Renegade Economists 286
This week we speak with Alanna Hartzok, co-director of the Earth Rights Institute, looking at her experiences at the World Bank Land & Poverty conference. We discuss the paper she presented on Socialising Land Rents, Untaxing Production , exploring the deep history of fair land tenure and tax policy as contained in perennial wisdom teachings of both East and West, foundations of economics in the Physiocrats, Adam Smith, Karl Marx and Henry George, up to what Joseph Stiglitz and other Nobel prize winning economists have to say on the theme, and more.
KF: Alanna, why is this such a must-visit event?
AH: This is the place, the conversation on the theme of land and poverty happening on the planet earth. It’s amazing. Last year there were five hundred people. This year there were eight hundred. People from governments, academia, civil society, private, development partners, from 90 countries. Several chief economists from the World Bank, top level people. Even the buzz was reaching the White House from the World Bank. One of the speakers from the last plenary session said that the President was hearing about what this interesting conference was, happening down the street. It’s just amazing, Karl and it really is major. The number of session that look at land-value capture and the kinds of issues that we’re really concerned about, tracking land information, land valuation it’s all happening here.
KF: You gave a paper that was on the first morning of the conference, that must have been pretty competitive to get that spot?
AH: Well, they had 400 people apply to give those papers and they accepted two hundred. So if you can imagine that within the space of four days, there were that many papers presented. If I can just tell you for a second I want to name some of the major sponsors of this conference. United Nations Habitat: Global Land Tool Network , US AID, the Ministry of Foreign Affairs for the Netherlands, France and and Germany, leader is GIS technology ESRI, Landesa, UN’s Food and Agriculture organization, Millenium Challenge Corporation, those are just about half of them, and each year those co-sponsors grow and grow and grow and major partners are coming in.
The keynote speaker last year was Paul Collier.Paul is an Oxford professor, a consultant advisor to IMF and the World Bank for Africa. He’s the author of The Bottom Billion and a number of other important works. Last year in his opening session for this event he talked about the need to socialise land rent. He said mostly the land value grows and it’s captured by a few private land-owners but it’s created by society, it should be captured for the good of society, speaking a message of the new economics of Georgist economics at that first session last year. I never thought I’d hear about socialising anything at a World Bank conference. But that is why I submitted my paper with the title “Socialising land rent and untaxing production”.
KF: That’s a fantastic paper you produced and I’m lucky to have a copy here. I’m very interested to see some of the founding documents for the UN Habitat had this sort of reference to the importance of getting the basics right. If we have a reasonable land price it makes it easier for society to survive.
AH: Well, having come in with the work as a UN NGO representative for the International Union for Land Value Tax, quite a few years ago, my engagement with Habitat and the Global Land Tool Network that is part of Habitat. I guess really I started paying attention to these founding documents way back in 1996 at the Istanbul Global conference. Somehow it was pointed out to me that that founding document from ‘76, from the founding of UN Habitat, has very substantial understanding of just what we’re talking about.
Here’s this statement : “The unearned income increment from rising land values or resulting from change in use of land, public investment or decision, due to the general growth of community must be subject to appropriate re-capture by public bodies,” That’s a mouthful I know but coming with the other sentences into that it’s all describing very, very clearly that they understood land rent and understood what to do about socialising land rent.
So there you have it, which is when, how I came to submit my paper. And I think there was a lot of interesting in the theme of the paper and even an IMF economist Michael Kumhof, who’s now gotten interested in land rent and land value tax. I talked to him on the phone a week before. He came over to the bank just to hear my presentation that morning and to meet me. And he’s begun now a research paper with Professor Nicolaus Tideman on the extent of land rent for the United States. They expect to have that finished in about four or five months. So that’s something exciting to look forward to. And again to see that the turmoil of mainstream economist coming out of the 2008 Global Financial Crisis is resulting in this stir, this search for new paths of economics, at very high levels now, World Bank and IMF economists.
KF: Well, that’s just so refreshing to hear that some major heavy-hitters and respecting your work because for a long time you’ve been in these circles trying to raise awareness of these issues and it sounds like over the last decade or so they’re starting to respect some of these classical economists, this wisdom of the ages that you’ve beautifully summarized in your paper here. Can you take us through some of these wisdoms that you’ve pulled together?
AH: Sure. The paper was really almost painfully challenging because I felt like I need to go pretty deep into what land rent is all about and it’s not a new idea it goes back thousands of years. So I wanted to cover some pretty deep time periods to show that it’s part of what one could called perennial wisdom teaching around economic justice. And then to pull that forward into the foundations of economics with the Physiocrats and Adam Smith and on up through Nobel prize-winning economists of the last hundred years, all speaking about the importance of land value tax, land value capture, addressing the law of rent problem. I felt like I needed to also describe what it is. Rent, the law of rent, classical economics, compared to the neoclassical corruption so I went through some of what to us would be economics 101 but most economists wouldn’t even have gotten this in their training.
KF: Alanna, I definitely would like you to take us through some of these founding thinkers who realised how important earth rights was to encourage earth sharing. Perhaps you could start off there. How do earth rights deliver some form of earth sharing and from that where does the economic justice come from?
AH: I’ve always been interested in ancient history of the idea and I’ve looked at it through the Judeo-Christian and somewhat Islamic threads. Leviticus foundations – not just the debt cancellation and the right of return to land and some of the writings in the Talmud. [Here] the rabbis are actually discussing what about land closer to Jerusalem it’s gonna be easier to get to market and those living further from Jerusalem, how are we going to make that fair, and they just decided that those closer to Jerusalem would pay cash to those further away from the city in order to equalize the return to labour on land of different locational values.
KF: I just love that point, they want to equalize labour rights to locational land value. That’s what we’re talking about here on 3CR’s Renegade Economist with Alanna Hartzok.
AH: I presented that in the paper and I showed one of the charts that Dr. Fred Foldvary had put together. Fred’s chart is a graph showing the law of rent and the margins of production and this kind of thing, but it’s really as if the ancient rabbis had this kind of chart technology, that’s what they were talking about.
And then I also came across this passage, Nicholas Kazana’s work on economic teaching in the Veda’s, now the Vedic philosophy is the foundation for all the eastern religions; Hinduism, Buddhism everything coming out of the east is foundational from the Vedic period, and he really pulled out the economic principles and he said, especially in looking at the Indus Valley, the Indus River Valley civilisation and north-east India area five thousand years ago. He said he was surprised to find they had a land value tax policy. He thought that land value tax is a fairly modern idea, but no. This valley had a pretty impressively stable and highly culture and fair economically just civilisation, it was a high point, on of the the three major civilisations in the world at that time.
This is really exciting to me and I wanted to impress upon the people with this research, that, it goes back pretty far, and then we brought it forward to the Physiocrats who were medical doctors and advisors to the King, right before the French revolution and they were whispering into the King’s ear. They said poor peasants, poor kingdom, poor kingdom poor king! And they came up with this idea of the l’import unique, which was a tax on land that they wanted. They said, just put the tax on the land, take it off the backs of the peasants. The Physiocrats were the ones that coined the term that Adam Smith used of laissez faire. Now, laissez faire we think of “Oh, that’s a free market term, take off all the rules and regulations and just have a go at whatever an individual can do to make money”.
Henry George had a very different understanding and sees it as translating in a different way, that laissez faire means ‘fair field and no favour’. It was a sports term, it was how you started off a sports game played fairly. It had to be a fair field and no favour. What a different way to understand laissez faire and if you link in with this concern for the poverty of the peasants and the focus to have a land tax before the French revolution. That’s what Adam Smith was really learning as a young man when he went and was mentored by the Physiocrats. When he was in Paris he met with and learned from them – foundational for Adam Smith. So I also studied a fair bit from Karl Marx’s book three, Das Kapital Vol 3, which most people may be unaware of how much his focus had begun to be on the land and the land rent problem.
So, in my powerpoint, which was how most people use powerpoint to present their papers at these World Bank conferences, I put Smith, Adam Smith beside Karl Marx with quotes from each of them saying essentially the same thing about the land problem and the need to socialize the land rent. Then that next slide after that one was Adam Smith next to Milton Friedman, essentially in agreement about the land value tax policy. Then we went into talking about Henry George who saw the whole thing very, very clearly and then we went through seven or eight Nobel-winning economists who were onto the important of the land value tax. So, that’s how I threaded it through to our current times.
The question is why is it so important for most people to understand the law of rent? Most economists have some sense of David Ricardo’s law of rent, which essentially shows us how land value and land rent increases faster than wages. That’s a situation we’re all at now – when housing prices are increasing faster than wages to affordably purchase housing. It’s not the house that’s going up, it’s the land value that’s going up and it’s a perfect illustration of the law of rent. So with all this knowledge there we’ll have to ask why isn’t it more forward in people’s minds this land problem and the solution, and I think we know what happened.
We know that the economics of the truth about how to solve the problem of the distribution of wealth and have a fair wealth distribution and a free market together, a fair free market, was when really a few super-wealthy plutocratic elites corrupted economics by creating neo-liberal economics. They made the earth a subset of capital, so instead of land, labour, capital you’re left with labour and capital and you can’t get a handle on a fair market economy under that paradigm. Nonetheless the main problem seems to be, and it was well illustrated by the person who was the moderator for my panel, Graham Ingram, who’s director of the Lincoln Institute for Land Policy. Recently, just about a week before this bank conference, Irving put it in the Wall Street Journal saying well and good but land rent is only about five per cent of GDP, and there’s our problem there, Karl.
Our problem is, our problem in the United States, less so where you are, because in the United States we can not get a handle on the land rent because those records are not even kept any more. So it’s impossible, it’s very difficult to know the truth about the taxable capacity of land. You guys in Australia with Terry Dwyer’s work, and then the graph that Brian Kavanagh put together shows, clearly shows, that a hundred years of development in Australia with land rent increasing enormously but mostly privatised, the produce coming from labour and productive capital decreasing over a hundred years and taxes on that same labour and capital are increasing. So I had to go quickly though the 80 slides I’d prepared because I didn’t have much time, but when I got to that I said “This is the most important chart, this Bryan Kavanagh/Terry Dwyer chart, in my paper” and to me probably the most important chart in the world, to illustrate the importance of land rent.
We [have] got to shift to land rent and land value tax and land value capture in order to address this maldistribution of wealth. Otherwise we are just increasingly being crushed by this private capture of this unearned income of land rent. So thank you thank you, you guys in Australia are doing such important work for the whole world, in being able to track this from Australia.
KF: We’re in discussion with Alanna Hartzok from the Earth Rights Institute, track her work at earthrights.net and she’s talking about a paper she presented at a World Bank Land and Poverty conference just the other week, Bryan Kavanagh is a regular on the show and really what it [the above graph] shows is that we’re taxing the wrong things, allowing those who make money in their sleep from owning natural resources to not only make that money but then hide their capital in tax havens. We see all these collapsing societies around the world, all these governments on their knees being forced to privatize more and more of their public utilities and fire-sale prices so, really this is why the World Bank is showing so much interest in what we’re on about, this is a cost-free reform, a simple switch of the tax system is what we’re asking. Alright, let’s go back to the interview with Alanna Hartzok.
I’m interested in in particular what’s going on around the world with the hiding of land rent, and to hear that valuers in the city of London have no official public value of the land in their CBD. And so they think it’s almost impossible to value land and around the world this sort of misnomer is being pushed as it being too complex and too difficult to work out but we’re lucky to have a number of land valuers on the ground involved in our organization who say “Look, we have to be able to value the land and then stand up in a court of law to defend that people can actually earn enough from that location to repay their mortgage, to repay the value of that land” versus economists who have that disjoint to the real economy and this is the fundamental disconnect between the reality of our lives and the economic theories that are shoved down the people’s throats. For me, in your paper, one of the light-bulbs that turned on was when I read about [Jospeh Stiglitz’s] Henry George theorem characterising the situation where the single [land] tax is not only efficient it is also the only necessary tax to finance public expenditures. This is an astounding assertion.
AH: This is quite strange because he just wrote the book on inequality, and Stiglitz talks a bit about rent-seeking and he doesn’t talk that much about land rent-seeking, we wish he would have talked a little more about it. So it’s like he got it with the Henry George theorem and yet he didn’t! It’s a puzzle I don’t completely understand but I will say at least he’s going into the ballpark where he’s seeing the rent-seeking problem. You do hear that term being used more and more, but you know what he may have gotten it right at that point. I think the problem is Stiglitz himself hasn’t seen the information that really supports, even though it makes almost intuitive sense to him, he doesn’t have the facts because we don’t have the facts in this country to back it up because they’re been obscured. It’s been obfuscated, the government doesn’t even keep those records any more about land rent.
But some good news came out from the last plenary session of this bank conference and that is that Michael Anderson who is right now working with UK Prime Minister Cameron on the upcoming G8 conference and he told us they’re going to include a major focus, they’re pushing to include a major focus on transparent land registration. UK is very poor on keeping those land records, even worse than the United States, but they’re going to start pushing for the UK and world-wide. Once you have the map, once you see who owns what land, where and you start putting valuation numbers on it I think the games going to be up, because it’s going to be so obvious who’s making this unearned income, who the big rent-seekers are. Then we can start modelling how to start capturing those land rents back for the people and untaxing production and untaxing wages. I mean, it just seems like we’re headed in that direction. Something’s driving it that way, because we’re in such a crisis right now we’re moving towards something that has a deeper truth to it.
KF: I suppose when you look back through your paper and you see that the Chinese had an understanding of this four thousand years ago, the Indians as well, and you know there’s all sorts of indigenous stories through Asia. The Javanese understanding that those who live closest to the fertile land near the river, near the centre of the land had enough of an advantage over someone living in the rocky outskirts of the city. That really is an interesting point that different cultures discover this natural law, this primal truth, all on their own accord and it doesn’t really require a theory because it can be naturally understood by observing society.
AH: It’s two things; it’s the observation and it’s relying on the human being inherent sense of fairness. I mean, in a healthy family structure people are fair. They make sure everybody’s basic needs are met. They don’t throw out the old people, they make sure the old people are taken care of, the children are taking care of. You don’t have to just work to be taken care of. Neoliberal economics almost says you have to be a worker, you have to work, to contribute otherwise you’re just lazy or something, but these societies, where there’s policy based on fairness and just like you said the observation, they come up with it over and over again, then they forget that, consciousness is such that a few become powerful by seeking more than others, others get on that bandwagon. There’s just been this use of brute-force to conquer and control resources. And so it’s either going to be forced or fairness, and we gotta get back to fairness because just using force is going to get back to ending up hurting us all, or killing us all.
KF: Alana in your paper you talk about Hong Kong and their ability to generate considerable government reserves, and it’s getting to be a bit of an embarrassing fact that they’re getting so much of a surplus but so many other nations and states and cities are verging on the failed state model. How is Hong Kong doing this?
AH: I’ve known for years, as those of us who study this, most of us are aware that Hong Kong has a land lease system, and they have been capturing a significant amount of land rent for public purposes, the reason it wasn’t a privatized market, fully individualized titles, was because the British got control of the island and they didn’t want to alienate any of the land. That’s when they decided to lease it. The consequence was they they captured a fair amount of land rent. But then about 15 years ago, 20 years ago they did not keep moving forward on land rent and they started capturing more of their taxes from labour and other forms of production and then I found out something that I haven’t been aware of, that they have one of the world’s worst rich-poor gaps, wealth inequality in Asia, I think the worst. So here we have two years of government surplus they’re well in the black and yet this impoverization and, yes, wage-slavery. They even give a small citizen divided back to individuals. What I see is this: they’re only collected about 30% of the land rent now. They need to collect closer to 100% of the land rent and then they need to give back a very substantial basic income, citizen dividend cheque back to everybody in Hong Kong. I think that’s going to go a long way towards increasing the purchasing capacity of housing, which has become problematic for many, many people who live in Hong Kong. So that citizen dividend, since they have more than enough to pay for their own public needs and their government needs, they’re still not collecting anything near the full capacity of land rents. And with the wealth inequality there, that’s where you gotta capture closer to the full 100% land rent and start giving out citizen dividends. Does that make sense?
KF: Alana you’ve got a May 6th seminar to sign up to?
AH: Okay, so we wanted to give it a title that would be attractive, so we’re calling it Earthsharing, your favourite phrase, Earthsharing and New Economics, and we’ll have a solid 90 minutes to go, much more leisurely through the power-point that accompanied my World Bank Land & Poverty paper. We’re going to have three or four sessions in there for conversations and Q&A so it should be a lot of fun.
KF: There we have Alana Hartzok, again we have Earthsharing and New Economics teleseminar that anyone can sign up to via the earthrights.net website, there’ll be details on earthsharing.org.au, sponsored by the Commons Action for the United nations and the Commons Cluster where Alana will be running through the paper you just heard an overview of.