Wednesday 26 October 2016

Memo to TDs: capitalism is the greatest destroyer of poverty ever devised

Published 08/04/2016 | 02:30

Environment Minister Alan Kelly visits some modular homes in Ballymun – the Tipperary TD has struggled to fix the housing crisis. Photo: Gerry Mooney
Environment Minister Alan Kelly visits some modular homes in Ballymun – the Tipperary TD has struggled to fix the housing crisis. Photo: Gerry Mooney

Environment Minister Alan Kelly has suggested that the country is in need of yet another constitutional referendum, this time aimed at weakening the rights of property owners and therefore supposedly allowing the State to do more to alleviate the crises in the housing and rental sectors.

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The thinking behind the proposal is that property owners have too many rights. Among other things, this makes it too hard for the State to introduce strong rent controls.

This reminds me a bit of the sort of talk in the run-up to the children's rights referendum of 2012. We were told that the Constitution gave too much power to parents and made it almost impossible for the State to remove at-risk children from the family home.

When there was a child protection failure on the part of the State, social workers were always delighted to be able to say that the Constitution had impeded them in their work.

That was always a big stretch. At the time of the children's rights referendum, thousands of children were in State care and the Constitution did not stop this happening.

Now it is convenient to blame the Constitution for the failures by the Government to solve the housing crisis.

It could just as easily be said that the failure is really on the part of the State. Builders have to pay so much in tax when they build a house that it is sometimes uneconomical for them to do so, and land zoning decisions often leave a lot to be desired. There is land that ought to be available for housing development but isn't, in the west of Dublin, for example.

Minister Kelly's attempt to pin the blame for the housing and rental situations on the Constitution was responded to by the Master of the High Court, Edmund Honohan.

As he rightly pointed out in a letter, the Constitution allows the State to balance the rights of property owners against the common good.

This, he suggests, would allow the State to compulsorily buy property from so-called 'vulture funds' for the price they paid for them and make them available to the public, if need be as social housing.

But he says rent controls might be seen as a form of expropriation of money from landlords if there was an already existing rent contract.

Mind you, the question arises, if the State decides that the 'vulture funds' cannot profit from their investments, then why should they invest at all?

And if they won't invest, and if the State can't or won't purchase property portfolios from Nama and the like in sufficient quantities, then who will do so, with the 'vulture funds' having been driven away?

At the end of the day, Mr Kelly's attack on property rights is a sub-set of a more general attack on free markets. In the free market, we can invest in, and dispose of property with minimum interference from the State.

We can do likewise with the goods and services we buy and sell, and likewise with our labour.

The free market (or 'neo-liberalism' to use the term favoured by its detractors) has taken a ferocious hammering since the fall of the Celtic Tiger.

That's understandable in one way. The property bubble, and the role of the banks in inflating that, are easily laid at the door of the free market even though a public spending bubble and bad government decisions generally are also very much part of the mix.

However, it is failure on the part of business rather than failure on the part of the State that has taken the lion's share of the blame since the crash. The proof of this is that there is huge pressure to increase public spending again despite the fact that it was over-inflated public spending that helped to land us in our economic mess.

Left-wing politicians believe in high public spending and a big role for the State as a matter of principle.

But politicians in general love to make promises - it is the currency they trade in - and the easiest promise to make is that they will spend more money to improve this or that public service.

Add to this promises to make Ireland a more 'equal' society rather than a freer one, and the political atmosphere is becoming very uncongenial for those who believe in free markets.

This means we are in grave danger of killing the goose that laid the golden egg because nothing in history has delivered more prosperity to more people than the free market and free trade.

In the lifetime of almost everyone reading this newspaper, hundreds of millions of people who were previously in absolute poverty have seen their standards of living improve enormously.

There have been huge, historically unprecedented increases in living standards in China, and to a lesser extent India, the two most populous countries in the world.

The number of people in East Asia who lived without even the basic requirements of life was 77pc in 1981, according to the World Bank, but by 2012, this had fallen to 14pc.

In South Asia (meaning mainly India), the drop hasn't been as spectacular but the number in absolute poverty has still declined substantially from 61pc to 39pc.

Nothing like this has ever been seen before in all human history. Decades of socialism left China in near ruins. Centralised planning had done the same in India.

Both of those countries have since liberalised their markets (China more than India) and the results have been staggering.

Critics will say that income inequality has increased. There are now Chinese and Indian billionaires. But would they rather a return to the levels of poverty that existed in the 1980s?

The way for both countries to further reduce poverty is by greater market liberalisation, not less.

For its part, Ireland only began to prosper when we liberalised our markets, slashed corporation tax, encouraged inward investment and become a fully-fledged trading nation on the world stage.

None of the increases in public spending would have been possible without this, and none will be possible in the future.

Ordinary voters will hopefully remember this and not be taken in by the crude, anti-free market rhetoric of many of our politicians, especially those on the populist left.

The irony is these 'champions of the poor', in their condemnations of capitalism, are actually condemning the greatest destroyer of poverty the world has ever known. This fact is totally lost on them.

Irish Independent

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