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The ‘rent’ economy is enslaving us all, creating money for nothing for the ‘asset rich’ and progressively extending poverty to all the ‘paying poor’

December 28, 2017 Leave a comment

download (10)Every day we are hearing and reading stories about wage stagnation, price escalation, homelessness of the kind where young people can’t afford their own place, spiralling personal debt and a whole range of stories which relate to the cost of living. Stories that are repeatedly telling us that maintaining a basic life in the UK is very quickly becoming a luxury that many of us simply cannot or will not be able to afford.

Alone, each tale told can and often is attributed to a range of causes which are nonetheless real, but also overlook a common theme throughout all of these issues. The commonality between them all is the economic concept of ‘rent’. The impact of third parties taking ownership of all or part of a product, the delivery of a service, or some other form of purchase at some point in the process from where it originated to where we use or in consume it in some way.

Rent is of course a term we use in daily life to describe paying to use something which belongs to someone else. The most common usage is that of renting of a house, where instead of there being a simple relationship between an owner occupier and their house or property, the occupant rents the property from the owner, essentially increasing a basic two part relationship into three.

In just this example alone, we can take it one stage further and add a bank or mortgage owner of a buy-to-let property (1) which is rented by the occupant (2) from the owner (3) who borrows the money and pays interest to the bank (4), which may itself have borrowed that money from another bank (5).

Whilst we would normally think of just the transaction between the occupier and the property owner as being ‘rent’, in economic terms, any additional party taking something from an overall transaction or supply chain between its origin and use who isn’t essential to the core process is receiving rent of some kind. They in turn may split their role between themselves and others, each adding their own profit as they do every time it happens. Ultimately each additional participant in the chain raises the price of whatever we as users or consumers will be expected to pay.

Sometimes, a number of stages appear necessary. For instance the food we eat might have to be grown by a farmer (1), which is bought by a manufacturer (2) who pays a haulier (3) to transport it to where they will process it. The manufacturer then sells the prepared food to a wholesaler(4) and pays another haulier (5) to deliver it to their warehouse. The wholesaler then sells it to a supermarket (6) and pays another haulier (7) to take it to their distribution centre. The supermarket then pays another haulier (8) to deliver the product to its store, where it sells the finished product to us (9). Do believe me when I say that the chains are usually much more convoluted than that!

Of course, we are all guilty of falling into the trap of forgetting how complex the process is which brings us our food and most of the items that we consume or the services we buy, because for us the process seems to be so very easy. But look closer and we will soon see that even a supply chain of this size may involve unnecessary parts and people taking ‘rent’.

So what does this all this talk of rent really have to do with the cost of living?

The real problem with the provision of goods and services is that the UK operates within what is called a ‘free market’ environment, which it has been since at least the time of the Thatcher Government (1979-90). Within this free market, reduced levels of regulation and influence from the government – who we expect to guard and protect our best interests – provides the opportunity for additional 3rd parties and in fact many more of them to involve or add themselves to the chain of many of our daily transactions. By doing so, they can make significant profits from what in some cases will be as simple for them as a click to buy and another to sell.

Whether it is food, clothing, fuel and oil, transport, communications, borrowing money, or just about anything we can imagine that we can buy, there are now speculators buying and selling products and services, sub contracting responsibilities to others, all of them taking additional profit by taking ‘rent’ which there is no practical reason for anyone needing to pay. They indirectly inflate the prices we pay for the end product, increasingly making those things which should really be quite affordable, simply too expensive for us to buy.

These speculators do this because they can. There are no real rules to stop them, and they are making as much money as they can without any consideration for the impact of their actions on the end users – that’s us. And they have little concern that they will have to stop doing so, because the banks simply continue to lend money to the people who have been forced by this process to borrow – if indeed possible – in order to survive.

Think about what really caused the 2007-08 Financial Crisis, which was the sale, resale and resale again of financial products or debts which became so complex, even the financiers themselves didn’t really know what they were buying and selling on.

Bankers were making massive amounts of money – all because nobody was monitoring exactly what they were doing, whilst their own ‘success’ blinded them to how value was being created by lending to people at one end of this elaborate chain who simply didn’t have the ability to pay back what they had been lent.

The Bankers didn’t care before it happened and they don’t care now. They are still not regulated in the way that they should be, and were actually saved from going under in 2008 by the Labour Government at the time by giving them Billions of Pounds of money in bailouts and rescue funds that the Government itself borrowed, and which we are still paying for through the accumulation of public debt.

These are people, banks and companies who are quite literally making money for nothing, and its all at our expense.

The ‘rent’ economy has been evolving as the reality in which we live for many years now. But it is only as more and more products and services have come under the control of those with the money and unrestricted influence to speculate, whether it has been through privatisation, the development of near monopolies or money simply being placed within unscrupulous hands, that the real impact of ‘farming everything for profit’ has began to become fully clear.

 

 

 

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