UNDERSTANDING ECONOMICS: The looming threat of further privatization 

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Last week, while the Canada Post lockout of postal workers was ending, it was announced that Britain’s Royal Mail was to be sold to a Czech billionaire for over three and a half billion pounds. Donald Trump, meanwhile, is considering privatizing the United States Postal Service in response to its ongoing financial struggles. Where is this push for privatization coming from? 

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While the privatization of public services is usually presented by governments as necessary to improve efficiency and improve public finances, it is essential to understand that the desire of private capital to buy public services is much greater than the need for governments to sell them. 

To understand why this is the case, you only need to understand the dynamic by which the rich get richer while the poor stay poor. Once anyone earns more than they need to pay their expenses and begins to save and invest, their wealth will tend to grow. As invested savings generate income, while some of that extra income may be spent, the remainder will need to be invested as well. As a person’s investments and investment income grow, at some point it becomes a challenge to find new places to invest one’s growing cash pile. 

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“…the end goal is for the rich, aided by asset management companies like Blackrock and Vanguard, to collect all of our household income. We will pay them fees and rents directly and, while we will continue to pay our taxes to the government, if they can privatize public services, that tax money will eventually flow to them as well.”

As the economist Gary Stevenson has pointed out, Rishi Sunak (the ex-Prime Minister of the United Kingdom) and his heiress wife have a net worth in the neighborhood of $800 million. If they earn even a four per cent return on that sum, their annual income is $32 million. Are they going to spend $32 million every year? Could you spend $32 million every year? 

Of course not, which means that, every year, after spending maybe $5 or $10 million, they are looking to invest at least a further $22 million. 

However, what can the rich buy with their growing piles of investable savings? As the assets owned by their fellow plutocrats continue to spin off cash, there is no need for the rich to sell their assets to one another to raise money. This, then, leaves only two targets for the surplus cash of the rich – the assets of the middle class and of the government.  

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Looking at the middle class first, the housing affordability crisis is a direct consequence of wealthy investors moving into residential real estate after 2000. While previously reluctant to do so for social and political reasons, in the wake of the dot-com bubble bursting, and with interest rates on financial assets like government bonds pushed down to near-zero, many felt forced to look into an asset class (residential real estate) that offered steady cash flow (in the form of rents) as well as capital appreciation (in the form of rising prices). 

Of course, as more and more money moved into real estate, so too did prices move ever higher, which further whetted the rich’s appetite for residential real estate. The result of this cycle of 1) increased investment into real estate 2) pushing up returns and 3) attracting more money to real estate, etc. has been our affordable housing crisis.  

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Government assets are similarly attractive. Services like the post, health care and education offer steady returns (in the form of government subsidies or direct fees) as they are needs, not wants. And if they are essential services, so much the better, as then it is likely that the government will be the one paying the bills, which simplifies administration.  

As the academic Brett Christophers explained in an excellent interview with Aaron Bastani on Novara Media entitled “The plan is to privatize EVERYTHING. Here’s how.”, the end goal is for the rich, aided by asset management companies like Blackrock and Vanguard, to collect all of our household income. We will pay them fees and rents directly and, while we will continue to pay our taxes to the government, if they can privatize public services, that tax money will eventually flow to them as well.  

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That’s their goal. Our goal therefore must be to do everything in our power to make sure that this trend towards privatization is not just halted but reversed. As the fuel driving the privatization process is the growing wealth of the rich, the solution is obvious – confiscatory income and wealth tax rates of the sort that existed in the period after the Second World War to reduce their wealth (and thus the degree of wealth inequality) to historically normal levels.  

Interesting sources (if you are interested in learning more): 

1. Novara Media interview with Brett Christophers: https://www.youtube.com/watch?v=0jxL9Cktsao  

1. Gary Stevenson on “The Asset Economy”: The Asset Economy 

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