As the battle for our lives against the novel coronavirus pandemic rages, another battle is being ready to be fought: for the economy. It is not an exaggeration to say that that the second quarter of 2020 will see the most severe decline in global economic activity in the history of human civilization, and the question is whether we can come up with the right policies to ensure that the this does not deteriorate into another great recession or worse, another great depression.
For starters, let’s understand the scale of the carnage. Entire sectors of the economy like restaurants, hospitality, and travel have already collapsed. Entirely collapsed. The millions of workers that are now unemployed or which will be soon unemployed as a result of this will require a social safety net of epic proportions in order to survive the 3 or more months of lockdowns, with no guarantee that their jobs will still be there when the crisis is over. For countries that have pushed forward a comprehensive package of corporate lifelines and worker’s support (pay guarantees, moratorium on interest, utilities, mortgages, and rent, etc.), it is estimated that these may end up costing as much as 10% of GDP (maybe even more), putting further strains on national finances which in many cases have not yet recovered from the 2008-09 crisis. And for developing countries, with masses of informal workers and lack of social safety nets, the outlook could end up being as apocalyptic as the virus itself.
Tapping El Dorado
And yet there is one source of untapped resources that is seemingly going to yet again escape unscathed: wealth. In particularly, the wealth of the rentier class. What is the rentier class? It’s the class of individuals and institutions whose primary source of income is the rent derived from their assets, namely property. The rentier class is, by definition, unproductive, because property does not generate productive capital. There is no production of goods and no provision of services beyond managing the assets themselves. Whether by accident of history (the aristocracy and gentry of the UK owns 31% of all land) or by turning corporate profits into property-related investments (nowadays more lucrative in light of historically low interest rates), the rentier class exists for no other reason than to extract as much money from the productive sectors of the economy by providing a service (property) whose profitability rests on ensuring its scarcity.
Making matters worse is that the rentier class benefits most from the most vulnerable: non-homeowning individuals and small businesses who cannot afford to buy the premises where they operate. Anyone living in a large city like London or New York knows that rent is a huge expense; in London the average rent of a one-bedroom dwelling is equivalent to half the average income of the city’s residents. Adding to the cruelty is the fact that the harder it is to obtain home ownership, the more demand there is for renting which makes it more expensive still. For businesses overall, rent is a far smaller share of operational expenses and varies greatly by sector. However, it is still large enough to put a small business under water when sales dry out, especially since smaller businesses are unlikely to have massive cash piles to offset a major revenue shock.
It would therefore appear sensible to shift the burden of economic crisis financing to the rentier class since there is no other sector of the economy that has two of the most desirable features for such a thing: it’s non-productive and awash with assets. Which is why every economic crisis policy package should have measures such as cancellation of rent as a central component, along with more serious taxation and regulation of rentier activity in the longer run.
No pain, no gain
There’s another reason why the rentier class should bear a higher burden. The rentier class owns assets in order to manage income shocks. In fact, when it comes to welfare it is often assumed that owning assets means that one is undeserving of income support. For example,households with more than £16,000 in savings are not eligible for the UK’s new Universal Credit scheme, which is now the main source of welfare support. During an income shock, these financially prudent households (some of which, in the cruelest of ironies, may be saving up to by a home) are therefore being doubly punished, not only by the loss of income as a result of the crisis but also because their savings pot will be depleted to make up for these losses. With this logic it seems even more unfair that the rentier class, with all its assets, needs to be protected from an income shock while workers needing benefits are penalized; all the time they are labeled as lazy scroungers by the country’s vile right-wing tabloids and Tory politicians.
Of course, the rentier class is likely to do everything in its power to ensure it emerges with its profits unscathed, and that the cancellation of rent would likely cause them to go bankrupt. I doubt it. For starters, property that has already been paid in full incurs no loss to the owner from a cancellation of rent. Secondly, mortgaged property that is being rented out benefits from moratoriums on mortgage payments, which most countries have enacted as part of their pandemic emergency packages. Whatever rent is not paid during the moratorium will be made up because presumably most of these properties will continue to be rented until the end of the mortgage and probably beyond that. Thirdly, some rentiers such as individual landlords may claim that rent is their only source of income. In this case, they should be extended the same income support measures that the rest of the population gets, no more, no less. For larger landlords and commercial property companies, the government could offer loans. With their properties as collateral, of course.
Is all of this too harsh? Well, if political elites claim that “we’re all in this together” and that a crisis like this demands unprecedented sacrifice, then the sacrifice should be proportional the means. And few groups have more means without any corresponding contribution to society than the rentier class, who are nothing more than the effluent of economic systems that permit profit from the deliberate creation of scarcity. Unfortunately it’s highly unlikely that they’ll pay any major price for the pandemic and the resulting economic crisis. Because while free market fascists and liberal centrist cronies continue running the world economy, workers will always be the sacrificial lambs in the altar of capitalism.
But a boy can dream than the rentier class won’t always win.