putting people at the heart of since 1894

CRASHThere is growing realisation that the latest shame on Capitalism. Where money is involved, instance, have had a change of heart since last economic figures, stripped of the spin and mistakes do not get repeated.” It’s a case of year, when they said “real estate is still a good interpretation applied to boost trust and “lesson learned” says Yun. So, with ‘sub-prime long-term investment”. They’re not saying that protect interests, reveal a fast approaching borrowers’, it’s another day, another fall guy. just now. “Personally, instead of taking equity economic storm which will bring the first Price trends are actually “encouraging”, out of my house to buy more properties, I’m global housing market crash. according to Yun, yet the small print in NAR’s doing exactly the opposite”, says Dr. Steve An increasing number of mainstream latest Housing and Economic Indicators Sjuggerud, adviser to the investment network. analysts, commentators and advisers are recommend a “sharp cutback” in housebuilding. “I’m not interested in looking at any US housing seeming to see the true nature of the trouble In Europe dubiety is perhaps less prevalent. property, period. It may sound crazy to you, but coming. But no-one wants to scare the horses. In the FT Ralph Atkins and Ivar Simensen have I’m comfortable with it. I’ll have a pile of cash The evidence is mounting of the way things reported new Eurozone house price forecasts available to buy up the bargains when prices are will go. Still public statements are dubious. from Barclays Capital. “The latest data suggest cheap and landowners are ready to just get out.” Order of the day is business-as-usual PR that the European Central Bank may have The world’s first-ever global housing crash swagger, presented for market confidence, underestimated the extent of the housing market will hit in 2008 and unfold to its worst in 2010. coupled with straight-talking warnings slowdown, as well as its implications for future Some commentators are saying it could all have delivered sub voce in the small print. The US economic growth and interest rate decisions.” been avoided. But we’re all now just sitting and Europe are at the sharp end of events. And back in the US some are being even waiting for it to happen. Around the world In the US “rising delinquency and more straightforward. Investment U, for forecasters are dropping talk of a “soft landing”. foreclosure rates are big concerns” says National Association of Realtors senior economist Lawrence Yun. “The foreclosure rate on subprime loans with adjustable re- setting rates has been particularly troubling. But lenders are already adopting sounder credit-lending standards. Fooled once – shame on Wall Street. Fooled twice – Anna Stodolskaya llustration © fotolia.com/ i 2007 does privilege and require a protected land value data? ol 114 AUTUMN v 1219 news

Arctic landrush Greek landlords Property tax linked to arsonists goulash

There is mounting evidence that this summer’s The 386 members of the Hungarian parliament, epidemic of forest fires ravaging Greece has the Országgyülés, will be voting this autumn Ian Armstrong been an extreme consequence of a well-known on a number of bills prepared by the Finance local problem: developers, dissatisfied with Ministry. Perhaps the most significant of local planning decisions, turning arsonist. these is the introduction of a general property hotograph © p Land razed of protected forestry might find tax which will combine a number of existing development consent more easily. taxes on land and property. The reform is The government has offered up to €1m not intended to bring in any greater revenue 1 in reward for information leading to arrest. than the € ⁄4b brought in by the current taxes Tragically, there may be murder charges. The – around 1% of government revenues. Lovely spot for an oil rig state has a poor record of dealing with such Finance Minister János Veres said to the arsonists. daily paper Napi Gazdaság that there is still a Following in the footsteps of Cook and Peary, lot to do to meet the provisions of the contract a race for geological information is being between Veres’ Socialist Party and its coalition run between scientists from Russia, Canada, The obscurity of partner, The Free Democrats. The nature of Denmark and the US. The four nations are the proposed property tax is still undecided. all forcing scientific excursions north of the political strategy Indeed, the lawmaking schedule does not yet Bering Strait – not competing for the right to mention the property tax by name. issue Father Christmas stamps, but in order to Scottish Parliament, Edinburgh. June 21, 2007, Miklós Tátrai, Secretary of State at the claim the geological riches under the ice cap. 17.04. Abstentions: Harper, Robin (Lothians) Finance Ministry, said the property tax On the 2nd of August the Russians planted a (Green), Harvie, Patrick (Glasgow) (Green). – which will be strictly value-based – would flag on the North Pole in order to lay a claim The Presiding Officer: “It has gone very be levied by local governments using a unified to its gas and oil reserves. The Americans are quiet all of a sudden. The result of the division methodology. However, it would be the task understood to be in hot pursuit. Canada and is: For 64, Against 62, Abstentions 2. Motion, of local governments to decide on tax rates, Denmark are also making claims, based on the as amended, agreed to. Resolved, that the allowances and exemptions. line of an obscure underwater ridge, and the Parliament believes that local income tax, The law is expected to take effect from geological subtleties of whether Greenland is which is based on ability to pay, is a fairer 2008, but the actual reforms will not be in fact linked to the North Pole. system of local taxation than the discredited introduced until 2009. By 2014 the UN will be looking at the and unfair council tax and notes the position After a mid-nineties economic recession, scientific evidence gathered by the various of the Green Party in regard to land value Hungary’s government has concentrated on a national expeditions. Ultimately it is the taxation.” number of reforms of the tax system, public UN’s International Court of Justice in The services and local government finance. These Hague that could decide who gets to sit on have had the overall goal of preparing the top of the world. Brian Hodgson country for its entry into the European Union, and the possibility of joining the Eurozone Brian Hodgson, chair of the Labour Land sometime between 2010 and 2014. The great haul Campaign and former Labour group leader Historicallly, between 1848 (when serfdom on Oxfordshire County Council, has died was abolished) and the Communist takeover of China from a heart attack after a short illness. From a hundred years later, a great number of 2001 Hodgson was the political driver of the land reform schemes were proposed and China’s crazy real estate boom has led to Oxfordshire land value taxation trial project. implemented. Most adhered to Marxist an escalation of illegal land grabs, chiefly Friend and colleague Dave Wetzel, doctrine. But there was also a strong administered by local Communist Party President of the Labour Land Campaign, contingent of land reformers influenced by officials. Of the 14,700 hectares of land illegally said that Hodgson “will be sadly missed, not the American economist Henry George. The appropriated in the first four months of 2007, a only because of his immense contribution leaders of the 1918 republican revolution staggering 80% was stolen by local government to socialism and the land tax campaign but included land value taxation in their bodies, and in many cases given to friends and because of his humour, his honesty and also programme, but the counter revolution a year business partners of Party officials. In a system because he was a smashing bloke.” later abolished their reforms. that is rife with corruption, only the small fish are punished, says Li Yafang, a standing The Országgyülés will be voting on tax member of the Chinese People’s Political Sunshine estate Consultative Conference. “The more powerful officials were ‘overlooked’, and that has led to Florida’s land preservation programme is more land grabbing” he told Asia Times. running out of money. The funds allocated were [The last issue of L&L reported China’s supposed to last until 2010. “But the state’s forthcoming Real Rights Law, which will wallet is empty”, says programme director Keith establish a unified system of private property Fountain to St Petersburg Times. The land is and a land-use rights scheme. Ed]. turning out to be too expensive to buy.

2 www.HenryGeorgeFoundation.org 259194. no. 1960, Act Charities the under England in registered a charity and 00956714, no. England, in registered by guarantee, limited acompany is Limited Britain Great of Foundation George Henry The environment. ahealthy and society prosperous and a just for principles promoting and exploring ideas, cutting-edge in deals Foundation The UK. the throughout members and London in offices with group education public and tank think justice social and economic independent an is Foundation George Henry The 0023-7574 ISSN paper. recycled consumer post- 100% Corona on by Calverts printed and Foundation George Henry by the Produced publishers. by the endorsed necessarily not are advertised services and Goods publishers. the of those necessarily not are expressed Views interviewees. or by contributors made comments or omissions or errors any for accepted be will responsibility No holders. copyright the of permission written prior without prohibited is reproduction However articles. of reproduction the for approaches welcomes which Foundation George Henry the to belongs publications other and this in Copyright economics. Land environment. the and community the individual, the –between resources our and sector public the life, private between sustainability of bridge the key building to the is this that demonstrate to –and used be should wealth Land remains. uniqueness that And economy. political of issues core the on comment and analysis reports, its with perspective aunique offered has It 100 over years. for Land above. address the at us contact Foundation George Henry the of work the To receive Stocks Jo Menenez, de Isabel Lefmann, Ole Lee, Geoffrey Elliott, Duncan Contributors Publisher Editor Executive Editor e ph W1J 9HG London, 212 Piccadilly, offi[email protected] +44 (0) 20 7377 8885 7377 20 (0) +44 & & & Liberty Liberty Liberty Peter Gibb Peter Land Henry George Foundation George Henry – putting people at the heart of of heart the at people –putting common our how explore to aims events world chronicled has & Liberty Lars Rindsig Lars and to support support to and Land & Liberty

www.LandandLiberty.net inheritances will vanish.inheritances The whole cycle will repeat. reputations will be darkened; pensions and savings will evaporate; workers will lose their jobs; worthy enterprises will go under; good will be the more folk: ordinary families will lose their homes; hard wealthy – will do not so badly out of the impending chaos. The losers of the West’s prevailing macro economic and fiscal policy orthodoxy. crash will be the inevitable consequence and a componentnecessary suffering of are part the system: the violence is in the system: the a design, of our chosen set of economic rules. The pain and the crash will not be a ‘fool’s’ ‘mistake’. It will be an intended feature, unavoidable outcome ofour economies running as we do. This it which itself. at now point finds lamentable world the the to brought has it be, should that work science for the exercise its to failure collective its profession, and Their colleagues. economist mainstream conventionally-thinking of his majority side by Yunthe side with stands error his Yun In as not assumes. are ‘fooling’ of the of ‘mistakes’. nature because and subject The So says cover Yunrepeated.” our Lawrence story. in get not do money involved, is Where mistakes on Capitalism. -shame twice Fooled onWall Street. –shame once “Fooled rejoice. Your nigh. is time buyers, time But, first pensions. for their assets property on their subject of a decade’s table-chatter party dinner back West. Indians will be sitting down to enjoy land value gains which were the new superpowers of India, andChina elsewhere. Soon Chinese and will re-manifest themselves in land value gains in the emerging crash destroys values in Western markets, some of part those values cycle, but it will happen on alevel. planetary As the impact of the locational resource value will occur, as usual at pointthis in the be one that is globally-linked: the usual regional re-balancing of market outcome for playersall everywhere. Instead, simply, it will taxed? lightly –universally market housing the in gains unearned the from ‘wealth’ deriving of national portion increasing the considering levels receipts, of tax future to wouldwhat happen own homes? – their ever able afford to be inheritances property without families –how wouldhomeowners’ ordinary assets trashing of value,and its amassive portion dumping market, the of us. front in hell ofhave economic two years least at 2010. worst its in to unfold and We 2008 in hit will crash housing global first The We conclusionsthen. back to by we the came stand work of reformers. cutting-edge the to attention we readers’ brought This is not how not is it be. should This But be in no doubt, some most– certainly of the powerful and We are about to experience the violently and now painful happening not is economy global the in But happening is what We should pity the property-rich Western homeowners relying relying Western homeowners We property-rich the pity should Of course the global nature of crashthis does not mean a universal We avoid cannot it now. of a‘major not is readjustment’ there If issue, 2004 summer our ago, in years three place, very this In [email protected] Peter Gibb Peter from the from editor letter 3 comment

Counting the land The running of a country relies on having to-hand the right sort of information. Duncan Elliott argues that on that score the UK government is working in the dark.

Way back in the early summer of this year, glaring omission. It is one that needs to be whole the government has a massive body of Britain found itself with a new Prime Minister, addressed if the country is to be run effectively useful information to aid its decisions. Gordon Brown, and a new cabinet. Alistair for the common good. This is not to say, of All sorts of models are constructed to Darling was assigned the tough job of replacing course, that if this information was available, understand what is happening in the economy Brown as Chancellor of the Exchequer. Brown the country would automatically be run well. and the implications for policy. However, let us had enjoyed a fairly sustained period of relative We would still rely on the right decisions being turn to a very simple economic theory of the prosperity while in charge of the purse strings. made. Nevertheless, without the right sorts of production function: the theory includes three But how will Darling fare under the leadership information it is unlikely that good decisions factors of production: land, labour and capital. of someone who spent such a long and arguably can be made at all. Often economists omit land (or at least fail to successful time as Chancellor? Darling, as with Statistics are an important source of distinguish it separately from capital) – perhaps his predecessors in the post, will to some extent information. They are used and abused to simplify the issue. Yet natural resources be able to perform only as well as the information to support different theories, to criticise and man-made capital function differently with which he is provided allows him. It is this arguments and, importantly, to inform in economic terms. This common omission information and the advice he receives based on it should give a clue as to part of the problem that should inform his decisions. with much of what is currently done. Society and the economy are analysed in a vital source We can ask two key questions. First: are many ways and by many interests – government the models that are being used sufficient for departments, independent policy groups, of information understanding the economy as a whole – can academics and so on. The decisions that are taken they be used as one of the tools required to as a result impact upon the economy, society “for running run the country? Second: are the indicators and the environment. Decision making in some that are currently used to analyse the economy quarters has a greater impact on more people than the country fit for purpose – do they provide the correct in others. From this perspective, and in terms of information for the assumptions which underlie running the country, two important public sector is currently whatever model is being used? institutions whose work has a direct impact on missing The Treasury and Bank of England are people in the United Kingdom are the Treasury generally looking at the economy at the and the Bank of England. Whilst the Bank of macroeconomic level. But if we consider this England is officially independent of government, decisions. Statistics are also integral to the is simply an aggregation of the microeconomic ultimately it has tasks set by the Chancellor. This different models used to understand” the level, how then do things measure up against contributes to the importance of the Chancellor’s economy, for instance by the Treasury and the our most basic of economic models? If we role in terms of running the country. Bank of England. look at what is analysed by the Treasury and Clearly we need information to make For example, the retail price index, one the Bank of England, there is a big focus on decisions. There is an untold amount of measure of inflation, is used by government to capital, in terms of productivity and prices, and information to aid decision makers, generated index pensions, state benefits and index linked perhaps a slightly lesser focus on an analysis of across all sectors of the economy. But it’s not just gilts. A slight rise in inflation may trigger a labour, in terms of wages and employment. the quantity of information which is important: decision to increase interest rates. Deviations in To understand the economy as a whole one in fact, it is often said that we suffer from the economic cycle might result in fiscal policy requires information on the whole economy. information overload. It is above all the quality of decisions designed to get the economy back on In this respect data on land is the glaring the information which is key. We must ensure that track. In both instances information is key to omission. On one level then, the answer to the it is fit for purpose. trying to deal with expectations in order to steer first key question is that the models used – for The focus of this article is the issue of what the economy on the apparently right course. even basic analysis of data – are not sufficient data and information is required to run the There’s a lot of data available, and while for understanding the economy as a whole. country. My purpose here is to highlight a there is often concern over its quality, on the What about house prices, as a measure of land value? The Treasury in their summary A recent overview of the economy published by the National Institute of Economic overview of the economy publish movements and Social Research suggests that insufficient attention has been paid to house in the Halifax house price index; the Bank prices over the past few decades. Since 1987 the total return on housing is estimated of England uses a number of housing market conservatively at 7% per annum in real terms, on which tax does not need to be paid. related data from different sources, including This is higher than the return on other assets upon which tax in general must be paid. the Halifax, the Home Builders Federation, One problem with this is that it is effectively borrowing on a large scale from future the Nationwide and the Royal Institution generations. So whilst the government sets targets with respect to its own borrowing of Chartered Surveyors. Here the two (below 40% of GDP) it completely ignores the borrowing that is resulting from the questions posed above are relevant. First, is returns on housing. While in the short term increasing house prices don’t seem to be sufficient weight given to this data in terms of a problem, in the longer term they certainly are. understanding what is going on in the economy,

4 comment

and second, are these indicators fit for purpose? data currently used to analyse the economy value with separate information. There have been significant rises in UK there is no separation of capital and land value While there are some sources of basic house prices in the past two decades. If saving in terms of assets. land value data, such as the Valuation Office is replaced by investment in housing this can This means that in the data currently used, it in England and Wales and the Registers of cause a problem in terms of diverting resources is not possible for advisers and decision makers Scotland, these are not detailed enough to from capital stock. Hence it creates a problem to distinguish clearly between productive properly analyse what is going on in terms of for the economy in the longer term. How can returns to investment – such as making the whole economy. Therefore a vital source this problem be highlighted? Increases in house improvements to a house – and the returns of information for running the country is prices are generally not due to increased wages from rising (or falling) land values. (In terms currently missing. The lack of detailed land for labour or prices for materials required for of economic theory, such land value returns are value data also poses problems for the correct housebuilding. Those have indeed increased, known as economic rent or unearned income). estimation of capital stock. This means that the but by nowhere near the rate that house prices In other words the data are not really fit for quality of important national statistics such as have. So an important issue is that in terms of purpose. It is important to distinguish land GDP is likely impaired by the fact that there is not a proper understanding of what portion of income is economic rent. Finally, the example given (see box) of the study by the National Institute of Economic and Social Research, estimating the return on housing since 1987 as around 7% per annum – if given a sufficiently detailed regional breakdown of data – could have shown the big differences between (and even disparities within) regions. However, such data is not available. More and more information is available in terms of statistics for particular regions within the UK. These include regional estimates of GDP, and a variety of Neighbourhood Statistics. But, for the same reasons as at the national level (ie understanding the regional economy as a whole, and improving the quality of other data), there is a clear need to plug the hole that exists in terms of measuring the value of the land. This information is also essential because understanding social and economic regional disparities is necessary for focussing productive investment. While the practical aspects of getting this data is beyond the limits of this article, there is clearly a need for such data to be available. We can draw two main conclusions. First, that there is a need for land value data. Second, that it is essential to stress the importance of land value data. The challenge is to start collecting and analysing data on land value. It is required by those who run the country. It is also required by those who want to analyse and critique the running of the country in order to more fully comprehend the impact of policies and the socio-economic situation of society. L&L

Duncan Elliott is an economist with the UK Office for National Statistics, based in Wales. Alexander Sorokin hotograph © iStockPhoto.com/ p

5 essay

The effect of privilege In part two in this series Ole Lefman tallies the good and bad effects of privileges, including their contribution to the protection of trade freedom

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The story so far…

owan All sorts of privileges are allowed in Western societies. They can be categorised broadly as privileges all granted because of the need for regulation of certain activities, –

so-called privileges that in fact are rewards for service and should be honoured by wages, and ‘intellectual property rights’. Privileges can have real value, which people are willing to pay for. Those values are an element of what economists call economic rent.

(L&L spring 2007)

6 PRIVILEGE the L&L essay

The existence of privilege in society has many Some places are rich in the resources that human beings need for their effects, some of which are good and some bad. A survival and comfort. Some locations provide advantages strongly sought main area of their influence is how business and after by human beings. Other areas are poor in resources: they may trade can be conducted. The balance of their provide only little or no advantages to those who occupy them. In primitive effects is the consequence of the efforts of societies the more sought-after areas will be occupied by the more powerful the power-brokers in society. individuals and groups, who then exclude those who are less powerful. In most modern societies exclusive In organised societies the government by its supreme authority makes

many rights or entitlements are enjoyed over many and enforces the rules and laws which govern the territory. Government things. A clear and strong philosophical guarantees exclusive entitlement to use and dispose of lands or the defence can be made for exclusive rights to resources they contain, to those who are able to pay the highest tributes

the manmade property. No privilege is involved – in exchange for an annual rent or a once-and-for-all lump sum. This is or invoked in such rights. The effects of those exclusive a country’s system of land tenure.

for rights are reckoned to be good. Privileges – exclusive Advantages available on or beyond the tide line – at sea level or under entitlements – must be invoked in all other situations. or above it – are dealt with in the same way. In recent decades other Sometimes, privileges are granted to use or dispose of land resources such as positions in space, and the radio spectrum have been

bited or other natural advantage. dealt with similarly. Advanced societies need such rules. Without exclusive entitlement to the use of land and other natural advantages,

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Privilege owan A privilege — etymologically ‘private law’ or law relating to a specific all individual — is a special entitlement or immunity granted by a government –

or other authority to an individual or a restricted group, either by birth or on a conditional basis. A privilege can be revoked in some cases. In modern , a ‘privilege’ is conditional and granted only after birth. By contrast, a ‘right’ is inherent, irrevocable and held by all humanity or all citizens from birth. Felix Möckel Wikipedia.org llustration © iStockPhoto.com/ i 7 PRIVILEGE the L&L essay

competition between human beings who want Some privileges are granted as what are mean a waste of resources and possibilities. to use natural resources could turn into social known as ‘intellectual property rights’. Increased prices of goods, services and homes unrest. But even if people restrained from Creators of ‘intellectual property’ can may be appreciated by the sellers, but society at violence, the absence of security of tenure would enjoy protection over their work. Inventors, large will reckon them to be bad effects. make modern production and commerce near composers, artists, writers, designers and other Similarly with unemployment: its effect impossible: without security people would not such people may have copyright over or apply of lowering wages will be appreciated by be as confi dent to initiate development fi xed for a patent to the product they have brought employers, but generally it is reckoned as a by location – such as the erection of buildings, forward. Patents are privileges meant to enable bad effect. fi xing of plant, installation of infrastructure, or the inventor to receive commercial reward in A third bad effect of privileges can be the cultivation of longer-term crops. proportion to the value of the advantages that to enable some to accumulate wealth from Society has a common interest in the their inventions have provided for the public. unearned income. best possible use of the advantages provided Without doubt the benefi ciaries of intellectual Though some privileges are without by nature and society. So these exclusive property rights enjoy their good effects. But it exchange value, other privileges and entitlements – which are privileges – are is unclear whether denying these rights would monopolies can be extremely valuable. reckoned generally as being of good effect. hamper the development of creative output, and Valuable privileges can have several Sometimes privileges are granted for the whether the effects of intellectural property consequences: purpose of regulation and control. rights are in fact good for society at large. • They can build up fortunes to a few persons. In order to safely, effi ciently and equitably • Using their excess-profi ts or windfall-profi ts as manage certain activities, substances or But the institution of privilege can also have purchasing power, they take out products and processes, the government may wish to regulate bad effects. services from the market without supplying by general prohibition. By issuing licences One bad effect of privileges relates to to the market in reciprocation. This practice which privilege identifi ed parties, these things competition. The enjoyment of a productive leaves a reduced quantity of goods and services can be dealt with according to rules and monopoly or the holding of a privilege can for unprivileged and under-privileged citizens regulations given and controlled by government. confer a commercial edge over competitors, to choose from, and those at increased prices. The subject of such privileges might or can hamper competitors’ endeavours to • They deprive the government of the income it include things like polluting processes, compete. Both these benefi ts are appreciated creates by using governmental power to protect nuclear activity, genetic modifi cation, certain by the privilege holder. But their consequence private monopolies and privileges. This makes sorts of scientifi c research; trade in medical is that goods and services are produced in it necessary for the government to collect drugs, explosives, weapons, dangerous smaller quantities, in inferior qualities and at from the producers (through the tax system) products and services; handling of waste increased prices – with excess profi ts on top the revenue it needs for the administration of water, rubbish, disposal of corpses; exertion of what the monopolists and privilege holders society and for the provision of public services of physical power within and beyond the would have been content with, had they not and infrastructure. realm; and putting money into circulation. held their privileges. • They cause a deadweight on production. Without such restricted privileges the Monopolists and holders of privileges may The effect of taxes on production and alternatives would be either total prohibition fi nd competition-checking effects to be good consumption is that demand and supply cannot – meaning nobody taking advantage of the – but for society at large they will be bad effects. meet at prices for optimal production; fewer possibilities in question – or unrestricted Another bad effect is exclusion. consumers will accept the higher prices and and unlicenced free activity – uncontrolled Monopolists and privilege holders, whether fewer producers will accept the lower income, handling of waste water, rubbish and dead productive or non-productive, exclude others meaning reduced production and trade, and bodies, and the uncontrolled exertion of power. from some advantage of nature or society; reduced employment. The effect of allowing privileges granted exclude producers from production; and • They create poverty among unprivileged and for the purpose of regulation and control is prevent citizens from enjoying life to the full. under-privileged citizens who do not receive reckoned generally to be good. The result of such exclusion is that the demand big salaries or profi ts for supplying specialised Some privileges are granted as rewards for for access to the advantages of nature and services or goods – whether to the government meritorious services. society increases – and consequently that the or to the wealthy holders of monopolies and The government may give privileges to price of access increases. It also means that privileges, and their supporters. people who have served it or the people. These there are fewer products for sale, and fewer • They increase the gap between rich and poor privileges may give their holders advantages homes for sale or rent – and therefore also people. This can destabilise society. It creates over their competitors who then suffer from the increased prices for these things. a class of very satisfi ed wealthy citizens living privileges. The privilege holders would fi nd the Furthermore, an effect of increased prices lavishly, a satisfi ed middle class, and a growing effect of this to be in their own interests – so caused by exclusion by non-productive class of very unsatisfi ed, insecure and alienated for them a good effect. monopolists and privilege holders is that citizens who have to accept low wages for their Without exclusive entitlements granted as employees may have to accept living farther work, or the alternative of unemployment. rewards for services, the government would from their places of work. This wastes time and • They destroy self-confi dence and self-respect have to pay money. The government that saves money on commuting, uses fuel unnecessarily, among people who are deprived of their equal expense by pushing the cost of such rewards contributes to pollution of the environment and share of the value of nature and society; they are on to future governments may consider this a adds to congestion. Extended distance between denied free access to nature and the advantages good effect. Future governments may fi nd the the home and work is reckoned to be a bad of society without compensation; they are effects bad. People in general may fi nd that effect too. obliged to accept unfair working conditions postponement of expenses to be a good effect. Both the exclusion of people from areas and low wages; they have to accept dwellings But in general the good effect would actually where jobs could be created, and the exclusion in disadvantageous locations; and they have be very limited. of people from areas for homes near their jobs, to put up with their landlords’ ineffi cient

8 the L&L essay

administration and careless maintenance of their enjoy protection of their individual trades or other privileges. They argue that there is no premises. industries in the form of tariffs and taxes on difference between land value taxes and other • In the longer term they sweep our civilisation others’ goods, or privileges and monopolies taxes, and urge that taxes should be spread to back to barbarism. This is what happened (see L&L 1217). as many different sources as possible – except to Rome and the other ancient civilisations. The most common understanding of ‘free investors, enterprises of trade and industry, and The felling of great civilisations – sometimes trade’ is of it simply being a market without privilege holders. catalysed by natural events – is invariably the any governmental regulation, restrictions or Anti-socialists look away from the fact that result of power and wealth concentrated within taxation. This idea became widespread in the taxes on wages are taxes on production. They a select privileged class of citizenry – leaving closing phases of the mercantilist period in deny that they are urging against the interests the multitudes without possibility to provide the 18th century. Mercantilism urged that a of producers when protecting the ‘free lunches’ or fend for themselves, dependent on private nation should maximise export of domestic of unearned income that ‘non-producers’ charity or social support. products, and minimise the import of other capture. They choose to ignore the fact that all While some of these effects of the holding of countries’ products. That policy was based taxes burden trade and industry except tax on a valuable privilege or monopoly may be positive on the idea that a large quantity of precious privilege-profi ts including rent of land. to the interests of those who hold them, society at metal, gold and silver, received in exchange But there is another way of looking at free large will reckon them all for bad effects. for export, proved economic success and trade: namely, trade freed from monopolies and • political strength (strong armies being paid privileges, as far as that is possible, and freed The effects of privileges – good or bad – are all in gold and silver). However mercantilism from restrictions, regulations, and taxes – other the result of the exercise of power in society. proved to be a fi asco, creating international than those protecting lives, health, equal rights, The use of power may be protective, which in tensions and aggressions. and the environment. In order to realise this general will be a positive thing; or it may be It was followed by the idea of liberalism, approach to free trade it is necessary annually aggressive, which is usually reckoned to be including the liberation of international trade to collect the rental value of land and other uncivilised and reprehensible. Sometimes the by the gradual reduction and fi nal abolition privileges which have to be tolerated. This use of power is protective to some people, but of custom tariffs, taxes and restrictions on revenue could be used for the betterment of all aggressive against others. international trade. citizens on an equal footing. When power is used by aggressors they Originally this free trade policy only The three kinds of free trade I have usually make big efforts to describe it as applied to international trade; but some summarised are, in brief: protection. So, when we hear about protection it liberals also urged for abolition of government (1) ‘Free trade’ on the world market. This might in fact be aggression. This is particularly regulations in domestic trade and industry. brand of free trade would need only a small so when speaking about trade. ‘Protectionism’ It was this post-mercantile understanding of customs administration strong enough to cope may be a blessing to some people, but may at the free trade that spread over Europe and the with illegal trade in drugs, weapons, piracy, etc. same time be a curse to others. Trade is a major USA during the 19th century. During the same (2) ‘Free trade’ in foreign and domestic benefi ciary of privilege in society. period, socialists and communists garnered trade and industry. As the aim here would • supporters from the suppressed working be to avoid any governmental interference In an ideal market, equal actors would class. They raged out against free trade and in private traders’ businesses, only a exchange their goods and services without made it their prime argument for unifi cation small governmental administration is problems, satisfying all parties in the market of workers in trades unions and political necessary. However, one might foresee a by the provision of economic advantages to parties. Many suppressed working class people strong confrontation between the holders of them all. However, in reality, without powerful had experienced free competition as a very privileges and those who are without. regulation and protection of the market, the destructive power. They found that it urged (3) Free trade without privilege holders’ conditions of deals would be determined by workers to compete against each other, forcing withholding of the excess profi ts of privileges, whoever exerted the strongest physical power. them to accept employers’ unfair conditions of and without restrictions other than those that This would often mean the downright capture labour – often extremely risky and unhealthy protect human beings’ lives, health, equal of goods, or threats which would discourage work at low wages. Workers wanted protection rights and the environment. This genuine free suppliers from joining the market. against this exploitation and found it to a trade needs a strong government administration Early in history, rulers and local considerable degree in trades unions and able to cope with monopolies and privileges governments understood that by using power to political parties. which arise. It must also be able to collect the keep piracy and bullying dealers away from the The post-mercantile understanding of free rental value of tolerated valuable privileges market, trade would be conducted much more trade continued to be a much-used argument – including landownership – and to use the freely. Everyone’s profi ts would be increased for trades unionists and supporters of socialist revenue for the betterment of all citizens on an over what they would have been without politics. Even today most socialists are equal footing. protection. Protected market places became convinced that free trade means unregulated So we see that the success of free trade so successful that traders agreed to pay to trade and industry, which they strongly oppose. relies on the good effects of necessary the protector a fee out of the profi t they could Liberals of today are no longer fi ghting privileges. L&L make, which made free market protection a mercantilism; they fi ght the ideas of socialism lucrative business for all parties. and communism. They understand free trade in Part three in this series will appear in the It would have been a great advantage for the same way as the socialists. But unlike them, spring 2008 issue of L&L and will look at how all citizens had these experiences from local liberals think its effects are positive and urge for we can eliminate the bad effects of privileges. market places been copied onto the world the abolition of all regulations and restrictions market of daily trade and industry. But that and for low taxes on trade and industry. Ole Lefmann was Deputy President of the IU is not what happened. Some of the players Anti-socialists are also opposed to taxes on 1993-2001, since when he has served as the on the international stage are still able to the unearned income of landownership and on Union’s Honourable Assistant Secretary.

9 reviews

Hey big infrastructure benefits the private colours to the mast with his In this book however, in a sector. The London Underground early work on The Sunday way more than in all the earlier spender Jubilee Line extension increased Times Rich List. His latest book ‘Who Owns’ work, Cahill is adjoining land values by close sits at the present end of a line also interested in the ‘how’ of Living with Leviathan on £3 billion. A land tax on this of investigation starting with ownership. The other major part by David B. Smith increase would have recouped this McEwen’s Who Owns Scotland of Who Owns the World, over IEA, 2007. 190pp public expenditure. Smith sees (1977), Wightman’s subsequent twelve chapters, is a historical ISBN: 0255365799, £12.50 that high government spending Who Owns Scotland (1996) and overview and analysis of world does not lead to the eradication of then Cahill’s own Who Owns landownership. Some readers It is a great pity that David Smith poverty and that the cost in terms Britain (2001). may sometimes find the author’s did not read an earlier IEA of economic growth forgone has For Cahill and for his analytical predisposition publication, Wheels of Fortune, been considerable. He says “it is predecessors it is the ‘who’ that is prejudicial. Certainly unrequited by Fred Harrison before he sat highly likely that societies are key. The major part of Who Owns monarchists will find no succour down to write this book. He states poorer than they would have been the World is a country by country here. Nevertheless the texts are the problems and Harrison gives if low spending ratios had been catalogue of the major landowners fascinating. Disappointingly, the answers. maintained.” of the world. This may indeed be his efforts regarding the ‘hows’ Smith’s theme is public He briefly examines different a necessary and – as the author remain more in the nature of spending, taxes and the size forms of taxation and notes that claims – long overdue piece of surveys than proposals. of the state and its economic Britain in the eighteenth and work. Many argue that publicly In the end, for Cahill, it is performance. In 1913 UK public nineteenth centuries saw rapid available and complete registers information – land registration expenditure as a percentage of economic growth when most taxes of natural and common resources, – which is “the key requirement” GDP was 12.7 per cent, in 1937 were levied on fixed assets, such including the facts and nature for reform. The reform itself it was 30 per cent, and now it is as houses. He doesn’t differentiate of all titles to land and burdens he advances is the dissolution around 45 per cent. Sweden with between property and land in upon them, is an institution of “the monolithic legal forms its high spending experience the way that Harrison does but necessary for modern democracy of ownership” which his book peaked at 72.4 per cent in 1993 but concludes that a mature debate and efficient governance [see discloses, and the establishment of this is projected to fall to 55.5 per about, among other things, the Counting the land, p.4. Ed]. The “a proper free market in land…in cent in 2007. The author is unclear forms of taxation, should be result of Cahill’s work is to reveal every country in the world”. what effect such figures have on a priority within parties and that concentrated patterns of land The author does not much go economic performance. He quotes between parties. “Sadly,” he ends, ownership are prevalent all over into what he means by ‘proper’: studies that indicate that 30 - 35 “there is little sign of this debate the world. He resents the situation. the reciprocal obligations to the per cent will achieve most of the beginning.” Cahill’s concern is that these community which the owners of social and political objectives that Geoffrey Lee patterns be “dissolved”. land may be due are not discussed. justify government intervention. Cahill’s historical analysis The author’s demotion of the great In attempting to do too much, describes the increasing reformer Henry George (who modern Western states may well My world! spreading of ‘ownership’ of so clearly laid bare humanity’s neglect their core functions such landed resources over the past responsibilities in this regard) to as law and order, and military Who owns the World century: his political perspective no more than a common witness preparedness. by Kevin Cahill applauds “land redistribution”. of the Irish Famine of 1845-9 What is important in the Mainstream, 2006. 640pp He commends the vision of is disappointing from a writer equation is how the tax is raised. ISBN: 9781845961589, £25 Hernando de Soto; but he does who would seek to banish unjust Harrison very clearly indicates not share that economist’s privilege from the world and who the negative impact of bad taxes Kevin Cahill is a cataloguer enthusiasm for Western “private- claims to know the land. and suggests better ways of of wealth and an inquisitor of property laws and recording Isabel de Menenez raising money. Public spending on privilege. He first nailed his systems”. Cahill argues that ”property law in the developed world is at best internally and Bubbly institutionally corrupt, having been created by thieves trying to Unlocking the Riches of Oz legitimise theft and maintained by Bryan Kavanagh by the descendants of the original Earthsharing Australia, 2007. 28pp thieves, for their private benefit AUS$10 and no-one else’s”. Cahill holds that around the world present- This short book is subtitled ‘A day property systems are for case study of the social and the most part “destructive to economic costs of real estate both democratic and political bubbles (1972-2006)’. In it, Bryan progress”. He believes “economic Kavanagh provides a concise progress in the West has been in exposition of how property spite of, and not because of, the bubbles – which can easily arise Australia’s housing bubble structure of property law in most in the current Australian system – may be about to burst Western states”. cause economic recession. He also

10 lars rindsig: the view suggests what otherwise might Charging for have been, if the fiscal regime from the right had not been, as he characterises landing it, ‘the Mad Hatter’s Tea Party of I routinely stand out as the most rabid, market worshipping taxes’. (continued from the back cover) right-winger in any crowd – except when I’m around my rabid, The book is based on a careful However, crudely, the charging market worshipping right-wing friends who think I’d be alright analysis of data and builds up formula is actually based on if it wasn’t for my leftie views on land. a picture of the economy in passenger numbers. Long I expect Fred Foldvary maybe shares that feeling from classical terms, of earned (labour established major airlines with time to time. Foldvary teaches Austrian economics (that and capital) and unearned (land) grandfather rights – if you had is, in the tradition of Friedrich von Hayek and Ludwig von incomes. At this point I would them last year, you get them this Mises) at in – as does, have liked more information year – are able to monopolise incidentally, David D Friedman who is the son of Nobel Prize on how this had been done: it is valuable runway space with small winner Milton Friedman. Son David has taken his father’s interesting to note the increase aircraft, and pay only low charges libertarian economics to their logical apex and proclaims in privatised rent (from 8% of for doing so. himself an anarcho-capitalist. Foldvary, too, is a no-holds resources in 1911 to 27% by The system causes unnecessary barred libertarian. He is a fan of privately owned local 2005). However, the detailed inefficiency and congestion. It also communities and a regular speaker at conferences of groups analysis of the real estate market fails to collect the fullest revenue like the International Society for Individual Liberty and the UK helps to fill in the picture. So for the use of a scarce resource. based Libertarian Alliance. He is also a former Congressional whilst I would have liked to However an examination of the candidate of the California branch of the Libertarian Party and explore further the methods present system also reveals a more a contributor to online journals with names like Anti-State.com used in determining classical fundamental question which goes to if the above wasn’t enough to rattle you. components of Gross Domestic the bottom of our public finances. Of course Foldvary is not just your average libertarian Product, the omission does not BAA is a child of the Thatcher academic boffin. His particular brand is the fusion of Austrian detract from the overall message. privatisation years. In 1986 economics with a fundamental tax reform based on resource In a counterfactual, Kavanagh the original British Airports rents – taxes on land, natural resources and pollution estimates what income might Authority, a public body, was (rather than legislation) – which he calls geo-anarchism or have been, in terms of GDP, had dissolved and all its property, geo-. Foldvary’s latest publication, a small the tax regime been organised in rights and liabilities were passed pamphlet called The Depression of 2008, was published this such a way that it prevented these to the new company, which was summer. In it he examines the business cycle of the property real estate bubbles; that is to say, floated on the Stock Market the market. Foldvary’s conclusion is the same as the cover story if a proportion of the rental value following year. The company in this issue of L&L: it’s all going down in a cloud of dust. of land were captured for public has since been delisted and is So, the conclusion of Foldvary’s analysis does not differ revenue. owned by a consortium led by fundamentally from that of other economic researchers like I’m not a great fan of Grupo Ferrovial, the Spanish Fred Harrison. His route, however, does. counterfactuals. They tend to have construction giant. The concept of money is central to Austrian economists so many unknowns. Nevertheless Perhaps the terms of the 1986 – and not just because they all want more. ‘Austrians’ ardently even the conservative estimates privatisation should be revisited: favour a totally privatised and non-regulated monetary system the author presents are staggering. perhaps certain assets held by issuing gold-backed, non-inflatory money. Consequently, If the property bubbles that the British Airports Authority Austrians do not treat all capital goods as one variable – like occurred between 1972 and 2006 properly should have been most economic analysts – but treat money and financial were to have been eliminated, retained in public possession. capital separately from other capital items like cars, houses it is estimated that Australian Because that underlying question and typewriters. This is all very theoretical stuff but important GDP would have been AUS$700 is – why is BAA, a private because under a free banking regime, changes in the interest billion greater than currently it is company, permitted to charge rate would not cause problems since it would move naturally. (ie 75% higher). This amounts to and collect landing fees in the Whereas with a government central bank, adjustments to the AUS$35,000 per year per person. first place? Charges for runway interest rate are artificial and distort the economy. All in all this short book sets slots are charges for the use of So a key aspect, in Foldvary’s view, of countering the out an interesting analysis. It a resource whose scarcity and harmful boom/bust effects of the property business cycle is the demonstrates why we should be value is created by the democratic introduction of a free banking policy. Since the market would concerned that sufficient attention will of society when it limits the prevent inflation this move would, by itself, dampen (though not is paid to the issue of land values. development and use of airports. prevent) the real estate cycle. Equally important, says Foldvary, In conclusion I should like to note Air traffic landing slots are a is the introduction of a radical tax reform that replaces taxes on that such analyses as this could public resource. On point of income, goods and sales and profits, with a levy on the value be much more readily facilitated principle, as well as for the sake of land. The real killer, though, is the two initiatives working if there existed clear and detailed of industry competitiveness, their in tandem. One without the other won’t make the cut; even information on land values. value should be collected and with an artificially lowered interest rate, government controlled www.earthsharing.org.au/unlock returned to the public purse. In money will continue to work against the true free market. Duncan Elliott taking on the case of BAA the And this is where Foldvary’s take on economics truly Competition Commission will shines. Focussing too narrowly on one aspect of the solution have to move into a new area of – whether it is a tax shift or free banking – only gets us half thinking. L&L the way. We’d be better off, sure, but not nearly there.

11 commentary

Charging for landing Jo Stocks thinks the Competition Comission should tell BAA how to land its planes

The UK Offi ce of Fair Trading has referred effectively-fi nite resource of runway space. THE FUTURE - the Competition BAA to the Competition Commission for Access to their passengers is granted to the Commission should consider investigation. BAA styles itself “the world’s airlines via a system of landing and take-off leading airport company”. ‘slots’. Allocation of those slots is made by • reallocating BAA’s asset rights rather OFT’s concerns centre on possible Airport Coordination Limited – in effect a cartel than breaking up its property portfolio monopolies on the supply of airport services. of the major airlines. So access to the assets • abandoning the anti-competitive BAA owns the London hubs of Heathrow, which arguably are the airline’s most precious privilege of ‘grandfather rights’ Gatwick and Stanstead, and three of Scotland’s resource is directed by the airlines themselves. • establishing an annual public auction four main airports. Questions are being asked ACL seems magnanimously comfortable with system of tradable slot permits - a free about passenger consumer choice and airline the existing arrangements. market pricing mechanism - promoting competitiveness. BAA provides the marketplace competition and eliminating monopoly for the exchange of an annual 144 million Allocating the slots within the air travel industry passengers and 620,000 airline fl ights. • renewable slot permits to apply to On the passenger side, BAA is one of the No member airline receives direct benefi t, the use for a certain duration of a largest commercial landlords in the UK, owning in terms of preferential treatment in particular runway at a particular time a £1.4 billion portfolio of airport properties. Over slot allocation decisions made by ACL. of the week and in a particular season 900 organisations trade from its premises. This “All airlines are treated the same, in • establishing an arms-length public area of its business is little different from other accordance with UK and European Slot ‘air traffi c charging authority’ with the commercial landlord operations - although the Regulations which ensure that decisions task of regulating the initial allocation, monopoly issue might loom larger than usual. made by ACL are made in a ‘neutral, pricing and trading of landing and On the airline side, BAA’s role is much transparent and non-discriminatory’ way. take-off slots more particular. The company manages, Members believe that it is reasonable • permit-holders to pay annually to the and profi ts from its role as gatekeeper to, the for them to contribute to the cost of slot Treasury the value of the slots they runways. BAA’s present-day revenue from this allocation in the UK, since the cost of the hold, boosting public revenues and side of its business is unknown, but likely to coordination task in other countries is paying for administrative costs be in the region of £1b a year. This aspect of borne by their Governments or national • airlines relieved of the burden BAA’s activity will be a different matter for carriers. Contributing to the cost of of operating Airport Coordination the Competition Commission to grapple with. ACL avoids the need for Government Limited, which should be disbanded The Commission’s success will come down to intervention of [sic] control of slot • and, consequently, bringing about whether it is seriously capable – as the Enterprise allocation and ensures that all the airlines enhanced democratic decision- Act requires of it - of “making and implementing receive a high quality coordination service. making in the future development or decisions on appropriate remedies” on questions Any airline may apply to join ACL, and delimiting of air travel - enlightened of competition and monopoly. the Company is pro-active in seeking to by public concern for the consequent BAA says Heathrow, Gatwick and Stansted expand its membership base. impact on the public fi nances of are operating at or near capacity. OFT concurs, increasing or decreasing revenues and believes “capacity constraints are a feature Airport Coordination Limited from the use of a scarce public of the market that restricts, prevents or distorts resource (and, also, balanced by competition”. Under the regulation of the Civil Aviation carbon trading which should be Operational capacity is determined fi rstly by Authority, BAA has the exclusive right to fi x extended to air travel). the dimensional constraints of space and time. prices and charge airlines for landing and” takeoff Public opinion acting through the planning within the slots at its airports. CAA caps prices, system, and initiatives like this summer’s Camp and according to OFT “the fact that Heathrow for Climate Action, set the effective limits and Gatwick price up to their price caps suggests on these. But also critical to capacity is the that price controls hold prices lower than would operating system in place which manages the otherwise be the case.” (continued inside on p11) NEXT ISSUE photo © iStockPhoto.com/Hal Bergman out December 2007

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