet human needs, how they develop, how the collective agency of the powerful and wealthy works and what all this means for the struggle against neoliberalism today.
Launched at the London “Historical Materialism” conference, the book has raised interest wherever movement struggles are intense (reprinted in South Africa, translated into Turkish, with Indian editions and translations under discussion) and we have been invited to discuss the book at Ruskin College Oxford’s International Labour and Trade Union Studies MA, the European University Institute’s social movements research centre, the Collège d’Etudes Mondiales in Paris, the University of Gothenburg’s Forum on Civil Society and Social Movements, Reykjavík Academy / Radical Summer School, the University of Bergen, and in South Africa at the universities of KwaZulu Natal, Johannesburg, Wits and Rhodes among others.
It’s been reviewed among other places in Counterpunch, Working USA, Marx and Philosophy, Radikalportal, Trade Unions and Global Restructuring and Social Movement Studies, along with mentions on Pravda.ru and … the Huffington Post. Excerpts and related essays have appeared in Ceasefire, Progress in Political Economy, OpenDemocracy, Reflections on a Revolution, Discover Society and E-International Relations.
For the Dublin launch, rather than focus exclusively on the book there will be a discussion about the state of movements and our possible futures. Chaired by John Bissett, there will be short talks from Margaret Gillan, Andrew Flood and Fergal Finnegan to open a wider debate.
The launch event takes place in Connolly Books (East Essex St, Temple Bar) at 6 pm on Wednesday 9th December.
By way of an appetiser, here are some excerpts from what the book has to say about working-class community activism in Ireland
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Probably the most encouraging development that has come out of the water charges movement has been the accentuated understanding of ‘them’ and ‘us’; the idea that society is organised so as to benefit the minority at the expense of the majority. This is the starting point that all of us on the left had been yearning for since the beginning of the crisis. Undoubtedly, it was slow to arrive but when it finally did so, it was truly an explosion of struggle and organisational prowess, as we finally said ‘enough is enough’.
Any lingering illusions that the mainstream media, establishment parties or big business exist to better our lives, will have been dispelled for those at the heart of the movement. However, conclusions on how to change society for the better are numerous, unclear and disjointed. This comes as no surprise with an embryonic movement, which lacks ready-made and large radical institutions to provide solutions.
Ireland is a tax haven for big business
Rome, or Dublin for that matter, wasn’t built in a day. Economies and societies are incredibly complex systems that have developed over centuries. Ireland’s economy, in particular, presents many structural challenges for the left that simply cannot be wished away or eradicated overnight. The most successful capitalist economies are those which have the strongest industrial bases, specifically economies which actually make things and have goods or raw materials to trade with others countries or markets.
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The Left and trade union movement should champion the self-employed. While the Right gives promises of tax breaks, the self-employed need so much more: a stronger welfare state and public sector intervention to empower self-employed workers in the market place. Indeed, what the self-employed need is what PAYE employees need: social security and market strength.
Let’s do some background numbers. In Ireland, there are approximately 320,000 self-employed or 17 percent of total employment. Of these, 69 percent are own-account workers – that is, they don’t have employees. Throughout the EU-15, the self-employed make up 14 percent with the same proportion of own-account workers. In Ireland, nearly one-in-six in the workforce are self-employed.
Unsurprisingly, self-employed in the agriculture and fishing sectors make up a quarter of all self-employed. This is followed by construction and retail, with professional and technical self-employed making up 10 percent. There are smaller numbers spread throughout all economic sectors.
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Cliff Taylor asks why President Michael D. Higgins is not celebrating the recovery we are experiencing.
‘The President is not comfortable saying anything positive about the Irish economic recovery.’
Apparently, the President is a bit of begrudger; indeed, all of us who opposed austerity are.
‘But if you are in the anti-austerity camp then the fact that the Irish economy is now growing strongly is an inconvenient truth.
Not only is reality inconvenient, we are guilty of being fantasists.
‘The anti-austerity brigade seems to assume there was some way for Ireland to magically escape cutbacks when a huge gap had emerged between annual spending and revenue even before the bank bailout costs.’
But then Cliff bemoans the lack of ‘measured discussion’. Does labelling people begrudger, reality-deniers and fantasists constitute measured discussion? At the risk of further labelling, let’s try to engage in some of that – measured discussion, that is.
A good starting point is the Central Bank’s recently published Economic Letter which summarises a major study on fiscal consolidation in the Eurozone between 2011 and 2013. The study used two models to measure the impact of austerity – the EU and the ECB model. They further utilised three scenarios: a baseline, one where business debt was factored in and, thirdly, credit-constrained households. In short, the study found:
- The impact of austerity measures were much more severe than previously estimated – so much so that for €1 billion of austerity, the economy fell by €1 billion and more
- That spending cuts had a more severe impact than tax increases
- That debt rose in the years after the austerity measures were introduced – only falling some five or six years (and possibly longer)
- That the austerity measures were the primary reason behind the Eurozone’s slugging growth performance
They concluded by saying it was a mistake to pursue austerity measures while the economy was in a slump; addressing the debt should have been postponed until after the economy recovered. If this were done, the debt would fall more quickly and the economic damage (unemployment, falling wages, business bankruptcy) would have been less. While this was a study of the Eurozone as a whole, there is no doubt that Ireland experienced this – especially as our level of austerity was nearly double that undertaken in the Eurozone as a whole.
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Researchers with the Swiss bank Credit Suisse have just published their latest annual global wealth report, Global Wealth Report 2015. The United States, the report informs us, currently has more than twice as many millionaires as the next four richest nations — the UK, Japan, France, and Germany — combined. It also notes that the trend in growing inequality and the accumulation of wealth by a tiny elite continues unabated.
There is no mention in the report of exploitation, imperialism or war. But it does contain a fairly stark depiction of socio-economic insanity.
“While the bottom half of adults collectively own less than 1% of total wealth, the richest decile holds 87.7% of assets, and the top percentile alone accounts for half of total household wealth.”
The Report makes some effort to explain this state of affairs. For example, it notes with interest that
“North America and Europe also contribute many members to the bottom wealth decile” but it doesn’t put this down to the increasing exploitation of workers in core imperialist states as wealth is siphoned . into the private and largely hidden coffers of a tiny elite.
Instead, for the economists of Credit Suisse the growing number of people in the west living at third-world levels of poverty “reflects the ease with which individuals – especially younger individuals – can acquire debt in these regions”.
So that explains it.
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Recently, RTE aired ‘Ireland’s Great Wealth Divide’. Though there were some problems with the analysis (ignoring the wealth of data published by the CSO, the confusing conflation of income and wealth, the unsubstantiated assumption that Ireland was ‘good’ at wealth generation) and the prescriptions (there wasn’t any) it at least gave an airing to a subject that doesn’t get much airing: inequality.
A major gap in the programme, however, was a failure to acknowledge one of the biggest wealth divides – that between public and private wealth. First, let’s define wealth. It is the value of all assets, whether those assets are held by households, businesses or states. It can comprise physical assets such as buildings, land, machinery; liquid assets such as cash; and intangible assets – assets are not physical and are hard to value (e.g. a brand’s goodwill). It is on the basis of this wealth that we generate income.
Private wealth is owned privately – by individuals or businesses. Wealth indexes – likethe Credit Suisse report featured in the RTE programme – measure the wealth that is held by households. Public wealth, on the other hand, is held by a public agency: Government Departments, public agencies, local authorities and commercial enterprises. These, too, generate income, create economic and business activity and are used for individual and social need (e.g. a local authority house).
The amount of public capital is vast and under-appreciated. Let’s run through a list that is far from exhaustive:
- Commercial, residential and heritage buildings – in use and derelict
- Hospitals, schools, prisons, clinics, galleries, museums, libraries
- Waterways – rivers, lake, canals, on-shore and off-shore
- Roads, bridges, rails, airports, docks and seaports
- Assets of commercial public enterprises
- Financial assets: Strategic Investment Bank, cash balances, Central Bank, retail banks
This is a vast portfolio of assets that generate income, business activity and living standards. Much of it difficult to value – how do you measure, in Euros and cents, Lough Ray or the off-shore seas (though this can be done if the property can be privatised; anyone want to buy the Shannon?).
How did this wealth come into being? Apart from natural resources, these came about because of investment. Public decisions in the past to invest in infrastructure, businesses, public services and capital assets form the basis of our public wealth today.
In fact, there is so much public wealth around us that sometimes we take it for granted without understanding how absolutely important it is – and what role it can play in future wealth and income generation for all of our benefit.
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Never mind the details. If we are to believe even half of the media leaks, the Government is preparing to return us to the kind of boom and bust fiscal policy that dominated the pre-crash period.
The context is different but the character is the same. Between 1997 and 2007 corporate tax was slashed, capital gains and inheritance taxes were halved while the effective personal tax rate fell by 25 percent. During that period budgets rode the wave of property tax revenue but when the crash hit our hollowed-out tax base was exposed. Revenue fell by over 22 percent or €16 billion in the first three years of the crash, resulting in a massive deficit. The economy was built on the quicksand of unsustainable tax revenue.
Fast-forward to the 2016 budget to be presented tomorrow and a whole number of tax-cut goodies are being dangled in front of us:
- Capital gains
- Corporate tax (knowledge-box) and other business taxes
The Taoiseach has made it clear this is the first of a series of tax-cutting budgets. We are hurtling back to the future.
Some may argue that increased tax revenue can more than make up for this. But budget management now determines that excess revenue will have to be used to pay down debt – paying for tax cuts and/or spending increases will require equivalent tax raising and expenditure reduction measures (beyond the fiscal space of €1.5 billion). The EU fiscal rules put us in a whole different game.
However, this game doesn’t prevent fiscal irresponsibility any more than they wouldhave prevented the pro-cyclical polices prior to the crash. And this is where the problems arise.
Today, tax cuts will be subsidised, not by property boom revenue but by depressing badly needed public spending increases. The Government has set aside €750 million for spending increases. But:
- A minimal €200 million has already been assigned to capital investment.
- The Government’s Spring Statement and the Irish Fiscal Advisory Council state that €300 million is needed just to keep pace with changing demographics.
- And a further €200 million is needed just to inflation-proof non-pay expenditure on public services.
That’s €700 million before we even get out of the starting gates. And this doesn’t include the Lansdowne Road Agreement or increases in social protection (somewhat offset by declining unemployment payments). More importantly, this doesn’t factor in the considerable social repair that needs to be undertaken in the wake of austerity. And as for expanding public services to European norms – that’s not even on the agenda.
While expenditure may exceed this €750 million, it will have to come from somewhere – including cutbacks in other areas of expenditure. This is not as ominous as it sounds; savings from reducing the prescription medicine bill can be redirected into other areas. But there is a limit to these savings.
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The silly season usually refers to August. Now we have the silliest of seasons –the run-up to a budget in the run-up to a general election. Minister Richard Bruton has recently called for a low flat rate tax on immigrants and returning Irish, along with cutting capital gains tax to 10 percent. Brian Lucey has called some of the ideas both bad and stupid.
But Minister Bruton runs a poor second to Renua in the race-to-the-ridiculous stakes. Renua has called for a flat-rate tax. It represents a massive transfer from the lowest income groups to the highest income groups. It will require low and middle income groups to fund not only their own tax cuts but even higher tax cuts for those on much higher incomes. As Brian says of Minister Bruton’s proposals – it is an idea whose time has not come (and hopefully never will).
Renua proposes that income tax, employees’ PRSI and USC be abolished and replaced by a flat-rate tax of 23 percent. This will be complemented by what is called a ‘Basic Income’ that tapers out slightly above average earnings (this is not actually a basic income – it is a hybrid of a tax allowance and negative income tax). Renua doesn’t detail how this tapering works so we can’t do an income distribution impact assessment for all income groups. However, here are a couple of examples from their own pre-budget submission with some estimates of my own.
Yes, you’re reading the graph right. A low-paid worker on €20,000 would end up paying more tax. Someone on an average wage would benefit by €800. However, it’s bonanza city for those on €100,000 and more. Calculations for €36,000 and higher are my own.
There is a similar regressive impact when considering couples. Renua states that a couple on €50,000 (both working, same salary) would gain €1,665. A couple on €100,000 would gain €9,741 – or more than six times the nominal amount. Couples on even higher incomes would benefit disproportionately more.
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This article originally appeared on Socialist Economic Bulletin on Wednesday the 7th of Oct.
Economics of budget deficits
The debate is continuing on the purpose of government borrowing and the role of ‘balanced budgets’ – which was started by John McDonnell’s position of balancing the budget on current expenditure but borrowing for investment. This is not surprising given that economic policy has to be the core of the programme for a Labour government.
A thoughtful addition to the debate is this piece by Jo Michell in theGuardian, who asks for a real alternative to Osborne, which SEB has provided in relation to the Fiscal Responsibility Act. But an important misunderstanding should be clarified. That article argues that advocacy of a balanced current budget over the business cycle would be to ’emulate Ed Balls and austerity lite.’ That is incorrect. It would only be the case if the level of government investment were maintained at current miserably low levels. Instead what is proposed here is a transformational increase in public investment, sufficient to foster a sustained recovery led by public investment. Far from this being ‘austerity lite’ it makes state driven investment a key to economic policy – entirely unlike the policy of Ed Balls.
The piece below examines this attachment to persistent government budget deficits, which have been combined with a simultaneous long-run decline in public investment.
The position on Osborne’s proposals that a Labour government should balance the budget on current expenditure over the business cycle but borrow for investment is set out in an earlier article here. It follows from the fact that the purpose of economic policy is, or should be, to optimise the growth in the sustainable living standards of the population. Increasing living standards requires growth – internationally over 80% of increases in consumption are due to economic growth. Since it is not possible to increase the fundamental productive capacity of the economy without investment, investment is the decisive factor in producing growth (in an overall framework of increasing the division/socialisation of labour). Therefore economic policy, including fiscal policy, should aim at increasing investment and gradually enhancing the proportion of output devoted to investment. This is the precondition for more rapid growth – ‘growing the economy out of the crisis’ as John McDonnell and Jeremy Corbyn put it. Borrowing should primarily be confined to investment, only resorting to support consumption in specific exceptional circumstances – such as to maintain living standards of the least well off sections of the population during economic downturns. Social protection should be financed via taxation – levied in a disproportionate way on the richer sections of the population.
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The following is based on a talk I gave to the housing conference held on Saturday: ‘Towards a Real Housing Strategy’. There were excellent contributions from academics, activists and victims of the housing crisis. The contributions from Dr. Lorcan Sirs (DIT), Dr. Sinead Kelly and Dr. Mick Byrne (both from Maynooth) were particularly provocative, as were many others;including Fr. Peter McVerry and Dr. Rory Hearn.
The current model of 100 percent local authority provision of social housing is no longer capable of meeting the new challenges – not only because of future fiscal restraints and competing demands from other sectors – health, education, social protection, economic infrastructure, etc. Future social housing provision will need to accommodate low and average income households – something which the private rental sector will struggle with, especially as transnational landlords, inward foreign investment and up-market accommodation are squeezing so many out.
This requires a new public sector-led model to adequately house a larger section of society and ensure that rents do not become a burden on the productive economy.
There are three principles that can inform this new model:
- It is not-for-profit (cost rental)
- It blurs the distinction between the ‘social’ and the ‘private’ so that the not-for-profit housing leads and eventually dominates the entire rental sector (unitary market)
- It reduces the impact on public finances (off-the-books)
This will, in the first instance, require new housing providers.
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