LAND AND LIBERTY

ECONOMICS • POLITICS • PHILOSOPHY

Sep./Oct. 1992 (UK) £2.00 (USA) $3.50

long tve rate of ure i term: Rritisn economy rd ^^S grovrtiv of He cnti-

ECONOMY: FORECASTERS EXPOSED

EARTH: HOSTAGE TO FORTUNE

RUSSIA: IDEOLOGY DIVIDES

LVT WORKING IN JAPAN LAND AND LIBERTY UNIFORM

Volume 99 No 1159 Established 1894 MISERY IN COMMON EDITORIAL 2 YELTSIN HOSTAGE MARKET Alan Spence 3

TALKING POLITICS

Lewis Little 4 THE PROSPECT of free trade was the best reason for defending the existence NEWS BRIEFS 5 of the European Economic Community. A single market, we were told, would promote the production of wealth; FEATURE and tie the fate of warring nations into a single destiny. Prosperity. Peace. But what about freedom? Eurocrats and politicians would justify their FORECASTERS EXPOSED actions as compatible with freedom, but look at what they mean, when it comes Fred Harrison 6 to taxation. The European Community wants all nations to use the Value LAND & LIBERTY ESSAY Added Tax with a minimum rate of 15%. Britain - whose rate is 17.5% - SAVING THE PLANET challenged the right of the Euro-centre to dictate tax rates. But why should David Richards 7 the EEC care about the tax system employed by its members, so long as the law on the freedom to exchange goods anywhere in the EEC was enforced? BOOK REVIEWS What has the tax system got to do with how people - producers and B.W. Brookes: consumers - make decisions in the markets? Well, actually, quite a lot. But Amazon Tragedy; 10 the bureaucrats are justifying the intrusion into the affairs of member nations Bob Clancy: on grounds that call into question the very ethos of the Treaty of Rome. They Tolstoy's Bad Dreams; 11 argue that, unless taxes are uniform across the EEC, high-tax nations would Richard Noyes: not de-control trade at the frontiers. Why? Because their citizens would be The End of History 12 tempted to nip over the border to buy and bring back cheaper (lower taxed) FRONT PAGE goods. The Guardian report of the British In other words, the foundation principle of the EEC - free trade - won't Association conference in August. happen, UNLESS the tax system is pitched at the perniciously highest level set by the most unenlightened government. That tax philosophy is the most destructive of all to the production and exchange of wealth. For the sake Editor: Fred Harrison Editorial Consultant: V.H. Blundell of uniformity of misery, the bureaucrats want to enforce one kind of "free Picture Editor: Keith Hammett trade" in Europe, which disallows any one member gaining an advantage by Art Editor: Nick Dennys its use of a more efficient system of taxation. The implications for freedom are serious. What would happen if, say, Editorial Offices: 177 Vauxhall Bridge Road Denmark - whose citizens threw the spanner in the works of the Euro super- London SW1V 1EU state with the thumbs down in their referendum - decided to restructure her Tele: 07] 834 4266 tax system? What if she wanted to favour higher taxes on land, and drastically reduce the other taxes? Denmark is the only European country with the fiscal 121 East 30th Street New York, N.Y. 19916 infrastructure in place to accomplish that reform. It would give her producers Tele: 212 889 8020 an enormous price advantage, for the land-value tax cannot be passed on in higher prices. ISS No 0023 7574 There would be uproar. Competitors across the Danish border would Annual Subscription: bleat. But if governments learnt the lesson, they, too, would similarly restruc- U.K.: £12, USA $20, Canada $25, ture their tax systems. That would be the result of competition in a free market. Australia $25 But not, it seems, if Brussels has anything to do with it. Publisher: Land & Liberty International at the London editorial offices

PAGE LAND 8c LIBERTY SEPT/OCT 1992 LAND LAW: YELTSIN IS A HOSTAGE

THE FUTURE ofRussia will be settled dent Boris Yeltsin's decree that the solution is beginning to move fast in the next 12 months, and that future freehold of land should be sold. But here in St. Petersburg. I return on will turn on what happens with the city politicians know that their presi- Sept. 21 with US land assessor Ted land. Politicians and intellectuals are dent is an ideological hostage of Gwartney and Fred Harrison of the confused, for the IMF and the World western bankers, because he needs London-based Centre for Incentive Bank are urging them to privatise. But dollars to bail out the collapsing Taxation to help the Institute of their gut instincts tell them to keep economy. Urbanism to establish a course on land in state ownership. City governments, therefore, face a land valuation. This means that St. The new wave of politicians in St. dilemma: does a decree signed by the presi- Petersburg is establishing the tax-and- Petersburg frankly acknowledge their dent supercede the law of Russia, which tenure infrastructure for leasing land social and economic problems, which states that land is a social assetT to users in return for rental income, are visible in the sewerage-filled rivers The gut feeling that land should similar to what happens in Hong Kong. and in streets designed to test the not be privatised is supported by just In charge of the new course will springs of tractors. This city is run one coherent alternative philosophy, be Tamara Chistyakova, director of down even by New York standards. imported into Russia by the advocates Ecograd, a research centre within the But the leaders don't know what to of Henry George, the American land Institute of Urbanism. She impressed do about it. reformer who had an ardent fan in me with her dynamism and awareness Leo Tolstoy. of the case for land-value taxation. I George, in Progress and Poverty therefore have great hopes that St. (1879), explained how to set up an Petersburg will blaze the trail: the City efficient market economy while re- of Moscow, unfortunately, is ham- serving the rent of land to pay for strung by interference from Yeltsin's public services. This model would be federal government. the perfect solution for Russia, today, Russians are racing against the but the West favours land privatisa- desperate need to invigorate the tion. economy. St. Petersburg, in attempt- I can report, however, that there ing to kick-start a market economy, is are signs that the political struggle privatising small businesses - shops, just might go in favour of the Georgist hotels, soap factories: you name it, model. and it is for sale. At a conference organised by the It's a different story with the big Mayor of St. Petersburg in August, enterprises, where workers want to some of the top-level speakers used know what is in it for them. When the BORIS YELTSIN concepts that were recognisably Berlin Wall came down, the political "Privatisation" keeps the politi- Georgist. Key officials of the Research barriers were dismantled: the West cians awake at night, and radicals and Design Institute of Urbanism now has the duty to make sure that churn out pamphlets warning of the realise that western entrepreneurs it does not infect the former Soviet perils of private property without could locate their investmen ts on land economy with the economic viruses offering an alternative approach. The leased from the state. that have destroyed millions of jobs debate has been sharpened by Presi- Progress towards a land-value tax in Europe and North America.

TOLSTOY IN RUSSIAN DAVID REDFEARN'S new study of Leo Tolstoy as social activist is being translated into Russian. Political activists in Moscow who have read the English edition - published in London by Shepheard-Walwyn - were delighted, for David Redfearn (pictured right) argues that Russia would have enjoyed a happier fate if the tsar had accepted Tolstoy's land tax-and-tenure reforms.

See Review on page 11

LAND & LIBERTY SEPT/OC T 1992 PAGE WHEN Mr John Smith and Mrs Margaret Beckett were bers, except in their benevolent society role. elected leader and deputy leader of the Labour Party The modern "growth" and service industries reject old- recently, they had the 190,000 block vote of the Confed- fashioned trades unionism. Today's workers do not join eration of Health Service Employees behind them. This unions or they join unions which do not affiliate to the union, which militates in the public sector and was noisily TUC. Women workers are even less interested in unions critical of the Government before and during the General than their menfolk. There seems to be very litde future Election campaign earlier in the year, held a postal ballot for the TUC, except as a talking-shop, on the CBI model. of its members on the issue. The response was rampantly The challenge facing the old trades unions is whether apathetic, with fewer than 5% bothering to back Mr Smith. their best interests are being served by still acting as Only someone over 30 is likely to recall the power of paymasters to the Labour Party. What do they hope to the big names in the big unions, and to remember when get for their money? Are we seeing the TUC clinging to the Government (any government) could decide nothing Labour solely because its tired old men can think of without consulting them or taking elaborate steps to nothing else? Are there no bright young men and women forestall their reaction. Yet the TUC is about to open the who cannot see how continued attachment to the Labour 1992 political conference ______Party is bringing them season, and its leaders, down? The Labour Party is Plummetting membership of Britain's trade onions has largely unrecognised by an now no more than the led to the call for Trade Union Congress leader Norman uninterested public, will biggest of the minority Willis to resign. But what future is there for Britain's seek what glory they can, parties. How can the un- unions? as little fish in a shrinking ions attract members who pool. ^~~~~ ~are hostile to Labour or Today's reality is that the Labour Party clings to the indifferent toit? Do they want the freedom toexerta more unions for their money alone. Unions present the wrong general influence? How much longer will they stay where image (as, of course, does the very name, Labour). They they are wanted only for their wallets? represent the "smokestack" industries, old-fashioned dirt How many of the unemployed does the TUC think will and manual labour. The modern Labour MP has never turn on the television set at conference time and expect worn a blue collar. The new Labour activist is more likely to hear some sign that new thinking is needed? Bashing to have a white-collar job in local government or belong the Conservatives and paying dues to Labour, Brothers, to the National Union of Teachers than to be a member is no longer enough. The unions must reclaim the free- of the National Union of Mineworkers. dom to act in their own, and their member's interests. The Conservatives are conventionally associated with big business and are undoubtedly supported by financial TRADE, NOT AID. contributions from it. Nobody, though, believes that what the CBI says at its conference is of fundamental impor- CAN ANYONE name a single nation of the "third world" tance for the Conservative Party, and Conservatives do not which has prospered as the direct result of foreign aid? give a thought to allowing businessmen to take part in Have we not witnessed instead preservation of corrupt selecting their party leader or in determining their poli- regimes, expanding bureaucracy, and expenditure on cies. This is not to deny that there is considerable business modern armaments to keep the military amused and cow influence, but the Conservative Party remains free to both the neighbours and the local populace? Might we decide whom to listen to. After all, business is not mono- not be better advised to dismande the trade barriers lithic; interests do not necessarily coincide; indeed fre- against "third world" primary products? Sugar is an ex- quendy they clash. Business is free to reduce or withhold cellent example. Europe's Common Agricultural Policy contributions and to maintain regular contacts with other keeps out cane to protect a strikingly less efficient local parties. When John Smith was on the luncheon circuit beet industry. Consumers lose, poor overseas producers in the City, the traffic in ideas was not all one way. lose, and European exporters lose because the "third Big business neither needs nor is allowed any formal world" is notearning enough to pay for the goods itwould control over Conservative Party affairs. Labour must wish like. it had a similar relationship with the TUC and the unions. Labour politicians know that the unions are widely mis- trusted. They are not popular even with their own mem-

PAGE LAND 8c LIBERTY SEPT/OCT 1992 Round the world

LONDON scheme that was abolished predicts. There is no third way coup. Today, over 25% of cul- Gutted properties in 1989 due to the wide- between socialism and capital- tivated land is owned by less spread destruction it caused ism." than 1% of farmers; 61% of Britain's tax on business to peat bogs. • Investors in the Far East farmers (150,000families) farm properties - which falls on Mr McNaughton was a are reluctant to pump capital holdings of under five hectares. the value of buildingsas well member of the Lands Tribu- into new businesses in as land - is encouraging nal Committee which had Vladivostok, Russia's largest owners to vandalise their earlier awardeda neighbour- eastern city, because of uncer- ATHENS assets. ing farmer, John Cameron, tainty over rights of land use. Monkish habits To avoid the tax in a £lm "compensation" under dead market, buildings are the same scheme. Mount Athos, the all-male being systematically gutted. The Labour Party's TOKYO Greek monastic community, That way, owners make a Scottish agricultural The higher they are... has struck in protest at plans massive saving on their spokesman, Brian Wilson, to introduce a property tax taxes - around £280,000 a angrily denounced the ar- Over the last six years, capi- designed to ease the gov- year for Wates City, the rangements: "Once the land- tal gains on stock which ernment's budget shortfall. owner of Winchester House owning fraternity discover a totalled Y352 trillion ($2.71 in the City of London. A source of income on this trillion) were nearly wiped growing number of compa- scale they do not desist in out by capital losses of Y324 AUCKLAND nies are resorting to this the public interest. It works trillion, according to the gov- "Soak the rich" tactic. like this. You have on your ernment's Economic White About 20% of buildings land an SSSI, which is some- Paper. Plans for a new land tax have are vacant in the City of Lon- thing held in trust for the For land, however, the split New Zealand's new third- don. By vandalising the nation. Then as a landowner capital gains of Yl,037 tril- party Alliance. The New La- buHdings, owners can claim you say you are going to lion have not been badly bour Party proposed a "soak- that the structures are "in- destroy it. You tell the gov- damaged by losses of YI07 the-rich* tax on the capable of beneficial use". ernment body that Unless trillion, leading to wide- unimproved value of sites worth you award me substantial spread anxiety that Japa- over $100,000. The proposal compensation I am going to nese banks and financial has been attacked by the HARARE proceed with this act of institutions are disguising Greens, Democrats and Mana Land grab vandalism'. the collapse in land prices. Motuhake. The fifth partner in "If you threatened to The Nikkei Weekly the Alliance, the Liberal Party, Ian Smith, the last white prime btow up an ancient monu- editorialised on August 15: has not opposed the plan. minister of Rhodesia (now ment you would rightly be "Unless the time bomb of The Mana Motuhake Zimbabwe), warns that the identified as some sort of inflated land prices is elimi- leader, the Hon. Matiu Rata, Land Acquisition Act spells blackmailer, but that is ex- nated, piecemeal measures said any tax increase would be disaster. "My wonderful coun- actly what you are encour- to shore up stock prices will "technically and economically try is going to the dogs," says aged to do under the 1981 be meaningless." correct but politically unten- Mr Smith. The government Wildlife and Countryside • Trade talks between able". plans to expropriate white- Act." Japan and the USA resumed owned land withoutgiving com- in August. Washington is pensation at market prices. dissatisfied with progress in INDIA "That is absolutely evil," says MOSCOW reforms to Japan's land use Dammed! Mr Smith, who owns tens of "No third way" laws. TheTokyogovernment thousands of acres. has not countered with ob- A World Bank-financed dam Confusion continuesaboutthe jections to US land use laws. in central India is causing paceofperestroika. Dr. Larissa damage to 240,000 tribal EDINBURGH Piyashevaquitherjobasdeputy people and their lands, but Green mail director in the mayor's office ANKARA more than half of them will in charge of Moscow's privati- Feudal opposition be denied land compensa- Money does NOT grow on sation programme because of tion because they are trees in Scotland. A sheep uncertainty over her land Attempts to develop poverty- deemed to be illegal squat- farmer has been awarded voucher scheme. She believes stricken sou th-eastTurkey have ters. Many landowners will £250,000 for promising not every citizen should be issued created political tension. The benefit, however, as the to plant trees on a Site of with a voucher, but now be- aghas, or feudal landlords, Sardar Sarovar dam will ir- Special Scientific Interest lieves that the state will retain oppose land reform. Econo- rigate 1,8m hectares through (SSSI). This is the "profit" ownership. mists say that incomes cannot 75,000 kilometers of canals. that John McNaughton "Instead of true and full rise unless peasants are given Owners are not being asked would have made, had he reforms of property, nothing land. Attempts to redistribute to contribute to the cost of still been eligible for tree- more than a change of sign- land in the 1970s were reversed the works out of the en- planting grants under a boards will take place," she in 1980, following a military hanced value of their land. NewsinBrief

LAND & LIBERTY SEPT/OC T 1992 PAGE BANKOF ENGLAND economists now admit that they do not know when Britain will emerge from the slump of LAND PRICE '92. The Treasury computer model of the economy - and City and university economists who search the plethora Threat to Forecasters of data churned out by official agen- cies - failed to forecast the slump; many of them sent out false signals of "green shoots" appearing on the horizon; and by Fred Harrison they now admit that their theories failed the people who are losing their jobs by the tens of thousands each date" - on, for example, the viability the price of access to land in 1987. month. of construction; This triggered a crazy bout of specu- It need not have been so. Land. & • Land values reveal when pressure lation in industrial land which took Liberty warned of the global crash in is building, which might help devel- prices to unaffordable heights. The itsJan.-Feb. 1988 issue, where I wrote: opers and banks to avoid excesses; collapse came in late 1989, leaving in "I confidendy predict that the next • Had the series existed a few years its wake the heightened expectations major economic recession - the one ago, "it would have acted as an early of landlords who demanded rents that will cause widespread unemploy- warning of the recession to come". which were also higher than many ment and business closures - will occur tenants could afford. in 1992." THIS LAST claim, which empirical Unfortunately, Hillier Parker of- Over the last four years, L&L and analysis over the last four years in fer no theoretical insights into the Economic Intelligence published analy- Economic Intelligence has proved to be mechanisms which transmit the im- ses based on the land-price data which correct, undermines the integrity of pact of the land-price boom/slump is the core of an effective forecasting existing macro-economic forecasting into the rest of the economy. This is model. Economists would not listen, models. understandable, for they represent and now the banks are collapsing (the Forecasters pay no heed to trends land-owning interests that would find USA) or are teetering on the edge of in the land market, and have paid the themselves in the "hot seat" for gen- doing so (Japan): all because they price in the collapse of their credibil- erating the instability that leads to financed speculation in land. ity - which exposes a yawning gap in massive waste of capital (look at all the the theory that is supposed to guide idle office buildings), and heart-rend- NOW COMES a second agency willing policy-making. ing levels of unemployment. to claim that land values are a key Hillier Parker concentrate their But this split loyalty to commer- indicator of what is happening in the calculations on the non-residential cial interests should not create dilem- economy. Hillier Parker, a major sector (the Department of Environ- mas for university forecasters, and least British real estate agency, has pub- ment publishes good data on housing of all for a popularly-elected govern- lished the first of its reports on what land prices). ment. For apart from landowners, the it calls "Residual Land Values". The results illustrate lessons which property sector is also made up of the Their "residual land value" is no are well established among a small construction industry, which relies on more than the price of land in the group of land economists around the land as an input in the value-creation marketplace. "Residuallandvaluesare world. For example, the selling price process rather than a commodity in theoretical in that they are calculated of land is subject to more volatile which to speculate. by taking the capital value of a poten- movement than rents. Hillier Parker The British construction sector tial development and then subtract- discovered that "residual land values represents 6% of gross domestic prod- ing the total development cost," re- are a useful indicator for predicting uct. According to Department of ports Hillier Parker. "The results make rental movements. The residual peaks Environment figures, the latest drop possible an objective comparison of up to two years ahead of the rental in orders (19% between the first and land values for differen t property types value. The residual values also fall by second quarters of this year) will feed across the country and over time." a greater amount than the rent." through the economy to knock an- Hillier Parker's theoretical ap- In all five sectors analysed by other 1% off GDP. proach to logging land values is un- Hillier Parker, "residuals peaked sig- The government, therefore, if it derstandable, because - with a few nificandy earlier than rents...The time wishes to be kept properly informed exceptions - government agencies do between the peaks of the residual and of trends in the economy, appears to not publish authoritative data derived the rent is consistent at between 18 have a special responsibility for incor- from direct monitoring of market months and two years except for porating land market trends in its prices. Central London Offices where the forecasting model. That, however, Based on Hillier Parker's scrutiny difference is reduced to six months". means rewriting the equations after of what has gone wrong with the UK In the industrial sector, for exam- relearning how the industrial economy economy, the report claims: ple, manufacturers who wanted to - given the present tax-and-tenure • The index is "the most sensitive expand production facilities were distortions to the land market- really indicator of the property market to confronted by a sudden upsurge in works.

PAGE 6 LAND & LIBERTY JULY/AUGUST 1992 CENTRE FOR INCENTIVE TAXATION ECONOMIC INTELLIGENCE El/34 SEPTEMBER 1992 LVT: SHOCK THERAPY WORKS IN JAPAN A TOP British real estate agency has Costing the Earth, a CIT study published buying their shares. Foreign investors' launched an index of land values, which in 1989.2 Updated figures have regularly holdings in Daiwa House Industry shares it says could be used to forecast trends appeared in EI, whose focus now shifts have jumped to over 16%. in the economy. to the problem of restoring full employ- The OECD and the Japan Centex for Four years ago, when the Centre for ment: see pages 2-4. Economic Research forecast a growth Incentive Taxation launched EI as a rate for this year which is the lowest since monthly economics bulletin, we warned LAND DATA, by itself, cannot help the 1974 - the last time Japan suffered a land- that land prices were a major signal of policymakers. Forecasters will now have led crash. The index of industrial produc- the state of health of the economy. Few to redeem themselves by rewriting the tion has been negative since last October. of the experts listened. parameters of their models on the basis But analysts now say that the stimulative During those Lawson boom years, of a theory that makes sense of the real effects of the housing upturn will be feit EI was the sole harbinger of bad news world. in the rest of the economy: they hope the based on an analysis of the dangers of • Clues to the appropriate reforms macro-economic benefits wiB be regis- exponential growth in land prices. Month- have emerged in Japan, which introduced tered by the end of this year. by-month we tracked the economy and explained that land prices would be the first to peak and turn down - followed by a crash in construction, which would lead the economy into a pit. Now Hillier Parker, whose head of research is EI reader Russell Schiller, has pubhshedResidualLand Values. Affirms Mr Schiller: "Had such an indicator been in existence four years ago (sic), some of the damage caused by too much de- velopment, leading to oversupply, could have been avoided" Such an indicator was, of course, available four years ago May'86 May '87 May'88 May 89 May '90 May'9» May'92 to EI readers! a land-value tax (LVT) this year (see EI is less optimistic: the land-led Hillier Parker's calculations of prof- Land & Liberty, May/June, p.3). The lax crisis in the real estate sector will con- its to be made out of land deals indicate was designed to curb land speculation, tinue for more than another year, with that values fell during the late-1980s boom and is already working. After a disastrous banks tightening credit in response to - as EI warned at the time (the trend for crash in house-building last year, the their sour real estate loans. But there is industrial land is shown in the graph). economy is now experincing a recovery no doubt that it was the shock therapy Explains Mr Schiller: "When the residual in construction - the only buoyant sector of LVT on over-priced paddy fields which land value of a site is calculated to be in Japan, right now. Reason: the land- has nurtured the first seeds of recovery. lower than the open market land value, value tax is forcing idle urban land into Meanwhile, in Britain, the construc- the site is not worth developing." use. tion sector has registered a 19% drop in The Hillier Parker index (reviewed Owners used to pretend their valu- orders. Half the UK's senior property in Land & Liberty, Sept.-Oct., 1992, p.6) able acres were farmland (frequently, they directors and fund managers now say adds further evidence for the cyclical did not even bother to gather in the rice). there will be no pick-up before the end pattern of 18-year land prices which have This forced land prices upwards as cities of 1994, and a quarter of them pessimis- repeated themselves around the world for sprawled outwards. Japanese "farmers" tically forecast recovery in 1995 or later. 1 the last 200 years. Hillier-Parker records are now leading the way in the house- 1. The Power in the Land, Fred Harrison, the rise in land values from 1985 to the building sector. Firms that make steel- Shepheard-Walwyn, 1983. peak (1988-89). The accelerated growth frame prefabricated houses report a re- 2. Costing the Earth (editor: Ronald in UK land prices was documented in covery in business. Foreign investors are Banks), London: Shepheard- Walwyn, 1989. "The jolt from EMS membership is just what British Governments require if they THROTTLING THE are to be forced to change their policies of excessive housing subsidy and NIMBY [planning] controls. If EMS membership LAND PRICE VICE has to wait for housing reform, neither will occur." price increases. These expectations are The nearest he has come to showing due to the refusal of politicians to tackle us how the land market might be tailored SO WROTE Samuel Brittan in the Fi- the tax-distorted land market. to fit the new anti-inflationary regime has nancial Times on January 18, 1990. The Devaluationists are looking at the wrong been his support for reform of the com- discipline of the Exchange Rate Mecha- side of the vice. mercial leasing system. Twenty-five-year nism would make high interest rates leases with five-yearly upwards-only rent inevitable by removing the devaluation UNFORTUNATELY, the apologists for reviews may have provided security of option as a cushion for the inflationary the ERM are not channelling theattention investment for institutions and security pressures in the economy, which are of critics in a constructive direction. of tenure for tenants but they are now a centered on the land market. To avoid • Professor Eltis, for example, did cost-inflating relic of Britain's"' upwards punishingly high interest rates it would not add that prospective capital gains in only' price mentality" (FT, August 6). be necessary to demote capital gains in land have been the cause of our high The wide 1980s U-bend in retail rents per land, which are promoted by "tax expen- propensity to borrow. sq ft, shown in his chart, was the result ditures", as a source of personal and Banks, of course, use land as collat- Security of tenure legislation should company wealth. eral, which - in a regime of rapidly rising go, as part of the process of negotiating Brittan observed on July 30 this year land prices - encourages an expansion of upwards-only provisions outof existence. that "the more and the less recession- money, credit, and consumer demand, at "Do you think these belated prone countries" are distinguished not by rates that exceed supply. Ergo: inflation. efforts., .would survive if the government exchange rate arrangements, but by "a • The Economist, like the Govern- gave in to the siren voices demanding that massive credit boom in the late 1980s ment, is relying on the historical evidence it should throw in the [ERM] towel?" and...now suffering from a debt over- that "eventually the market will pick itself (FT, July 30) hang." up." (The past may not be a good guide Economic Intelligence warned in As The Economist noted on August to the 1990s, however.) Sensibly, it is October 1988 that the inflexibility of the 8: "It will be no bad thing if Britons are concerned that the current woes of the rent review process was exaggerating the made less obsessive about investing every land market are bringing out demands for economic cycle. However, this is not the penny in houses. Prices rose to new tax favours for housing: 'The greater tax-induced distortion of the land market unsustainable levels in the 1980s - pro- the indulgence shown to the housing that Samuel Brittan was thinking of in the pelled by an ingrained British belief that market now, the greater the risk of an- quote at the beginning of this article. He this was one area where the laws of gravity other future burst of illusory well-being remains silent on that did not apply - and carry much of the and its attendant inflation." The pundits believe that reducing the blame for the subsequent surge in infla- Even so. The Economist does not go tax favours for housing now would only tion and Britain's current economic woes. all the way with the therapy of letting make property prices fall further and A country less conditioned to expect fingers burn and then abolishing mort- perhaps tip the recession into protracted house-price inflation would enjoy an gage interest tax relief (MITR). It is slump. But, of course, when house pices economy less prone to booms and busts". prepared to countenance some humani- do eventually turn up, that will be an Professor Walter Eltis, an adviser to tarian relief at the expense of a lesson equally inopportune moment to kick them the government, has also sought to fend well-learned in the downside of land back down again ("After all we've been off critics of the ERM by pin-pointing the investment: through, we property owners deserve a root cause of our economic woes: "Our (1) MITR could be concentrated on break!"). trade is likely to remain in substantial first-time buyers to spur them into action In fact, the world seems desperate deficit for reasons entirely unconnected to relieve sorry sellers; and for another fix of rising land prices to cure with the competitiveness of British (2) the Government could stop com- the industrial economy of the problems manufacturers. If any economy has an peting for savings with building societies created by the last fix. In Tokyo, where excess of investment over savings, its and buoying up mortgage interest rates for all their inscrutability the Japanese do trade will be in automatic deficit...[S]uch (but start competing more strongly for not mince words, that is exactiy what the a country will inevitably borrow from savings elsewhere, presumably - which financiers are demanding: they want their overseas and have a corresponding cur- is exactly the reason The Economist does government to buy their land off them - rent account deficit...A propensity to not normally advocate such favouritism.) presumably at artificially high prices. borrow has been at the root of Britain's • And Samuel Brittan? What has he If Britain is to realign itself onto the deficits" (FT, July 29). been saying to ram home his message that path of economic sobriety, another macro- Given this analysis, it seems clear the EMS requires swift treatment of economic policy criterion is needed to that the squeeze that is now being applied housing distortions in order to make life accompany the Maastricht criteria and to the country is not being caused by the comfortable again? Nothing at all (until the steady pound. This is it: the national anti-inflationary policy of keeping ster- August 20, when he merely endorsed the land price index should neither rise nor ling strong, but by a reluctance to be minimalist reform strategy already fall. How this might be achieved is ex- flexible in our expectations of future land adopted in 1991). amined on the next two pages. A COUNTDOWN TO LIFT OFF STABLE PROPERTY PRICES are crucial to growth. That Council Tax as an emergency measure to replace the poll tax means a zero rise in land prices. The prices of buildings should has no doubt prolonged the slide of land prices (just as the not be targetted, for they are part of the economy's output and announcement in early 1986 that the tax on domestic property their prices are encompassed by the low inflation target for would be abolished heralded the rise of residential land prices). product prices. Individual products should be free to vary in Mr Major could trumpet this return of the property tax as a price relative to other products according to supply and demand. step already taken in the correct direction, bringing housing That goes for the rent of the factor land, too. But land price, land into line with business land. a derivative investment asset, should be strictly pinned down. One visible step Mr Major could immediately take would There are four sources of variation in land prices: be the instruction to professional valuers to produce a com- (1) change in rents; prehensive data-bank of values for all classes of land use, of (2) change in real interest rates; the kind now available in Denmark. (3) change in the anticipated rate of change of land prices; By thus striking at one of the roots of the British inflation (4) change in taxation of land rents. mentality, Mr Major could dispel the crisis of confidence in The first two are primary, the third can be targetted, and the the currency markets which is adding a risk premium to interest fourth can be manipulated to achieve the target. rates. Sterling would bounce from the floor to the roof of its Real interest rates are variable in the short term, but rents 6% band and scream for the Chancellor to slash the base rate tend to have a secular upward trend because the overall supply to prevent it bumping its head. As the real interest rate fell, of land remains fixed while the uses for it multiply. Rents tend property markets unjammed, and land prices changed direction, toriseatarateeven faster than lst-t ine buyers' Mortgage costs X at the new tax machinery would economic growth, because earnings; retail rents a profitability begin to whir into action: the well-located space is a "supe- Z00 opportunities of this new fis- rior" good to which we devote cal regime will be examined an increasing share of our in- 188 in the next issue of EL comes as they rise. In the 160 Samuel Brittan was quite chart (inset), the upward trend right. Without the exchange of first-time buyers' mortgage S I'M rate constraint the Bri tish gov- costs as a percentage of earn- » ernment might never have be- ings (M/E:right scale) is not £ 128 come so desperate for a way primarily due to rising interest " to impress the foreign ex- rates. Higher interest rates 188 change markets. It could stop reduce the prices offered, brazening it out and act now rather than encourage buyers by grasping the surest means to take on higher annual re- to hand. payments. 1971 1981 1986 1991 To prevent a rise in land : Uoolwich B. Soc.; John Burton • Rentsxsq ft --• Profitability prices, the rate of tax on land • fl/Z, right scale rents must increase over time. In the short term, however - as is now happening throughout the world - it may be that land Continued from next page rents are falling and interest rates are rising. In such circum- stances, it may make sense in the short term - if we are trying however, it might be necessary to consider this scheme in to stabilise plummeting markets - to reduce land tax rates, in conjunction with current calls for the government to relax its order to stabilise land prices. That is why 1992 is an inappro- full-fund rule. This obliges it to fund the PSBR without resort priate time to dismande the distortions in the land market. Those to borrowing from banks and building societies through treasury distortions, historically, stemmed from the exemption of land bills, which would enable them on the strength of their addi- from taxation (which was the surest way to stimulate land tional assets to increase the money supply. speculation and generate instability in the markets). "Under-funding" the PSBR is appropriate for recessionary There is, of course, the political consideration. NO time times, it is argued, to stimulate the money supply, reduce long is appropriate for introducing taxation unless politicians are as rates of interest and raise equity prices. Under-funding means cunning as doves and as wise as serpents. Times of crisis offer that the government issues fewer bonds, which would make the greatest opportunities for reform. On page 4 we examine room for more private bonds without reducing bond prices. To one way to lower the price of particular sites today, and that the extent that private bonds replaced gilts they would prevent method could have a wider application. Or it could complement the effects of under-funding from coming through. But that other methods, by making zero land price inflation palatable would only re-route the stimulus for the economy. The eco- to those with "negative equity". nomic aim of the private bond scheme is to free the housing Another route would be via real interest rales. Prime Minister market of the jam caused by those who cannot move till they John Major could give no more firm a declaration of intent to can sell their homes for enough to repay their mortgages. kill inflation than to commit himself to the criterion of zero The number of residential property sales (about 1 million land price rises and order the necessary tax machinery to be a year) is now less than in the 1970s, when there were only put into place. The imminent Council Tax presents him with two-thirds as many privately-owned homes. The economy is a golden opportunity. The announcement in mid-1991 of the being immobilised - literally. ANOTHER SILLY SEASON FIX?

THE Abbey National Building Society's call for cash compen- according to the following equation (assuming that a continuing sation and tax credits for those who sell their houses at a loss 5% per annum decline in land price is also anticipated and is audacious. capitalised): Apart from calls for the Public Sector Bon-owing Require- v = _a_ ment (PSBR) to be "under-funded", or for a public sector wage i " g freeze, the housing market is the focus of attention of all the silly season nostrums. Even those who call for devaluation or i.e., land price = annual land rent exit from the Exchange Rate Mechanism nurture the prospect interest rate - capital gain rate of homeowners floating out of their debt-traps on rising prices. But at least the locus of these measures is the land market. 20,000 a The fatal flaw in the Abbey plan is its massive cost. An 0.09 - (-0.05) alternative version of the Abbey's plan which fits in with overall economic strategy is outlined below. a = 20,000 x 0.14 = 2,800

TO ENCOURAGE a house vendor to sell at the lowest possible The £900 annual charge on the land rent imputed to the property price the government could bridge the gap between the selling therefore represents a rate of 32%. This reduces the rent enjoyed price and the vendor's original purchase price (physical depre- after the charge by the landowner, and hence reduces the site ciation apart) by creating non-redeemable bonds in the name price to £13,571 ([2,800 - 900]/0.14). Knowing that the charge of the vendor. The bonds would have a stock market value equal has to be paid, the landowner would only offer£43,571 (£13,571/ to the shortfall. That value site, £30,000/building). would be assured through However, that increases the appropriate fixed in- Example (see text for explanation of brackets): £s the capital loss and raises terestrate - about9% now. the amount of bonds that The trick would be to Original purchase price of house = 60,000 are needed, and the charge fund the interest by a Current saleable price = 50,000 (43,571) (32,000) - hence the second line of charge on the property that Capital loss (= land price decline)= 10,000 (16,429) (28,000) brackets. The final out- has been sold, determined come of this iterative proc- as a proportion of the Stock market value ess is shown in the third property's site rent. of vendor's bonds = 10,000 (16,429) (28,000) line of brackets. Though the govern- Annual cost of bonds (at 9%) = 900 (1,479) (2,520) This means that a 90% ment would collect and Annual charge on property = 900 (1,479) (2,520) charge will be made (Hi the distribute the charge, the rental value of the site, so borrowing through the medium of the bonds would be by the the purchaser will offer only £2,000 for the site, and £32,000 private vendor, and the servicing of the bonds would be by the for the whole property, instead of £50,000. Despite the charge, private buyer. The PSBR and the level of taxation would be the purchaser will be no worse off. His or her offer fully affected only by administration costs and the income tax re- discounts the charge. The £2,520 pound annual outgoing is less ceipts from the bond interest payments. than the interest (nearly £2,000 at current mortgage rates) on The idea of a house buyer paying interest on behalf of the additional £18,000 loan that would have been necessary someone else may seem incredible. But because a charge on to buy the house, plus the anticipated annual loss in the resale land is reflected in a lower purchase price, it makes perfect price of the land (£1,000 in the first year). sense. The lower price means that the buyer pays the charge The opportunity to avoid debt - or pay the equivalent of (and thus, in this case, the interest on the seller's bond) instead guaranteed fixed long term interest rates rather than variable of paying interest on the loan for purchase. The buyer is no short rates, at a time when the former are considerably lower worse off, and in fact his position might be improved. - might even stimulate demand from first-time buyers. Credit- A calculation has to be made to accommodate the further poor house seekers would benefit, and the new demand would effect (shown in brackets) of the properly charge on the sale be targetted at homes where the occupiers are "debt-trapped". price. If there were no effect, the cost would be borne by the The question mark hanging over this scheme is its effect purchaser. But he would discount the charge in the offered price. on capital markets. Would £28,000 cash be available to buy This is where we need to be clear about the exact nature of the bonds in the example? £18,000 should be, because that the property and the charge upon it. is the amount of loans (or own savings) the buyer no longer A house is both bricks and mortar and land, which have has to find. Of the other £10,000, not all would be a new call specific values. Say a valuer apportions the £50,000 realistic on the market. The seller at the end of the housing chain would price (i.e., low enough to sell fairly quickly) as £20,000 for keep the savings pool topped up to an unpredictable extent the site and £30,000 for the building. The site price reflects To avoid upward pressure on long term interest rates, an implicit annual rental income, which has been capitalised Continued on previous page us*

Published by the Centre for Incentive Taxation, 177 Vauxhall Bridge Rd, London, SW1V 1EU. Tel: 081 943 1379 * THE LAND & LIBERTY ESSAY * by David Richards

EARTH: hostage to fortune in the North / South divide

The Rio Earth Summit was billed as "the last chance to save the planet". In fact, writes DAVID RICHARDS, it ivas about the bottom line: the claims of nations on natural resources and created wealth.

Over 100 heads of state, and ministers deficit is now the highest it has ever been one as a prerequisite for making judge- from 178 countries, attended the United in peace time in relation to the country's ments. Nations Conference on Environment and income - almost 7%. Development (UNCED) in June. For- President Bush claimcd that the coun- Fair sharing among individuals and mally about safeguarding the world's try just did not have the wherewithal to nations depends upon equal entitlements environment for future generations, the be generous to those at the back of the to natural resources and tke individuals summit was in substance mainly about queue. In terms of domestic politics, in right to tke fruits of his labour as valued enlisting the help of the North to safe- an election year, he was right. The US by undislorted markets. guard the South from poverty. economy is built on low taxes and high There had been a previous summit on energy consumption. Free enterprise and These two ingredients of principled this issue, at Cancun in Mexico in 1981. the automobile are its essence. For the and sustainable development find ex- And the GATT negotiations over world US, a fairer sharing in the jungle in- pression wherever genuine moves to- trade, still under way in the Uruguay volves higher taxes and much lower wards land reform and free trade take Round, were very pertinent to it But energy consumption. How can the jun- place. They arc two sides of the same neveT before had the South held a valu- gle's most powerful leopard be persuaded coin. able hostage with which to bargain. The to change its spots? poorer nations hold most of the world's The weaker beasts threaten to take "FREE TRADE" is shorthand for effi- environment under their control. away the jungle. But they, too, depend cient market institutions. Such institu- At a previous UN summit on the on it. A credible way forward will have tions often have to be created by gov- environment (at Stockholm in 1972), it to serve the self-interest of, and be visible ernments. In the case of "public goods", was not so evident quite how bound up to, every short-sighted beast in the jun- for example, they do not emerge from with the rich/poor divide were environ- gle. laissez faire attitudes. Clean air is a mental issues; nor had a hole yet been public good, which can only be pre- detected in the ozone shield that protects IT IS POSSIBLE that the earth's carry- served by common action. It cannot be earth. ing capacity may be stretched much created, packaged and marketed by The drama in Rio hinged on whether further through judicious exploitation. individuals. the US A, the largest consumer of natural The one thing that all politically con- Placing economic value on the envi- resources, would agree to stay its hand, strained negotiators at Rio were agreed ronment was common currency at Rio. or would insist on carrying on with upon was that development must take Rather than allowing nature's capital to business as normal. If the latter, other place. Disagreements revolved around be run down in order to have develop- nations would have little compunction how to make it "sustainable". ment on the cheap, the full replacement about seeking to emulate its environ- The key to sustainable development cost of a natural resource should be mentally destructive lifestyle. is that it must be, and be seen to be, both included in the price charged for using The problem for the US was that efficient and equitable. Global economic it. business as normal involves running just growth will be sustainable only if That is the opposite of policies that to stand still - even without bowing to opportunities are shared fairly and have been pursued in the Amazon rain- moral pressure to stop elbowing others markets are made to work efficiently. forest, for example. The resources of the aside at nature's table. For two decades The rhetoric of Rio implied both these jungle were not only regarded as free, real wages, as measured, have failed to axioms. their destruction was actually subsidised. increase (though that should encourage The failure was one of fundamental Merely removing the subsidies has politicians to measure US environmen- philosophy. The United Nations has no helped to reduce the rate of destruction tal standards, which have generally definition of what is meant by fair shar- by half since 1989, the Brazilian gov- improved). The US government budget ing of opportunities, so let us provide ernment claims.

LAND & LIBERTY SEPT/OCT 1992 PAGE * THE LAND & LIBERTY ESSAY * RUSSIAN RENT

Energy and water are squandered tively claimed by users. Timber sup- Group of 77 less developed countries, world-wide due to government subsi- plied by truly sustainable tropical hard- has said: "I'm poor and need my forests dies. wood enterprises would be more scarce to get on in life so, if you want them, Proceeding to incorporate the full and so command a higher price than you must pay - and give me technology replacement cost in the price of a re- today's timber, much of which would be and investment." source, however, involves the further "rent". Today's consumers do not have Malaysia plans to log half its forests step of deciding who is entitled to the to pay that rent, so they effectively by the end of the decade. To keep much economic value of that resource. This exercise ownership of financial equity of that forest intact as a global trove of issue straddles our two axiomatic prin- in the natural forests. But because they biodiversity and a global cooling plant ciples. cannot store the equity as assets, they it will need to be offered "enough to Sustainable forestry, for example, blow it through over-consumption. compensate for the loss of revenue we involves investment and labour in re- In the case of crude oil, OPEC gov- could gain from our forests," the prime planting, as well as felling. Interest and ernments have at times been able to minister has said. wages are earned. In addition, however, wrest the financial equity away from If the Group of 7 leading industrial the enhanced price of timber due to consumers. By restricting output (thus nations, for example, really wishes to reduced supply provides rental income prolonging its life) they ensured that a import those environmental services, it for those plantations which happen to be price nearer to replacement cost was will arrange procedures whereby ad- in the more fertile or accessible loca- commanded (as evidenced by the stimu- equate rental payments are made avail- tions. That belongs to the owner of the lus given to oil substitutes research) and able. Setting aside global land for nature location. But who should the owner be? reaped natural resource rents which were will increase pressure on other global This is where land reform comes in. then used for whatever investment or land uses and raise the rental value of Another commonplace at Rio was the consumption they chose. all land, including the forests, which will view that the natural environment be- provide a source of funds for those longs to everyone. In practice, the term THE MOST difficult question - which payments. "environment" is used to cover all those countries should pay for whatever ac- natural resources that are not yet owned tions were chosen - should not have been SUCH A common commitment to higher by anyone, but the distinction is artifi- a problem. An effective "green" pack- costs for the sake of maintaining com- cial. The natural environment encom- age must involve crystallizing for sov- mon resources requires the ability to passes all that a human being is born into ereign owners of natural resources the organise a common response among apart from other human beings and their rents previously dissipated to consum- nations. The European Community's social and physical artifacts. That her- ers through over-consumption. That rent failure to agree on a self-imposed "car- itage (deny it if you dare) is the equal forms a natural fund for paying for the bon tax" was not an encouraging prec- birthright of everyone. But, because package, including compensation to edent. However, the political obstacles many parts of it can be parcelled up and those disadvantaged, which it is not are surmountable. sold, they have been. beyond the wit of governments to cap- The EC Commission's proposed This is another case, as with public ture. carbon tax, levied at a rate of $10 per goods, where governments must act. What Rio needed to sort out was the barrel of oil equivalent on fossil fuels, Resources which are natural - which are ownership of the resources and the is designed to reduce consumption of not the product of effort - and which compensation to consumers for higher non-renewable energy resources and to therefore need no incentives to be pro- prices. In the event, because these issues cut back the carbon dioxide emissions duced, should not be allowed to pass into were not addressed, and therefore no which are likely to cause global warm- private ownership simply because they source of funds other than higher taxes ing. It would put a price on the atmos- can be conveniently bounded and in the North was considered, action was phere, allocate atmospheric use-rights, claimed. The economic value of those paralysed. and claim a natural resource rent for use resources should help to pay for the All nations were at pains to safeguard by the community. public goods which individuals without their sovereignty over the natural re- The rental value of the atmosphere any common organisation have no in- sources, including plant and animal for use as a dustbin is evenly distributed centive to produce. species, within their boundaries. The - except where ventilation is restricted, The obstacle to moving from the advantages of common action to restrict as in Los Angeles and Mexico City, current laissez faire system of environ- the use of those resources and reap rents where it rises. A uniform tax per unit ment ownership to a principled system for themselves, as OPEC had done in the of carbon dumped is therefore propor- mediated by governments, is the vested 1970s, were foregone. The South con- tional to rental value. (A uniform tax per interests of those who have already tains many of the most valuable natural acre of land would not be, as land rents purchased, inherited, or claimed legal resources, so such efforts would have vary spatially.) It asserts the equal entitlement to the environment. been to their advantage. ownership of each citizen of a part of Even those natural resources which The primary industries minister of the economic value of natural resources. apparently have no owners are effec- Malaysia, the hard-line leader of the The individual's share of value may

PAGE 8 LAND & LIBERTY JULY/AUGUST 1992 * THE LAND & LIBERTY ESSAY * ON WAR

THERE IS a politically viable way for- ward which does not involve taking away from voters what they already have. Rise in greenhouse gas emissions Governments may reduce voters' ex- pectations of windfall gains in the fu- Excluding CFCs ture, by pruning the sources of wind- E.Europe/USSR falls. Central Asia Green taxes may be used to ensure that increments in private income from South and East Asia appreciation of the market value of United States natural resources are no longer antici- Latin America pated. That will bring an end to rises in the capital values of those incomes. pECD Europe/Canada Reduced capital gain expectations will Africa cause the rate of saving to rise, in order Emissions Middle East to meet future income requirements. That Data uses the average of IPCC will cause interest rates to fall. OECD Pacific 2030 high and low base cases Million tonnes carbon More capital supplied at lower inter- dioxide equivalent/year " 101 est rates will benefitcapital projects with longer term pay-offs - just the sort of : Source: USAID data, derived from IPCC reports projects involved in environmental pro- tection and enhancement. Falls in inter- est rates will lower the capitalisation ratE of rental incomes, raise capital prices be received in many ways. The provi- included in the price, and the tax's job and shield owners against capital losses sion of public goods which benefit all is to include it). The EC plan, therefore, when taxes on rents are introduced. is an obvious priority. In the case of the makes introduction of the tax condi- Capital gains will be prevented m the EC carbon tax, funding of "overseas tional upon similar measures in the USA future by taxingrent increments at 100%. aid" would appear to be a prudent in- and Japan. As the USA will not intro- During the second week of the Rio vestment os behalf of the EC citizen. duce a carbon tax, the plan is a dead summit, The Economist noted that "since In simple terms, no more direct action letter. Even so, the EC nations are not most environmental damage is caused could be taken to avert the population endorsing it. by selling nature's resources toocheaply, growth in the South which so worries A better approach, it has been argued, governments have opportunities to make Northern citizens than the establishment would be to proceed with, say, a $ 1 levy green policies a source of revenue, not of educational institutions, especially per barrel, and increase the levy in line a drain on cash." The danger is that such involving women. Educated women in with any energy efficiency measures in opportunities may be taken in terms of poor countries have on average only two the USA, which would probably involve selling off the remaining commons to offspring (which means a stable popu- more costs in the US A than carbon taxes. private owners, as is generally advo- lation); uneducated women have four. The competitive disadvantage would thus cated by free market economists. The less the population of the South be annulled, and the opportunities for Milton Freidman, for example, ac- grows, the less the equity ownership of increase legion. cording to a letter just before Rio in the the atmosphere by Northern citizens is Taking a global perspective, the World Financial Times from Prof. Steve Hanke, diluted. In recent years OECD countries Bank points out in its 1992 World is of the view that, "given thedespoilation have contributed half the global carbon Development report that if a carbon tax left by public ownership throughout the dioxide emissions, developing countries was being levied at $25 a ton of carbon world, what we really need isn't an Earth a quarter. These proportions will be and the proceeds shared out between Summit, but a Privatisation Summit." reversed, on present trends, by the middle nations on the basis of population den- Federally-owned lands in the US are of the next century. Figure 1, published sity, the rich countries would be paying in worse shape than comparable private in the Financial Times, tells a similar the poorer countries compensation for lands because they are notoriously un- story. using their share of the atmosphere a der-priced. Full market rents should be Short-sighted opposition to the car- sum roughly equivalent to all official charged to users. Selling the public bon tax has been mounted by European overseas aid - $70 billion in 1989. The domain in private parcels, including politicians, especially from the weaker billions of new dollars actually commit- pollution rights, which may increase in economies. They fear that higher energy ted at Rio can be counted on the fingers sale value and hence reduce the incen- costs will make industry less competi- of one hand. If the richer countries are tive of owners to save, is not the way tive. (A tax on rent cannot raise prices, unwilling to settle the bill for a better forward for green capitalism. but in this instance rent is not already future, a worse one will be their reward.

LAND & LIBERTY JULY/AUCUST 1992 PAGE 9 THE FLAG of Spain that Columbus had no alternative but to accept they planted on a guileless San Salvador TRAGEDY IN are the victims of a twentieth century has long cast its shadow on primitive THE AMAZON "enclosure movement" - and take to peoples in every corner of the globe. the road. Some move to the shanty- World history since 1492 is a black towns of the big cities, but the over- record of simple communities every- Amazon Watershed, whelming majority make the trek to where being deprived of their lands By George Monbiot, the Amazon. and their livelihoods by ruthless in- Michael Joseph, London. vaders from other continents. MONBIOT looked especially at the It might have been thought that, state of Maranhoe, in the north-east, by the twentieth century, with litde was leaving in its wake. where more peasants are murdered of the planet remaining to be "dis- Investigating the first of these or dispossessed than in any other covered", the years of the predator factors and probing the underlying state. His experiences at the hands and the landgrabber would be over, reasons why hundreds of thousands of a brutal police force and of the but recent events in Brazil and its ofpeasantcolonists should move from hired thugs of some of the big land- neighbouring states show that this their traditional homes and make the barons, leave no doubt about the was a forlorn hope. Now, apparently, longandweary trekinto the Amazon, repression and lawlessness that stalk it is the turn of the semi-nomadic Monbiot foun d that they are not doing large areas of Brazil to-day. Indians of the Amazon rainforest to so through choice. Most of them are Monbiot also spent much time in be trampled under the jack-boot as leaving more fertile land than they areas of the Amazon being devas- government industrialisation and are finding in the Amazon, where tated by gangs of goldminers. Here, "colonisation" projects swallow up only 7% of the soils are suitable for more and more migrants join a their natural habitat. peasant agriculture. modern-day goldrush that rarely Such is the pace and extent of the benefits the participants but inevita- destruction that tribes such as the THE REASON for this seemingly bly destroys the land of the Indian Yanomami, the Waorani, the Kayapo paradoxical behaviour, Monbiot tribes. To produce a few ounces of and the Tukano are facing virtual found, is that the peasants are not so gold, the riversarepolluted, the game extinction. Indeed, the very future much migrants as refugees. Theyare gets driven away, the areas cultivated of the rainforest now seems to be being forced off their family small- for food-supply are laid to waste and under serious threat. holdings by landlords more con- diseases brought by the outsiders One man roused to action by the cerned with maximizing profits than increase the suffering of true natives devastion and repression now appar- with the well-being of their tenants. to breaking point. endy in full spate in Brazil is George Monbiot sees land and power in So the Amazon is the cockpit of Monbiot. In 1989 he made an exten- Brazil as indivisible. The political a double tragedy: of dispossessed sive tour of the country, seeing at first control of the countryside has long peasants from developed parts of hand the extent of the human and been exercised by the landowners, Brazil being forced to quit their tiny ecological tragedy being played out from whose ranks come the politi- landholdingsand, in turn, to threaten in its sub-tropical hinterland and cians and the military chiefs who run the destruction of the rainforest and, attempting, as he put it, "to find the the country. In recent times, thou- with it, the existence of the primitive real villains" responsible. sands of peasants have seen their tiny tribes who have their homes there. He found that the picture ob- holdings declared by the authorities Having investigated the problem, tained on the spot was more reveal- to be the property of the large land- Monbiot puts forward a solution. He ing than that gained at long distance owners. In consequence, 1% of the suggests that the first measure re- from the newspapers and television. landowners now own 43% of the land, quired is "agrarian reform" under Although catde-ranching, govern- an area the size of India is used for which the peasants would be granted ment-sponsored settlementand dam- nothing but financial speculation and secure tides to their land, this being building were, indeed, gobbling up 35 million rural peasants have no followed by changes in the planning significant areas of the rainforest, land of their own. laws and restrictions on timber-cut- these factors were paling in signifi- The peasants have been fighting ting and other forest-destroying ac- cance against others whose appetite back, and Workers' Party candidates tivities. Such measures would, no for land were potentially much have been contesting elections, but doubt, provide some relief but, even greater. Armies of private setders, for the landlords have responded by in their total effect, they would do example, were flooding into the ba- expelling the peasants from their land litde to correct the grotesque con- sin from other parts of Brazil, carving and using "death squad" tactics to centration of land ownership which out tens of thousands of homesteads induce them to leave. Between 1980 he righdy sees as the major under- from the virgin forest; gigantic swathes and 1990 over one thousand peas- lying factor in the grim condition of of destruction were being caused by ants, as well as many of the priests, the Brazilian peasant. But no effec- large-scale road-building, with scant lawyers and union leaders aiding tive improvement can be expected regard for the environment, by the them, have been murdered. With no until the vast near-feudal estates are armed forces; and an exploding tim- help from the authorities - for prac- broken up. ber industry was threatening to outdo tical purposes the tool of the land- everything else in the devastation it owners-the persecuted peasants have

PAGE 10 LAND & LIBERTY JULY/AUGUST 1992 BOOK REVIEWS

TOLSTOY'S REMEDY FOR Despite his prestige, Tolstoy had BAD DREAMS the same difficulty George's followers have always met with W * jmE incomprehension and indifference. Tolstoy: Principlesfor a New World His appeal to Tsar Nicholas II to adopt Order, land-value taxation to avoid revolu- David Redfearn, London: tion was met with a total lack of re- Shepheard-Walwyn, £9.95. sponse. One wonders if Nicholas re- membered this when he faced the The central theme of David firing squad. : Redfearn's work is Leo Tolstoy's Tolstoy asked his English inter- pp;; . advocacy of Henry George's ideas in preter, Aylmer Maude, how the single his quest for a better world order. tax movement was going in England, Surrounding this, an extraordinary and was told that it was too much for the Conservatives and not enough for amount of information is packed into • Loo Tolstoy the Socialists. Tolstoy despaired of this, this book of less than 200 pages. The up to the present time, showing the and wondered 'who is to do this work author worked for two years on this continuing disorders of the world that so urgendy needs doing?' his final opus, and his research is and how the land question is the The world went on its catastrophic varied and thorough. bottom question. He also points out way, erupting in World War I and the A brief history of Russia is in- that the movement for land-value Russian Revolution. Though Tolstoy cluded, enhancing our understand- taxation has, afteraR, achieved some missed these events, having died a few ing of the milieu in which Tolstoy advances and is in practice in various years earlier, his prophetic eye fore- lived and worked. There is also a parts of the world, with beneficial saw such disasters if morality was not brief biography of the great author results. and something about the surround- observed. David Redfearn carries the story ing intellectual atmosphere. THE BOOK concludes with the new In the first half of Tolstoy's life opportunities in Russia with the end he produced such masterpieces as OBITUARY of communism and the quest for Anna Karenina and War and Peace, perestroika. During the communist and he is thereby universally recog- Land. 6f Liberty deeply regrets to period, Tolstoy was dismissed as an nized as the greatest of Russians and announce that two of its contribu- ineffectual dreamer and Henry one of the world's greatest authors. tors have died. George as a bourgeois reformer. But Less universal is the appreciation of David Redfearn, a Quaker, was times have changed and it is rather his work in the second half of his life, dedicated to the idea that war could the failed regimes of autocracy and which to him was much more impor- be eradicated. His latest book - a communism that seem like bad tant. He was appalled by the misery study of Henry George's influence dreams. he witnessed, the treachery of gov- on Leo Tolstoy, which hasjust been Recent Georgist efforts in Rus- ernments in their futile and destruc- published in Britain - is being trans- sia are recounted by Mr. Redfearn. tive wars, man's inhumanity to man. lated into Russian, and will be An appreciative Foreword by Anatoly He sought a better society founded published in Moscow on Sept. 25. Gorelovof the Academy of Sciences, on sound moral principles. These he Edgar Buck, a Cardiff solici- Moscow, says: 'If Leo Tolstoy were found in the Sermon on the Mount tor, has for many years con tribu ted alive in the year 1992, his support of and in other great world teachings. penetrating analyses of the way in Henry George's single tax on the Tolstoy was attracted to Henry which private property in land value of land as a means of achieving George's works, Progress and Pov- created social problems. Through common rights to it would, to my erty and Social Problems. At first, the United Nations Association he mind, remain absolutely unchange- however, he misunderstood George's actively campaigned for the relief able. As President of the Leo Tolstoy proposal as land nationalization and of poverty in the Third World. Society, I share this opinion.' wondered if this would not exchange Both were members of the In- And let us remember, this is not one slavery for another. Later he had ternational Union for Land Value just a needed reform for Russia, but a clearer grasp of the remedy of land- Taxation and Free Trade, through for the world. value taxation and enthusiastically which they campaigned for social promoted it justice.

LAND & LIBERTY SEPT/OCT 1992 PAGE 11 The End of History and the Last Man, Fukuyama makes a feeble attempt to wresde with the Francis Fukuyama, ancient riddle of free will, since man's fundamental sense of dignity (the essential thing his thymos makes him hungry New York: The Free Press to have recognised) lies "precisely in this capacity for free Toronto: Maxwell MacMillan, 1992. moral choice." But he persists for only a page or two before admitting he is not sure about free will and so describes it as "something very real and important Whether or not The remarkable thing about Francis Fukuyama's new book true free will exists, virtually all human beings act as if it is not so much the book itself as the unusual splash it has does, and evaluate each other on the basis of their ability made. to make what they believe to be genuine moral choices." An entirely mild-mannered tract, it grew out of the It is this kind of rough carpentry which first suggested controversy which followed publication two years before to me the simile of Fukuyama's blindness. But the difficulty of the writer's essay in the journal, The National Interest. with this book is not what he sees only dimly but what he This comprehensive version has provoked even more fails to see at all. Unwilling to say himself that History has gnashing of teeth. In its initial version the tide carried a ended, he reports early that "Kojeve claims that we have question mark, and it came without the subsidiary concept, reached the end of history because life in the universal "The Last Man", which has some bearing on the central and homogenous state is completely satisfying to its citi- thesis, but not much. zens." That is to say, it is free of any "contradictions," the The book, added now to my library, is one of the truth of which some men still want recognized. handsomest on the shelves, and makes some of the others around itseem shabby-G.W.F. Hegel's Philosophical History, FUKUYAMA, following his seeing-eye mentor, refuses for instance. It carried as appendix some 50 pages of stubbornly to be "sidetracked" (Kojeve's word for dealing footnotes, a 10-page bibliography with 250 tides, and almost with whatever does not fit his structure) into the obvious 20 pages of index. There is an unmistakable stamp of realisation that the private ownership of land is the remain- establishment blessing on this work, and the critical re- ing device by which masters control slaves: a relationship sponse to it has been close to savage. fundamental to the book. These two elements, the publisher's confidence and He is willing, though, to concede a question : "The the critical response, may seem contradictory, but of course problem of the end of history can be put in the following they are not. It was apparent from the fact that the essay's way: Are there any 'contradictions' in our contemporary first appearance stirred up enough interest to justify what liberal democratic social order that would lead us toexpect has been called a "colloquium of rejoinders" that a book that the historical process will continue, and produce a with a similar title would sell, and sell not one but two new, higher order?" earlier scholars: George W.F. Hegel and the more recent Thus it can be said Fukuyama stands ready to be a Alexandre Kojeve, "the French-Russian philosopher who Georgist, or at least to see the continuing need for an taught a highly influential series of seminars in [Paris] in historical synthesis. "We could recognise a 'contradiction'", the 1930s." Fukuyama has good reason to walk cautiously he concedes, "if we saw a source of social discontent behind them. Hegel, who first proclaimed History ended, sufficiently radical to eventually cause the downfall of thought it had happened in 1806 after the batde of Jena. liberal democratic societies." And while Kojeve champions liberal democracy, Fukuyama admits (not in the text itself, but in a footnote on page 351) his more recent mentor admired Stalin, often said so, and saw "no essential difference between the United States, the Soviet Union and China of the 1950s." A case can be made that this book is all nonsense, and The reviewer is editor of Now the Synthesis: Capitalism, not worth the time and trouble, which can properly be Communism and the New Social Contract, London: Shepheard- said about Part Five ("The Last Man"), its fundamental Walwyn/New York: Holmes & Meier, 1991. arguments all being based on a shaky foundation. But Fukuyama brings more than a few important concepts into his intellectual structure, having found them in the litera- ture. One such concept, central to the Hegel-Kojeve rea- COSTING THE EARTH soning, is what Fukuyama chooses to call thymos, that Ronald Banks (editor) being the word Plato attributes to Socrates in his book, Republic. It means, more or less, "spiritedness," but might Paperback, price £6.95. more exactly be termed the universal, human hunger for recognition. "Qualitatively, this book gets it right..." Since thymos is so important to his thesis, and inas- much as the book is really a review of the literature, it is — Economic Journal a pity Fukuyama did not find space in his 20-page bibli- ography for Douglass Adair's succinct lecture of 1964 Published by Shepheard-Walwyn Ltd., London, and called "Fame and the Founding Fathers." It says as much in a few pages about the impact of thymos on history as Robert Schalkenbach Foundation, New York, USA. Fukuyama says in his whole book.

PAGE 12 LAND & LIBERTY JULY/AUGUST 1992