Ed Milliband's conference speech in Liverpool was typical of any populist career politician. The central theme was "I'm different so you can trust me with the big economic decisions".

Mr Milliband singled out the producer / predator divide as the key problem in British business: "Predators are just interested in the fast buck, taking what they can out of the business.... One firm always destined to be a predator and another to be a producer....Look at what a private equity firm did to the Southern Cross care home". 'Granny farming' - as the private equity boys call it - has been a sacred cash cow of their predatory business model for decades but why?
 

The answer is very simple: the regressive British tax system actively encourages the rent seeking predator whilst punishing the value adding producer. A predator can be defined as somebody who is constantly looking for what's called "Economic Rent". Economic Rent is the (unspoken) 'cream of the deal' i.e. abnormal returns. It's the excess money you earn once your initial investment has paid off. This excess is not infinite so to prevent these unsustainable royalties blowing up in their face rent-seekers have to dump the investment when they've almost milked it dry. That way someone else has to pick up the pieces - enter the taxpayer.

Is this divide too simplistic?

But who are the producers and is this divide too simplistic? Firstly the divide is simple and one can (and will) argue that some corporations are both producers and predators simultaneously. An organisation that does both would add value by creating goods or services but then extract value through say a property portfolio that privatises the economic rent created by the community. This schizophrenic practice straddles the divide and worryingly remains socially acceptable.

A producer is someone who uses their labour to add value. Producers often have their own successful value adding business so do not need to emulate the predators. Producers believe everyone can be rich in a meaningful sense whereas the predators believe only a few can be really rich. The oldest conflict in human history is the predators vs. the producers.

Predators manipulate the social and political landscape to derive the economic rent because predators need producers not vice versa. By kowtowing to the predators policymakers in The West have re-shaped taxes to help the rent seekers. This has turned economic democracy into financial oligarchy to which politicians now turn for funding. It has polarized society between the predators - those who live off the rent and finance and the producers – who live off only what they can produce.

The game's up...

The upper echelons of the predator 'class' do not do anything productive at all. They surround themselves with a coterie of 'professionals' that co-ordinate profit taking, tax gathering, and rent collection. The Inland Revenue, lawyers, judiciary, parliament and bureaucrats all live off rental spoils. To make this swindle palatable moral leaders (historically the church) have overseen and legitimised the process claiming it is the best possible arrangement for society to 'progress'.
 

The problem now is twofold: 1) The balance has shifted so dramatically toward the Predators that the game is now clear to see 2) People today are wiser, less likely to accept that this is God's wish.
 

Mr Milliband told his party "I'm not Tony Blair" and the conference booed the name of the most successful leader in labour's history – but why? Because Blair is a predator par excellence and although the crowd couldn't put their finger on it – intuitively he's morally offensive to Labour Party history. After presiding over the biggest housing bubble in British history Blair's next rent seeking expedition was Iraq. After Downing Street almost all of the money Blair has earned has been through rent seeking – legal or not.

Incidentally house holders are also complicit in this system as they are allowed to privatise the unearned increment that arises in their property value when the community comes together and creates a surplus of economic rent.

Fashionably Ignorant

Stephen Schwarzman understands the economic rent mechanism intimately but for self preservation any predator has to remain fashionably ignorant. He is the Blackstone CEO who took the capital out of Southern Cross by selling off the homes and forcing the company to rent the properties from another company. Tax adverse Schwarzman* bought Southern Cross in 2004 for £162million and flipped it three years later for well over four times the price he paid. If it goes bust the taxpayer will pay £600million a year to re-house the 31,000 'economic units'. Predatory rentier capitalism for Schwarzman and socialism for everyone else – still cool with that?
 

The question is how do we get out of this debt backed mess? Very simple – reshape the tax system to socialise economic rent to pay for public services, infrastructure and pensions. That way you can have man on the street keep what he earns and put a secure fence around UK assets that will deter the predators. Will Mr Milliband, Labour or in fact any political party do any of this? Not a chance. But it's good to understand the mechanism and solution. Maybe one day we will make elected leaders enforce such a brilliantly simple tax code – only of course if we lose that self defeating obsession with house prices.

*In August 2010, Schwarzman compared President Barack Obama's plan to raise carried interest taxes to Hitler's invasion of Poland in 1939. No comment.