Orderly Progress & Fair Shares

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‘Orderly progress & fair shares.’ Too good to be true?

by Fred Harrison

WILL Tony Blair, Britain’s reforming leader of New Labour, learn the “secret” of full employment? He emphasises the need to re-skill the workforce, but will that be enough in the 21st century?

There are large variations in the public money devoted to training people. Britain spends much more than the US, with poorer results. Sweden, which makes a point of the state supporting the education of employees, is suffering from an economic malaise every bit as intractable as countries that spend a great deal less of taxpayers’ money on training programs.

No-one denies that re-skilling is necessary with the advance of science and technology. But employees have always risen to that challenge. And the cyclical disruption in the economy, which renders people idle, has nothing to do with the redundancy of skills.

The problem starts and finishes with the persistence with which governments retain a system of public finance that is rigged to destroy jobs and incentives to work and invest. Although tax theorists devote a great deal of effort to defining what they perceive to be a “fair” and an “efficient” system of taxation, no-one can deny that:

(a) the depth of discontent against the tax system is profound, and that

(b) the ease with which some sectors such as farming, and multi-national corporations) can turn the payment of taxes into a voluntary exercise, is not consistent with efficiency – or justice.

For two centuries economists have grudgingly acknowledged the elements of the ideal system. Joseph Stiglitz, Professor of Economics at Stanford University and President Clinton’s chief economic adviser, reviewed that system in an article, in which he concluded:

Not only was Henry George correct that a tax on land is non-distortionary, but in an equalitarian society in which we could choose our population optimally, the tax on land raises just enough revenue to finance the (optimally chosen) level of government expenditures. *

In the same volume which published the analysis by Prof. Stiglitz – he gave a name to his formulations: the “Henry George Theorem”, after the l9th century American social reformer who popularised the policy in the 1880s – we find the following conclusion by William Vickrey, Professor Emeritus of Economics, Columbia University, who was President of the American Economic Association in 1992:

“Use of land rents, or, at least, of a major fraction of them, for public purposes is therefore not merely an ethical imperative, derived from categorisation of these rents as an unearned income derived from private appropriation of publicly created values, but is, even more importantly, a fundamental requirement for economic efficiency.

We might want to argue with Dr. Vickrey about whether economic efficiency is “even more important” than ethical imperatives, but there is no need to do so. For the policy simultaneously honours both these considerations, which cannot be said for any other form of taxation.

In one popular treatment of economics – John Kenneth Galbraith’s The Affluent Society – we read a verdict that is expressed in precisely the same uncompromising terms:

… if a tax were imposed equal to the annual use value of real property ex its improvements, so that it would now have no net earnings and hence no capital value of its own – progress would be orderly and its fruits would be equitably shared.

Orderly progress….an equitable sharing of the fruits of production….are these not the ideals to which democratic governments ought to aspire?

Some politicians may pose as realists, by claiming that in the real world it is not possible to achieve an “ideal” system. That, too, is debatable. And the starting point would be that, far from moving industrial nations towards the ideal – in no matter how minimal a way – governments have actually shifted their economies further away from the fairest and most efficient system of raising finance to pay for public services.

This was most notable under the monetarist Prime Minister Margaret Thatcher – one of her economic gurus was Milton Friedman – and President Ronald Reagan. So it is worth noting the admission by Prof. Friedman. He said:

. . in my opinion the least bad tax is the property lax on the unimproved value of land, the Henry George argument of many, many years ago.

The emphatic conclusion of the theory is that, if you want to liberate the labour market, governments have to reform the structure of public finance. So: will Tony Blair learn the “secret” of full employment? Or will he become known as the Prime Minister who spent a fortune of taxpayers money on reskilling the workforce for the dole queue?

Bulletin of the Land Policy Council Editor: Fred Harrison…………… April 1996 …….Vol 2 (3) Page 4

[* In: Feldstein & Inman, eds., The Economics of Public Services, London: Macmillan. 1977.] INSITE is published by the Land Policy Council
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