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Transcript: How To Make Markets Serve People
The transcript of this week's interview with Chris Cook, available to everyone
[00:00:00] Rachel: Thank you very much for taking the time to speak with me today. I'm very excited.
[00:00:04] Chris: I'm not sure. Why, what do you know about me? Oh, well, all I know is that Marcus I worked with was in touch and, um, but, um, you never know what's out there. I mean, I'm, I'm one of the usual suspects . What, where, where do we begin?
[00:00:18] Rachel: Where do we begin? I mean, I think ultimately given the direction this podcast normally takes, you know, I interviewed Steve keen by the economics of climate change
[00:00:27] Chris: He's colleague of mine at UCL.
[00:00:30] Rachel: So I think even just starting with what is a resilient market? How do we engender them and given the nature of the complexity of the crises that we face, are they part of a larger solution or, you know, how much help could they be? Just a small question.
[00:00:49] Chris: Hmm. You know, I, I sort of go back to first principles on markets. Um, I'm sort of one of the old men of the markets I was, I was around before there were before there were really, some of the UK markets didn't even exist. Um, you know, cause I got involved in the mid eighties when regulation first came along because the markets, the commodity markets were largely unregulated that then a lot of them that currently exist didn't exist then.
Um, and my background being in forensic accounting and then fraud investigation and there being a lot of, a lot of stuff going on in, in, in, in, in UK markets then that wasn't being sort of, um, regulated, uh, I got involved in is 86 and then in 1990 I became a director. Uh, at the international petroleum exchange, which was the Brent crude oil and oil products exchange, it's now Intercontinental exchange Europe IC Europe, but that was after I left.
And, and the job I had, you could say it was a bit like being the exchange policemen, you know.
[00:01:51] Rachel: What does that mean?
[00:01:52] Chris: Well, I was there to actually ensure that the rules were obeyed. Um, and the whole idea was that people, um, that the members did not rip off the customers, which had pretty much institutionalized.
That's exactly what they were doing. And I was brought in, um, to do something about it. Um, and I could tell you some stories about that too, but, um, I always took a very sort of proactive approach to regulation. I don't see regulation as being business prevention. I see it as being quality control. Right. A fair market is good for business.
So, you know, the first thing that I did, it's not a bad anecdote was, um, you recall in those, well, you probably don't, but it was all open outcry. You ever see the film trading places, Eddie Murphy and whatnot, and the frozen orange juice trading on, on, on the, on the nightmare. You never seen that?
[00:02:47] Rachel: Yes, no, I have seen
[00:02:47] Chris: it.
And they're all, and they're all in colored jackets and they're all shouting. They're all giving bids and offers to each other. And it's fantastic. It's so I'm sorry it's all gone because it was, it was brilliant. Um, but of course people were getting ripped off. Um, then. Um, you know, the orders that came in were not necessarily the orders that reached the floor and people would sort of trade in other, we call it front running and all sorts of things went on.
Well, what I did, and it, and I made it a condition of becoming a member- a director, was, I insisted that all transactions were televised, were basically recorded, videod. And that, every, um, uh, phone line that reached the floor was to be recorded, in other words, audit trail. And it was basically over our dead body.
And basically that's exactly what it would have been. The exchange would have been shut down had that not been done because we knew there was a problem and that's why I was brought in. And so we, we did it, we put in place the cameras, et cetera, et cetera. And within a week they wouldn't have been without it.
Right. It was amazing. And the reason was it got rid of disputes overnight. Did I trade with you or did I trade with him? Let's look at the video. And it's a bit like the television, you know, it's a bit like the camera's on, on the road, you know, it just changed behaviour. And it's, it's interesting that the New York exchange, who made a big thing of it's regulation, never, ever brought in recording on the floor.
[00:04:19] Rachel: To this day.
[00:04:20] Chris: Well, they shut the exchange eventually and it all went electronic after about 2000 and something. But I just give you an indicator there of pragmatic, practical steps that can actually increase the quality of the market, you know? Um, so that's one of the things that I did, but I got involved- that was sort of first exposures.
Cool. It's on the technology side. And also IPE, we developed the first windows based trading system. We were the first to do it, and I was sort of involved from a regulatory point of view as to, well, what sort of, you know, what sort of information did I want to see? What sort of programs did I, you know, I needed to see certain audit trail, you know, when did he trade and when did he trade, you know, that sort of thing.
Um, so I've got an interest then. And then after 96, uh, I left the exchange or the, just before I did, I was responsible for the legal design of the UK natural gas futures contract, not the physical market. The, in my view, the very idea of buying and selling molecules of gas is a complete abomination. And, and, and it was obvious to see where it would go.
Because there was one of the big problems is it's not easy to store gas and it's even less easy to store electrons of electricity. You know, there's, there are certain things you can commoditize and buy and sell at a profit. Although frankly, I don't believe in either. And there are certain things which are naturally a service and we'll come back to a transition of markets because where we came in was markets.
I believe we're seeing a transition from commodity markets buying and selling for profit towards a services market. Right. And it's, it's, it's a good point, I think, at which just to go to sort of first principles, because I identify, um, three, you can call it market paradigms, right, through history, , the first one, and it still exists everywhere, people transact with each other, involves physical presence. Okay. So that's market paradigm one when, when we're physically present and we do the transaction and, you know, we will give credit to people. You know, this is where David Graeber, know, everything he had to say about this and this myth of barter, you know, there never was a barter economy. You gave time to pay or you or you, it wasn't even that- you, if, you know, you would give somebody what they needed in the expectation that they would reciprocate when you ask them.
And it, and it was where currency and whatnot came in was that there are certain people you didn't trust. So either you knew them and you didn't trust them because they got a track record with you, they didn't reciprocate, or you didn't know them because they'd come from outside. In which case you needed some form of credit object, which was universally acceptable, you know, all this I'm sure.
[00:07:28] Rachel: I read, I did read the book, I have to say. And it was unbelievable.
[00:07:32] Chris: It was brilliant, wasn't it? But the point is that that first market paradigm involves physical presence and the physical exchange of goods and services. What then happened over thousands of years gradually was that we, we found that the markets, um, started getting, uh, you know, you got traders, middlemen coming in individually to start with and then sort of legal persons and whatnot coming in.
And, and this is a second market paradigm, paradigm two of where your market presence is no longer a physical presence. It's a presence through middlemen. Okay. Somebody actually, you know, is, is, is, is a middleman that comes comes between you and me. And the question then arises: and what about trust? What about time to pay? What about conflicts of interest? Because the interest of the middleman is not my interest. Okay. And this market paradigm is the one that we reached the sort of zenith of. And what I have observed and been involved in for 25 years is this transition to the third. I call it market 3.0, um, where you're getting away from presence through a middleman, market presence through a middleman, which we currently do, to network presence, right?
Presence on the network and everything I've been doing for the last 12 years or more. Since I became a senior research fellow at UCL, at ISRS and I was asked to do that after the financial crash, when we came two hours away from the finance-, you know, from the cash machine's being switched off, essentially, which is not a particularly resilient system.
And it was obvious that the institutions and the instruments by which, I mean the financial tools, all the finance that we take for granted, they couldn't cause the problem that they couldn't resolve the problem that they caused. So the question is, and was, and what I've been working on for a decade is, well, what will?
So what I've been looking at is, well, what works, what works internationally, globally? What used to work historically, in other words, what was there before banks even existed? Right. You know, what was there before a corporate w w you know, what is even the concept of a corporate? Where did it come from? You know, literally going back to first principles and then saying, well, actually, can we learn from the past and the present because this market 1.0 is still out there everywhere in the world, that market still exists wherever people trust each other, you know, it hasn't gone away. It's like the dark matter of the, of the, uh, you know, uh, of the economy. So I I'd been very much involved in, and this expression 'legal design' is not one I'd even come across until about three or four years ago.
And I thought, well, actually, that's what I do. I sort of, I work with agreements. Okay. And I've always worked with agreements, uh, at sort of any scale. And my work has been at two levels. So on the one level on the macro level, I do advise governments, not all of them popular ones. I've been to Iran a dozen times. I'm big in Iran. Right. Okay.
[00:11:00] Rachel: First time I've heard that sentence.
[00:11:01] Chris: No, it's great. It's great. I love that. You've got big Japan, I'm big in Iran, you know. Um, and, uh, and that's been a fascinating experience. That, that began in 2001, that whole thing. And it became almost mythical. We came up, we came up with the idea of, uh, of, um, it was called the Iran Oil Bourse project.
Um, and I could tell you this story about that if you wanted to, because it's, it's, it's quite interesting. The idea was for a middle Eastern benchmark price. Okay. Oil price, obviously, because what was happening in 2000 by 2001 is that the Intercontinental exchange was created, and literally the whole purpose of that was, was for the financial markets to take control of the oil market.
That that was what that was about. And I got in the way of it inadvertently. So I got sort of cancelled by the city. I lost everything I had, home, family, everything.
[00:11:58] Rachel: Oh.
[00:11:58] Chris: Had to start from scratch, um, which I did. And, um, and sort of that, that in itself is a story. But the point was that wall street, you know, Intercontinental exchange was formed after two guys sat down for dinner and decided that they would actually set up a global market.
Right. And that's what they did two people from wall street. They, they, they set it up, fantastic strategy. They went ahead and they literally took control. Wall street, took control of the oil market, which has been the case for about 20 odd years since although, you know, the tools have changed, the market's developed, but it's very much been, you know, I mentioned middlemen? It's the ultimate in middlemen. The oil market is controlled by wall street and some of the big, one or two of the big oil players. Right. Um, but then behind all that now you have geopolitical- there is no more geopolitically important market than oil- so you do have different agendas. A friend of mine in Moscow basically, he, he says there are essentially two, it's almost like the potato market in London used to be two, two shooting clubs of farmers fighting it out on futures contracts. And it's a bit like that at the moment globally, I think, in the oil markets. You've got, you've got, if you think about it, and you come down to market market 1 0 1: producers want stable, high prices; consumers want stable, low prices. Okay. Middlemen: stability and transparency are death, right? And these are the people who run the market.
So what we've done is, we've currently got this market casino, right. With a roulette wheel with about 10 zeros on it and a crooked croupier right? That's what we've got at the moment. That's that's how bad the market is.
Anyway. I'm often all over the place. I'm sorry about that.
[00:14:06] Rachel: No, don't don't apologize. It's fascinating. I mean, surely even just the commodification of a thing would demand that you enter into the second market paradigm because it's the market that becomes the intermediary between a person and what they need, whereas in developing markets, in developing world, when it becomes about community as a way of building relationship, you're essentially marrying the people with the resources they need.
Um, so can we have, uh, oh, can we, okay, so that's why you said we're moving away from the commodities market, right? Because that's-
[00:14:42] Chris: We, we, we, we will be, we will be doing and we, and we sort of are doing. It's, it's an inevitable con- I think it's a consequence, an inevitable consequence of direct instant connection. The revelation for me of the power of the internet, because I set up a.com- I'll come to that in 1998 and I've sorta digressed- but, um, when I saw that a 19 year old had invented Napster,
[00:15:11] Rachel: Hm.
[00:15:12] Chris: and single handedly made the business model of the music industry redundant. And it, you know, we're never going to go back to the way it was and it's evolving via Spotify and all the rest of it, you know, it's evolving. That was one thing.
And the second one, which is anecdotal, was going into an oil brokerage down in Mayfair. And I went in there. This would be about 98, something like that. And it was quiet, which it didn't used to be because people are on the phones, you know, you'd have three phones going, you know, and, and, and, and you'd make deals. But it wasn't, it was really quiet. And I went in and talked to them, friends of mine, uh, as they'd become, and they said, yeah, and they had like three screens. And on each screen, they hadn't five or six chats, this is Yahoo chats, going on. So they had like 15, anything up to 15 conversations maybe, or more going on instead of two. And they did it not because of the cost, they did it because they could.
Now I was a regulator, I only recently left, and I thought, shit, I thought, the global oil market, cause this was the global market and physical cargo is we're talking about, the global market is taking place in Yahoo chat rooms. And the regulators don't even know this. Right. And I just thought, and they did it because they could. And that was a revelation to me.
And I set up, after that, I raised a quarter of a million pounds for a very, very simple proposition. When these guys had done their trade, right? The minute they put the phone down, they would send a fax or a telex. Telex is a hundred year old technology. Why? To confirm the trade they did. Cause if they didn't confirm it there and then, and the market price moved, the guy would say: trade? I don't remember a trade. What was this trade of which you speak? You know, they, they didn't know the trade. They, they call it decade. And I came up, I thought, well, with this internet thing, we can actually have online trade confirmation.
[00:17:23] Rachel: Hmm.
[00:17:24] Chris: And it was a great idea. I got directors of about three different exchanges put personal money into it because they could see it immediately. We built a prototype messaging system. We had a shared database- shared database? Have you heard that anywhere since? Blockchain came along 10 years later. This was a shared database and the legal innovation was simply this: it was a market user agreement. And the market user agreement said that when that transaction was in that database, because you and I clicked a mouse saying, yes, it was legally binding.
And I called it a market operating system and everybody wanted to own it. Right. Why am I not sitting on a beach? Well, w well, the reason, the reason is that if anybody, I found out fairly soon that if the buy side owned it, the sell side wouldn't use it. And if the sell side owned it, the buy-side wouldn't use it because they're capturing market data and market data is incredibly valuable provided you've got it and they haven't. Right.
So I had invented a shared market trade repository, and it was called oil clear, but it was in fact I called it nuclear because it was, I realized soon that it worked for anything, it's just a generic function I'd invented or discovered the generic function of trade capture. And over a two to three year period, tried everything to get route to market. Right? How do you get to market? Because this is neutral and this is a thing we see in payments and we see everywhere, that you come up with a neutral function. Somebody comes up with this new idea, but how do I get it to market?
And I worked out that there's a paradox here that if something is neutral, it's not liquid. And if it's liquid, it's not neutral, you know, and, and, and how do you get past that with a business model? Which of course has been what I've been doing for maybe 15, you know, a decade since has been: how can we come up with a legal agreement, a framework agreement within which we can meet the needs of all of the market participants? And that is a very interesting problem. That's where market 3.0, that's what it is all about.
[00:19:48] Rachel: Okay, good. This, this is what I would like to flag at this point, because I mean, if we're talking about people trading in oil and exchanges, I mean, that is a very different market to what the rest of us live in essentially. And secondly, you know, does legally binding trades, um, have any impact on what the, say, value system of the market is when offshore tax havens exist, where people can funnel and hide profits into that, therefore don't get reinvested back into the wider economy? Surely we need to kind of differentiate between- I'm a layman- um, but the markets that exist for different people and, um, what the economy is, who the economy is built to serve?
[00:20:35] Chris: That last word. What was your last word?
[00:20:38] Rachel: Serve.
[00:20:39] Chris: Hmm. You see what the markets do? Yes. You're buying and selling commodities. But you and I don't use oil. I haven't got a refinery. Have you got refinery? I don't have a refinery. Um, not many people actually are involved in the oil market. Not many people charter tankards, for instance, you know, so there is a process that goes from the well to the wheel.
Okay. At the wheel, we're not using oil, we're not really even using products. We're using a car and we're using mobility. So what we're doing it is, I talk about mobility as a service, right? There are many other forms of energy that we use: heat, cooling, light. You could argue that food is because calories in one end, manpower and waste out the other.
Right. Water. What is that? Well it's technically an energy vector, but it's something we all have to have. And of course, any, um, attempts to privatize water are politically very difficult, quite rightly so. It's, it's an essential, it's a commons, you know, and what we're getting down to here in the economy of the future is, well, what about commons?
Because commons, and it's not just about resources, it's also about the land, right? That's the biggest commons of all. And, and the, my sort of, um, agreement that I came up with eight years ago, I call it a non dominium and I'll come back to that. It's a framework for the commons. It's an agreement: how can we bring in together, all of the stakeholders, there are four that I identify, you know, you'll have sellers and you've got buyers in the market. You've got people who manage the market. But you've also got a fourth one, which is what I would call the custodian, the person acting in the public interest. Okay. Um, and historically that's been the government or the sovereign, you know, they, the queen is actually- you and I don't own land, the queen owns it, but she gives us a freehold title. Then going beyond that, you get to, and this is where services come in. Rights of use. Rights to the fruits of use. The Latin word "usufruct" for instance, you know. Like rent is a usufruct, but similarly a tithe, you know, that the church and the mosques still do have, will take zakat as a tithe.
[00:23:13] Rachel: Sorry. What's a tithe?
[00:23:14] Chris: A tithe is a payment for the use of the commons. It was literally 10% of production. And the monasteries in the UK became well, you know, became really rich because people pay them a tithe. And of course the purpose of paying that tithe there was that the monasteries would then, you know, give you food if you were destitute. There was an exchange going on then you know that, um, and then, but monasteries became corrupt and rich, and so did mosques, you know, it's, it's- hierarchy set in. This is what always happens with middlemen, you see. You get hierarchy setting in, you get corruption setting in, and it's all because the interests of the middleman are not the interests of the people.
Marx talks about alienation, and when we start getting away from real people to institutions like, uh, a corporate, a company or a state or a monastery as an institution, you know, you've created something which is an artificial virtual person, which operates in the real world via agents, you know, and you have this fundamental problem, they call it the principal agency problem, that the interest of the institution, the collective, cause we're talking collectives here, the interest of the collective are not the interests of the people acting on their behalf.
We see it in government, don't we, you know, the civil service is neither civil nor serves, you know, um, for instance, you know I used to be a civil servant so that's not really true. There are a lot, there are a lot of wonderful civil servants, don't get me wrong, but you see the point that, you know, um, you get this agency problem.
Now I've identified, and it's not rocket science, that the way around that is through risk sharing, cost sharing, surplus sharing, agreements, right? I'm saying we've got enough organizations. We don't need any more organizations or legal persons. We need agreements between real persons, right? Like association. The first form of company, the word company comes from, you know, the Greek panos, people who took bread together. That's where the word comes from. Forget corporations, that came later. That's when they started creating collectives. And, and even the concept of a legal person came about from when a sovereign- a sovereign would die and then the next sovereign had to then sign a deed and a contract, and it was really balls aching to do everything. So what did they do? They distinguished the sovereign from the crown and they created the crown as a legal person, and it was done for administrative reasons that the, the crown, that you you've got continuity.
But what then happened was, and the city corporation was the first, they started incorporating collectives. And that to me was where the rot set in, right? When you start coming up with a collective legal person, whether it's a government or whether it's a private or whatever it is, you immediately are creating something which is not a real person. It's a legal person. And it has to operate through third parties whose interests are not the same as the interest of the institution.
[00:26:40] Rachel: Because there's too many stakeholders ultimately?
[00:26:42] Chris: Well, there's just, no, it's just that I'm going to feather my own nest. Right. You know, I'm a manager, I'm going to pay myself more. Why? Because nobody's got any control over me, or not much, you know. We see this in different ways in different sort of, um, you know, like in the third sector. Mutuals can be really bad in that they can get taken over by the management. You get what they call management capture. And there's a whole raft of management books you'll find, I lose the will to live actually when I get started on them, but, but the point is that they are trying to come up with governance, which, you know, brings the interest of the agent, the third party that you hear constantly, don't you, about trusted third parties, you see this legal relationship, um, you know, that you've heard of trust law common law and the trustee beneficiary relationship when the trustee, you know, does things on behalf of the disempowered beneficiary. Now, for me, trust law was invented by lawyers for lawyers. It's an abomination. It needs to be eradicated from the earth, right.
And it can be very simply because what I've done is identified that you can actually have two things instead of the trustee, you can have a custodian who has certain passive rights, the right of a final veto, for instance, like a golden chair or something. Right. So it's passive and they will actually protect the aims and objectives and principles, so that they would for instance, have a veto right on rule changes. So you can't privatise if you've got a custodian.
[00:28:25] Rachel: But, sorry to interrupt, but isn't that what a trustee is meant to do though? Isn't that their role to protect the trust?
[00:28:32] Chris: Oh, it is. And yes they do, but they do it on behalf of a disempowered beneficiary. The beneficiary has no say, okay. Whereas in this model, we're saying the custodian, you see the trustee has power to act positively. The trustee can do things as well as say, as well as say what won't happen. They can also say, what will, okay. What I'm doing is distinguishing between the veto rights as to what won't happen, which is a passive it's a passive right, it's a veto right. Whereas then you have the stewards. I like the word stewards, stewardship. The people who are given the power to act on behalf of the, whatever, the, you know, the enterprise is, the stewards, they can manage, they can develop. I've been a director of a development trust in the past. You get them all over the country. But I believe they're a contradiction in terms because development requires taking risk and the role of a trustee is not to take risk. You know, I mean, it's, it's a glib statement, but it's true in my experience that they, they succeed despite their constitution, not because of it.
And I believe it's possible to split this function between the passive custodian and the steward and the innovation in what I call non dominium, which means no one dominates, is that the steward is not told what to do by investors, right. Which in a company, limited company, the investors tell the managers what to do, right.
And then also not told what to do by the people, if you will. You know, it's just that the, the two stakeholders that you have, the service users and the, whatever it is, buyers and sellers, for instance. You know, the buyers and sellers collectively, the platform users, they have rights over what the steward says, sorry, what the steward does, right?
So, you know, no single stakeholder group, you know, this problem I had of the neutrality and liquidity, no single stakeholder will say what the, the steward or the developer actually does, and my role, and people I work with, is essentially development. You know, I talk about development as a service. At the moment development is transactional, you know, in, uh, in land, I call, I call the current property model the four B's: buy, borrow, build and bugger off. Right. Well you buy land cheap, nothing to do with building, you buy lunch cheap, you do as quick and dirty a development as you can get away with, quality is a cost, forget that, energy efficiency is a cost forget that, you have to have it imposed on you. And then you sell it, the land, because it's now going up in value. As agricultural land it was five grand, an acre. Now it's worth a million pounds an acre, and that's where your profits coming from. Okay. So you buy it, you borrow money and that money is manufactured by banks. Again, this is not widely understood, but two thirds of our money supply is based on capitalized land rentals. That's why property prices cannot go down. They can't be allowed to go down because if they do the financial system collapses.
[00:31:54] Rachel: But I mean, they'll have to won't they? Eventually there's going to be no more buyers. They're squeezing the middle-class out.
[00:32:02] Chris: Well, the what's happening is, this is intriguing. I talk about, um, during the financial crash in 2008, I called it the point of peak debt. Right. It was peak debt. The debt was basically unaffordable. And now we've reached a point. I call it peak rent, right. Because what's happening is the, what banks are now doing is they're buying land themselves.
[00:32:29] Rachel: Oh, really?
[00:32:30] Chris: Yeah. And you'll see that most, you know, there is $17 trillion out there at the moment currently getting negative, real returns. Okay. That's existing money, not new money. And you'll have seen that big investors like black rock and all these massive, massive multi trillion funds. What are they doing? They're literally going shopping everywhere and buying property. Right? Why? Because it's got a positive return. Okay. You know, so we're going into a sort of, you know, build to rent is the big thing, right? So we were getting away from the sort of, I borrow money and buy a property, which you rightly identified has reached the end of the line. Okay. Because people are not credit worthy anymore. You know, my boys couldn't possibly afford it. And the entire generation, unless they got the bank of mum and dad, 90%, won't be able to participate.
There's this intergenerational problem of people who are land rich, but, um, you know, care poor. Right. My generation and the younger generation who are land poor, but care rich. And what I'm interested in is how can we make that transition? We can't do it through the existing monetary system. Just can't be done. We need to look at the legal frameworks within which, so I'm proposing, well, imagine getting care credits in exchange for rental credits. If I give you a token that you could use to pay your rent, would you accept it? Everybody would wouldn't they?
[00:34:13] Rachel: It depends what it's an exchange for.
[00:34:15] Chris: Well, yes. I mean, but I mean, if it, if the alternative was you don't do anything, you know, well..
[00:34:26] Rachel: Oh, you mean? Oh, okay. So you mean for the fact that there's a whole host of young educated, unemployed people out there because the job market is equally squeezed.
[00:34:35] Chris: And there's huge amounts of things that need done. I, I believe that, um, there is, uh, you know, they're talking, aren't they, about how do we fund social care?
[00:34:46] Rachel: Well, yes, but I have to say then, but how does that solve the problem of the fact that, um, landlords grossly overvalue their properties and take advantage of, um, uh, precarious youth? You know, if okay, say there's a new system set up in which, um, I get credit, I get care credits, which I can then apply to my rent. Um, who's going and doing something about bringing rental prices down, surely that just kind of facilitates, um, their right to charge, whatever they want.
[00:35:14] Chris: Well, not really because the rental credits they're issuing, they, they are issuing the rental credits, right. So because they're- nobody can afford to pay them Sterling. And this is why I talk about peak rent, you know, a landlord, will, you know, you get like, um, a charity shop, you know, basically the, the, the landlord can't get rent because nobody will pay the rent. So they'd rather have a charity in there, um, covering the costs. And just th they're just going to hang on until better times. Th th th th th the fact is, I mean, you know, the most significant statistic I came across after the COVID shock, which is what I think of as the point of peak rent, it was, it was, um, it was a shock at which all of a sudden the money dried up. Right. You know, and it meant people couldn't afford this and couldn't afford that. And the government stepped in with this bloody great hosepipe and hosed furlough, and hosed money, and, um, you know, and, and they had to do it. They had to do it. Um, but I read somewhere that 18% of retail rent got paid in the last quarter of latter 2020, um, 1 8.
And similarly, this is, this is presumably on time, but it might have been at all. And the same number less than 20% for the first quarter of 2021. Now that's apocalypse rent, right? This is retail, shops, shops. What COVID has done is accelerate existing trends. We were, you know, there was a sort of slow trend towards working from home, but nobody trusted people. You see, that was the problem. It was the trust wasn't there. And all of a sudden businesses have no choice. They had to trust people to work from home. And guess what? That's fine. Here we are working from home talking to each other, aren't we, you know, it's not difficult.
But the point is that has massive implications on the physical geography of this country coming up. Right. Okay. Huge implications, which have not, we've not even begun properly to thought to think through. And, and, you know, and similarly we need to think through, um, is this point of peak rent, as I mentioned, that landlords, you know, different deal, they're going to have to, you know, the question that you ask of a landlord now is would you rather have a hundred percent of nothing or a smaller percentage of something, right. That's the question that, and anybody getting resource rent, which of course, you know, getting the rent. That's the question you have to ask. And landlords are going to have to come up to a new, um, I realize, and those who do will do okay. And those who don't, I'll just be stuck with an empty property and my heart bleeds.
Right. You know? Um, but because the paradigm is going to shift, you know, well, wealth has become so imbalanced and, and this has happened, I think Steve will have mentioned this, we know this, that if you combine private property in the land with compound interest on debt or wage slavery, you always get a revolution after a while. You know, they, they used to have a jubilee because the Kings realized if they didn't stop that, you know, and it's just mathematical there there's, uh, several people, um, came up with some really interesting work being done with like an 18 year property cycle. You know, you get bubbles and prices reach a level and then it collapses, right.
Uh, oh, you get rentals, you know, it's just, it's the commodity cycle. I mean, I touched upon this earlier with this market, you know, commodity 1 0 1 where, you know, you have the high price and the low price and that the high price, um, basically, uh, people can't afford to pay it anymore. Okay. So demand, collapses, and at the low price production collapses.
The saying in the commodity market is that the cure for high prices is high prices and the cure for low prices is low prices. But what happens is the market cycles up and then it cycles down and it cycles up and it cycles down and they call this the commodity cycle, but it applies also to land as a commodity as well. Right. Which is what we've got to. Everything's become commoditized. And that's what's happened in the market in UK, U S, Japan was the classic one, this massive, massive, massive bubble in 1990 or so. In my view, China's reached the same position. Okay. You know, it's an inflection point in global markets, what's happened in China, but that's a separate discussion.
But we're moving away in my view, the solution that we're moving towards is this market in services, housing as a service. What does that, what does that even look like? Well, that looks like land held in common. I was a member of a housing co-op in London for best part of 10 years of fully, fully mutual housing co-op and I didn't have a free hold, didn't have a lease, didn't even have a tenancy. I was a member of something called a friendly society, which is a lovely thing to be a member of, isn't it, a friendly society. That's really nice. Um, but it was the least cooperative co-op on the planet because, well, it was only a short life and the council were going to be taking it back. So we put together a bid to, um, sort of buy it out and that's a saga. But the point I'm making there is my right to be there, and this is fundamental, was through membership. I was a participant in the friendly society and for as long as I obey the rules and for as long as I paid the rent, which was part of the rules, but it was a very, very affordable rent because we, there was no debt on the property, for instance, you know, um, and part of the rules was that we would maintain the property and look after it and look after each other, but of course nobody did because, you know, it was, it was short life. Um, but in principle there are fully mutual co-ops do exist through the country still because they, they were formed at the time when property was still reasonable.
So in Glasgow, there's three blocks of flats in West Whitlawburn with a few hundred people, that people were queuing up to live there because it's, it's like, uh, a zone, it's an affordable housing zone. Because the land isn't ever going to be sold. Right. You know, and the properties, whatever mortgage you had was paid off. So all you're having to do is to pay to look after the place and keep it in good nick and, and then do what else that you want to do. But the difficulty now is how on earth can we afford to set one of these up with property prices at the levels they're at? Well it's, you have to use different means. But this is what I've been working on is to say, how can we come up with a sort of 21st century form of co-op where our occupation is through membership, through participation, right? Huge difference, being participative. Right. And the innovation that I brought in on this, this was this, this is the key was that instead of relying upon people's Goodwill to do all the work of the co-op and, and of course you always got backsliders. What you do is you say, okay, it's fine. You don't have to, but if you don't, uh, you have to contribute towards the people who do, because we're going to pay them with rental credits.
You see the point about rental credits. That's the innovation here. And, and, and we found that it wouldn't just have applied to keeping the roof dealt with and fixing the place. We had one poor soul in one of the houses who it was a lovely guy, but he was, you know, he was getting on. He didn't need people to, you know, uh, look after him physically, but to have somebody there for him, if he, you know, if, if he forgot something, you know how it is, it's just to have somebody there.
When the co-op broke up in the end, because basically the mayor sold off the property to his mates in the end, we put together the best bid, you know, and that a saga but in the end the mayor just sold it off to his mates. Um, and the poor devil, he got a place, but he was dead within six months because he was just, you know, he didn't have people around him looking out for him.
So the, the point there is that that was a form of care credit, you can say, that you could think of a model, you know, a co-housing model and 15% of new housing in Denmark is co-housing. We, we, we could easily come up with, I think, ways in which people who live in a place could be rewarded with credits for looking after the property for, looking after each other.
[00:44:33] Rachel: So essentially, and then those who don't, you're paying a premium to be. If you want to be uncooperative, you're paying a premium.
[00:44:40] Chris: Yeah. Yeah. Yeah. You're sharing your, if you can't be asked to do it yourself, then at least you're getting somebody internally to do it and you probably don't get all the costs of going out to some, you know, to a for-profit provider, you know? Um, but you do need quality control. You know, there, there is this function of the steward, you know, you'll have people, you know, you have people who live there, you have people who maybe invest in future rentals, but you also need to have quality control. And that's this role of the steward or in Scotland, we call it the factor. You know? Um, the custodian is everybody, right? Everybody's a members and I, I, this is where the word condominium comes in that it's, it's a framework for the property relationship because property is not an object or thing. You know, as Jeremy Bentham put it, you know, he identified that it is a bundle of rights.
It's a bundle of rights and obligations. You know, an Edinburgh lawyer said to me once, Laddie, he said, all you need to know is two things: there are rights and there are obligations and that's it. You don't need to know anything more than that. The question then is how do you actually write those down and what do you do with them?
[00:45:58] Rachel: In your example of the housing co-op, the one thing that I can't get past the hurdle of how to set up is that it seems that you would almost need philanthropy to get there because who is it that can afford to buy a big property or a collection of properties in order to lose money on it, to turn it into a co-op?
[00:46:18] Chris: That's very good question. Um, but here, here we go to somebody who maybe has a patch of land. And we've got just this in Linlithgow where I live. Um, and there are hundreds of thousands of acres in Scotland of land, which is brownfield, right? Brownfield means it's been developed once already.
Right? What developers are looking for is farmland, you know, which is terrible, really, when you think about it, they'll just build. We should be farming on farmland. We shouldn't be developing it, but you know, they, they, they, they buy it because it's cheap. And the minute you've got planning permission, this is the thing, by giving planning permission, you immediately increase the value of land by, it could be a thousand fold. And that value is captured by the developer, as Andy Wightman, who is a campaigner on land, one of the most knowledgeable person, people I know on the subject, he wrote a book on the subject, and he points out that what is needed is some way in which that uplift in land value cap in land values that comes from planning permission can be captured for the public good. Okay.
I'm not saying take everything away from the landowner, but currently they're getting too much and the developer's getting too much and we're all getting screwed. Right. That's the problem. So what we can do is we can go to an existing landowner and say, well, actually you're currently getting a hundred percent of nothing, right? We can come up with a means of development here and a funding mechanism, right. Uh, what I call a, a capital partnership, but I had a letter in the FT today about smart swaps. It's the same thing, right? It's it's swapping flows of value.
[00:48:02] Rachel: Can you explain that a little bit more?
[00:48:03] Chris: Yeah, sure. I mean the best one I like is, is, uh, and I use this a lot is, um, James Watt, the Scottish inventor, came up with a new steam condensing boiler, right? It was much more efficient than the previous, uh, steam pumps. And he didn't sell his boiler and his, and his pump to the Cornish tin mines, who had a pumping problem, a water pumping problem. He gave them the use of it in exchange for a third of the coal they saved, right. Now, that's a really canny model that is. That's a really canny model because everybody's interests are aligned, you see. The more, you know, the more coal the tin mine has saved, the more coal our friend gets. And of course he has, he has an incentive for his pump to work and not break down after the guarantees up. Right. You know, point is it's a use model and I call it pumping as a service. Right. And if you think about it, it's a swap. I call it a smart swap.
What is it, James Watt brought into this? He brought in something that was between his ears. Right. I think of it as intellectual value. Right. You know, it was an idea, it was a concept. But it has a value in use. And so it's a swap of the use of IP and knowledge and know how for the value of, in this case, carbon fuel savings. Right. But it could equally have been like with a wind turbine, you, you come in with a new wind turbine or a technology and you basically have a production sharing agreement. That's not rocket science. I talked about a tithe, a tithe is a production sharing agreement. And what I'm talking about here is ways in which we can invest without cash, right? So you don't buy the turbine from Siemens. You don't lease it. They put the turbine in and you give them 30% of production. It's not rocket science, is it? That's, that's a smart swap as we call it.
[00:50:13] Rachel: Can I, can I just here, w does currency create a form of middleman then? Does currency engender a profit based market rather than a service based market?
[00:50:23] Chris: Well, you've got to think what currency is. Currency is I would define it as a generally acceptable means of exchange, right? A generally acceptable means of exchange and yes, currency can be issued by middlemen, historically middleman have issued currency. Okay. But it doesn't mean to say that middlemen have to. As Minsky said, anybody, anybody can issue money. The difficulty is getting it accepted, right? If, if I issue currency and then I issue more and I'm really successful, people start to use my credit as potentially currency. That's what, that's, what essentially happened over centuries. You would, you would find that a merchant whose credit was good, would find that his promises, because it's all about promises, his promises became accepted. Right. And that's where checks came from. Okay. I will give you my promise. So the promise is A to B, but then you could take that and assign it, that's the word, not exchange it. So I'm still the promissor, you are the acceptor, but you can assign that promise to somebody else. Right? That's what the early that's what checks were about.
And then they in turn could assign it to somebody else, but somebody would eventually come back to me and say, Chris, here's your promise. I want what you promised or, or I will pay you with it more to the point. I will pay you with it. Okay. And, and that's exactly what we can do here. Um, that we could actually have a production credit, so like, uh, a local wind turbine. If you think about it, um, it takes 50 pound notes out in the fresh air, that's, that's what a turbine does. And if you can sell enough, let's say 10 kilowatt credits, right, which you can, you could sell 10, 10 kilowatt-hour credits and you could, if you can sell enough of them, you could actually fund the building of it. Right. There's just a different way. It's prepayment. It's, it's, it's simply prepayment.
[00:52:37] Rachel: What would be some resistance to moving into the service based market do you think?
[00:52:44] Chris: Well, there's something in it for everybody, because even for the banks, you see banks, can't print energy. They can print money, these symbols and things. And yes, you know, there are certain things they can do, but they can't print energy. And I actually spoke at a conference at the Delfi economic forum in Delfi in Greece. And I was the, in the opening plenary I was the only non banker on opening plenary and I was asked to talk about financial technology. And, um, and I talked about, uh, just this, I said, there is actually a role here for banks. This is banking as a service, right? You can't have people issuing too many more credits than they can actually perform against. Right. You can't issue more energy credits, then you can actually create the production that people can cash them in against, right, because it's prepayment. Did you ever see the film The Producers? It's a great, uh, a great film about the guy that they, they, they have, they, they, they created this, um, show.
[00:53:55] Rachel: The musical.
[00:53:56] Chris: The musical. yeah, Well, the whole idea was that they sold maybe 10 times more shares.
[00:54:04] Rachel: Than there were.
[00:54:04] Chris: Yeah, exactly. And, uh, and the whole idea was that the play would be a complete disaster and they'd run away with the money. But, you know, you see the point that you can't have too much issuance. So the role of like a monetary authority, it would be in the public sector if you will, uh, but it's like quality control. The bank would basically do due diligence, say, hang on a minute, you can't issue more than X percent of your production because you've got these other costs to pay, right. So it's a management role. And the other role a bank could have, which is sort of like an investor investment banking role, it's introducing, um, investors 'cause I, I believe that one of the big, big asset classes of the next century will be instead of having credits, which are based on nothing much at all, i.e. government faith, good faith, which are currently getting negative returns, I mentioned this, a $17 trillion getting negative returns. Imagine if you actually had energy credits instead, which are a positive return by definition.
And I think that's the way things will go, that you can just sell: this is how we can fund the transition to a low carbon economy, I'm absolutely certain of it. This is what Steve and I have sort of been batting backwards and forwards a bit. Um, it's an asset class, but it's a dead simple one. The ones we're used to are debt, equity, but we've forgotten there's a third: prepayment is obviously a way of actually funding something. It's just self-evident isn't it?
[00:55:45] Rachel: But won't that price- and this may be revealing, uh, my lack of understanding- but won't that price out again a huge section of the population? Doesn't that maintain that there is essentially an investor class, um, who then will also become the people who own the means of production and kind of creating like a Marxist dystopian nightmare.
[00:56:06] Chris: No, no, no, no. We're doing nothing at all. It's a good question. But we're doing nothing at all to the ownership. All we're doing is saying people can invest in the future production and we don't care who they are because they've got no more rights than, you know, I could own 10 credits and you could own 10 million. It doesn't matter to me. I can spend mine and you can spend yours, but actually in fact, you can't, you know, you're sitting on 10 million and yes, they hold their value, but they don't give you any more rights than I have. They don't give you control. That's the point.
We're distinguishing the supplier value from the control of the means of production. Because what we're doing is we're keeping the means of production in the hands of the people, because we have a custodian, right? It's it's, it's a mutual. I, I talk about mutualization and that's a nice word, actually. It's not public. It's not private. It's both.
I liked the word clubs. A friend of mine said, Chris, you're talking, we're all going to club up, aren't we? And I said, yeah, we're going to club up. We're going to have clubs of clubs, of clubs, of clubs. And it's going to be non-hierarchical, is the way it's going to be. And I find this quite inspiring in terms of the, the legal structure of cooperatives, um, working with some really good people on equal care co-op looking at, how can you actually network teams of carers, right? Instead of having a hierarchy instead of having an agency who comes in and pays not that much to the carer, why don't we have a network of cooperative carers? And the only thing holding us back is the legal and financial structures. We can do that. We should do that. One point I'll make, maybe it's a preemptive question, by doing this we out compete the system because we're not paying, this is the co-operative advantage, we're not paying something for nothing to rent seekers. Anybody who demands something for nothing can't compete with us because we're always coming up with something for something, you see the point.
It's, it's a genuine, it's a genuine exchange of flows of value. And credits are sort of, it's like packet, you know, like the internet protocol takes a flow of data and then packetizes it? know, as they call it, packetizes it? We're going to do exactly the same with value. That value in all its forms is created in terms of flow. And by using a single simple instrument, like a credit, a promise, we can literally packetize it.
But that doesn't mean to say that it comes with all the, the issues that you have of control, because it doesn't. We're just looking at the flows, you know? And that, I see this as the end game, not just the end game, I think this will emerge very, very rapidly because it's based, um, I'm working with a guy called Will Riddick, who you may have come across, if you haven't interviewed him, you should. He's he's um in Kenya, and he's been doing community currency, uh, for 10 years in a very, very, very practical way, very practical way. And he can tell you more than I ever can about how, you know, how, how people react on the ground to, to, to, to their they're- they're not interested in the, in how the sausage is made. They're interested in whether the sausage is going to kill them or not. You know, it's, it's, to use Bismarck's, um, expression. They they're interested in how it works.
Um, and I like to think that the Western system of property rights and legal vehicles, it just doesn't sit well in the third world. It's extractive. And what we need is agreements which fit with the way that native cultures work everywhere. And, you know, I wrote a series of presentations years ago in my early days when I was still, I wouldn't say enthusiastic, but just working it all out, and it was entitled, "Ethical Is Optimal". I realized that sharing risk and reward, if you get the agreements right, out competes, anything else.
I remember going to, you've heard of Qom in Iran, the holy city of Qom I, I went there, um, to, cause we were talking about Islamic finance. Um, you know, one of the, we were looking at the instruments that were bringing in, oil and product trading and whatnot. And I was introduced to the guy who was the foremost authority on Islamic finance in Iran. And, um, we had maybe two hours together, it was a wonderful conversation through an interpreter. And I asked him, having explained the tools I was talking about, which I've explained to you, you know, prepayment and risk sharing and cost sharing, I said, is this, you know, Sharia compliant? And he said, you don't have to ask me. He said, any Muslim will tell you, it's self evident it is. You know, you don't need a scholar to come out with all sorts of, you know, um, complex arguments. Ethical is optimal, actually. You know, it's just that we've created this financial system of complexity and cost and you know, and we've, we've, we've produced a monster.
[01:01:44] Rachel: I suppose then on that, my final question would be, because I assume a lot of this, well, would it be? I assume it would start as a, kind of a grassroots movement or pressure.
[01:02:00] Chris: Will Ruddicks called grassroots economics. Sorry to interrupt.
[01:02:03] Rachel: There we go, there we go. But how possible is it to create, uh, financial systems and legal systems and legal contracts, et cetera, et cetera, when markets are global, but there's no one global governing body?
[01:02:21] Chris: Well, that's the beauty of a mutual agreement.
[01:02:25] Rachel: Hmm. Okay.
[01:02:26] Chris: A mutual agreement has no jurisdiction. Well, I'll give you an example because it's such a good question and I can give you a really good answer. There are certain risks that Lloyd's of London, the ship insurers will not take right? They will not take certain political risk in particular. And for 150 years in London, out of London, have operated, they're called protection and indemnity clubs, P&I clubs, nice Victorian sort of sounding name. And it's mutual assurance, I don't talk about insurance. They mutually assure these risks. And when there is a claim they club together, and they have reserves and whatnot and they pay whatever the claim is because Lloyd's of London, the middlemen, they won't take those risks.
And these P&I clubs have been active and they've been run by a third party. To start with they didn't, and then of course they found that they had conflicts of interest creeping in. So they, they employed a broker called Thomas Miller, and that, that firm is still manages, acts as manager, the service provider again, steward, if you like. All the global market bounded by what is essentially a mutual agreement. Yeah. Club rules right is a mutual agreement. So I can immediately point there to an example of where mutual agreements do work in practice globally. And I believe that is the way the world will go. I talk about an energy clearing union because I believe that it is possible to come up with a mutual agreement bounding this new generation of energy services, heat, cooling mobility, et cetera, produced at least carbon fuel cost. That's what the Danes have been doing, this is a separate conversation, but that's what the Danes have been doing for 40 years. And they have literally changed their energy map by taking this pragmatic decision to minimize carbon fuel use for any given delivery of heat, cooling, mobility, et cetera, et cetera.
[01:04:32] Rachel: What is carbon fuel use?
[01:04:35] Chris: Well, oil and gas, they didn't have any,
[01:04:37] Rachel: Oh, I see, minimise the use of carbon fuel use.
[01:04:40] Chris: And that back to resilience. 1973 oil shock, Danes didn't have any oil, price went up 400%. They had like an oh shit moment. And they basically came up with a strategy. We don't have a strategy in this country and nobody else really does. The Danes came up with this, I call it least carbon fuel cost strategy, which is not the same as a least Sterling cost or least dollar cost strategy. And it gives you very young the need to look at their marks energy map to see the results over 40 years of what has happened there. And I've written articles, I can send you links on them on this very subject, because for me, this is my number one priority. This is what my letter in the FT today was about, and I'm talking about smart swaps. You know, the James Watt, you know, smart swaps. I'm talking about energy credits because our markets got completely knackered. You know, that they are completely knackered. We have to come up with something better. And, um, I'm pretty sure I've, myself and people I'm working with, I've identified that, actually. So that's an optimistic note, isn't it, to end.
[01:05:51] Rachel: I think so, I think you stole my line. Wow. I need to, I need to go away and do my research massively, but Chris, thank you so much for taking the time to speak with me.
[01:06:05] Chris: I've been speaking at you, haven't speaking with you.
[01:06:10] Rachel: I'm afraid that I normally do like to jump in and ask questions,
[01:06:14] Chris: And I apologize for not letting you.
[01:06:18] Rachel: Normally at this stage I ask my guests who they would like to platform, um, who I can go off and interview, but I assume that would be Will Ruddick.
[01:06:27] Chris: Will would be a great person to talk to about, about his, his work and why he's done it. Absolutely.
[01:06:33] Rachel: Fantastic.
[01:06:34] Chris: There's a guy I know who's into systems thinking. That's Trevor Hilder. He has a site called web of wealth. He and I are working very closely together on this. .
[01:06:43] Rachel: Excellent.
[01:06:44] Chris: I'll introduce you to both. Yeah.
[01:06:46] Rachel: Thank you so much.
[01:06:47] Chris: You’re very welcome. I enjoyed it. Thank you so much.