All posts

Price liberalization will result in higher living costs

This article was originally published in Romanian in issue no. 18 of the Housing Justice Magazine “Cărămida” (The Brick), launched on the occasion of the protest organized in Cluj-Napoca by Căși sociale ACUM/ Social Housing NOW!, Gastivists, Fridays for Future, the Group for Socialist Action, and the Union of Militant Pupils and Students.

The article is an accompanying piece to a protest that took place on the 24th of November 2022, a protest started at 6 pm in front of the prefecture in Cluj. Those who attended shouted together: EVERYTHING IS TOO EXPENSIVE! Utilities, food, housing. They called people to join them pleading: Do you also have bills that make you revolt? Come to the March of Discontent in Cluj. Bring your bills to throw them together in the trash. Because housing and utility costs should be at most 20% of our income.

Together the protest organisers and participants demanded salaries and pensions proportionate to the costs of living. The protest demanded the reduction and capping of energy, food, and housing market prices. They claimed social utility bills, more social housing, and rent regulation. They also also expressed their solidarity so that no one is pushed out of the city that has become a real-estate paradise, and demanded that the state and companies worked in favour of the people.

The year 2022 has brought a wave of huge price increases in Romania.

The liberalization of electricity and gas and the rise in fuel costs have led to a chain reaction of high prices for food and many other basic goods and services. Because gas is sold on the stock market and passes through many intermediary firms, the shareholders of production and supply companies extract their profit from the gas on its way to our homes. Consequently, the profits of energy, gas, and oil companies have doubled, tripled, and in some cases increased fivefold in Romania in the first half of 2022 compared to the same period in 2021. [1] The leader of the profiteers is Petrom (with a profit of 4.6 billion lei, a fivefold increase), followed by Romgaz (1.72 billion lei, compared to 761 million lei), Nuclearelectrica (1.22 billion lei, a threefold increase), Hidroelectrica ( with a 56% increase in net profit, up to 2.6 billion lei), and then Rompetrol (with a net profit of 276.9 million lei, after being in a loss last year).

The end consumers are the ones paying for these profits. Similar to how the labor force is making a profit for employers. And those who buy housing on the market provide profit for developers and real estate investors.  The Romanian state helped create the market economy, and since 1990 it has liberalized the prices of all goods and services. Profiteers tell us this is freedom. They lie that consumer choice will lead to lower prices because companies will compete to attract customers. This logic is obviously false, now more than ever. Liberalization means price increases. liberalization is robbery. It is the freedom of companies to steal as much money as they can from our pockets. It means competition between companies for profit.

Let’s see further the list of price increases in Romania. In August 2022, compared to August 2021, the price of non-food goods surged by 15.98%, food by 18.22%, and services by 8.26%. The biggest price increases are in gas (up by 70.64%), comestible oil (49.68%), electricity (36.33%), bread (25.26%), eggs (20.34%), and many others.[2] In September of this year, Syndex Romania observed a huge rise since the year before in the value of the minimum consumption basket needed for a decent life for a family with two adults and two children. [3] This increased on average by 20%. However, for housing costs and other household expenses (such as utilities), this increase was 31.2% and 34%, respectively. This means that, due to today’s housing costs, a family living in a private rental or paying installments to the bank for a mortgage should be able to spend 2273 lei per month on their home and 739 lei on other housing expenses, and in total would need to have 8659 lei. If such families do not have that much money to spend, they do not have the means to live a decent life. In addition, we know that in 2021 almost 30% of employees in Romania had employment contracts registered with the minimum wage.[4] In 2022, the net national minimum wage was 1524 lei, while today, Syndex tells us, a person should have an income of 3275 lei to live decently. So, as it were, one would need to work for two months to live one month with the proper conditions.    

The rising cost of living is a phenomenon that is happening all over the world. However, let’s remember that people on low incomes are most affected. And in Romania, poverty has been a widespread phenomenon for a long time. Even with a slight decrease compared to previous years, in December 2021, poverty affected 22.60% of the population;[5] and the rate of poverty and social exclusion (which includes material deprivation, such as the inability to pay utilities, to heat the home, to meet unpredictable expenses, and others) was 34%. 4%, the highest in the European Union.[6] The calls by energy companies or governments to reduce our consumption of gas, electricity, or food as a solution to their high prices are absurd, especially for those with low income and the poor. The question for many is not what to give up but what else to give up. People who always lived on low budget know that it is not alleged over-consumption or having too much money that has led to inflation. In addition, there is a growing consensus among many economists that the current wave of inflation is not caused by wage increases and over-consumption, as is the orthodoxy among liberal economists. The price of various goods has risen, contributing to inflation, due to the disruptions in the global supply chains because of the pandemic and because of financial speculation in the energy and oil markets. The phenomenon of imitation also plays a role in the market: everyone pushes up the prices, even if they do not depend on the chain of price increases because that becomes the market norm. Escalating living costs are clearly reflected in the rising profits of large firms, while small firms and those who do not do business through speculation are also put at risk, not to mention those who make a living by selling their labor force.     

We have seen how governments’ response to inflation, including Romania’s through its National Bank, was to bump up interest rates, which benefits commercial banks and puts those with mortgages at risk. To be eligible for these loans, in the past, the applicants were strictly checked by the banks: if their income did not fall within a certain margin, people were considered to be at risk of not being able to pay the monthly installments and were refused. With rising interest rates, and the parallel surge in other living costs, many of those eligible for home loans a few months ago today probably don’t fall into the “good=profitable payer” category. What will happen to them if they can no longer pay their monthly installments? They are particularly at risk if they lose their jobs because companies go bankrupt or lay off employees precisely because of increased production costs (due to higher energy prices) and reduced consumption. Low consumption, as we all know, leads to reduced production, which is why the solution to inflation imposed by governments (reducing consumption through monetary measures, prolonging wage, and pension increases, not effectively regulating energy prices) will lead to recession.

In short: current wages and pensions are not enough to cope with the price increases. People make calculations about what to give up surviving. But in giving up more and more, survival eventually becomes impossible. Governments keep coming up with solutions to subsidize private companies that increase their profits, explaining that the latter are the creators of jobs and goods. In a way, this is true because, in capitalism, we have no alternative: the private sector dominates the economy. One may nurture a possible return to post-World War II state capitalism in which the state tried to balance the relationship between capital and labor through public investment programs in public services. Today, however, alternatives must look beyond capitalism. Because what is exploding today in the cost-of-living crisis are the multiple crises produced by capitalism (economic, financial, housing, climate, energy, and others). Even people with relatively higher incomes, around the level of the national average wage, are beginning to feel this crisis, not to mention those with low incomes or people who were already living in poverty. In turn, to sustain the market economy and capital, governments are ready to enter the circle of indebtedness, and at some point, they, too, will probably go bankrupt, being even more heavily exposed to the interests of powerful states and global financial players. In principle, this increasingly disastrous moment is an opportunity for broad political solidarity to overcome the capitalist regime that has brought us to where we are today, with our lives endangered by wars that remake the global order, militarization, climate disasters, and economic and financial shortages. Capitalism pushed us into this situation, and it can no longer claim to be the best mode of production or societal organization we can imagine. Debates are raging, and riots of all kinds will probably follow all over the world; the important thing would be that discontent should not fuel the extreme right, the nationalists, and fascists, or those who praise the return of national capitalism as a solution to neoliberal globalization. We know from history what happened when that happened. Socialization of the means of production, and internationalist socialism at large, is the alternative path that humanity should take.        

Protest Everything is Too Expensive, Cluj 24/11/2022.
Source: Căși sociale ACUM / Social housing NOW

Today’s widespread crisis deepens the now old housing crisis that many people have been facing for some time, which manifests in overcrowded homes, households overburdened with housing costs, as well as in a lack of public housing, or in evictions that leave evictees without adequate shelter. Members of the Căși sociale ACUM!/ Social housing NOW! movement have written many articles about these phenomena in the previous issues of the Brick magazine (Cărămida), and run several public actions drawing attention to them. At the end of the inflation chain, which reduces people’s purchasing power, housing market prices may fall at some point. But those who have used housing as an investment so far probably already have a lot of money from their accumulated gains from rents or multiple transactions and will keep buying. Moreover, falling housing market prices will start a new wave of speculation: investment funds and private individuals who have money will buy houses at low prices to earn even more at the end of this cycle of economic crisis when housing prices and rents start to upsurge again. However, until then, another question arises: Will institutional developers turn to state aid? Will new government programs emerge to support institutional private housing construction and, correspondingly, will banks make a profit from mortgages?

This should not happen (again). It is important to remember: the housing crisis is not the same as the real estate crisis. Rising housing prices mean a crisis from the point of view of the people who need a house to live in, while from the point of view of the real estate investors, the real estate crisis only means a reduction in their profit due to dropping house prices. The state will have to decide which crisis it wants to solve and who it supports against whom. It should not bail out banks and developers but should use the public budget to build public housing. Or save only the most essential private companies, putting clear conditions on them to serve the public interests. And with the reset of the political economy at large resulting from the multiple current crises, it should impose ways to regulate the housing market for the benefit of tenants. The creation of a mixed housing regime, I would argue, based on mixed ownership (with parity between public and private ownership, thus eliminating the supremacy of the profit-making private sector in housing) and democratic control over state decisions would be the way forward in the near future in this domain.

Enikő Vincze is a Professor at the Babeș-Bolyai University of Cluj-Napoca, Romania, and housing justice activist in the local movement Căși sociale ACUM!/ Social housing NOW!, and the national network of several activist groups from Romania, Bloc for Housing.