The cost of living crisis shows the need to radically rethink our economy – Dr Lukas Hardt and Frances Rayner

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The £23billion spent each year on housing benefit in the UK effectively subsidizes landlords (Picture: Justin Sullivan/Getty Images)

In response, economists appealed to Boris Johnson to tackle the root causes of the crisis by reining in excess profits and raising wages, rather than asking ordinary people to bear the costs of inflation. We need long-term solutions to a crisis that shows no signs of easing.

While economies will always be susceptible to external shocks, such as pandemics and wars, a “welfare economy” would prevent the prices of essential goods from skyrocketing beyond people’s reach and ensure that the income of no one falls below what they need to stay afloat.

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There is a growing movement in Scotland and around the world to switch to this. Instead of prioritizing economic growth for its own sake, an economy of well-being would first ask how can we ensure that everyone has enough to live a dignified life – a life that allows us to connect with others, to participate in decisions that affect us and enjoy a healthy natural environment?

From there, we would ask ourselves which businesses and industries should we expand and which should be reduced? And how can we do it fairly?

In today’s economy, the prices of essential goods like food and energy are determined by what companies and shareholders believe are optimal for their returns, not by what the people at the forefront of our economy can afford to pay.

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Soaring energy prices for consumers have translated into massive profits for oil and gas companies, with BP and Shell on track for a combined profit of £40billion this year.

The massive profits of oil and gas companies are an example of rent extraction – the phenomenon where people make money because they own wealth or resources, not because they create products or services useful. Much of this excess profit stems from their control of natural resources that arguably belong to all of us and whose continued extraction harms all of us. Or consider the landlord who uses his existing wealth to purchase an apartment for the sole purpose of renting it out for profit.

Inflated prices to cover excess corporate and shareholder profits have a double cost to society. Not only do we pay extra as individuals, but governments have to spend a lot more – essentially subsidizing businesses – to try to ensure that people’s basic needs are met.

In a welfare economy, we would prioritize that everyone can afford food, housing, energy, health care, childcare, and transportation. The state, local government, community businesses or non-profit providers would be the primary suppliers of the essentials we rely on.

Regulations such as rent control would prevent prices from skyrocketing. And we would invest in long-term preventative measures like insulating our homes so they are less energy-intensive and cheaper to heat.

Eliminating excess profits from the price of essential goods and services will not entirely prevent future incidents of rising costs of living. It is therefore equally important to ensure that no one’s income falls below what is needed to live a decent life.

A welfare economy would promote and encourage alternative business models such as social enterprises, cooperatives and employee-owned businesses, where profits are not concentrated in the hands of distant shareholders, but are instead more likely to benefit employees, communities and the environment.

Governments can also make decent wages, working hours, and other fair labor practices conditions for receiving government contracts and other support. Public sector employees would receive salary increases at least in line with inflation.

In the private sector, mandatory worker representation on corporate boards or automatic membership in unions would strengthen the voice of workers and help ensure they are fairly compensated.

Measures such as a Minimum Income Guarantee, which the Scottish Government has pledged to provide, would play a key role in ensuring that no one is left without enough money to live in dignity. This could be funded by taxes on income that arises from the possession of wealth or resources, for example land value tax or capital gains tax.

Fundamentally, many of these measures would not only mitigate the effects of the cost of living crisis, but would also help tackle climate change. For example, large-scale insulation of homes would reduce energy bills and reduce the need for fossil fuels.

Taxing excess profits from fossil fuel extraction would reduce investment in other harmful productions. While the UK government’s windfall tax on oil and gas companies is welcome, the accompanying tax breaks for extraction will serve to deepen our dependence on fossil fuels. In a welfare economy, economic decisions would take into account their impact on the natural environment on which we all depend.

An economic system that teeters from crisis to crisis, leaves one in four children growing up in poverty, and fails to protect the health of our planet, is simply not fit for purpose.

More than short-term band-aids, we need to reprogram our economy to fit the 21st century. Only a welfare economy can protect us from the harsh reality of the economic system we have inherited. The Scottish Government must use its next Wellness Economy Monitor and review of its National performance framework put multidimensional measures of well-being at the heart of our economy.

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