That is what is anchored in the Basic Law. A democratic community that is sovereign has the right to carry out such structural changes.
Hello and welcome to a new video here at Surplus. My name is Lukas Scholle, I am the founder and editor-in-chief of Surplus, and I spoke with Adam Tooze about socialization, because the socialization of housing corporations is a big topic in Berlin, as a different government in Berlin might soon expand its economic policy toolkit to allow the state to buy back apartments from large private corporations at a discount and take them into permanent state ownership, thereby influencing rent prices, housing quality, and so on. Socialization is just one instrument to ease the housing market. In the current issue of Surplus, we also looked at the other instruments and how we got into this terrible situation where rents are barely enough to live on. The current issue, with articles by Tom Krebs, by Adam, and others, you can order as a trial subscription for just 1 euro via the link in the video description. But now, enjoy the video with Adam about the topic of socialization.
Hi Adam, in our last issue of Surplus about the topic of housing, there were several exciting articles, and one in particular is worth discussing because it's already a small milestone in German economic policy. The economics professor Tom Krebs spoke out in favor of the socialization of Deutsche Wohnen & Co. And Tom Krebs is not just any economics professor, but from the University of Mannheim, a very prestigious economics university, and not at all left-wing Marxist as one might think, but rather relatively New Keynesian in orientation and close to the mainstream. And that's why it's particularly exciting that an established economist, an economics professor, speaks out in favor of socialization, and does so not with Marxist arguments, but rather with macroeconomic arguments that the advantages outweigh the disadvantages, for example in demand effects when people then have more money in their pockets to consume, instead of, so to speak, transferring it to shareholders, or that there are better labor market opportunities. And that's why the question to you is, how do you look at the question of socialization and this shift in German economics, where now the first person is speaking out in favor of socialization?
Yes, I mean, personally, I find a mixed economy in housing construction to be sensible and, frankly, not at all controversial in the sense that, it may be that the German economic policy discussion is so biased that this reality is not perceived, but in cities like New York, London, Singapore, a considerable part of the housing stock is in public ownership, and that is also de facto the case in Berlin at the moment. It could be larger, but a part of it is in the public sector, and that has a profound logic from an economic policy perspective. I don't find it controversial at all in the sense that a part of an actively intervening social policy is being realized, which also doesn't necessarily have to be particularly controversial overall. You could, of course, also do it through housing benefits and housing vouchers, but thereby you absolve yourself of a responsibility and also the means of political influence to directly affect housing construction. And from the other perspective, perhaps more microeconomic now than macroeconomic, externalities arise from the bundling of living spaces and jobs. That means, you create community, community, which is what everyone wishes for, what is advertised and offered in every brochure for every real estate company in the whole world, and for which a surcharge is then also demanded. And there is actually no reason why these additional advantages, this surplus, this excess that is generated by the human concentration of activities, of leisure and work, should benefit private real estate owners and not the community, the public hand. And those are, I think, the compelling arguments for a mixed economy in housing policy, not a purely state-owned and not a purely private one, which for a city like Berlin, where there are very many middle and lower incomes, basically pre-programmed asocial results anyway. It's not just the state and private, because private also actually includes the cooperative sector, which is also relatively strong in Berlin. And Tom Krebs makes the exciting argument that the state of Vienna, which is often called a housing policy stronghold or a social democratic showcase in terms of rent policy, that this state, I believe 50% is in state ownership and in Berlin 20%, that this increase from 20 to 50% cannot be achieved through new construction, of course, because where should all that be built? But rather, socialization in this sense increases the public share so much, and it's also the only instrument that can increase this share so much, that it's already interesting that this instrument is now becoming more popular, even though it has never been applied in Germany before.
Let's look back a bit, because land reforms are actually nothing spectacular. Well, Deutsche Boden also starts with the land. It's of course a lot about the apartments on the land, but you are actually a historian by profession. Can you explain what land reforms have been about historically? Is that currently the case in capitalism, or rather in pre- or post-capitalist, not post-capitalist, but so to speak, non-capitalist systems? Or how do you look at it?
What one must first get rid of is the ideologically entrenched notion of property, that property is somehow sacred, and there is no system that questions this more fundamentally than capitalism itself. That means, the most radical changes in property relations are brought about by capitalism itself, constantly through competition, through what Schumpeter called creative destruction, through the constant rise and fall of values, the displacement of existing institutions and arrangements, and this whole sanctification of property, its legal entrenchment, is really an ideological gloss on a system that does not in any way truly recognize these property rights. That is first of all the basis for a reasonable discussion. If you have lived in a truly dynamic state like New York, for example, you cannot assume from week to week that your favorite shop in the neighborhood or even a building somewhere is still there when you return home after three or four months in the summer. That means, that is first of all the basis, and then there are, of course, beyond that, and this dynamic is reinforced by possibilities of state intervention, and they are, for the history of capitalism in the long run, absolutely formative, and above all, it was about the expropriation not of aristocratic property, but of church property, which in the early modern period with the Protestant Reformation, that is in the 16th and 17th centuries, and then with the French Revolution, where aristocratic property was also included, is fundamentally important for the formation of the bourgeois system, what one could call a primitive appropriation, and indeed through state means. And we are not even talking about, you know, the appropriation of land in the colonies and the imperial history. And from the late 19th century, it was actually established among all reasonably far-sighted reformers of capitalism itself that the question of whether a property order should be perpetuated or put up for disposition must always be on the table. And you can see that, for example, in Ireland in the British Empire in the late 19th century. You can see it after the First World War with the attempts to curb the Bolshevik Revolution. And after the Second World War, it was actually a settled matter among bourgeois social scientists that both fascism and communism were children of a resentment-laden petty bourgeoisie and especially of a rural population. And to respond to that and to preempt it, one should also include a land reform in a sensible policy of reform. And this policy was even applied in Japan. And believe it or not, in the founding of the Federal Republic of Germany in the late 40s, that was also exactly what was planned. That means, there was supposed to be a major land reform. But that was then blocked by conservative interests within the framework of the Cold War in the Federal Republic, just as it was largely in Italy at the same time. But the legal tools are not in vain inscribed in the Basic Law, and indeed in two forms that are now also up for debate. That means Article 14 and Article 15. Article 14 relates more to specific private property that has to be appropriated for public projects or IP, so to speak, as an emergency measure, as a sovereign decision of the state. And it is also assumed that in such cases full compensation, that is, full compensation at market prices, should actually be possible, because it is not about changing the parameters, but about a single property, a real estate, a company, a specific patent or whatever that is to be appropriated by the state. Article 15 is much more fundamental, because with it the topic of socialization has really been inscribed into the German constitution, where the intention is very clear that the fundamental structural aspects of the political economy must be up for debate. That means, for a sovereign democracy, it must be possible to intervene comprehensively, that is, in structurally determining parts of the wealth structure of property.
Constitutional lawyers are also quite agreed that full compensation cannot really be up for debate. And it is significant that this article has never been applied in the history of the Federal Republic. And that is, so to speak, the legal novelty that is currently being discussed for the first time in a realistic sense in the debates in Berlin, how one could do that, to bring about a fundamental reorganization here, at least in a part of the housing market.
Yes, that is definitely one of the defining debates now in the formation of the government in Berlin, which might be coming up soon. And yes, the federal government is also trying to put a stop to it and a ban on socialization, not in the sense of a ban on the Basic Law, but through a jurisdictional trick, that there is a federal law and then no state law can be passed. Let's see how far that will go. Now, at the same time, there are of course a lot of myths being spread, especially from a liberal perspective, that there will then be no more investors who build new housing, where Vonovia itself, for example, hardly builds new, but also of course that financial markets will be unsettled by this, and so on. And where Vonovia is now in many respects a special company, through the sector, but also through the ownership structure, which of course now, because there are no other socializations, is being talked about, also RWE or Rheinmetall, those would of course also be interesting economic cases, but far less likely than now with Vonovia. And with Vonovia, the largest, the second largest individual shareholder of Vonovia is BlackRock, and that is of course then also another component that certainly complicates things when a DAX company is socialized, or rather the apartments, and then international investors lose their assets. How do you look at that?
Yes, it's a really interesting case study for discussions about property and political economy overall, because what is being proposed in the Berlin case is the socialization of large companies. That means, I think the threshold is 3,000 apartments. That means, these are large real estate owners. So this is not about the socialization of private property in the ordinary sense of families. That means, you are intervening in a structure that already has a high degree of abstraction and saying, now we are shifting the ownership. What is fascinating is, if you go to the website of Deutsche Wohnen or Vonovia, they immediately argue back and say: 'Yes, yes, yes, but the majority of shares in our company are free float. That means, you will somehow hurt the small investors.' That is the argument, and what is significant for this is, I think, this is very fascinating for political economy overall, how the interests of the very big players take shelter behind the interests of the small fish. And that is really a fascinating case. Yes, BlackRock has, I think, even increased its stake in recent months. In the real estate sector, it's getting a bit tight at the moment, because the central cost factor for real estate companies is of course the interest rates. These are long-term projects, they are financed through debt, and when the interest rate level rises as it is currently, then suddenly the economic basis of the company is put on a completely new footing. So it's up for debate how BlackRock will position itself, and it has rather increased than reduced its stake.
