Tackling Rent Extraction Could Reduce our Dependence on Economic Growth

To achieve an economy that provides ‘a good life for all within ecological limits’, we must take a systemic approach that acknowledges the injustices baked into current practices.

Jan Gottweiss via Unsplash

This blog post was written by Natalie Holmes, drawing on a journal article by Post Growth Fellow, Beth Stratford.

Ecological economics aspires to ‘a good life for all within ecological limits.’ In order to achieve this, many in the field have called for hard limits on resource use and emissions. The idea is that if we slow down now, we can do it in an intentional and less damaging way — compared to the disaster that will be wrought by environmental collapse in the future.

But as Beth Stratford warns in her 2020 article, The Threat of Rent Extraction in a Resource-constrained Future, self-imposed scarcity of the kind advocated by ecological economists could lead to higher prices and, in turn, an increased opportunity for extracting rents. Rents are incomes analogous to land rents in the sense that they are extracted through control over scarce or monopolized assets, rather than through labor or innovation. As scarcities increase, already wealthy and powerful individuals and corporations would likely seize this opportunity, and inequality would rise further.

Furthermore, Stratford warns that environmental protections, whilst essential, will reduce growth in output and lead to an increase in rent-seeking, including practices like ‘‘land and resource grabbing, intensified exploitation of workers, financial speculation, aggressive use of intellectual property and monopoly powers to block competition, and pressure to privatise public infrastructures and commons.” Indeed, this is already happening, with scarcity induced by things like the pandemic, the war in Ukraine, and environmental degradation.

That’s why reducing opportunities for rent extraction plays an essential role in the transition to an economy that provides a good life for all.

There has been relatively little attention devoted to the problem of rent-extraction among ecological economists. This may be because the project of tackling rentier power and rent-seeking is often advocated as a means to promote growth, and most ecological economists consider economic growth to be incompatible with environmental sustainability. But Stratford argues that it is wrong and dangerous to view rentiers as environmental saviours, just because rent extraction hampers growth. In fact, she argues, unless we tackle rent extraction policy makers will be forced to pursue growth to stave off distributional conflict and financial instability. Here are three ways that diffusing rent extraction could, in fact, reduce that dependence on economic growth.

1. Reducing rent extraction could help reduce and redistribute working hours

Increases in efficiency, such as automation and economies of scale, reduce the need for labor. In an economy that’s growing, this can be offset by people finding work elsewhere — new factories can open up producing new goods and services to soak up the spare labor; but in a post-growth economy, new job opportunities may be more limited. According to most ecological economists, the answer is that we share out the remaining work: everyone can simply work less. But this can only work if workers capture the benefits of productivity improvements in higher hourly wages. If rent extraction persists, rentiers will capture the benefits of productivity gains and workers will see their wages suppressed. In that scenario, reducing working hours would mean taking a pay cut, which few ordinary workers can afford to do. Even in situations where workers are not exploited in their job, such as in worker-owned cooperatives, they remain under pressure to work long hours due to demands from rentiers elsewhere in the economy. Diffusing rentier power, on the other hand, would allow productivity gains to be shared among workers and pave the way to reducing and redistributing working hours.

2. Closing opportunities for rent extraction could reduce poverty

Rent extraction tends to happen at the expense of the poorest — such as tenants, debtors, and families living in low-quality housing whose energy bills become unaffordable following privatization. Governments may want to address poverty but are usually unable or unwilling to challenge the power of rentiers — who are often society’s wealthiest individuals and corporations. So, as rentiers extract more and more wealth, the economy needs to grow so that there’s something left for everyone else. For politicians, growth offers a way to avoid the underlying problems — and to prevent an absolute decline in material living standards. But if rent extraction were reduced, poverty could be properly addressed through the redistribution of wealth.

3. Reducing rent extraction could help lower the chance of financial crisis

Debt-fuelled rent-seeking is a key cause of financial crises. “When a bank creates a loan it creates new money, adding to aggregate purchasing power. When this expanded purchasing power fuels a bidding war for existing assets, such as houses, the result tends to be asset price inflation,” explains Stratford. This process can spark a feedback loop: house prices rise, banks feel confident about granting easy mortgages, borrowers feel confident borrowing, prices rise further, houses become increasingly attractive to investors, demand from investors grows, prices rise further, and so on . However, such a feedback loop is built on shaky foundations and can easily slip into reverse with the slightest drop in confidence from banks or investors. “These reversible feedback loops explain the strong empirical link between rapid credit creation (particularly for real estate) and the onset of financial crisis,” Stratford writes. When the bubble bursts, we are left with a mountain of debt, which is very difficult to pay down without growth. And as we have seen since the global financial crash of 2008, and in previous historical examples such as the Great Depression of the 1930s, these crises are followed by significant losses in wellbeing. So reducing opportunities for debt-fuelled rent extraction could lower the risk of such boom-and-bust cycles and contribute to ecological economists’ goal of delivering wellbeing for all.

While these three examples show the potential benefits of reducing rent extraction in building an economy that delivers wellbeing for all within ecological limits, they also serve to highlight why governments and policy makers are, in the current system, likely to prioritize growth over resource caps meant to protect the environment. After all, who wants to let unemployment, poverty, and debt spiral out of control? This is exactly why it’s essential to close down opportunities for rent extraction at the same time as imposing resource caps. As Stratford summarizes, “It is the combination of pre-emptive environmental protections alongside checks on rentier power that will allow our economy to ‘go slower by design, not disaster.’”

Three things you can do right now

  1. Find out more in a report co-authored by Beth, entitled The UK’s Path to a Doughnut-Shaped Recovery, which outlines four strategies that would improve society’s resilience in the face of slowing growth and economic shocks. Dive deeper into this topic by reading Rentier Capitalism: Who Owns the Economy, and Who Pays for It? by Brett Christophers.
  2. Help promote this article by sharing these posts on Twitter, Facebook, LinkedIn, and Instagram. Sign up here for email alerts when articles like this are shared on social media.
  3. Support local organizations that promote the reduction of rent extraction, such as debt relief, tenants rights, free energy entitlements, better property taxation, and workers rights.

Find out more about the Post Growth Institute on our website.

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Post Growth Institute

Post Growth Institute

Writing by team-members, guest contributors, and Fellows of the Post Growth Institute (PGI).