Which Robber?

Gavin Putland

[Reprinted from Progress, May-June, 2004]

In Chapter 25 of Protection or Free Trade, Henry George likened land monopoly to the last and strongest of a line of robbers taking away the earnings of workers: if we reduce the takings of the lesser robbers (non-land monopolies), we only leave more for the great robber (land monopoly) to take. This led me to suggest, in a story that appeared in Progress in Nov-Dec 2002, that the lesser robbers would be willing to employ geoists as public relations officers to deflect criticism away from themselves and towards the great robber. By the time 1 saw that story in print, I had sent two companion emails in which 1 nominated some lesser robbers who might be interested in our services.

More recently I realized that the market for geoist advice on public relations would be much wider if the geoists acted as consultants rather than employees. Potential clients would include almost any entity that is being wrongly blamed for exploitation caused by someone else's monopoly, or rightly blamed for exploitation that is nevertheless minor compared with that caused by land monopoly - always provided that the entity, on balance, would gain from the adoption of geoist land policies.

The strategy suggested in the Progress story was to divide the rent-taking class into real-estate and non-real-estate factions, and co-opt the latter against the former. While the consultancy strategy would also make it possible to co-opt non-rent-takers, the fact remains that rent-takers, even if they are among the lesser robbers, tend to have more money to spend than non-rent-takers. So let me review some "lesser robbers" whom I previously regarded as potential employers, on the understanding that they arc even more promising as potential clients for geoist consultants.

1. The pharmaceutical industry

This is a lesser robber because the price of a patented drug is not subject to any all-devouring rent effect, "Life-saving" drugs are life-saving only for a fraction of the population, and governments will not pay arbitrarily high subsidies for such drugs as long as there are cheaper ways of saving (other) lives. Besides, rival companies are always working on alternative drugs.

This robber docs not fear taxation of land, as its main assets are patents, not land. And it would benefit from the wealth creation and more even distribution of wealth that would follow from geoist reforms, because it could then charge higher prices (or the same prices to more people and governments).

2. Privatised public utilities including telephony, electricity, gas, railways, but not water

These are lesser robbers because customers will only pay so much for the services before they decide to go without, use alternatives or move to cheaper locations. If services are publicly subsidized, governments will only pay so much before they decide that there are better uses for the funds.

An exception is water, which is a natural resource ("land" in the classical economic sense) and essential to life (like "land" in the everyday sense).

A utility will oppose geoist land policies if, like the U.S. railroads, it has been granted vast tracts of land beyond its need for occupation and use. But I don't think this is the case in Australia. There is not an active market to facilitate valuation of land occupied and used by utilities, and in any case the element of natural monopoly is likely to be more valuable than physical land holdings. So I don't think the utilities would fear land value taxes more than alternative taxes.

Utilities would benefit from wealth creation and more even distribution of wealth, because this means more effective demand for their services and fewer bad debts.

3. Microsoft

This is a lesser robber because, while the barriers to entry in the operating system market are high, the barriers to customer exit are not so high. The near-monopoly survives because it does not take a significant fraction of personal or corporate incomes: if it did, it would soon unravel.

Microsoft need not fear land taxes because its chief assets are copyrights and, more recently, patents. The present incidence of piracy is such that the company stands to gain from more equitable distribution of wealth between persons and especially between countries. And like all monopolies it stands to gain from economic growth, which means greater overall capacity to pay.

4. Other copyright bludgers

Those who live off copyrights include publishers and recording companies that oppose parallel imports, film studios that try to prevent a DVD sold in one country from being played in another, and heirs who live off the copyrights of long-dead authors (and who think the copyrights on old works should be extended without any reciprocal obligation lo produce new works).

These are lesser robbers as copyrighted material accounts for a only a small fraction of the cost of living, partly because we can choose to go without such material, and partly because copyright applies (o finished works rather than concepts: a new work gets a new copyright even if it is constructed entirely of old ideas.

Copyright owners per se have nothing to fear from land taxes, and would be able to sell more copies and/or charge higher prices in a geoist economy, in which purchasing power would be greater and more evenly distributed. Their gains from redistribution of wealth are likely to be especially great, because the demand for copyrighted material, especially entertainment, is downwardly elastic with respect to income (the poor can't afford it) but upwardly inelastic (the rich only have so much time for ii). Moreover, a geoist world would be less competitive and would therefore have more time for leisure, including discretionary consumption of copyrighted material.

5. Nike

This is a small-time robber, as the production of shoes is not even a monopoly. The monopolies enjoyed by a shoe maker arc limited to such things as brand recognition, some patents, and innumerable registered designs; and most of these derive their value not from necessity, bul from customers' irrationality. Because Nike gels a bad press for allegedly exploiting workers, it stands to gain by spreading egoist ideas on the ultimate cause of such exploitation. Considering the fraction of the world's population that can't afford a pair of Nike shoes, the company also stands to gain from the wealth creation and redistribution that would follow from geoist policies.

Running shoes are another product for which the demand is likely to be downwardly elastic but upwardly inelastic with respect to income.

6. Realtors

Realtors per se are rent-takers only in the sense that their commissions are percentages of prices inflated by economic rent. But they get a bad press on account of the tricks by which they try to generate turnover and maximize commissions. Because their commissions are often attacked as a cause of the high cost of housing, realtors should be pleased to be told about the most important cause and to tell others about it.

If transaction taxes on property sales were replaced by holding taxes, the tax system would cease to impede turnover; indeed, by encouraging optimum allocation of land and penalizing hoarders, it would tend to promote turnover and hence increase the frequency of realtors' commissions. Removal of transaction taxes, and of holding taxes on buildings (currently part of CIV rating), would encourage improvement and thereby tend to increase that part of realtors' commissions which is attributable to building values [in February 2003, the late Bill Pitt told me that realtors can be receptive to this argument]. Geoist policies would also suppress the boom-bust cycles that make life precarious for realtors [cf. Progress, Mar-Apr 2003, pp.24-5]. While lower land prices would reduce the size of commissions, they would also increase turnover by increasing the fraction of the population who can afford to own their homes. Moreover, improved affordability does not have to mean lower prices, because affordability depends not only on price but also on purchasing power, which increases under geoist policies. Consequently, while realtors' commissions would be less onerous for the customers, it docs not follow that they would be less valuable for the realtors.

7. The military industrial complex

Military spending is routinely blamed for wasting resources that should he spent on ... [insert favourite cause here]. But when we compare the defence budgets of the great powers with their total tax receipts, remembering that all taxes come out of economic rent and have deadweight costs that reduce pre-tax economic rents, we see that the waste represented by military spending is small beer compared with the waste caused by allowing economic rent -- chiefly the rent of land - to fall into idle private hands. One must also concede that it's no use building a geoist society if a foreign power invades it, confiscates the geoist-created wealth, and dismantles the system that created it.

The Defence Dept., as part of the public sector, is not concerned about paying taxes, but stands lo gain enormously from any increase in Ihe size and resilience of the tax base, such as would be caused by geoist policies. Defence suppliers,/i> are of course concerned about paying taxes, but would presumably gain more from an increase in the defence budget than they would lose from their own contribution to that increase, regardless of the form of taxation by which that increase might be funded. On balance, then, the defence establishment would gain from geoist policies. And if it were to use its influence to advocate such policies as a source of defence revenue, it could claim to be serving the national interest.

(The WWW site of the Australian Strategic Policy Institute is at http://www.aspi.org.au .)

8. Big oil

In the long term, households can reduce their oil use (and energy use in general) more easily than they can reduce their land use. Undeveloped alternatives to crude oil, such as shale-oil conversion, coal-oil conversion and biomass, are analogous to unclaimed land under Ricardo's law. For these reasons, the oil budget is not nearly as significant as the land budget, and the oil barons will remain lesser robbers for the foreseeable future.

Oil exploration companies need not fear land taxes, as their chief assets are exploration rights and extraction rights, not conventional real estate. They might also expect to sell more fuel in a society in which land taxes have redistributed wealth and widened access to modern transport. While this outcome is objectionable on environmental grounds, it underlines the feasibility of co-opting oil companies against the land power.

9. Big mining

I think raw materials typically account for only a small fraction of the cost of goods and services. Many raw materials have viable substitutes, and some substitutes make up such large fractions of the earth's crust that they are practically inexhaustible. These things suggest that miners re lesser robbers.

Concerning land taxes and the increased sales caused by greater use of such taxes, mining companies are in much the same position as oil companies.

10. Media barons

The core business of the commercial media is advertising; the provision of "content" is an expense whose sole justification is to attract viewers / 1isteners / readcrs to the advertisements, so that advertisers will pay more. The element of economic rent arises in the electronic media because of limited spectrum, and in the print media because classified advertising has a tendency towards local monopoly (advertisers seeking the largest readership and readers seeking the largest field of advertisers). We all pay this rent through prices of goods and services, but the total amount is small by comparison with the rent of land; so we are dealing with a lesser robber.

While media proprietors arc often resented for being super-rich, it is not clear that they are being accused of exploiting anyone or that they stand to gain from accusing some other interest group of being worse exploiters than themselves. It is clear, however, that economic output hence advertising revenue - would increase if productivity taxes were replaced by LVT.

Speaking of the media, let us not forget that Henry George first shot to prominence as a journalist. Modern geoists seeking a career change should consider the Fairfax training program at http://www.traineeships.fairfax.com.au;

see also http://www.about.theagc.com.au/view_page.asp?intsectionid=0. Trainees must be university graduates (not necessarily in journalism) at induction time (February of each year). Applications apparently close midyear.

11. Banks

Because residential rents and mortgage interest payments are of the same order of magnitude, the redistributive effects of monetary policy are comparable in size to the redistributive effects of policies on land tenure and land taxation. However, the redistribution caused by monetary policy is largely between borrowers and depositors, not between banks and their customers.

Fractional-deposit banking is often attacked for creating credit (money) out of nothing. But whether this is a source of economic rent depends on how hard it is to get a banking licence. Remember that economic rent arises from protection from competition; it does not arise from any other feature of the business model, however unproductive that model may seem in the eyes of its critics.

Because the total supply of money is controlled (directly or indirectly) by government, the so-called interest of money contains an element of economic rent. But this rent accrues to those who have obtained money by any means - not just fractional-deposit banking.

For the above reasons, the profits of the banking industry, although often considered excessive, are of a lower order than the profits of the land speculation industry; so the banks are lesser robbers, even if some of their customers are not.

Geoist land policies, by reducing the return on a major asset class, tend to reduce interest rates across the board. But it does not follow that such policies reduce the interest differentials by which banks make their profits. Moreover, such policies would create more wealth and spread it more evenly across the community, thus increasing the opportunities for banks to do business on both the deposit-taking side and the lending side. Geoist land policies would also stabilize property values, making it safer for banks to use property as collateral for loans. This allows banks to argue that "irresponsible" lending against speculatively inflated asset values is not the fault of banks, who have to sail close to the wind in order to compete, but the fault of tax laws that encourage speculative bubbles. So, while the banks are not geoist icons, they probably stand to gain from geoist policies on land taxation.

Conclusion

Those who live fully or partly on economic rent tend to "invest" some of that rent in campaigns for the preservation of the privileges that give rise to the rent. Those who live on wages and normal profits find it difficult to match these campaigns, because wages and normal profits are competed down to a minimum, while economic rent, by its very nature, is not. So if we want to strike any major blow against rent-taking, we probably need to harness some of the rent. But in so doing, we don't want to compromise our own principles any more than necessary. The obvious solution is to co-opt some of the lesser robbers against the great robber.

So I challenge my readers to examine the list of lesser robbers in search of career opportunities. And of course I would not issue such a challenge if I were not willing, at least in principle, to take it up myself.