Creative capitalism, comma, housing crisis

Creative capitalism, the spawn (or, rather, the latest, known, publicised articulation of which is the spawn) of Bill Gates.

As I see it, there are two great forces of human nature: self-interest, and caring for others. Capitalism harnesses self-interest in helpful and sustainable ways, but only on behalf of those who can pay. Philanthropy and government aid channel our caring for those who can’t pay, but the resources run out before they meet the need. But to provide rapid improvement for the poor we need a system that draws in innovators and businesses in a far better way than we do today.

Such a system would have a twin mission: making profits and also improving lives for those who don’t fully benefit from market forces. To make the system sustainable, we need to use profit incentives whenever we can.

At the same time, profits are not always possible when business tries to serve the very poor. In such cases, there needs to be another market-based incentive—and that incentive is recognition. Recognition enhances a company’s reputation and appeals to customers; above all, it attracts good people to the organization. As such, recognition triggers a market-based reward for good behavior. In markets where profits are not possible, recognition is a proxy; where profits are possible, recognition is an added incentive.

The challenge is to design a system where market incentives, including profits and recognition, drive the change.

I like to call this new system creative capitalism—an approach where governments, businesses, and nonprofits work together to stretch the reach of market forces so that more people can make a profit, or gain recognition, doing work that eases the world’s inequities.

Aquila non capit muscas, indeed. And so, creative capitalism. The market will not deliver kindnesses to us, yet government intervention to force kindness into a market is inefficient. Government, however, is corrupt: it plays favourites, it exercises prejudice. Why not beautify this congenital disorder politic by bending it to the purpose of favouring kindnesses?

Some say Gates is dead on; some say he’s dead wrong (we all can agree that he is, however, alive).

This isn’t new – the speech was delivered, and widely reported upon, quite a while ago. It bounced back into the selective attention switches of my frontal lobe with this story in today’s Sydney Morning Herald:

Homeless by default, through no fault of their own

On Monday Mr Osman, his wife Hannan Mohieldin, and their six children, aged five to 18, will be on the streets. The Sheriff of NSW is due to enforce the court order that requires the family to leave the house they have rented in Wentworthville for the past year.

Mr Osman’s landlord has defaulted on a mortgage to Perpetual Trustees Victoria Ltd, and now the company wants the property, free of tenants, in order to sell it.

It has given Mr Osman’s family two extensions since a first notice to leave at the end of November. But now, according to the Notice to Vacate from the sheriff’s office, the family’s luck will run out on February 11 at 11.45am.

“To find a big house for my family has been very hard,” said Mr Osman, a Sudanese refugee who arrived in Australia two years ago. “We have applied for many properties at many real estate agents but we have not succeeded. I am an innocent party in the mortgage problems.”

Mr. Osman is, not surprisingly, one of many, and one of many that are growing to many more. I would not be surprised (and, in fact, would be very interested) to see a modern-day Bonus Army marching on city council chambers. But back to the story. What set this off was this comment:

The principal legal officer at the Tenants Union of NSW, Grant Arbuthnot, said the root of the problem was a lack of affordable private housing and a scarcity of public housing.

“I am aware that Perpetual Trustees responded well to requests for more time but now they are going to enforce the court order they have obtained,” he said. “I would like Perpetual Trustees to help them further.”

He would like Perpetual Trustees to help them further. For Cliff’s sake, I would like Perpetual Trustees to help them further; you like Perpetual Trustees to help them further. That’s hardly going to help. Perpetual Trustees has no reason to help them further, but every reason to reclaim their foreclosed property. They aren’t landlords: they don’t rent out houses.

Why creative capitalism, here? Why can’t the State government just expand public housing? Because that is exactly the limit of Grant Arbuthnot’s sympathy – imposition by the state on Perpetual Trustees would mean buying that house and making it public. Why not?

First, it is inefficient – that’s why we have private housing markets. For the government to explicitly, and more or less permanently, expand public housing, would be to constrict private housing. It would just make things that much worse for the rest of us (sorry, them) – and more and more families would become “in need” of public housing. The cycle would be off and running, and the government would never get back to their starting-point (alive).

Second, it would be a political headache that no government would invite. So far the market is rationing housing according to price (more or less). The government rations housing by other criteria. Now: suppose the State government buys up this house. So it has a house, with a family in it. However, there are probably families already worse off – so Mr. Osman’s family is removed anyway.

Second, part 2: society-wide, there is always greater demand for than supply of public housing. Mr. Osman is a Sudanese refugee. I don’t need to email my parents and grandparents for their perspective on this one: Australian families first. That is a very ugly side of social welfare functions, but it is no less true in Australia than anywhere else on earth (England, for example).

The equity/efficiency trade-off is a lose-lose scenario, here: the government will not, cannot manage this efficiently, and it cannot hope to do it equitably because a politically stable (expedient, convenient, etc.) standard for “equity” will not be found in this case.

So, yeah, I think Gates’ “creative capitalism” has a lot going for it. Maybe. Without heavying the market, the government can, possibly, find some leverage within its own favourites-playing to offer Perpetual Trustees a quid pro quo. Do we want them to? I don’t know. It’d depend upon the deal offered, I guess. How “creative” our capitalism gets – that’s the dangerous part.

And here’s the part where Economics is the dismal science: all of this still leaves Mr. Osman and his family without a home. In the famous words of the Dillinger Four,

Thousands of us dead today, thousands went unfed today
And all we talk about’s the fucking weather

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