BRONWYN WILLIAMS: Old ideas offer a new take on land ownership

Posted by Flux on 

6 February 2024

Though most of our collective national energy is focused on surviving the electricity crisis, it is worth remembering that Eskom is not the only monopoly problem threatening the fragile fabric of our democracy. The land issue still hangs over our collective future, an unresolved, inconvenient complication on our long road to national reconciliation.

For the fact of the matter is, those who argue against the injustice of continuing support for legacy private property rights have a point. Most of the inequality in our most unequal of societies relates to wealth and not to mere income differences between the haves and have-nots. Furthermore, there are rather good arguments that almost all, if not all, wealth stems from land. 

“Land” in this case refers to all our natural resource endowments, which were allocated to us randomly in the great unfair lottery of life and/or taken by force at some point in the past. At least that is how the argument begins underpinning an old economic idea that is trending again right now.

The idea in question is known as Georgism, after Henry George, the man who popularised it in Progress And Poverty more than 100 years ago. Georgism is an alternative diagnosis and cure for the perpetual problem of gross human inequality. It is also an alternative to the more commonly prescribed yet ultimately unsatisfactory solutions of capitalism on the one hand, and communism on the other, each of which have their own self-evident limitations and surfeit of critics.

Paper trail

George’s key insight, as distinct from the core tenets of both capitalist and communist philosophy, was that human labour, while necessary for the production of wealth, is not sufficient. Rather, wealth is produced when labour is added to natural resources. If you take the time to follow the paper trail from mouth to source, even our marvellous globalised, financialised economy, full of wonderful intangible assets such as stocks and bonds and money, gets its real value from the “things” that underpin those claims to wealth. Things like factories. And farms. And mines. And houses. And land. 

Fair enough, but only fair enough if we can separate the value of the added human labour, all the way from farm labourer to the management consultant responsible for getting the goods out of the ground and onto a balance sheet, from the value of the initial untouched natural resource endowment. Separate, and then compensate the people whose birthright that same natural resource endowment originally was.

Compensate, not only for the loss of the natural endowment (where such things are finite, as is the case with mined minerals), but also for the continuing collective loss of the landowner’s private (monopoly) rights (and cost of protection in the form of upholding said rights) for the community at large. And, just as importantly, for the contribution the greater community’s existence and beneficiation had added to the privately “owned” natural resource endowment’s value in the first place.

All this unearned value, which under our economic structure accrues to the landowner or monopoly rights holder (for instance, the spectrum landlords who get to set the price of your cellular data). In George’s view this was unfair. Rather, he proposed that this natural and community value should belong to the community, and that the land or rights owner should only be compensated by the market for the value they actually added to what was already there.

George’s big idea, which followed on from this realisation, the self-same idea that’s trending in academic and populist circles the world over now, was that nations should replace income tax, capital gains tax, death taxes and sales taxes — all the other taxes in fact, virtually all of which have horrible deadweight losses and deter all the things we want more of, including employment, productivity and saving — with a single land (or natural resource endowment rights) tax.

He suggested that this single tax be carefully calculated to tax away all the “rents”, that is all the income generated from the initial endowment right that the land or rights holder did not add to the final price. This way, private property rights are maintained, avoiding the known horrors of central planning and state-owned enterprises, but private landlords are stripped of windfall passive income profits that come at the expense of society at large. Such a simple tax could even be used to fund other old-but-new-again economic ideas such as a universal basic income.

It is a wonderfully simple idea, and one that is sure to irritate parties across the political divide equally. Second and third homeowners across the fair Cape are sure to hate it.

It is a wonderfully simple idea, and one that is sure to irritate parties across the political divide equally. Second and third homeowners across the fair Cape are sure to hate it. Likewise, statist comrades who stand to personally benefit from expropriation without compensation will not be pleased. They are sure to come up with all sorts of objections, such as how to calculate the value of the untouched resources, or if the costs of the tax will just be passed on to end consumers and tenants.

The good news (or bad news depending on whether you are a beneficiary of unearned natural resource rents or not) is that these technical challenges have been solved by clever economists and academics, who are starting to realise that George’s old ideas, combined with contemporary advances in technology and accounting, could quite practically be put into practice.

Indeed, if you want a real-life early case study of these ideas in practice, you can look to Norway and how it has dealt with a key natural resource endowment: oil. The Norwegian government’s oil investment scheme essentially taxes away windfall profits from foreign oil investors and places them into a national trust for the benefit of the Norwegian population at large. (It manages to do so without discouraging foreign investment by essentially underwriting the risk of exploration with targeted subsidies.)

Regardless of what you personally think of the practicality and desirability of these ideas, it is hard to deny that they offer at least an interesting addition to the debate around SA’s seemingly endless monopoly problems, with potential application to everything from Eskom and spectrum through to the question of land itself.

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