rent gouging

Here is a story that explains this concept. Thanks to our contributor, Matthew Mitchell, for alerting us to this brilliantly simple analysis of our current problem, originally published as a comment here. It is a skilled, yet easy to understand, critique of economic theory that underpins todays political policy and the similar adverse impact of globalisation on places as far away from each other as Bangladesh and Australia.

(Original Source by John Kozy, Global Research, February 13, 2012: http://www.globalresearch.ca/abstractions-versus-the-real-world-economic-models-and-the-apologetics-of-greed/29270 Subtitles inserted by candobetter.net editor.

"Offshoring production to underdeveloped nations gives needy people jobs, increases their incomes, reduces poverty, and expands their nations’ GNPs. It also enables people in developed nations to purchase products produced offshore at lower prices enabling them to consume a wider range of things. As a result, everyone everywhere is better off."

Convinced? Most economists are, but it hasn’t worked that way. Everyone everywhere is not better off—as the whole world now knows. Why?

A factory in Bangladesh

In the latter part of the 80s or early part of the 90s, a large retailer (don’t remember which one) thought it would be a good idea to bring an employee of a factory in Bangladesh to America to see how the clothing the factory was producing was being marketed to Americans. So a Bengali woman was selected to represent her factory and brought to America. This idea didn’t work out well. The woman not only saw how the products were being marketed but how much they cost and she was infuriated. She knew what she and her coworkers were being paid, about two percent of the price of the garments. She did not remain silent and was quickly sent back to Bangladesh. Here is the gist of her story:

She said she and her coworkers were not financially better off after being hired by the factory. Yes, the wages were better than those that could have been earned before, but they weren’t much benefit. Why? Because when the paychecks began to arrive, the local landlords and vendors increased prices on everything, so just as before, all of their incomes went to pay for basic necessities. The landlords and vendors got the money; the workers were not better off, and those in the community who were not employed by the apparel factory were decidedly worse off. It fact, it quickly became apparent that the workers were working for nothing. They did the work; the landlords and vendors got the pay. But, of course, the country’s GNP was better, which is all that matters to economists who still claim that Bangladesh’s economy is improving.

And although Americans were able to buy the apparel more cheaply than they could have before the manufacturing was offshored, the American apparel workers who lost their jobs are decidedly not better off.

Two conclusions follow from this scenario: employment alone is not a sufficient condition for prosperity; full employment can exist in an enslaved society along side abject poverty, and an increasing GNP does not mean that an economy is getting better. Remember these the next time the unemployment rate and GNP numbers are cited. Those numbers mean nothing.

"The economic model described above just does not work, not in Bangladesh or anywhere else"

More than thirty years has now passed and nothing has changed in Bangladesh. Most Bengalis still continue to live on subsistence farming in rural villages. Despite a dramatic increase in foreign investment, a high poverty rate prevails. Observers attribute it to the rising prices of essentials. The economic model described above just does not work, not in Bangladesh or anywhere else. Explaining why reveals what’s wrong with economics and why current economic practices, which have not essentially improved mankind’s lot over the last two and a half centuries, won’t ever improve it.

Economists build models by what they call “abstraction.” But it’s really subtraction. They look at a real world situation and subtract from it the characteristics they deem unessential. The result is a bare bones description consisting of what economists deem economically essential. Everything that is discarded (not taken into consideration in the model) is called an “externality.” So the models only work when the externalities that were in effect before the models are implemented do not change afterward."

Why is it that the Australian government, and other governments, principally in the anglophone world, deliberately encourage population growth when common sense and intuition, not to mention the hard evidence, tell us that a larger population cannot possibly be in the interests of the current inhabitants of this country or of the rest of the planet?

Republished on Eye on Immigration and Online Opinion (in a slightly abridged form) together with forum discussion.

See also: "Bligh Government tramples on community rights to impose over-development" of 11 Jun 08, "Redland City to pay with increased water charges for population growth" of 19 May 08, "More chickens of population growth come home to roost in Queensland" of 14 May 08, "About immigration" of 14 May 08, "Shared accommodation a necessity and no longer a choice for many in Brisbane" of 30 Apr 08, "How to end the Queensland economy's addiction to population growth?" of 26 Apr 08, "The Australian laments outcome of Queensland local government elections" of 30 Mar 08, "The Courier Mail beats the drum for more Queensland population growth" of 30 Mar 08, "Rent gouging threatens Brisbane inner city retail community" of 8 Mar 08,
Sheila Newman's 2002 Master's Thesis: "The Growth Lobby and its Absence : The Relationship between the Property Development and Housing Industries and Immigration Policy in Australia and France" downloadable from here, in individual chapters plus five appendices and here, the whole main thesis.

Why is it that the Australian government, and other governments, principally in the anglophone world, deliberately encourage population growth when common sense and intuition, not to mention the hard evidence, tell us that a larger population cannot possibly be in the interests of the current inhabitants of this country or of the rest of the planet?

We are long past the point where adding extra numbers in any way increases the synergy of the inhabitants of this country. Consequently any additional population growth must necessarily make each and every one of us poorer on average as the per capita access to natural resources necessarily decreases in proportion to the increase of the numbers of people.

However, it gets even worse than that, because of the dis-economies of scale inherent in large populations. An obvious example is that Australians are paying extra water rates to finance costly water desalination and sewage recycling plants required to provide water for additional people.

Had we stabilised our population, this would have been totally unnecessary. We could all have been adequately supplied by our existing less unnatural and less technologically complex water infrastructure.

Similar points could be made about transport, electricity, health, education and other services.

To cope with increasing numbers, it is necessary to destroy ever greater tracts of native bushland, to abuse our topsoil and waterways, and to unsustainably dig up ever more of our finite endowment of mineral wealth.

Three and a half decades of extreme 'free market' economic policies have further compounded these problems. These policies hinder governments from making use of what economies of scale are possible. They prevent effective planning in the interests of all members of society. Obvious examples include the huge inefficiencies of the private property market and the shambolic state of Australian urban planning, a result of the dismantling of Whitlam's Department of Urban and Regional Development (DURD) by Prime Minister Malcolm Fraser in the late 1970's.

In some ways it may be the case that immigration does indeed enable the transfer of wealth into, as well as out, of Australia:

• The purchase of a home by wealthy or middle class immigrants as a means of buying Australian citizenship, which is effectively a transfer of wealth from the source country into Australia;
• The poaching of skilled workers, often trained at the expense of taxpayers of other countries, including of poor third world countries - a practice, for which the Queensland Bligh Government has become infamous;
• The selling of Australian university degrees and vocational training, which has notoriously become yet another means of purchasing Australian citizenship₁.

Little, if any of this wealth trickles down to ordinary Australians and whatever benefit they do gain is more than negated by the loss of previously available educational, training and employment opportunities, and consequent housing inflation (also discussed below). Even if it can be shown that Australia, as a whole, gains, rather than loses wealth through immigration, that wealth will most likely evaporate within this generation₂.

In any case, on a global scale such wealth transfer is a zero-sum game, at best.

All things considered, it seems far more likely that we are not only becoming more impoverished, but we are becoming even more impoverished than we might expect to be if we had simply divided the existing wealth amongst larger numbers of people!

In a perverse way, it seems to me that this may have actually made it harder, rather than easier, to argue the case against population growth and immigration.

Whilst I can't know for certain if this was true for others, I will try to summarise some of the ways that this fed into my own conscious and sub-conscious thought processes and caused me to avoid questioning our high immigration policies for many decades.

My own intuition caused me to conclude that, if, somehow, immigration made us worse off on the whole, it would surely be harder, rather than easier, for any group to gain from immigration. Therefore, when faced with the strident assertions from all the seemingly credible authorities that immigration was economically beneficial, I found it easier to deny my own gut instincts and not to make the considerable investment of emotion and time necessary to question this pervasive message. Instead, I just quietly hoped that the advocates of immigration, who promised me a more prosperous, vibrant, interesting and sophisticated society, were right.

Alternatively, on occasions when the economic arguments did not seem to quite ring true to me, then the only other likely plausible motive would have been an underlying altruism of an enlightened elite more willing, than the ordinary, backward, redneck, xenophobic masses, to share the wealth of this country with others less fortunate than ourselves.

However, the conclusive evidence, after many decades of this social engineering, is that Australia has, instead, become a poorer and more dependant country as consequence and this has not been brought about because Australia's elites are self-sacrificing and altruistic.

Contrary to what I expected, a small group has, paradoxically, not lost, but rather gained from this chaos and suffering, at our expense. That group is the growth lobby. First identified and described in detail in Australia by Sheila Newman in "The Growth lobby and its absence" (2002) and Growth lobby thesis without appendices.[1], it is really a group of land speculators and landlords operating in an organised way on a corporate level.

Land speculators and landlords openly welcome the way that growing demand increases the price of vital resources over which they have acquired a monopoly. They profit from commodifying and then controlling access to resources and services which include water, land, power, housing, roads, food production and transport, which each one of us needs in order to live a dignified life, or even simply to live.

As one consequence, in Brisbane at the start of 2009, even previously well-off professionals are being impoverished by insatiably greedy landlords, who exploit these circumstances to increase rents at every possible opportunity. A surveyor, who lives near me (who acknowledges that his own work entails the destruction of bushland to build new housing developments to cope with population growth), told me how he was unable to travel back to Germany this year for his holidays, because of being personally affected by recent rent increases.

The growth lobby also includes property developers, financiers, building companies and suppliers of building materials. There are also others that gain from population growth through high immigration, such as immigration lawyers, employment agencies and cheapskate employers.

Whilst these activities may provide a facade of economic prosperity, none are capable of increasing the underlying ability of this society to provide for its own needs.

Queensland Premier Anna Bligh in April 2006, then Deputy Premier, ludicrously defended population growth on the grounds that it was necessary to keep people in the construction industry employed₃.

How could Premier Bligh, supposedly an intelligent person, have failed to ask herself the obvious question: How are those additional people then to be employed? Must we build yet more houses to keep them employed and import yet more people to Australia in order to provide a demand for those houses?

At some point such 'growth' has to end and Queenslanders must be able to find gainful employment by meeting the needs of other Queenslanders instead of

future inhabitants.

The longer Australians put off stabilising our population and establishing a steady state economy, the worse will be our circumstances.

But the growth lobby wants this situation to continue indefinitely. To ensure that the forced march to dystopia continues, the growth lobby pours funds into the coffers of Australia's major political parties, including Anna Bligh's Labor Party. It creates obligation and dependency in our political parties and governments. In turn, our governments endlessly facilitate the real-estate economy, in the face of every democratic objection, merely to keep themselves in Government.

If we are to hope for any kind of a decent future for ourselves and our children, these corrupt arrangements must be brought to an end and the power of the growth lobby must be broken.

The above article has been expanded upon the original version, published on 24 January - JS, 26 Jan 08

Republished on Eye on Immigration and Online Opinion (in a slightly abridged form) together with forum discussion.

See also: "Bligh Government tramples on community rights to impose over-development" of 11 Jun 08, "Redland City to pay with increased water charges for population growth" of 19 May 08, "More chickens of population growth come home to roost in Queensland" of 14 May 08, "About immigration" of 14 May 08, "Shared accommodation a necessity and no longer a choice for many in Brisbane" of 30 Apr 08, "How to end the Queensland economy's addiction to population growth?" of 26 Apr 08, "The Australian laments outcome of Queensland local government elections" of 30 Mar 08, "The Courier Mail beats the drum for more Queensland population growth" of 30 Mar 08, "Rent gouging threatens Brisbane inner city retail community" of 8 Mar 08,
Sheila Newman's 2002 Master's Thesis: "The Growth Lobby and its Absence : The Relationship between the Property Development and Housing Industries and Immigration Policy in Australia and France" downloadable from here.

Footnotes

[1] Sheila Newman's theory on the Growth Lobby: "The Growth Lobby and its Absence :The Relationship between the
Property Development and Housing Industries and Immigration Policy in Australia and France", Masters by Research, 2002: downloadable from here, in individual chapters plus five appendices and here, the whole main thesis. UPDATE: See also more recent publications including three books by Sheila Newman here. http://candobetter.net/node/1882

1. ↑ See ABC Radio National Background Briefing program "Paying to be permanent" of 17 Aug 08.

2. ↑ As Sheila Newman put in "Expanded Australia" in the June 2006 edition of the Sustainable Population Australia newsletter:

"For these unimaginative and exploitative reasons, we are losing access to bushland, water, good soil, beaches and pleasant lifestyle for everyone, in favour of an 'economy' built on land speculation, class division, middlemen, and with a complete absence of recognition that we are trashing the last great Pacific paradise in return for money that will evaporate within this generation, leaving us a poor and overpopulated island, similar to all the other Pacific islands that have become victims of colonisation since the 18th Century."

3. ↑ "Qld govt rejects population cap" in the Age of 22 April 2007. (A similar story was published in the Courier Mail around the same, but the URL is unknown.)

The letter below appeared in Brisbane's Courier Mail of Saturday 18 October.

As the rental crisis continues to push people and families into more difficult circumstances, I am not hearing any debate or talk about implementing a system in Australia similar to that in Europe to provide people on average incomes with long-term rental accommodation security.

I have friends in Europe who have rented their abodes for more than 10 years. They can plan ahead and raise their children knowing they will be able to go to the same school, have the same friends and live in the same neighbourhood.

This stability contributes to balanced, successful, adults and better communities in the longer term.

In Australia, we are subjected to six or twelve-monthly leases, two weeks' notice (without grounds, under a fixed term agreement), indeterminable increases each time a lease ends and lack of affordable and quality property.

There are many decent people who rent, yet we are treated as second-class citizens who can't be trusted; and children are raised in these environments.

I am an employed professional. I work part-time and raise a child on my own. Our rent recently increased by almost $100 a week (last year the increase was $50 a week). We have two weeks to decide what to do. Surely, as a society, we can do better than this.