You have to be pretty desperate to set yourself alight, as a young vegetable seller in Tunisia did in 2010, sparking the Arab Spring which has brought so much hardship in the Arab world, and now onto the shores of Europe. Tunisia itself seemed to offer a glimmer of hope that it had not all been in vain, but the Sunday Times reported (28/02/2016) that already this year there have been 17 self-immolations and 120 last year in protest at corruption and poverty. Tunisia, at least, is trying to improve things, but democracy is not in itself a solution to poverty and unemployment. What is lacking is an understanding of how to create a just society.
Communism, once the hope of the poor, has failed; bureaucratic socialism has fared better, but has burdened the State with high and growing debt and the citizens with a heavy tax burden; capitalism has demonstrated its ability to produce immense wealth, but is marred by huge wealth and income inequality; so is there another way?
Writing in the last quarter of the 19th century, Henry George offered an alternative and dedicated his Progress and Poverty ‘To those who, seeing the vice and misery that spring from the unequal distribution of wealth and privilege, feel the possibility of a higher social state and would strive for its attainment.’ Among those who responded to his invitation to strive for a higher social state were Winston Churchill, Leo Tolstoy, Sun Yat-sen in China and Albert Einstein.
The Shepheard-Wawlyn Ethical Economics list contains a selection of books exploring how the insights of Henry George could be applied to the conditions of today when the gap between rich and poor continues to widen, suggesting that the cause which he pinpointed in his book, is still in place. Even where there is no intention to apply the ‘remedy’, as he called it, the benefits even of a partial application are evident, as Hong Kong and Singapore show.
Just as the Soviet Union faced up to the failure of their economic system, so we now need to recognise the failure of the global economic system to provide work and a decent livelihood for all who share this planet and look for an alternative. Over the next six months, Shepheard-Walwyn will be publishing three titles which explore how such a change could take place.
In a review of Our Land, Our Rent, Our Jobs in the latest issue of Land & Liberty Fred Harrison pointed out that ‘according to conventional wisdom, South Africa has erased all traces of apartheid. How could it be otherwise, in the land of Nelson Mandela? When it came to power, the ANC resolved – through the country’s constitution – that “South Africa belongs to all who live in it”’.
To reinforce this, Harrison goes on, the ANC government was placed under an obligation to realise that aspiration which ‘was made mandatory by §25 (5) of the constitution. This declares: “The state must take reasonable legislative and other measures, within its available resources, to foster conditions which enable citizens to gain access to land on an equitable basis”. Furthermore, §237 declares: “All constitutional obligations must be performed diligently and without delay.”’
This has not happened, Harrison points out: ‘South Africa today still belongs to the minority: Those who own the title deeds to land, and who fail to pay the socially-created rent into the public purse.
The failure of governance is a tragedy for most people. The economics of apartheid prevail in Mandela’s republic. True, the elites now include black Africans. But that is of no comfort for the millions who suffer separate “development” in the shanty towns of Cape Town and Johannesburg.
There is no excuse for this failure. As the authors of the recently published book Our Land, Our Rent, Our Jobs note, until 2004 most of the municipalities raised revenue by a direct charge on the imputed rent of land. This model, if generalised by central government, would have made it possible to abolish the treadmill taxes that deprive people of jobs and the decent living standards that they would otherwise provide for themselves.
The theory that underpins the treatment of land as public revenue was established long ago, and repeated time and again by Joseph Stiglitz, the Nobel prize-winner who continues to advocate rent as public revenue in these terms:
One of the general principles of taxation is that one should tax factors that are inelastic in supply, since there are no adverse supply side effects. Land does not disappear when it is taxed… But it is not just land that faces a low elasticity of supply. It is the case for other depletable natural resources. Subsidies might encourage the early discovery of some resource, but it does not increase the supply of the resource; that is largely a matter of nature. That is why it also makes sense, from an efficiency point of view, to tax natural resource rents at as close to 100% as possible.
During its years of exile, the ANC committed itself to the rent-as public-revenue policy. In Rhodesia, another anti-colonial activist – Joshua Nkomo, leader of the Zimbabwe African People’s Union – committed a post-colonial Zimbabwe to a similar policy.’ click here to read full review.
This review is published with the permission of Land & Liberty Magazine.
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This question was posed in a review of Our Land, Our Rent, Our Jobs in Moneyweb, on a Johannesburg-based website. The reviewer, Ciaran Ryan, acknowledges the difficulty: ‘There is so much invested in the current tax system that it is hard to imagine an alternative. The cost of administering SA revenue systems is about R10 billion a year, and there are an estimated 2 000 registered tax professionals lumping another R1 billion on top of that as fees. A far greater cost is the combined hours and expense incurred by companies, executives, lawyers and the courts dealing with tax matters. That’s a stubborn oak to cut down.’
In their book, the authors point out that some 50% of South Africa is rendered economically unviable by the tax system, creating large scale unemployment and migration of the rural population to the crowded shanty towns surrounding the major cities. Apart from all the social problems created by this, the government is unable to raise enough revenue to pursue the promise made on the abolition of apartheid of buying up land to redistribute to the black population. There is growing frustration, particularly among the young, at the failure of government to deliver on a brighter future for all, leading to the formation of a new Marxist party, Economic Freedom Fighters (EFF).
A taste of what could follow, were the EFF to replace the ANC as the government at the next election, was given in an open letter, published in the Mail and Guardian by the EFF’s self-styled ‘commissar for land and agrarian revolution’, Andile Mngxitama. He warned Sir Richard Branson, who had just bought a vineyard in the Cape, ‘that the EFF policy of land expropriation without compensation may, in the near future, affect your investment adversely’.
The authors of Our Land, Our Rent, Our Jobs put forward a way of reforming the tax system that would stimulate economic growth and create new employment, while at the same time making the redistribution of land easier to achieve, thus reducing the two major tensions within the country that could become explosive if not addressed. Read the full review here.
Two weeks later a review of No Debt, High Growth, Low Tax in Moneyweb, contrasted the dire situation in South Africa with the two ‘tiny specks of land’, Hong Kong and Singapore, which ‘consistently rate as among the freest and most prosperous nations in the world … provide levels of public service that are the envy of developed nations … Unemployment in both states is negligible’ and ‘Hong Kong has nearly double the financial reserves of the UK and Singapore’s per capita GDP now exceeds that of the US.’
In his book, Andrew Purves reveals how an important ingredient in the success of Hong Kong and Singapore is the large amount of revenue the governments draw from the economic rent of land, thus making them less dependent on the plethora of conventional taxes which impede economic development elsewhere. Were South Africa to follow this path, as advocated in Our Land, Our Rent, Our Jobs, it too might enjoy high growth and low unemployment.
No Debt, High Growth, Low Tax ‘provides a few interesting examples of how Hong Kong managed to finance public facilities by charging rent on appreciating land values. One such example is the Mass Transit Railway, [showing] how these governments tackle public finances with a keen sense of business dynamics. The government leased the land for the railways to the Mass Transit Railway Corporation (MTRC) at “pre-development” prices, along with development rights on land above the stations. The MTRC built shopping centres, offices and apartments above the train stations – on which it collected rent used to fund the building of the railway network. As the development rolled out, the value of the land increased proportionately, as did the rental income.’ Read the full review here.
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In his recent article “How to Fix the Housing Crisis” in Prospect Magazine, Andrew Adonis argues that the public sector must use its underdeveloped land to provide new housing which is badly needed. He concludes his article: “It is bold state action—central and local government leading development in partnership with the private and voluntary sectors, not abdicating its responsibilities to them—which will resolve the housing crisis. With its vast ownership of land, and its powers to plan, develop and finance, government can get the job done, and it has no one else to blame for inaction. It’s simple, really.”
This is a topic which caught the attention of our latest author, Andrew Purves. Below we outline his key arguments and how they relate to the premise of his new book. To read his full response in the comments section click here online.
Purves argues that the problem with the housing crisis is one of price rather than supply. In the private sector prices are very high and the cost of Housing Benefit has risen significantly in the last decade to subsidise the population forced to rent. “What then are the primary causes of the high price of housing? At number one, would be the high price of land. At number two, would be the easy availability of money (from the banks) to make those purchases.”
“How, therefore could we reduce the price of land?” Purves continues, “For the last several decades, anyone living in London could point out great swathes of undeveloped, in some cases derelict, land lying out of use: the 13 acre Battersea Power Station site, for example, or the stretch along the river from Kew Bridge to Syon Lane in Brentford, stretching north to where it meets the M4, both of which are only now being developed. What prevented this from happening earlier, was the ease with which developers can hold land out of use at no cost to themselves.”
Purves proposes that a simple land value tax, based on site value would provide the incentive to maximise the development potential for all pieces of land. A tax on land would have the added advantage of bringing down the price of land, so that the cost of housing would better reflect the cost of building it, rather than the cost of the land on which it is built.
Andrew’s book, published September 2015 is No Debt High Growth Low Tax. It outlines how the governments of Hong Kong and Singapore have used the revenue from leasing land to avoid the enormous debts which other countries have suffered from since the latest financial crisis on 2008. Purves explains how his research can give further insight to the problems and solutions surrounding the housing crisis.
“Adonis makes an interesting point about Hong Kong’s underground railway operator (MTR), which is as much a property developer as it is a railway company. However, he does not explain why this is the case – development and sale of buildings in Hong Kong in fact pays for the railway, and retaining ownership of the station infrastructure allows the MTR to benefit from ongoing rental income to maintain the railway in the future. ”
“Hong Kong provides over 30% of the public with housing at low rents, while in Singapore, 90% of the population lease their property from the publicly owned Housing Development Board, which could provide a useful template for redevelopment in all those land rich London Boroughs.”
So, Adonis’ suggestions of using existing public land to build housing is a good one. However, could this not also be improved by ensuring private owners of land are suitably taxed to ensure that property is made available to those who need it? You can read more about this proposal in No Debt High Growth Low Tax.
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‘At the end of the nineteenth century’, wrote the former Governor of the Bank of England, (The British Tax System, Mervyn King and John Kay, OUP, 1990 5th ed.) ‘a movement led by Henry George argued, vigorously, that … land should be the principal tax base. This tradition still survives, although it is apparent that the total economic rents, of all kinds, is not now a sufficiently large proportion of national income for this to be a practicable means of obtaining the resources needed to finance a modern State.’ This is a commonly held idea, even by those who are sympathetic to the idea of taxing economic rent. The authors began their next sentence with: ‘But the underlying intellectual argument for seeking to tax economic rent retains its force’.
Having been convinced of the efficiency and justice inherent in Henry George’s proposal for a Land Value Tax (LVT) to capture the economic rent, the author of No Debt High Growth Low Tax sought to find an example of where it was put into practice. As a frequent visitor to Hong Kong over many years, he became aware that its thriving economy, which had had to cope with housing millions of immigrants fleeing mainland China, was based on a system of leasehold, rather than freehold, land tenure. This means that a substantial part of government revenue is in fact raised from economic rent.
Just how substantial that is, is indicated by the fact that the Hong Kong government is able to fund major infrastructure projects, such as its underground railway and new airport, and education (free from 6-16, with subsidies for Nursery Schools, and higher education through a system of loans/grants for those who cannot afford it) without incurring the high levels of debt burdening most modern economies.
The curious thing, the author points out, is that very few people are aware of how it works, least of all those people who reside there and live with the consequences. The particular form of raising such revenue in Hong Kong is neither a complete system, having been introduced over the years in an ad hoc manner, nor one which has eliminated high levels of inequality.
However, what the system demonstrates is that economic rent is an enormous source of public revenue only partly tapped by the government, which only collects 3% of the rent on an ongoing basis, although it collects more in up front premiums for lease modifications, and new leases. The author outlines some of the features of the system in Singapore which also enjoys/relies on economic rent for a considerable part of its revenue and has no debt.
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The case for taxing land has been raised in a number of articles recently. For example, The Economist leader (4th April) argued that ‘governments should impose higher taxes on the value of land’, pointing out that ‘land taxes are efficient’ and ‘difficult to dodge’. It also noted the important distinction between property taxes, such as the Council Tax, which values the building and the land on which it stands, whereas a land-value tax values the land only. The former discourages investment because it would push up the tax payable. A land-value tax does not have that negative effect, on the contrary a land-value tax ‘creates an incentive to develop unused sites’. A land-value tax is also a means of automatically recovering for the public purse expenditure on infrastructure through the uplift in land values consequent upon the investment.
In the June issue of Prospect, Philip Collins argues that ‘the UK taxes labour and endeavour too much, and land and property too little’. He suggests that ‘the compulsory seizure of money [by the taxman] deserves a more principled defence … The best principle for taxation can be found in Herbert Asquith’s Budget of 1907’ which were then ‘embodied in David Lloyd George’s “People’s Budget” of 1909’. He concludes that this shift is ‘no small measure, either. A tax of 1 per cent on the £5tn of British land would raise £50bn. That would be enough to cut income tax by a third or abolish corporation tax entirely.’
The term ‘land’ to most people tends to convey the idea of green fields, but the authors of Our Land, Our Rent, Our Jobs point out that a land-value tax would raise far more revenue from urban than rural land (a square metre of land in the financial centre of Johannesburg is worth about one million times more than a square metre of the poorest grazing land). Thus, the burden of current taxation would be lifted off rural areas, making these sub-marginal areas viable again, reducing the pressure to migrate to the shanty towns of the big cities in search of work.
The high concentration of land ownership in the hands of the white population, who now comprise less than 10% of the population, is a sensitive political issue, but the concentration of landownership is not confined to South Africa. The New Statesman (24th June) pointed out that ‘with the exception of Spain, Britain has the most unequal concentration of land ownership in Europe … 69% of the 60 million acres in the UK are owned by 0.6% of the population’. The article points out that the Scottish National Party has resurrected the issue of land reform and urges the other political parties to do so as well. ‘In 2010, when he first stood for the Labour leadership, Andy Burham advocated a land value tax and the Liberal Democrats proposed the same in their general election manifesto. As both parties seek to resolve their crises, they should make land reform a defining cause once again.’ Read full article.
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“How do 52 million South Africans share equitably in their 122 million hectares, especially when those hectares vary so enormously in value?” asks the Johannesburg Star.
The danger of not getting the answer right was revealed in the Mail and Guardian in an open letter to Richard Branson from Andile Mngxitama, the Economic Freedom Fighters’ (EFF’s) commissar for land and agrarian revolution. He accuses Branson of having bought stolen property: “The consequence of your witting or unwitting participation in this illegal transaction is that the EFF policy of land expropriation without compensation may, in the near future, affect your investment adversely”. Read the full article here.
In their new book, Our Land, Our Rent, Our Jobs, Stephen Meintjes and the late Michael Jacques show how a reform of taxation can lead to a more equitable distribution of land, while at the same time stimulating the economy and job growth.
As the veteran anti-apartheid campaigner, Peter Hain, comments, it provides “Lateral ideas on tax raising to generate social justice for all South Africans whilst maintaining international investor confidence”.
In the Foreword, Nobantu Mbeki writes “This book is, in a sense, immediate and topical and in another, universal and timeless”.
Our Land, Our Rent, Our Jobs will be published in July 2015.
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Shepheard-Walwyn will be participating in the Book Fair at the annual Rethinking Economics Conference at Greenwich University in London on the 27th-28th of June. This is the third annual conference that aims to inspire people to rethink the future of economics in academia, media and policy-making. For more details click here.
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A recent article (4th April) in The Economist stated that ‘The history of economics has been, among other things, a story of learning to care less about land’. Though not intended as such, this exposes a blind spot among current economists which accounts for the instability and inequitable distribution of income and wealth in the capitalist system.
In his Inquiry into the Nature and Causes of the Wealth of Nations, Adam Smith recognised three factors of production that combined to create wealth: land, labour and capital. At the time of writing, the economy was still largely rural so that the relevance of land was obvious, but with the advent of the Industrial Revolution, the provision of capital assumed much greater importance. The area of land required for a factory, office or bank was much smaller in relation to the wealth created than in agriculture. This created the impression that land was no longer such an important aspect of the economy and both Marxist economists and neo-classical economists largely thought in terms of a two factor economy of labour and capital, whose interests seem diametrically opposed, the situation we have today.
However, this is to misunderstand the role of land in the creation of wealth which has not changed and cannot change. How we use land changes over time, it is true, but no wealth can be created without land. To understand why, we need to appreciate that, in the context of wealth creation, land means everything nature provides free for the use of humanity: the earth’s surface, the minerals below the surface, the fish in the sea and today the electromagnetic spectrum. Without this resource, no wealth can be created. A measure of the importance of land is the high price paid for prime locations: a square metre of land in the City of London costs more than a hectare of prime agricultural land because it is scarcer and more productive.
The failure of modern economists to acknowledge the vital role of land in the wealth creation process lies at the root of the instability of the capitalist system and the great disparity in income and wealth distribution. It was the genius of Henry George to recognise that a tax, graded according to the market value of bare land, his land value tax, could not only resolve these weaknesses, but also provide the government with a secure source of income without needing to resort to a plethora of taxes which hamper wealth creation.
Conditions have changed since Henry George wrote Progress and Poverty in 1879, but the laws of economics have not. Several of the titles in the Shepheard-Walwyn Ethical Economics list explore how Henry George’s ‘remedy’ could be applied in the modern context. A New Model of the Economy explores the relevance to both macro- and micro-economic analysis of spatial location which gives rise to economic, or Ricardian, rent.
Instead of making supply and demand the starting point, The Science of Economics begins with the simple observation that all material wealth is ultimately derived from land, and, where goods are exchanged, the first requirement is trust, or a system of credit. From this starting point the major characteristics of the modern economy, such as banking, companies or corporations, international trade, taxation and trade cycles, are examined in terms of the conditions that govern how and why they evolved and how they operate today.
Public Revenue without Taxation shows how ‘the development of Keynes’ general theory of employment leads to the conclusion that an open trading economy is likely to be most competitive, and therefore most prosperous, only when taxation is abolished’. To explain how government can be funded without taxation the author refines Alfred Marshall‘s distinction between the public and private value of property to reveal an alternative, peculiarly public source of revenue.
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It was a pleasant surprise to find the first title in our Ethical Economics list being praised in a newspaper article in Malaysia over thirty years after its publication. The article in the Malaysian Daily Express was reporting on a presentation in Kota Kinabalu by an estate agent on investing in Australian property. The speaker told his audience “I wish I had known about the book entitled, The Power in the Land by Fred Harrison 10 years ago”. He went on to relate that in the book Harrison had explained the workings of a remarkably regular 18-year property cycle. Knowing the timing of the cycle could make all the difference between successful or disastrous property investment.
Based on his understanding of the property cycle, Fred Harrison accurately predicted In The Power in the Land, published in 1983, the timing of the 1990s crash from which Japan has still not fully recovered.
Armed with this knowledge, Harrison warned the incoming Labour government under Tony Blair in 1997 of the danger of a property crash in 2007/08. No notice was taken of this and Gordon Brown boasted at every budget, even in April 2007, that “we will never return to the old boom and bust”.
In Boom Bust: House Prices, Banking and the Depression of 2010, published in April 2005, Harrison again warned of a looming crash unless a tax reform were introduced. No action was taken and the inevitable followed and we are still suffering the consequences.
A third book in our list, The Secret Life of Real Estate and Banking, looks at the link between banking crises and property cycles in America over the last 200 years.
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