Land Value Tax:
Cure for Poverty and Unemployment
Pat Aller
[This paper for the International Research Foundation
for Development, Inc., was presented at the United Nations World Forum
for Social Development, Geneva, Switzerland, June 2000, by Ms. Pat
Aller who represented and spoke on behalf of the International Union
for Land Value Taxation, as one of this organisation's two
NGO-representatives to the UN, 1992-2002]
ABSTRACT:
This paper presents an analysis of the fundamental, systemic flaw in
dominant economic theory which distorts governmental policies
worldwide, whether capitalist, socialist, or other. Neoclassic
economic theory is based on only two factors of production - labour
and capital - having blended the most important factor -- land -- into
capital. This error blinds economists, political scientists, planners,
and others to the persistent cause of poverty -- maldistribution of
wealth due to maldistribution of access to natural resources,
including land. Although urban economists began to question their
tenets during the past half century, it is only during the past
decade, with the rise of global interest in environmentalism and the
decline in the wealth of many nations, that development economists too
have opened their eyes to this mistake, cause of immense damage and
unrest.
The paper examines recent studies in development and environment
economics, showing that International Monetary Fund, World Bank,
United Nations, university, and other experts have misinterpreted or
overlooked significant data, failed to incorporate externalities, and
prescribed remedies that exacerbate already volatile conditions.
Different kinds of reform are compared, including best practices that
have been ignored. Recommendations are made for simple studies that
NGOs or local governments could conduct.
The conclusion is that no progress in social development will be
achieved until economic thought and policies restore land to its basic
role as one of the factors of production, and until fiscal reform
which recaptures gains in land value for the community or State -- not
for individual or corporate speculators -- is instituted.
* * *
POVERTY is a very serious problem facing the world's people and also
their organisation, the United Nations. Since the Brazil conference on
sustainable development in 1992, a cumulative total of at least two
full years has been spent in UN preparatory committee meetings, major
conferences, intersessional meetings, and the like. A few NGOs and
more than a few diplomats or their staff have attended almost all of
those meetings. Great things have been done, greater still planned,
and yet, increasingly, each conference ends with plaintive calls for
new and additional resources. By which is meant money.
One way to raise money for countries, so that they do not have to
depend so much on the UN, is to adopt a land value tax. I represent
the International Union for Land Value Taxation at the UN and will
describe how a land value tax, or LVT, works. But let me tell you
first that it is getting more attention at the UN. In 1996 the world
conference on shelter, Habitat II, proposed a return to the community
of gains in land values due to population increase, community spending
on infrastructure, and other amenities. In April of this year a
similar plan was urged on the Commission for Sustainable Development,
by the Popular Coalition, related to FAO (Food and Agriculture
Organisation), through the International Fund for Agricultural
Development. And, at the April preparatory meetings of the Commission
for Social Development, Discussion Paper 11 was circulated by the UN
Department of Economic and Social Affairs. The author recommends land
value taxation to raise money for social development, as a priority
over several other proposals, including a currency transfer (Tobin)
tax.
A TAX REFORM, NOT A NEW TAX
WHAT IS a land value tax? First, it is a tax reform, not a new tax.
The property tax, or real estate tax, in most countries consists of a
tax on land and a tax on buildings on that land. Unfortunately, in
most places, buildings are taxed too high and land too low. In many
countries, undeveloped land, with no building on it, is not taxed at
all. These conditions encourage land speculation and land monopoly. As
the population in a town grows, and as the town provides more roads,
water, schools, and other infrastructure and services for new
residents, the available land becomes scarcer and therefore more
valuable. Under most conditions, the landowner receives the profit
from increases in land values. My organization, and others, including
some economists, consider this a maldistribution of the world's
wealth. We believe that the system needs reform, so that increases in
land value due to population or infrastructure growth are returned to
the community, which is the real creator of increases in land values.
Land reform, made possible by fiscal reform, should recapture
increases in land values for the community treasury. No matter how
poor a nation or town, residential land and business land always have
value, which usually is the most important source of revenue for
government spending.
An important advantage to such a fiscal reform is that a more
accurate tax on land values means that taxes on buildings can be
lowered. Taxes on buildings are really taxes on the labor that creates
the buildings or taxes on the capital that is used to hire the labor
and the machinery for such construction. Lowering or removing such
taxes automatically puts more money in people's hands, which leads to
more manufacturing and construction, thus reducing both poverty and
unemployment.
(By land I mean all natural resources on, below, and above the earth,
including water, oil, minerals, the electromagnetic spectrum, air and
radio waves, and the like -- a definition used by many economists.)
"Land reform is an important economic and social necessity."
declared Bishop Diarmud Martin, secretary of the Holy See's Pontifical
Council for Justice and Peace, when he spoke to the Commission for
Social Development a year ago. "In many countries, indeed, it is
a major question of social justice. Large tracts of land are
under-utilised, while many persons living in poverty have no access to
land. But many attempts at land reform have failed in their primary
objectives. Land reform can be politically sensitive. New models of
land reform can be envisaged which are less socially divisive, for
example, through using fiscal means to make it economically less
attractive to maintain underutilized land."
LAND REFORM WITHOUT GREAT SOCIAL DISRUPTION
A LAND VALUE TAX is the best, and economically just, way to achieve
land reform without great social disruption. While it may be opposed
by many landlords, speculators, bankers, and others, it is in accord
with good governance and environmentalism and would go a long way
towards correcting the widening gap between poor people and rich
people, which is the symptom of a serious mistake in global economic
thought and practice.
The particular concern of those of us here today is social
development and how the world has met the commitments made in
Copenhagen in 1995 to alleviate poverty, unemployment, and social
disintegration. What do we find? Despite some progress, today poverty
is worse, unemployment or underemployment has increased, and society
is plagued by ongoing wars within or between nations in Africa, Asia,
Europe, and Latin America.
SHOULD THE UNITED NATIONS ADJUST ITS LENS?
IS IT POSSIBLE something is wrong in the way we address these
problems? Should we take a lesson from Seattle and Washington? If the
International Monetary Fund has been forced to admit to errors and the
World Bank has been forced to seem more eager to listen to the people,
should not the United Nations consider adjusting the lens through
which it views problems and the means to solve them?
Among the UN, non-governmental, and development research
organizations to whom David Smiley, economist, recently sent his
monograph,
Third World Intervention, he found "a lack of familiarity
with the standard literature on development, and with concepts of
monopoly, rent seeking, environmental economics, taxation principles,
and land value taxation. . . .It is argued in the report that such an
understanding is an essential prerequisite to the policy shifts seen
as necessary to any long term solution to third world problems.
"For the last half century, third world development strategies
have been based on neoclassical labor-capital models. These predicted
high economic growth rates arising from capital inflows, the benefits
of which would trickle down to labor. In most regions the results are
quite the reverse of these expectations. For the last decade or two,
in most regions of the third world, per capita income growth rates
have been negative. The greater the endowment in natural resources,
the more negative this growth. It is apparent that the labor-capital
models have been quite inappropriate, particularly in those economies
where landed institutions usurp resource inflows, block growth and
maintain inequality. ...Several kinds of surplus [known as economic
rents] are being consumed, not invested . . in a process which
economists call 'rent seeking'" (Smiley p 7)
What Smiley is saying is that rises in land due to municipal
expenditures and population growth should be repaid to the municipal
treasury, but instead are usurped -- appropriated -- by private,
corporate, or State speculators and monopolists.
"In addressing this behaviour," he continues, "SAPs
[Structural Adjustment Programs] face many complex and elusive
examples of diversions of economic rent in a dense network of
collusion and corruption. In contrast, LVT [Land Value Taxation] faces
one highly visible, tangible, and immobile kind of economic rent:
increases in land values. Land's economic rent, transferred from
consumption to investment by LVT, would double or triple existing
levels of savings. It would also remove much of the dead-weight loss
holding back third world economies so far from their production
possibility frontiers. . . [A]lmost without exception, recent banking
collapses worldwide have followed excessive property loans seeking
untaxed capital gains in urban land." (Smiley p 7)
There are economists, political scientists, and others who recognize
the important role of land in economics, a role first postulated by
classical economists, who classified the three factors of the
production of wealth as land, labor, and capital. During the past
century, however, neoclassical economists, ruling economic thought and
practice, have subsumed land under capital. They no longer regard land
as uniquely important.
"BUY LAND. THEY AIN'T MAKING ANY MORE OF IT."
BUT as Will Rogers, American humorist, put it, "Buy land. They
ain't making any more of it." Land is different, and should be
restored as the third -- and most important -- factor in economics. As
population increases, so does individual, or corporate, or State, land
speculation. But the supply of land remains the same ("inelastic"
is the economic term) and therefore the cost of renting or buying
space for housing or workplace rises. At the same time, other millions
find their access to land shrinking because their income has fallen,
or vanished.
Landlessness is the worst of problems for human beings because it
means poverty -- idleness, despair, hunger, sickness, death. It means
community decline, unhealthy competition. It means national drift,
dependence, fascism, conflict. It means world corporate hegemony,
wars. It means planetary destruction. These effects may have other
causes, it is true, but all result from inadequate access to land by
all human beings -- when access to land means survival itself.
Religion, philosophy, and other aspects of the major civilizations
have always recognized that land is every human being's birthright.
Society used to ensure that people had enough land for shelter and
subsistence. Even slave owners and so-called noblemen who ruled over
serfs, for all their indifference to freedom, recognized that a hungry
vassal was not a productive worker. But gradually individual greed for
land as a sign of power, as a way to become richer through
speculation, and even as pastures for animals instead of residences
for people (as in the case of British landlords over Irish peasants,
or other examples of colonialism) led to privatization - usurpation --
of the commons, the land originally provided by communities for their
people, including the poor, for subsistence farming and wood
gathering.
Fred Harrison, editor of
The Losses of Nations: Deadweight Politics versus Public Rent
Dividends, points out that the root cause of the widening gap
between rich and poor in feudal English villages was the enclosure of
the commons by powerful or wealthy individuals.
"There were three primary ways to deny people their birthright
and render them dependent labourers," according to Harrison. They
were 1) dispossession from land, 2) taxation, and 3) raising the price
of land. Concerning dispossession, he writes, "The objective of
those who engineered this social transformation of property rights was
seeking control over the rental income of land, which had previously
been treated as public revenue." (Harrison, p 41)
For taxation as a device to usurp humanity's birthright, Harrison
cites colonization of the Republic of South Africa. "The state
controlled taxation; it was persuaded to use this tool of
exploitation, a link in the chain that locked people into a system in
which their freedoms were written off in the interests of foreigners
who wanted to plunder nature." (Harrison p 42)
About price rigging, he cites Australia, when land was abundant. "The
solution was to persuade the state to impose artificially high prices
for land. In that way, the landless settlers from Britain would be
forced to accept wage work." (Harrison p 42)
Harrison defines net income as "the surplus which has been used
by all civilizations to create those cultural attributes which
distinguished them from their tribal roots. . . .[With the rise of
industrialism] "society was divided into a complex structure of
antagonistic classes based on the ability to appropriate part of the
net income. Social problems were largely the result of the
privatization of net income, forcing government to invent new forms of
revenue raising which punished people who worked and saved."
(Harrison p31)
MAJOR CAUSE OF INSTABILITY IN MODERN ECONOMY AND SOCIETY
"The failure of government to build this dynamic relationship
between taxation and the community's net income into its
policy-formulating process has been the major cause of instability in
the modern economy and society." (Harrison p50)
The theft of people's birthright to land coincided with the rise of
industry. Both the loss of their commons and the lure of factory wages
forced or attracted rural dwellers to towns and cities, where housing
then became scarce. The shame of the 19th century slums in developed
nations became widespread in the 20th century, in countries of all
economic levels. According to the UN Centre for Human Settlements,
urban slums will be the dominant residential style--and problem--of
the 21st century, unless we are serious about confronting poverty,
landlessness, and homelessness.(UN
Habitat Agenda, 1996)
People of concern, including NGO representatives and others here
assembled, recognize that something is wrong when a fifth of the
world's people -- really more like two fifths -- spend their so-called
lives poor, homeless, or in hovels. Experts float compassionate
remedies. But most fail to realize that below the peak of the iceberg
of homelessness is a far greater danger, a totally unnatural
phenomenon--landlessness.
Yet how often is access to land and other natural resources mentioned
in the Copenhagen papers? In the documents prepared for this Geneva
review by the General Assembly?
Is it possible that fiscal measures can correct such an imbalance in
access to land? Can land reform through tax reform achieve the
positive social development we desire?
The second half of the 20th century enlarged the field of economics
to include development economics. Some economists, especially those
dealing with urban problems, saw the unique role of land in creating
wealth -- and poverty. But most had been taught to ignore this vital
fact and therefore did not ask the right questions as they sought
causes of socioeconomic imbalance within and between nations. (Look in
the index of any economics textbooks for much about land. Descriptions
of its accessibility, its monopoly concentration in the hands of very
few people or corporations, its costs relative to income, and its
changing values based on planning, and taxing, find little or no
attention.)
If experts overlook land, what can one expect of reform-minded
citizens? We rally to the appeal of poverty specialists, good
governance gurus, environmentalists. Nowhere, until very recently, do
we find references to landlessness as a major problem. As for poor
people themselves, they are taught that poverty is part of the nature
of the world. Socialist countries, it is true, have attempted to
distribute wealth better. But, by curbing individual freedom and
initiative, most socialist States curbed their own economic
development. They ignored or misallocated the fiscal possibilities
inherent in land, even when the land is State-owned.
Developing nations are not the only ones to suffer from foolish tax
theories which allow the private theft of what should be the public's
-- the common -- wealth. Developed nations also lose huge amounts of
revenue because of private usurpation of gains in land value. Tideman
finds that in one year alone -- 1993, for example -- the gain in
output and per capita income under LVT for the G7 nations would have
been $6.84 trillion. (Harrison, p12)
Harrison refers to the failure of economists, planners, and
government officials to recognize the major role of land in creating
and distributing wealth, resulting in severe fiscal loss, as a "systemic
crisis." He adds, "The loss to the wealth of nations is a
measure of the indictment of governments that abandoned the best
interests of all their citizens to retain a tax system that preserved
the anti-democratic interests of the few." (Harrison, p28)
Professor Anthony Clunies-Ross of Strathclyde University, in Resources
for Development: Additional and Innovative Measures, UN Department of
Economic and Social Affairs Paper Number 11, distributed at the
April preparatory meetings for this Geneva review of the 1995
Copenhagen summit, presents LVT as one of several "priorities for
consideration by individual governments, and by the world community."
"There are plenty of additional sources waiting to be tapped for
the social development of the world's poor --" Clunies-Ross
explains, "available if governments individually and the
international community can be sufficiently motivated to tap them.
They can be realized through ... fully and accurately taxing the use
of natural resources through relating local levies individually to
local infrastructural benefits and costs." (Clunies-Ross, p2)
"[T]axes must be closely targeted to the value of the resources
rather than falling also on labour, capital, or enterprise," he
writes. (Clunies-Ross, p14)
The author continues, "Provided the tax on unimproved value is
frequently updated, the higher the proportion of the value of the land
a tax collects, the less attractive is holding the land for
speculative purposes ... with the barrier to development it
represents." (Clunies-Ross, p16)
He calls for "Full exploitation of the possibilities of taxes
precisely targeted on the site value of land and the rents of other
natural resources." and "Legislative authority and
encouragement for the aims of government responsible for local
taxation to apply local site-ownership levies based on the increase in
property values arising from the extension or improvement of local
infrastucture." (Clunies-Ross, p1)
But he also cautions, "[W]here land is the principal property of
many poor people, any general tax on land that aims to tap part of its
economic rent must be applied with extreme moderation. One solution is
to exempt from taxation individual holdings of land below a certain
value." (Clunies-Ross, p17)
"The approaches outlined in this paper do not for the most part
depend on new ideas," the author explains. "They are innovative
in the sense that they are not yet practised in many of the situations
in which they might be useful." (Clunies-Ross, p3)
POPULAR COALITION: ACCESS TO LAND, WATER, & OTHER RESOURCES
THE POPULAR COALITION, a global consortium of intergovernmental and
civil-society organizations, was formed to eradicate "hunger and
poverty by empowering the rural poor through agrarian reform and
access to productive assets, especially land, water and
common-property resources." It aims to "strengthen the
collection, analysis and sharing of knowledge on the innovative
approaches to land reform that can overcome the constraints
experienced in earlier models of agriculture-sector reform" and
to "elaborate participatory methods ... to secure access to land
and other productive assets," including greater security of
tenure, which the organization believes leads to better farming and
less environmental damage, thus providing better food security for the
world's people. (Popular Coalition, p8-10)
"Today, the number of rural poor is continuing to rise as they
are joined by those displaced as the result of the privatization of
common property, the expansion of commercial agriculture and the
eruption of ethnic and other conflicts over land," according to
the Popular Coalition, which sees the real obstacles to land access as
institutional and political, influenced by the power of vested
interests and the landed classes. It therefore stresses participation
of all farmers, including women, indigenous, and the very poor, in
decisions concerning land. (Popular Coalition, p3-4)
LVT SUCCESSES INCLUDE A CITIZEN'S DIVIDEND
"If you're so smart, why aren't you rich?" is often asked
when advice is given. And you might well ask of LVT advocates, "Where
are all your utopias?" The tax is fairly widely used, according
to Robert V. Andelson, editor of
Land-Value Taxation Around the World. Australia, New Zealand,
parts of South Africa and other African nations, Taiwan, as well as
parts of the United States and, formerly, Denmark and Japan, have used
this fiscal reform for economic justice. However, land has often come
to be assessed at too low a value to make much difference, because of
the pressure of speculators and others.
But it does make a difference. Walter Rybeck writes," In 1981,
Harrisburg [capital of Pennsylvania, a large state of the United
States of America], suffering from blight and a sluggish economy, was
cited by a federal agency as the second most distressed city in the
nation. But by 1994, it had reduced vacant boarded-up housing units
from 4,200 to less than 500. Its business firms in that period grew
from 1,908 to 4,329. An additional 4,700 new job positions had been
filled. The market value of private real estate rose from $212 million
to over $880 million. According to Mayor Stephen R. Reed, the two-rate
tax [LVT variation taxing land higher than buildings] played a central
role in Harrisburg's resurgence. He also relates tax reform to
farmland preservation. ...'This tax [says the mayor], 'by assuring
better use of unused land in cities and suburbs, will discourage the
gobbling up of farms.'" (Andelson, p127)
Now smaller cities in that state are shifting more of the real estate
tax from buildings to land. And there is rapidly growing support among
environmentalists, including Ralph Nader and Green party members in
the USA and elsewhere for LVT as a way to halt urban or suburban
invasion of not only farm lands but also park lands, wetlands,
forests, and other vulnerable areas. Some call it a green tax shift.
Rybeck also cites the state of Alaska [USA] and the province of
Alberta [Canada], where oil revenues have been paid back to the
government in the form of a citizen's dividend or a commonwealth fund,
reducing the need for other taxes. (Andelson, p128)
Land-Value Taxation Around the World, in a completely new
edition nearly 45 years after the first was published, recounts the
history of LVT from ancient Babylonia to its widespread, if
inadequate, application throughout the world today.
NOBEL PRIZE WINNERS ENDORSE LAND VALUE TAXATION
EIGHT Nobel Prize winners in economics have praised LVT. They include
James Tobin, whose eponymous Tobin (currency transfer) tax has many
merits -- but many problems. Unlike LVT, it does not address the
systemic source of poverty. Other Nobelists include Milton Friedman,
who wrote, "In my opinion the least bad tax is the property tax
on the unimproved value of land, the Henry George argument of many,
many years ago." (Andelson, p46)
Smiley is especially critical of International Monetary Fund and
World Bank policies, and he describes many ways in which their
interventions harm third world economies. Most damage, he asserts, is
because those institutions fail to realize how much aid money is
siphoned off by government officials, powerful business leaders, and
others. He argues that a land value tax would block much of such
cheating, or diversion of economic rents.
One of his most striking findings is a comparison of how long it
would take third world nations to achieve economic, environmental, and
political stability under four typical economic models:
- no new reform (the benchmark);
- structural adjustment;
- land redistribution; and
- land value taxation (LVT).
(Land redistribution is only a temporary reform, because farmers with
one or more bad crop years often end up selling their land back to the
original landlord or a new one who has replaced him.)
According to Smiley, the comparisons between the number of years it
would take LVT versus structural adjustment to attain stability are:
| financial |
LVT- 13 |
structural adjustment - 22 |
| political |
LVT - 27 |
structural adjustment - 88 |
| environmental |
LVT - 32 |
structural adjustment - 110 |
(Criteria are explained
in Appendix G, "Economic Growth Projections"; other
appendices explain development of his model and define economic
terms.)
Smiley recommends that aid and development organizations, including
NGOs, governments, UN, and others share evaluations of his report,
adjust their budgets towards more domestic research, improve data
gathering and modeling, move towards making future aid conditional on
adoption of LVT, encourage much more NGO research, and give NGOs more
responsibility in all UN projects, especially those concerning land
reform.
As I mentioned at the beginning, at least three UN bodies urge
consideration of a land value tax for national or local financing. In
addition, the International Union for Land Value Taxation has just
asked the new Financing for Development office to examine LVT's
merits. The other bodies on record are:
UN Commission for Human Settlements, Habitat Agenda,
1996, paragraph 76 (h): "Consider the adoption of innovative
instruments that capture gains in land value and recover public
investments."
Commission for Social Development, Discussion Paper 11,
2000: "Full exploitation of the possibilities of taxes
precisely targeted on the site value of land and the rents of other
natural resources....levies on the increase in property values
arising from the extension or improvement of local
infrastructure...."
Commission on Sustainable Development, by Popular Coalition's The
Land Poor, 2000: "Establish land-tax systems, especially
for underutilized land and land held for speculative purposes."
I hope you now see better the true value of land and other natural
resources, the great injustice done when the world's people are denied
access to them because of personal or corporate greed, and -- most of
all -- you understand that the present unjust tax can be changed to a
just tax through land value taxation.
REFERENCES
Andelson, Robert V., editor (1998)
Land-Value Taxation Around the World. New York: Robert
Schalkenbach Foundation
Clunies-Ross, Anthony (March 2000) Resources for Social
Development: Additional and Innovative Measures, Discussion Paper 11
(ST/ESA/2000/DP 11). United Nations: Department of Economic and Social
Affairs
Harrison, Fred, editor (1998) The Losses of Nations: Deadweight
Politics versus Public Rent Dividends. London: Othila Press
Popular Coalition to Eradicate Hunger and Poverty (April 2000) The
Land Poor: Essential Partners for the Sustainable Management of Land
Resources. Rome: International Fund for Agricultural Development
Smiley, David (2000) Third World Intervention.
[Self-published 1998] New York: Robert Schalkenbach Foundation
United Nations Commission for Human Settlements (1996) Habitat
Agenda. United Nations
|
