Over The Counter Culture

"Why do you live in a commune? Please explain…"

So asks a friend. I’ve moved. But not to a commune! To a co-op. This post aims to start explaining what it is and why living here is so desireable.

This is an especially good time to set out the basic principles, given Gordon Brown’s statement earlier this week that Ed Miliband will work with the Co-operative party to draft Labour’s forthcoming election manifesto. Gordon Brown, it is worth remembering, is the first British Prime Minister to be a member of the Co-operative Party, alongside his main party affiliation (New Labour).

This post will focus on the general legal principles behind cooperative housing, especially the one I now live in. I hope to discuss other aspects in later posts, if there’s any interest. My overarching aim is to spread some appreciation for the concept (both from self interest and in the hope that maybe readers or their acquaintances might consider helping co-ops to be set up or develop by getting involved in their financing, making gifts or provisions in their wills.

I’m a tenant, with similar basic rights and obligations as any other poor bastard grinding away in this big city, paying rent to a landlord. But in a co-op housing association, there’s a difference – my landlord is virtual; a legal fiction, a juristic ghoul created by the founders of the co-op when it was built 35 years ago, courtesy of a big change in the law in 1965.

When you sign the tenancy agreement, a token £1 payment gets you a share in the co-op society, making you a full member. Through voting  and volunteering, the members of the co-op animate this ghoulish puppet. Dear landlord – we would like to hedge against rises in gas prices and slash our CO2 output by installing woodchip-fuelled heating systems. And the landlord makes it so. Dear landlord – we would like you to please set aside some of our rent (about £51 a week – £40 for basic rent, the rest is bills, tax, insurance and service charge) to fill a room with paint, tools, flooring, lightbulbs any other consumables we need for our houses. Make it so! Dear landlord – we would like a totally noninterventionist, liberal policy concerning how we arrange the house, paint walls, put up fixings, etc. So.

The landlord is us; we hire CDS (itself a cooperative) to handle the bureaucracy. We own the land (on long lease from the council) and can do largely as we please with it. So when one resident – a designer with the very illustrious Heatherwick Studio – came up with a plan to build a huge storage cage for bikes built with Russian railway sleepers – the co-op agreed and members got together to get it built, with the money, as always, coming from our rent.

There are ~120 of us living here, in houses and apartments. We live a 20 minute cycle from Waterloo, five minutes from a Jubilee Line station, and just around the corner from Goldsmiths Art College. It’s insane how far rent can stretch, even this close to central London, when nobody’s trying to make a profit.

———- Legal detail

The governing statute for the co-op is the Industrial and Provident Societies Act 1965. Under it and the Financial Services & Markets Act 2000, the co-op is registered with the FSA (Financial Services Authority). As with most co-ops, companies (often co-ops themselves) provide co-op housing societies with management services and registration, doing the basic bureaucracy and letting the ‘hippies’ get on with actually calling the shots concerning the property.

Share structure:

Like public companies, a co-op has share capital. There are diverse ways of organising this, but where I live the share structure is par value, fully mutual: each member gets 1 share; each share costs £1; and on moving out, you get your £1 back – you can’t take it with you or sell it for more even if the property has gone up in value. Your share gives you a single vote on the rare occasions where everybody gets together to vote on something. Liability when things go wrong is usually limited to that £1. The property remains in the ownership of current occupants (members) – but any profit cannot go to them; it must, by its regulations (and probably by law*), be spent on improving the co-op. If one day the land is sold at a profit, that profit has to stay within the co-op or find another co-op (cy-pres principle) – the same with any excess from the rent. This is a form of land ownership that’s very different to most in the country – it is not owned in the hope of making a buck at the end (what this means for the mortgage provider, I’m not sure yet).

Tax:

The land is private property; my council tax is paid from my weekly £51 rent (council tax is £2.58/week at present). The co-op, if fully mutual, is normally exempt from Capital Gains Tax and Corporation Tax*; co-ops can also often classify as charities and get the vast tax benefits associated with that, too. I don’t know for sure whether my co-op is a registered society but I am going to infer it isn’t: charitable housing associations must give their members security of tenure, whereas my contract stipulates that I can be kicked out with a month’s notice (that’s also my notice period), which makes getting mortgages much easier (the lender is sure it can take exclusive repossession of the vacant property if the co-op were to default.

Tenancy:

A co-op, being run for its inhabitant’s benefit, is not an Assured Shorthold Tenancy; it is a contractual tenancy, which ends when membership is resigned or withdrawn. Things sometimes go wrong. The wrong sort of person is let in. A fully mutual status, with properly defined rules, allows the co-op to act to end a tenancy and withdraw someone’s membership; a sad but crucial control mechanism.

Financing the purchase

I’m fresh here and have little idea how the co-op was first set up, the lease acquired, or the houses built (surprisingly nice for 60s housing!). So this section is subject to the proviso that I’m talking about co-ops in general, which may or may not apply to where I live.

Primary funding for establishment will come from mortgaging the property, to the Housing Corporation and/or the bank (from my contract it seems both mortgages were entered into at the start – I have no idea what’s been paid off to date). Secondary funding is then from the members, from charities, the government. Some state funding was provided in the early 70s under Reg Freeson. Fresson was a member of the Co-operative Party and Housing Minister under the then Labour government – I suspect some of that went into this community; the timing fits. This co-op does not take council money as the council then demands the right to nominate people (e.g. the homeless) into membership – people that usually just want to get housed and don’t lift a finger for the co-op.

Most interestingly, co-ops can issue loan notes (properly called loan stock) to finance their activities. An investor will receive a fixed rate of interest back over the repayment term.

Those are the basics; I thought I’d start with the legal nitty gritty, having just come from a land law class on (of all things) leases!

*these are things I haven’t independently verified, for co-ops as a whole, and certainly not for the one I live in

Snippets from some astounding happiness, obesity and widowhood research. via Chris Dillow on Stumbling & Mumbling (with more findings, details on what was controlled for, and his thoughts as to whether this is true, and what it shows)

Marina-Selini Katsaiti finds that “obesity has a negative and statistically significant effect on individual well being”. She estimates that, in Germany, a three-point rise in BMI (from, say 24 to 27 – equivalent to gaining around 20 pounds for someone who’s 5’8”) reduces happiness on average by so much that it would require a 67% pay rise to compensate. In Australia it would require a doubling of income to offset the adverse effect of such a weight gain.
Now, contrast this to a new paper (pdf) by Andrew Clark and Yannis Georgellis. They show that, in the UK, men and women who have been widowed are happier in the 3-4 years after their loss than they were the year before it. Yes, their well-being slumps in the 12 months after bereavement, but it recovers thereafter.

Now, remember of course that winning the lottery will statistically do very little, if anything, to make you a happier person in the long run

How very peculiar!

Mixed bag of responses today in The Times’ online comments section appended to a story about accusations of war crimes filtering their way through various Western countries’ legal systems, levelled not at the usual motley crew of African nutters but at sophisticated, Westernised ancients of the Israeli government. Whatever your stance, that’s a development that’s bound to provoke interesting and possibly quite uncomfortable reactions from readers and leaders throughout the UK, and it’ll be interesting to see how the media picks this one up.

Unlike other systems, it is said that in the UK, political will can find it hard to block cases coming to court, because anyone in the UK can make the accusation and take it forwards, without the case being picked up (or shelved) by a prosecuting lawyer (e.g. in France, juge d’instruction).

It will be interesting to see how Cabinet can somehow repair ties. The Israelis are very displeased:

President Peres described the incident as “one of the greatest political mistakes” that Britain could have made and calling for the law to be changed.

Calling for our law to be changed, because they don’t want ex-leaders, now retired and stripped of their diplomatic immunity, having to stand trial for war crimes. Surely the office charged with protecting British values and interests around the world appreciates the strength of our system, and the will of our democratically elected Parliament in incorporating the United Nations Convention Against Torture into the Criminal Justice Act 1988, and responded in kind? Er…

The Foreign and Commonwealth Office said yesterday that the Government was “looking urgently at ways in which the UK system might be changed in order to avoid this sort of situation arising again”.

Yes. How terribly embarrassing, sorry about that chaps.

To dump this action would be to risk a very serious constitutional crisis within the UK, one that has been building for a while.

Remember that the arrest, in London, of General Augusto Pinochet for war crimes (wanted under Spanish warrant) was considered by many as one of the most significant developments in human rights and international law since the Nuremberg trials. remember, then, that our Home Secretary (none other than Jack Straw, the miserable shit) found a back door to let him go rather than send him to Spain: grounds of ill-health made him unsuitable to go to Spain to stand trial.

So he went back to Chile, stood up from his wheelchair and smiled.

We seem somehow to have escaped the battle even more recently, after the government decided that a case against BAE (bribery and corrupt business deals with Saudi Arabia) should be dropped due to:

1. ‘national security’ – a breakdown of relations with Saudi Arabia threatening bilateral anti-terrorism efforts if we decided to go after the globally corrupt instead
2. fear of job losses: under EU law the UK government cannot continue to contract with BAE if it is found guilty of corruption, which it argues might cripple the arms manufacturer far more critically than any punishment imposed

And the most immediate context is the growing anger at how easily members of our 2003 administration are escaping serious questioning over our entry into the Iraq war and subsequent behaviour therein.

I for one encourage serious outrage if our law gets changed or meddled with at the behest of alleged criminals in foreign lands.

The ever-convincing Chris Dillow over at Stumbling & Mumbling recently posted this. It’s by far one of the most lucid, critical breakdowns of the bonus issue currently baffling all and sundry, especially our MPs. It isn’t an easy problem to fix but one senses that this is certainly the correct rational & informed sentiment to carry when going about doing it; I think the crucial next step is to explore the fallacy of composition (point (1) below) in greater detail.

Posted with his permission – original post here

Why is there still a row about bankers’ bonuses? What I mean is that the issue should by now be settled against them. There’s abundant evidence that large bonus “incentives” are not only not justified (pdf) by efficiency considerations, but can actually backfire, with the result that intelligent observers are demanding an end to them.

If we were serious about designing high-powered incentives, we’d consider abandoning bonuses and instead simply killing under-performing bankers. After all, the threat of death works perfectly well in motivating airline pilots or soldiers. So why not apply it more generally?*

Let’s be clear. Bankers’ bonuses have less to do with rational incentive mechanisms than with the fact that bankers have power. It’s a form of legal extortion.
Which raises the question; why is this not more clear? It’s because any power structure is sustained by ideology – a set of cognitive biases which might have a grain of truth but which serve to defend vested interests. In the case of bonuses, there are four such biases:

1. The fallacy of composition. If any one banker doesn’t get a big bonus, it’s possible he might flounce off in a huff to another firm. But it’s not possible for all bankers to do so; only a tiny handful of British bankers could get good jobs in New York or  Switzerland. In this sense, a blanket nationwide ban on big bonuses wouldn’t do much harm.
What’s true for an individual needn’t be true for a group.
There’s a parallel here with one of the errors that got us into this mess – what Keynes called the “fetish of liquidity”. An asset might be liquid from the point of view of an individual, but there is no such thing as liquidity for al investors.

2. Mental accounting. Last year’s banks’ losses seem to have been put into a separate mental box, and are regarded as an exceptional item now that business is back to normal. But this shouldn’t be the case. Those losses vindicate Nassim Nicholas Taleb’s point that banks, on average, don’t make money because occasional huge losses wipe out years of profits. Which suggests bankers don’t have the skill they pretend to.

3. The fundamental attribution error. The belief that banks’ profits come from skilled individuals is in part due to the common error of attributing to individual agency what is in fact the result of situational or environmental factors. It’s trivially true that today’s banks’ profits are due to cheap money, government guarantees and state bail-outs. But it’s always been the case that profits have risen and fallen according to environmental forces such as monetary policy, waves of takeovers and general investor sentiment.

4. The impossible/difficult conflation. Throughout history necromancers, witch-doctors alchemists and ju-ju men have extracted high incomes. They’ve done so because their patrons have believed their job to be very difficult, demanding supreme skills. But in truth, the jobs of foretelling the future, controlling the weather and turning base metals into gold  haven’t been difficult ones. They’ve been impossible.
So it is, perhaps, with banking. Making high risk-free returns isn’t difficult, but impossible. In failing to see this, we give bankers the fortunes our ancestors gave other charlatans.

* Of course, the same reasoning applies to politicians, as they too can make huge errors which cost society dearly. This probably explains why they are not proposing the idea.