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Monday, April 11, 2016

Implications of Rising Protectionism for the Real Estate Industry

By Amy Erixon, Toronto

Collectivism is fundamental to both the “New Economy” and the real estate industry.  Immeasurable benefits, such as reduction in global poverty by over 2 billion people over the past 40 years are credited largely to rise in global trade and urbanization.   Economies of scale made this possible. Knowledge has become far more accessible, and costs of bringing an idea to market have been greatly reduced, thanks to harnessing of the internet.  Our lives have been forever changed. 

Staggering fortunes have been made by harnessing these forces and delivering solutions to the marketplace;   and yet rather than unlocking barriers to equal opportunity-there is growing evidence and considerable consternation over rising income inequality, corporate and private tax evasion and the pace of technological and demographic change upending society as we know it.   Hence the rise in protectionist rhetoric, but this is entirely the wrong tool to address these issues in today’s world. 

According to MIT’s School of Political Science, discord in the political world is not only increasing, statistically it is increasing exponentially.  As real estate professionals this should be great cause for concern – at the local, regional, national and international levels.  Say you are a builder – you rely on local and regional publicly funded infrastructure, available skilled labor and stable building codes and tax regimes.  Say you are an owner – what if your tenants suddenly find their businesses unable to function due to supply chain disruption, costs skyrocketing due to border crossing issues, tariffs and/or extradition of meaningful swaths of the workforce (this is how the housing situation became so dire in Spain during the last recession).   Say you are an international investor - $70 billion of foreign direct investment went into the US alone last year – risks are not insignificant of these assets being impacted in an environment of escalating counterproductive policy proposals.

Our economic health and social future depends on political leaders coming together to find ways to spread costs burdens equitably and ensure benefits of technology are unfurled ethically.   The January 30, 2016 Economist article – Going after Google suggests a common sense approach to dealing with tax avoidance that speaks to the direction in which comprehensive solutions lie in an increasingly global economy.   Every country taxes its corporations and residents on their worldwide income which is then redistributed back pro-rata to the source countries, accounting for both workers and consumers in the redistribution formula.  Ideas like this highlight that cooperation, not protectionism provides better solutions, both morally and economically.  

I profoundly agree with Peter Diamandis, author of Abundance is our Future.   The question is how do we get there.   Technology is key to solving most of the causes of distress and suffering in our world - that will be the topic of future blogs.     But technology cannot deliver its promised benefits, and neither can we hope to build and invest in healthy communities without functional and constructive public policy.  

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