#Herecomesthesun: The Greens Solar Home project

Firstly, there is some magic in using a Beatles song as a hashtag to promote your policy on solar energy. On one hand, it will resonate with the diehard Green voter given that its a criticism of corporate life. On the other hand, one can’t help but smile when listening along given its folky beat. And its The Beatles, well, more correctly George Harrison. Maybe its just me, I don’t know. But I think that its use is some political psychology gold.

Secondly, the Greens Solar Home project is the kind of radical policy that the Greens need to reinvigorate their voting constituency. Its a bold move amid their neolibral-lite policies, to encourage consumers to ‘take the power back’. Another pun from a band also likely to resonate with the diehard Green voter and anti-state renegades. But pertinent since it implies that the consumer has the power both in terms of their energy source (no more bills to Mr Deep-pockets) and their choice on how best to manage their energy needs (self-determination).

BUT there is a ‘but’ when considering the specifics of this policy and I’m hoping my critique doesn’t minimise the clout of the overall message.

The thing about political parties is that they seem to abhor revision. In the face of criticism, parties often dig in their heels – even if that means advocating bad policy. I hope the Greens can internalise the feedback from Green voters and even non-Green voters and use it to show that they are open to revision where necessary, which is in itself conducive to participatory democracy, and in line with the underlying message of solar project – self-determination.

For ease of reference the Greens policy document can be located here.

In it you will see, that the Greens offer low interest loans to homeowners to install solar panels. The repayments are made through the homeowners council rates. That is, the loan is to be repaid at $900 per year on top of their rates. The interest on the loans is said to be about 4.1% p.a, although this interest figure is subject to change.

The Greens envision a savings of $100 per year for homeowners. Given interest must also be paid on that loan per year, its unclear if the Greens will require the interest on top of the $900 repayment, in which case, the savings figure of $100 is false. Or if the interest is included in the $900 per year, which means the term of the loan is longer.

Some argue that at least the repayments aren’t going to a foreign-owned company. But the loans are made through a foreign bank and provided to the consumer via the government. So in effect, the repayments go to the worst of them all. The Bankers.

What about the effect on homeowners? Its true that some homeowners will benefit from solar power, particularly those who live in the homes they own. Depending on social preferences, house prices may rise if solar is viewed as an improvement to the property. Which is fine for those who tenant their won properties.

What about the renters? landlords may decide to install solar to improve the value of their properties. The effect, is likely to see the rent increase for two reasons: the market rate for solar homes will increase if there is demand for solar powered homes, and the landlord will need to repay the loan for the installation of the solar panels. So for low income renters, this may be a negative, since renting can already place a large burden on those individuals or families. If landlords are prevented from passing on the costs of the loan to install solar, then fewer rental properties will have solar, which affects a large proportion of the lower socio-economic demographic who are the people who need access to soalr the most. Also, it diminishes the purpose of the Greens policy.

Also, the idea that excess power generated could provide a return to the homeowner is a bit disingenuous. If the uptake is significant then power prices will fall. This means that the price at which you can sell your excess power is probably negligible. In addition, the Greens NZ Power policy, intends to drive down the price of power!

This article by  George Monbiot  (h/t to @gtiso) suggests that solar panel installation ‘is the ideal modern status symbol, which signifies both wealth and moral superiority’ [in the middle class], ‘even if it’s perfectly useless’. The suggestion is that the policy either intentionally or inadvertently operates as a wealth transfer to the middle class. Similar could be said of the Greens policy.

What about disposal? It was pointed out that solar panels are difficult to dispose of because they contain toxic materials. Solar panels are estimated to have a life span of about 25 years. The policy is unclear on how the Greens intend to dispose of the panels at the end of their life spans. If they will create landfills in NZ, then there are additional costs involved in setting up a land fill for this purpose, not to mention issues with dumping toxic materials into NZ soils. The alternative is to export the waste material and have some other community deal with the effects of solar panel pollution. Admittedly, I’m not very clued up on how to dispose of toxic materials or the extent of the toxicity in solar panels, so this worry of mine could be completely unfounded.

So I have outlined my gripes, so let me just reiterate that I wholeheartedly support initiatives to address climate change and moves towards decentralisation and clean energy. So  one way I see for improving the policy is implementing the combination of LVT and UBI (see my post on the benefits of UBI here).

LVT as mentioned multiple times in previous posts, brings land (broadly defined to include all natural phenomena not produced through human exertion) into common ownership – distinct from collective or private ownership. The economic rent collected is pooled and can be redistributed via a UBI. Income taxes are abolished (or significantly reduced during the transition) giving workers and non-workers (due to UBI) the ability to invest in their choice of clean energy (if that’s what they desire).  It might even be that communities decide to reduce the UBI for each person and use the remaining amount to invest in infrastructure and clean energy. Who knows. But that is self-determination. It extends this policy and makes it fair for all.

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Reviving Georgism: George was a root hacker not a branch wriggler

Universal Basic Income vs Minimum/Living Wage

Bryce Edwards compiled a round-up of the inequality debates regarding NZ’s 2014 Election. I suppose, whether the motivation to focus on inequality is well-intentioned or a vote grabbing exercise is yet to be determined.

My issue with the inequality debate is that it is most often framed in terms of whether we should (a) increase the minimum wage, (b) legislate for a living wage, or (c) target assistance through wages subsidies like Working for Families. Not really root hacking stuff.

The presumption from those advocating increasing the minimum wage or having a living wage is that it will improve outcomes for the working poor.

Minimum or Living wage (MLW)[1] proponents also tend to argue that it is unfair that government subsidises businesses through the various welfare packages made available to low-income earners absolving businesses of the responsibility to pay fair wages to its workers.

In fact, I have made this argument myself and while I have revised my views on MLW strategies, I do think it has some merit. But whether MLW strategies address the issue of economic inequality is a different story.  In my view, part of the remedy to overcoming economic inequality is to implement a Universal Basic Income (UBI).[2]

I have posted this particular piece in my Reviving Georgism series because like many Georgists,[3] I think UBI and Land Value Tax (or land rent, land fees etc) are complementary policies for tackling inequality.

I do not necessarily oppose a MLW, in fact, a living wage is precisely what I advocate. I’m just not convinced that state regulating private enterprise to pay a particular minimum amount will necessarily have the effects intended. I think that UBI is a better goal because it benefits all society, not just one group, i.e. low skilled, low-income ‘workers’.

I also think we overlook that a MLW is a legal privilege that favours business and is therefore out of step with the objectives of the Unions and campaigns who typically lobby for MLW. I set out my argument below.

MLW as legal privilege

A MLW is a legal privilege weighted in favour of business because it removes the negotiating power of the worker to obtain a higher wage. It does this by legally entitling businesses to pay workers less (the minimum) than they might otherwise be willing to pay. Moreover, businesses are likely to choose to pay the legal minimum required simply because the law says they can.

Robert J Murphy adds another dimension where he argues that:

“Raising the minimum wage might represent a drastic harm to the most vulnerable and desperate workers…What could happen is that the higher wage would attract new workers into the labor pool, allowing firms to become pickier and, thus, to overlook the least-productive workers, who would remain unemployed or lose their jobs to more-highly-skilled workers”

I agree that MLW increases could represent a harm to low-income earners and I think that Murphy’s point reinforces my argument about privileging business. Additionally, MLW strategies might attract those who are unemployed but looking for work, to take on low skilled jobs in the interim, thereby potentially increasing unemployment for low skilled workers – an unintended consequence.

I’m not ignoring the fact that in non-minimum wage societies businesses can (and do) exploit workers.  My criticism is not that MLW strategies are inherently bad for all workers, indeed they probably do have some positive short-term effects for some but as Fred Foldvary points out [Henry] George would argue that minimum wage simply treats the effects [of poverty] not the symptoms, and that it distracts and appeases to avoid confronting the remedy.

Wages increase when rent decreases

George argues that ‘the line of rent is the necessary measure of the line of wages’.[4] He thinks that under free conditions, no-one would work for someone else if they could make the same amount working for themselves.[5] He argues its only when land is monopolised that individuals are forced to compete for work.[6]

George’s theory argues that wages are determined by what is left after rent is taken out.[7] Rent being that which is paid for using land.[8] He further argues that:[9]

“No matter how much they might actually produce, they receive only what they could get on land available without rent—on the least productive land in use. Landowners take everything else. Hence, no matter how much productive power increases, neither wages nor interest can rise if the increase in rent keeps pace with it”

He also proposes that:[10]

“Where land is subject to ownership and rent arises, wages will be fixed by what labor could secure from the highest natural opportunities open to it without paying rent (i.e., the margin of production). Where all natural opportunities are monopolized, wages may be forced by competition among laborers to the minimum at which they will consent to reproduce. Clearly, the margin cannot fall below the point of survival”

At first glance, this quote seems to support having a MLW, but in context George would say MLW is not conducive to solving inequality – it simply ‘appeases’ the workers to avoid dealing with the free lunch income enjoyed by land owners at the expense of workers who are forced to compete for a minimum wage. Noting, a minimum wage could never be lower than the margin or landowners would risk an uprising that could threaten their privilege. So even without a MLW setting, landowners will always have a minimum at which they can charge rent, and businesses would have a minimum at which workers would consent to work or they risk workplace strikes.

On this basis, I think a MLW plays right into the hands of the landowners and businesses to the detriment of the most vulnerable members of our society because it provides a sense of certainty around rents i.e. a MLW provides a legally specified minimum wage that must be paid to workers (by businesses)  on which land owners can base their rents.

Importantly, as Nate Blair points out minimum wages in the long-run can only shift economic rent to different locations or decrease aggregate wages. And while a minimum wage can benefit labour in the short-run, including labourers who also happen to be landlords,  the long term impact on real wages is negligible.

Arguably, UBI is no different than MLW because it too provides everyone with a specified minimum amount of income. However, this is why I think in order for UBI to be effective it must be accompanied by a LVT and because it focuses on long term outcomes.

Another benefit of UBI is that it provides a mechanism for recognising and rewarding our currently economically invisible members i.e. those who carry out valuable but unpaid work such as stay at home parents, or volunteers.

The UBI and LVT combination also provides a foundation for setting up a participatory democracy framework which would enable individuals to voluntarily take part in public decision-making forums (e.g. multi-body sortition etc) without the stress of having no income. But that is a discussion for another post.

To conclude, if the politicians aren’t going to address the root of inequality by looking at tax evolution and a UBI, then we deserve an answer as to why. This is what I believe we ought to challenge our politicians on this year to determine if their policies are simply vote grabbing or genuine. How we decide the amount, or the age, or the frequency at which individuals receive a UBI (or the rate or measure for determining LVT) is beyond the scope of this particular post but I think what we should be focusing on (as the title of this post suggests), is hacking at the roots instead of simply wriggling the branches of the failed system we have inherited.

UPDATE:

Its been brought to my attention that I have probably been a bit presumptuous in assuming that readers would take into account the current wage subsidies and welfare packages already available in NZ.

Its important because this is the context within which I base my argument. Here are a few sites to help get your head around NZ minimum wage and the government transfers available:

In NZ there are two predominant broad views about how to improve poverty. The first broadly subscribes to the Scandinavian model – progressive taxation and increasing the top marginal rate to increase revenue to provide free core public services. Critics of the welfare system and of those advocating for a Scandinavian model in NZ argue that welfare creates dependency and this dependency causes the poverty and wage gaps we see in our country.  The critics are the second group who typically subscribe to the neoliberal model – lower taxes, privatisation, user pays services, the free market. Scandinavian model advocates usually argue that if the wealthy paid more taxes on their productive incomes that we could afford to provide core public services to those most in need.

There is a strong tension between these two groups. As a relatively recent subscriber to Georgism, I think that both models are flawed because unlike Georgism, they ignore the role that speculative behaviour plays in creating inequalities.

In this post, I tried to clarify that I didn’t think a MLW was inherently bad, just that UBI with LVT was better overall.

The reason most often cited for pursuing a MW is ‘fair pay for a fair days work’ and I agree with the sentiment. However, I don’t think ‘fair pay’ and ‘minimum wage’ are the same, but this is how MW proponents often frame their arguments.

In fact, MW’s often aren’t ‘fair’ for the work carried out. If they were then government transfers i.e wage subsidies wouldn’t be necessary. No matter how little a worker is paid by their employer, the wage subsidies supplement those incomes enough so that supplemented income makes working more attractive than just receiving jobseeker support (a welfare payment).

So if we had no MW (in NZ), and some workers were to receive less from an employer than they might currently get those low-income earners would have their incomes supplemented by wage subsidies.

Additionally, no business could pay below the maximum someone could get on welfare because most workers would choose not to work for less than what they could get for not working. This would apply in any country who has a welfare system. In effect, even if there was no legally specified MW there is actually already a minimum in place i.e. more than a worker could receive as their maximum on welfare. Admittedly, in NZ this rate would probably change depending on the region a person lives, because the accommodation supplement is location based.

Aside from the arguments set out in this post, MW also has the effect of forcing workers to compete for jobs, which gives business the upper hand to choose the person willing to accept the least amount in wages i.e. the minimum legal amount.

I reiterate, I don’t disagree that MW’s can have short term benefits. However, I think that focusing on MLW prolongs getting to the real remedy because it appeases workers, which means the more vulnerable members of our society – those who are unable to work for whatever reason, only receive welfare payments, which are necessarily less than those who earn any productive wage with additional government transfers (wage subsidies). A UBI and LVT combo would iron out this inequality and ensure even those who were unable to work had access to a living wage, not a bare minimum.


[1] For ease of reference, I use MLW to include those who advocate:

  1. a minimum wage; and or
  2. increasing the minimum wage; and or
  3. a living wage.

[2] Others refer to this is Guaranteed Minimum Income or Guaranteed Basic Income.

[3] I have resolved to use the term ‘Georgism’ (as the title of each post suggests) to reinvigorate interest in Henry George’s economic theory. However, in doing so I think I may have inadvertently neglected the preferences of some who prefer ‘Geoism’ and others who reject describing themselves under an ‘-ism’, such as Martin Adam’s who writes at Land, A Humaniteer Project. Adam’s proposes that while Henry George’s economic theory is traditionally understood as Georgism, a more accurate term is ‘Geoism’ because it ‘contains the prefix Geo, from the Greek word γαια, meaning ground or earth’ and because George’s philosophy advocates the sharing of nature. Please note that I use the term ‘Georgism’ broadly to include any persons who share in advocating the fundamentals of George’s economic theory.

[4] Henry George and B. Drake (ed.) Progress and Poverty (2006, Robert Schalkenbach Foundation, New York) available online: http://www.henrygeorge.org/pdfs/PandP_Drake.pdf  at 117.

[5] Ibid at 116.

[6] Ibid.

[7] Ibid at 93.

[8] Ibid at 89.

[9] Ibid at 93.

[10] Ibid at 116.

Credit for the title of this post belongs to Adam John Monroe

Thanks to all those in the LVT Facebook group that helped me get my head around this and directed me to relevant chapters!