Rethinking the State and Rent Madness

Rethinking the State

by Hartmut Reiners
[This article posted on 6/3/2019 is translated abridged from the German on the Internet, https://makroskop.eu.]

Debates on the purpose and goal of state regulations of the economy have been underway for years. That the capitalist market economy cannot function without practical regulations should be clear.

The young chairperson of the SPD, Kevin Kuhnest, caused a sensation with his demand for socializing corporations owned by families like BMW to combat inequalities of income and wealth. This idea should not be a taboo anymore. Associations to the centrally planned economy and even to the wall death were triggered.

With such killer arguments, debates about an alternative economic- and social policy can be easily strangled when phrases like socialization, overcoming capitalism or building socialism are repeated...

Private Wealth and Public Poverty

Leftist policy means supporting the primacy of politics and protecting the political economy from the suicidal peculiarities of capitalism with governmental regulations. This includes public safety, the housing economy, public transportation, education, culture and protection from general life risks like old age, sickness and unemployment and not only the financial markets,
competition and income distribution. These are all existential tasks for the reproductions of the economy and not mere kindnesses. 

Securing the economic and social infrastructure can obviously be transferred to private institutions. State enterprises can become stock corporations listed on the stock exchanges. The consequences of such a policy are: growing old age poverty, degenerate schools , trains notoriously not on time and enormous gaps in looking after persons needing care. We witness a growing private wealth distributed extremely unequally and an increasing public poverty. The Keynesian John Kenneth Galbraith warned of this at the beginnings of the 1960s.

The fiscal policy of "zero deficit" with the motto "save until it hurts" has fatal consequences for economic development and the lives of citizens. It is legal and economic madness to transform these maxims into the Basic Law. The capitalist market economy cannot function without a public transportation infrastructure, a comprehensive education system and nationwide health and social services. When hipsters pretending to be post-modern leftists reduce state functions
to arbitrary authority, prohibitions and restrictions, they are just as ignorant as neoliberals with their mantra of social state's unaffordability.

Is the Social State Unaffordable?

The tenacious myth of the all-round superiority of private enterprise flits around public opinion despite market failure in massive areas of the infrastructure. Aging, invalidity, unemployment, sickness and need of care are general life-risks of modern societies... What was privatized?

Unemployment insurance is not a business field of the insurance sector on account of the incalculable risks of the labor market. This is true when benefits as in most European social systems are tied to the amount earned in the past gainful economy. In a privatization of the risk of unemployment, state assistance must satisfy the subsistence level...

Social policy becomes security policy for the well-to-do classes and is degraded to a soup kitchen charity. This policy leads to growing criminality and a flourishing private security and prison industry (as in the US) financed out of taxes...

Privatization in health insurance is a costly wrong way. The costs of private health insurance for medical treatments are 50% higher than those of legal health insurance in Germany. Add to that the exorbitant administrative expenses. Private health insurance in Germany employs 60,000 for the 9 million insured. Health insurance for state employees employs only 15,000
for the same number of insured. So much for the claim that privatization reduces bureaucratic costs!

Our social security has a high political-economic effectiveness. It is economically superior to the private enterprise alternatives. There are no sound reasons to assume the social state is unaffordable. Rather, its privatization is expensive for us.

Must the state be redefined?

The state and its tasks must be redefined on the background of the hegemony of the neoliberal TINA-ideology ("There is no alternative!"). The idea of the political regulation of capitalist market systems is not really new. It was already postulated by economists like Schumpeter, Kalecki and Polanyi with different accents and not only 90 years ago by Keynes... This "technical production necessity" of social policy and the political control of the economy have fallen into oblivion but have not disappeared.

One of the paradoxes of modern civil society is that the general consciousness for its economic necessity fades in building fringe benefit systems. The social state expands individual independence and reduces general existential anxieties. At the same time, the illusion is nourished that it could be replaced by "I-companies."

The political left must recognize this contradiction and declare concretely again and again why the social state and state regulations of the economy are economic imperatives and not ridiculous restrictions of individual freedoms. This is arduous but is without alternative.

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Rent Madness

Economic and political contexts o the housing crisis

by Andrej Holm
[This article posted on 6/7/2019 is translated abridged from the German on the Internet, http://linksnet.de/artikel/47734.]

Berlin is the focal point in the development of real estate- and rent prices. On one side, the higher rents are quite exorbitant. On the other side, the protest movements are very active and publically effective. Andrej Holm has observed and analyzed rent development and housing policy for many years. To reverse the crisis-laden development, he urges a break with the
real estate exploitation coalition.
 
The renter protests in Berlin and other cities have put the housing question back on the political agenda. Demonstrations, nationwide networks and a growing number of independent renter-groups have seen the protest against higher rents and repression grow into a permanent mobilization. A day hardly passes in big cities when new conflicts over housing supply
are not reported. The times when anxiety over higher rents and the loss of apartments could be ignored as "regrettable isolated cases" are over. The discovery that this is really a problem is clear in expert- and political party debates.

Escalated Inequality in Strained Housing Markets

Rents in big cities have risen explosively in the last decade. The common rents in the five largest German cities rose an average 15% in the 2008-2018 period as in Berlin (+32%) and Hamburg (+23%)...

For many renters, the rent development in the cities has uncoupled from the development of their incomes. Four of ten households in Germany's big cities pay more than 30% of their income for their rent. With higher rents, the money at the end of the month is not enough for a decent life.

Under the conditions of increased rents, the market conditions worsen the social inequality in society. Households with higher incomes live in more beautiful apartments and find their way in the housing search. The size of the money purse decides over the quality and condition of housing. The rent burden for households below the statistical subsistence level (less than 60% of the median income) is at 40% while households with incomes over 140% of the median income pay an average 17%. Social inequalities intensify when those with little must pay more...

Displacement as a Business Model

In many cities, the displacement of renters has become a business model. Higher base rents are subject to clear limits through laws governing tenancy. In strained housing markets, base rents can increase a maximum 15% within three years. The change of renters is the fastest way to higher profits. Modernization investments or the sale of housing units also promise fast profits... Nearly every fourth housing change in Berlin is classified as displacement.

Housing Supply between Market and State Failure

David Madden and Peter Marcuse summarized these developments in their historical outline on housing policy in the US and Western Europe. "There is a constant conflict between housing as a home and housing as real estate. Profit expectations and the social functions of housing run in opposite directions since reasonable rents usually lessen profits.

In big German cities, there are five million households who have low incomes or must even live below the subsistence level... Given the historical experiences of a limited supply of private apartments and a "social blindness of the market," it is astonishing that the new construction myth still defines current debates on housing policy. The mantra "build, build, build" is taken up by the housing economy and large parts of the general public because it gives a seemingly simple explanation for today's housing crisis with the simple supply-demand argument...

The state is sought when no substantial contribution fort social housing can be expected from the free enterprise side. However, the housing policy of the last decades must be described as a consistent withdrawal from public responsibility for social housing with view to the dissolution of housing cooperatives, the extensive privatizations, the inadequate construction of living space and the priority for subject-assistance.

Annulment of housing cooperatives

In West Germany, the cooperative housing sector was abolished in 1989 so no institutionalized framework existed for non-profit housing. Since then, even local community housing construction firms could not offer protection from rent hikes, displacement and privatization.

Under the guise of tax reform, 4 million apartments were changed de facto overnight into tradable market commodities. Until then, cooperative housing was subject to a clear profit limitation and had to be oriented in a cost-rent principle so the rent level depended on actual expenditures and not on profit expectations. All the profits had to be reinvested to advance non-profit cooperatives so the non-profit firms - unlike commercial suppliers - were forced to permanently expand their stock. No sumptuous profits in new construction were possible.

Privatizations

The privatizations in the 1990s and 2000s were possible with the abolition of non-profit status since apartments subject to a profit restriction are not attractive for investors. Between 1997 and 2009, the Federal German government, states and local communities sold nearly 1 million public apartments to institutional investors. In addition, 1.2 million public and cooperative apartments in East Germany were privatized... That a growing number of the 900,000 apartments are traded on the exchange is a direct effect of the privatization orgies in the last 20 years.

Home building promotion with limited social effects

In the immediate post-war time, housing policy in the old Germany since the 1950s promoted social housing and supplied "broad sectors" of the population with apartments. Altogether nearly 7.1 million public housing units existed up to 2000 - including 4.2 million rental apartments. With the 2001 Living Space Promotion law, the incentive programs developed into instruments for the socially marginalized and the volumes were substantially reduced... The Austrian housing researcher Christian Donner correctly describes the German system as a "promotion of rental housing investments with limited social utilization." Only 1.2 million units
of social housing are still available now despite the demanded 4.3 million rental apartments because fewer and fewer apartments were subsidized in that time period.

Subject-assistance

Public expenditures in so-called subject-assistance continuously rose while spending for housing subsidization stagnates at a level between 1 and 2 billion euros per year. In the last years, over 15 billion euros were spent per year as housing subsidies or accommodation costs. The Federal German government records this as expenditures for the "social security of housing" but the payments are an economic stimulus. The rents in every fifth rental apartment are financed by the state. If the payments flowing indirectly to the owners were described as subsidies, they would be the largest economic stimulus in the federal German budget

Right to Housing instead of Real Estate Exploitation Coalition

The business with apartments is embedded in political contexts and the constellation of organized interests and cannot only be explained from the economic principles of a capitalist urbanization. Nationwide and local "Alliances for Housing" or groups of experts are usually dominated by those professionally involved with urban development and hou9sing and develop a common interest in the city's exploitation of the land. From a social science perspective, the concept of urban growth coalitions is emphasized by real estate exploitation coalitions who define problems, propose solutions and develop and convert general programs. Social and
ecological aspects regularly fall by the wayside when housing questions are defined by those who want to earn their money by developing real estate.

So it is not surprising that the associations of the construction- and housing economy explain the absent new building - in marvelous harmony - as the cause of today's housing crisis and urge a mix of simplified approval processes, accelerated land allocation and fiscal investment incentives. Every intervention like rent brakes, proposals on housing cooperatives or protection from rent hikes by resident protectorates were rejected in the past years with a "that doesn't build any new housing!" By successful framing, the branch translated the social questions of a business model into a quantity question of housing production.

That the debates shifted and the housing question is seen as a crisis of social housing supply is ultimately due to many renter-initiatives and base projects. Independent of the necessity of new construction, initiatives in growing cities have shown that reasonably priced apartments are lacking in cities. When seemingly radical demands and a rent increase moratorium or the expropriation of mammoth real estate companies are raised in reaction to skyrocketing rents and displacement worries, this shows years of studying Marx are not needed in cities like Berlin to recognize that private business interests oppose social housing. The right to housing for everyone must be understood as a public challenge and presupposes the de-commodification of the housing supply, a democratization of urban policy, and breach with the real estate exploitation coalition.