If Not Liberalism, And If Not Socialism ...

Chapter 6 (Part 2 of 4) of the book

The Discovery of First Principles, Volume 3

Edward J. Dodson

THE NEARING COLLAPSE OF STATE SOCIALISM

While liberalism continued on in the United States, worn at its edges by both extremists and more rational reformers alike, the dissident flame finally began to burn more brightly within the Soviet empire. If rights were made legitimate only by the State, then at least Soviet authorities ought to be held accountable to defend those rights specifically guaranteed under the constitution, or so the bravest were demanding.

Word of resistance to the Soviet regime flowed out of Russia and back through the social democracies. As early as 1969, Soviet dissidents dared to petition the United Nations Commission on Human Rights to intercede on behalf of the Soviet people. Despite widespread arrests and the sentencing of leading dissidents to labor camps or psychiatric hospitals, Andrei Sakharov and others formed the Moscow Committee for Human Rights. Citizens from all over the Soviet Union flocked to Committee member homes for advice and assistance. Soviet authorities responded with continuous harassment, and a large number of activists were forced to choose between emigration or imprisonment.

By the late 1960s, Soviet intellectuals and scientists were becoming a growing presence within the dissident movement. One of their number, Vladimir Bukovsky, met in 1970 with a U.S. television correspondent for CBS to tell the story of how he and countless others had been incarcerated in psychiatric hospitals for their political beliefs. Cracks were beginning to appear in the veneer of Soviet authoritarian power. In mid-1973, Sakharov and Solzhenitsyn emerged as leading spokespersons against the Soviet regime. Sakharov also came to understand there was a terrifying link between state-socialism and industrial-landlordism:

This socialism contains nothing new. It is only an extreme form of that capitalist path of development found in the United States and other Western countries but in an extremely monopolized form.[43]

Only the protests of Western scientists saved Sakharov from imprisonment. Then, in September, Sakharov boldly wrote to the Congress of the United States asking the U.S. government to exert pressure on the Soviet regime to lift restrictions against emigration. Solzhenitsyn, whose own political views remained pro-authoritarian though anti-repressive, was forced to leave the Soviet Union in 1974.The society he left behind was on the brink of turmoil.

Soviet agreement to the Helsinki Accords of 1975 deepened the cracks in the coercive power of the Soviet regime. Dissidents organized to pressure the government to live up to human rights declarations contained in the Accords. In so doing, they slowly evolved into a sort of shadow government, operating out in the open and in communication with Western journalists and government officials. On a more personal level, Solzhenitsyn sent profits from his books into a fund to help the families of imprisoned dissidents. Over the next two or three years, so-called Helsinki Watch Groups were organized in the Ukraine, Lithuania, Georgia and Armenia. Moscow became a central clearing house for information on what was happening throughout the Soviet Union, and the Moscow dissidents distributed written reports to Western journalists on a regular basis.

Failing economies also contributed to disruptions within the Soviet bloc. The Polish regime, for example, had made very poor use of the large loans received from Western banks. Faced with revenue shortfalls and pressured to make interest payments on outstanding loans, the government attempted to raise food prices; in response, workers organized a national strike. Out of this activism arose the Solidarity movement, which was to severely test the will of Polish communist leaders. In 1982 they imposed martial law on the Polish people in an effort to prevent a widespread uprising. Protest activities erupted in East Germany, Czechoslovakia and Rumania. Within the Soviet Union itself, nationalists -- Russians and others -- were beginning to question the destruction of their own cultures under the oppressive doctrine of Marxist-Leninism. The Soviet regime responded with the arrest of key dissidents, including in 1980 that of Andrei Sakharov.

The Soviet Union's problems were exacerbated by an ill-conceived decision by Leonid Breshnev's regime to commit Soviet military forces to the defeat of nationalists in Afghanistan. By mid-1980, the Soviets had more than 80,000 troops fighting in Afghanistan. U.S. President Carter responded with economic sanctions against the Soviet Union (and the U.S. Olympic team boycotted the Summer Olympics in Moscow). After two years of fighting, some three million Afghans sought refuge in Pakistan, and Afghanistan itself was in a state of disintegration.

For the Soviet people, the war imposed heavy costs on their already marginal quality of life. Frustration with poor housing, long lines for almost everything and unmet promises combined with widespread disdain for a system that when not oppressive operated for the benefit of a corrupt elite few. Acceptance of the old ways started to end with the death of Breshnev in November of 1982. His successor, Yuri Andropov, had been head of the KGB and was determined to bring corruption under control. A KGB investigation of cotton production in the republic of Uzbekistan revealed that republic officials had charged the central government for 4.5 million tons of cotton never delivered. Severe penalties were administered to those convicted and outward signs of change exaggerated by the state press.

Recalling life in the Soviet Union of the 1970s, expatriate attorney Konstantin Simis wrote in 1982 of his homeland:

The fight against organized crime has always presented major difficulties for any state in whatever political system. ...

In a totalitarian state like the Soviet Union, ... the fight against organized crime encounters quite different obstacles, obstacles that stem from the fact that crime has practically enveloped the whole country and the entire lower levels of the party-state apparat.[44]

Simis had been in the process of putting the finishing touches on the manuscript for his book in 1977 when knowledge of his writing came to the attention of government officials. His penalty for writing a book considered anti-Soviet in sentiment and content was to be stripped of his position and credentials. His wife, also an attorney, was denied her ability to practice her profession. They were given the option of emigration to Israel or imprisonment. Eventually, they migrated to the United States, where, after four years living outside the Soviet state, he concluded: "The Soviet government, Soviet Society, cannot rid itself of corruption as long as it remains Soviet. It is as simple as that."[45] In hindsight, one is also able to see numerous signs that the Soviet System was already on the road to implosion.

Financial insolvency was now a serious problem for Andropov. He urged self-discipline on the Soviet people and promised some movement away from central planning and decision-making. Nothing really happened, and soon Andropov's health failed and he died. His successor, Konstantin Chernenko, followed him shortly thereafter to the grave. The question of what to do about the failing Soviest system then fell to Mikhail Gorbachev, but Gorbachev's early actions suggested very little of what was to come. As late as mid-1985 he called for the intensification of central planning and a renewed commitment to state socialism. His initial efforts were concentrated in the same manner as his immediate predecessors against corruption within the Soviet System. Two American observers identified the challenge as far deeper than Gorbachev understood or would have been able to grasp:

In the final analysis, the single most formidable and fundamental obstacle to the success of serious reform in the Soviet Union is not political but social. It is the quality of the human resources available to the new leaders, not only bureaucrats and managers but, even more important, peasants and workers. Over half a century ago Soviet power declared war on peasant smallholders, shattered their way of life, and excised them from the larger society. The peasantry today does not constitute a proper class; it is an agglomeration of isolated groups deprived of dignity, community and spirit. Over half a century ago Soviet power inaugurated, with the Five-Year Plans, a particular structure of industrial organization and attendant work patterns that stifled the initiative of workers, undermined their pride in quality performance, and ultimately corroded their work ethic. The attitudes, habits and values that survived these decades among peasants and workers will drag powerfully against that significant rise in labor productivity on which reforming success is predicated. [46]

Forced by practical considerations far more than any change in heart, barely a year later Gorbachev resorted to greater experimentation. The Soviet government was borrowing heavily from foreign banks, and Gorbachev's regime was extremely short of foreign currency reserves. Power was taken away from the Foreign Trade Ministry so that individual Soviet enterprises could negotiate directly with foreign suppliers or customers. Joint ventures between Soviet and foreign enterprises were promoted. The term Perestroika (restructuring) soon began to appear in the media coverage of the Soviet economy. In 1987, Gorbachev took the unprecedented step for a Soviet leader of trying to explain what was happening in the Soviet Union. He affirmed his commitment to socialism and expressed optimism. "We have a sound material foundation, a wealth of experience and a broad world outlook with which to perfect our society purposefully and continuously,"[47] wrote Gorbachev.

The Georgist Connection in Russia
Thinking Globally, Acting Locally

Georgists in London were eager to make contact with Soviet reformers and dispatched Land & Liberty editor Fred Harrison to Moscow to report on the 27th Congress of the Communist Party. In Moscow, Harrison met with Gorbachev's chief economic adviser, Abel Abanbegyan[48] and solicited Abanbegyan's views on reforming the Soviet System's approaches to land tenure and taxation. "As of today and the existing system of accounting, the price of land is not included in the overall system of pricing," he told Harrison. "Maybe an experiment will be conducted in the nearest future -- for example, in Estonia -- where a new system of taking into account all the factors of production will be adopted with payments for all the resources utilised in production."[49]

Abanbegyan estimated that transforming the Soviet economy would require two or three decades. In agriculture, for example, output per worker was only a tenth that of U.S. farmers. Between twenty-five and forty percent of what was produced was left in the fields to rot or spoil before ever reaching markets, so poorly developed and maintained were the Soviet systems of transportation and storage.

The Estonian experiment referred to by Abanbegyan was designed by Rein Otsason, director of Estonia's Institute of Economics. Its central element was establishing rental values for farmland that recognized differences in the quality of parcels. Georgists were of course eager to work with the Estonians to bring this program into full flowering.

Gorbachev backed adoption of reforms that would allow farmers to lease land for up to fifty years (and then pass the leases on to their children). More radical proposals from reformers included the outright sale of government-controlled land to reinstitute the Western system of private ownership and control over nature. Prime Minister Nikolai Ryzhkov explained to a western journalist in October 1989 the objectives of these measures:

These are fairly radical bills. People will be allowed not only to work at state enterprises but also in shareholders' companies or corporations. We are now setting up a stock market and overhauling the banking system. In this field [finance] we are drawing vastly from the experience of the U.S. ...

We are thinking of allowing every economic form of farming -- that is, state farms, collective farms, cooperatives and other sorts of farms. Land may be transferred to individuals for an unlimited period of time and can be inherited. ...[50]

As part of his overall strategy, Gorbachev successfully went before the Communist Party Central Committee with proposals to cut the size of Gosplan, the Soviet central planning agency. Many ministries were to be combined with others or dissolved. All across the continent, Soviet workers faced the possibility of unemployment as state enterprises lost their government subsidies and were required to generate their own revenue or collapse. Gorbachev told them the government could no longer afford to subsidize enterprises as in the past; those that could not become self-supporting would be left to close. Soviet infrastructure had fallen into a state of serious deterioration because of systemic corruption, the absence of competition and discouragement of individual initiative. Hundreds of projects were initiated but never completed, even as costs escalated higher and higher.

What Gorbachev needed most was additional time. His approach to reform was moderate and incremental. Although he obtained from the Communist Party Central Committee approval of a four-year program designed to open up and decentralize the Soviet economy, he moved late in 1988 to remove opponents from high positions within the Kremlin and then assumed the position and title of President. In elections held in April, 1989, conservative Communist Party candidates were overwhelmingly rejected by the Soviet citizenry. Despite difficult economic circumstances, the people provided Gorbachev with a tremendous vote of confidence. At the same time, however, nationalist candidates espousing independence from Moscow were elected in the Ukraine and the Baltic republics. In response to this particular threat, Gorbachev moved quickly to impose limits on protests against Soviet authority. Troops were used to end demonstrations in the Republic of Georgia, a curfew was imposed and the foreign press excluded. Strikes broke out in Estonia's shipyards and among rail workers and coal miners elsewhere. Gorbachev now found himself challenged by emerging populist leaders, including Boris Yeltsin, head of the Supreme Soviet's committee for construction and architecture. By October, the Soviet economy was in such disarray that Gorbachev asked for and obtained a ban on strikes in these and other essential industries and services.

The efforts of Fred Harrison and other Georgists to open a continuous dialogue with Soviet reformers brought five Soviet, one Czech and one Estonian economist to New York City in 1990 for a conference on the subject of societal collection of the rental value of land. Harrison was joined by economics professor Nicolaus Tideman in organizing the conference. Over three days during August, conference participants presented their papers and discussed the theoretical implications of moving to a land-based system of public revenue. Concluding the conference, Soviet economist Mikhair Bronshtein[52] agreed with the Western economists' assertion that without a transition to a reliance on rent as revenue the Soviet republics would be forever hampered in their efforts to modernize and expand production.

Another Soviet economist attending the conference, Alexander Meyendorff, delivered a paper explaining the long history of political decision-making that overwhelmed the influence of knowledgeable economists:

These various false concepts and procedures of rent assignment and collection do not mean that the true understanding of the nature of rent has been totally lacking in the country. There were and are economists who understand what rent is and how to calculate and collect it.[53]

Meyendorff expressed concern that the economists surrounding Gorbachev and Yeltsin, although well intentioned, would overlook the elements that he, Bronshtein and others felt were at the heart of Soviet economic problems. He also reported that a conservative backlash had already emerged against the break-up of the collectives and state farms. Farmers resisted the idea of leasing farmland or taking on the financial obligations of acquiring deeds to land.

The Soviet system also came under heavy criticism from Estonian economist Ivar Raig, a professor at the University of Tartu in Estonia. Large-scale farming in the Soviet Union had been undertaken with forced labor and was on the whole extraordinarily wasteful and inefficient. He urged the Western economists (and representatives of the Henry George School of Social Science) to do whatever they could to spread an understanding of land markets and the effect tax policies have on societies. A symbolic effort was made a few months later, when some thirty U.S. economists (including three Nobel prize winners and former presidents of the American Economic Association[54] ) signed a letter addressed to Mikhail Gorbachev, urging the Soviet government to lease rather than sell land, and to shift the burden of taxation as much as possible from labor and capital and onto land. Despite these timely and crucial warnings, Yeltsin backed a move opposed by Gorbachev to restore the rights of private land ownership. The specific measure adopted allowed farmers to purchase land subject to restrictions on resale of land acquired free or purchased from the government. Additionally, workers on the collectives were given the option of taking a share of the land and equipment and farming on their own. Two key features were of great interest to Georgists: (1) a standard tax on land was to be introduced; and (2) all taxes on collectives and state farms and on individual farmers were to be abolished with the exception of the land tax. If these measures proved to be more than nominal in their impact, the beginning of real reform might actually be underway.

In the Spring of 1991, Professor Tideman and several other Georgists[55] traveled to Estonia and Russia to meet with a long list of public officials, planners and economists interested in the Georgist policy recommendations. Upon their return to the U.S., George Collins (Director of the Henry George School in New York) was greeted by a proposal from one of the Russian institutes to come back in the Fall to conduct a broad educational program, preliminary to the possible establishment of Henry George Schools in the Russian republic. Tideman and Cord returned to Russia in October to further cement the progress made, testifying before Russia's Supreme Soviet and meeting with Alexander Sagaidak, secretary to Russian Vice President Rutskoi. During the ensuing months arrangements were made for the Henry George School in New York to host a group of Russian economists and financial sector managers brought together for several weeks of intense study by the Moscow-based Institute for World Economy and International Relations. The insights into political economy -- and in particular the operation of tax policies on wealth production and distribution -- these and other former Soviet bloc professionals were gaining heartened Georgists eager to have a constructive influence on the course of events in countries moving away from state socialism. I had the interesting experience of trying to explain to this group how the U.S. housing finance system was organized and what were its strengths and weaknesses. As the world soon learned, time was already running short for these reformers.

The national government passed new laws affecting private ownership of farms, private ownership of houses and (where single dwelling homes existed) the underlying land. So many families were on waiting lists for apartments that privatization resulted in a very active dollar-only market in apartment units. Real estate brokerage firms appeared overnight in many large cities to assist sellers and buyers negotiate the still-daunting bureaucracies. Already, rising land prices were beginning to drive out producers. Many could not generate sufficient revenue to pay the leasing fees demanded by those who gained control over buildings (and the underlying land parcels), cover other costs of doing business and have anything left over for themselves. Reporting on the emerging Russian land market to the 19th conference of the International Union for Land Value Taxation and Free Trade, held in London during March 1991, Mikhail Bronshtein told Georgists that some Moscow real estate had increased in value by over 2,000 percent between 1990 and 1991. As for the impact these price rises were having, Professor Bronshtein's insights closely paralleled those of his audience:

The depth of the economic, social and national crisis in the Soviet Union at the end of the '80s and the beginning of the '90s was caused by -- among other reasons of a more general nature -- the deformation of the system of land and rental relations. ...

The problem consists in devising an equitable tax system for redistributing rent that might provide sufficient economic incentives for a more effective use of the best plots of land as well as covering within certain limits local and national budgetary needs. They could be a way of increasing the volume of profits and rent that are a source of the growth of individual and public wealth, and of lowering social and national tensions.[56]

The Soviet System
A Final Death Rattle

By mid-1990 the opportunity for Gorbachev to fulfill his objective of cleansing and strengthening the Soviet System had virtually disappeared. Boris Yeltsin became the new President of the Russian republic and set out on an independent course, orchestrating in the Russian Parliament a declaration of sovereignty and the right to pursue independent economic policies. Almost immediately conflict developed between the Russian leaders and Soviet ministries over the control of natural resources within Russia's borders, huge quantities of which were being exported to obtain foreign reserves and make loan payments to U.S. and European banks.

Yeltsin's economic team (influenced by Thatcher adviser, British economist Alan Walters) were eager to convert Russia into a social democracy modeled after Sweden. They developed a "500-day plan" incorporating swift privatization and the dismantling of government subsidies. By a massive sell-off of state-owned assets, Yeltsin hoped to balance his budget and put Russia on a sound financial footing. Neither he nor his advisers gave any consideration to the potential for these assets to yield a long-term and rising public revenue flow if access was properly leased to producers rather than sold outright.

As conditions worsened and the threat of dissolution escalated, Gorbachev began to collaborate with Yeltsin and called for a national referendum on privatization. Equally pressing was the need to stabilize the national currency, the value of which had almost evaporated on the black market against the U.S. dollar. In October Gorbachev obtained from the Soviet Parliament approval for a much less aggressive and vaguely designed plan for economic reform, to be orchestrated by presidential decree. The Russians warned they would not consent to any measures not deemed to be in their own interests. Ukrainians, Estonians and Lithuanians were already in discussion with Western bankers about creating their own currencies. Resistance to the central government seemed to be everywhere stiffening. The regime's inability to mobilize workers to assist in the annual harvest resulted in the loss of much of the food produced during the year, and food shortages in Leningrad drove the city's mayor to put out a call for international assistance. Many other cities resorted to rationing. Farmers refused to sell their products to government-run stores in favor of going directly to the farmers' markets, where prices reflected conditions and the true purchasing power of the ruble.

Soviet enterprises were now in default on $2 billion in payments to Western suppliers. Few Western bankers were willing to provide financing without collateral or government guarantees. The Soviet government's debt reached and climbed past $40 billion (more than half of gross domestic product) in the face of heavy imports of food, machinery and consumer goods.

In January of 1991, Gorbachev called for a temporary end to glasnost until order could be restored. Soviet troops arrived in the capital of Lithuania in response to the Baltic republic's declaration of independence from the Soviet Union. Violence broke out in Latvia as well. Anticipating that a crackdown was on the horizon, Eduard Shevardnzdze had resigned in protest during December as Foreign Minister. In an interview with a Western journalist, Shevardnzdze summarized the state of affairs within the Soviet System:

Things are more complicated now. Social tension is rising. Living conditions are getting worse. Ethnic conflicts are not stopping. [Gorbachev] himself has spoken of the possibility of chaos. And if chaos is possible, then of course there is a danger that a dictatorship will emerge. Chaos, it is said, gives birth to the most horrible dictatorships. It's logical.[57]

And, in response to the Soviet government challenge, Yeltsin threatened to organize an independent Russian army to defend the republic against the central government. The republic of Georgia did likewise. Gorbachev and Yeltsin were moving with all deliberate speed toward direct confrontation. Demonstrations broke out in Moscow in early April in which citizens called for Gorbachev's resignation. Yeltsin attacked him before the Russian Congress as hardly more of a reformer than Brezhnev had been. An all-day meeting later in April resulted in a dramatic announcement: the Soviet Union would dissolve, with nine of the fifteen republics forming a new federation under a new constitution. Lithuania, Latvia, Estonia, Georgia, Armenia and Moldavia would obtain full independence after a five-year period of transition.

What Gorbachev failed to see was that hard-liners in Moscow could not stand by and watch the dismantling of the Soviet System. KGB chief Vladimir Kryuchkov, former defense minister Dmitry Yazov, General Valentin Verennikov and others decided to take control by force. In dramatic fashion, the coup failed, despite the detention of Gorbachev for several days. Next came a purge of the most conservative senior Communists from the central government and the demise of the Communist Party itself. In the aftermath, although Gorbachev pledged himself to deep reforms, he also declared his intent to preserve the union. After the coup attempt Yeltsin's prestige within Russia reached new heights; however, others viewed with grave concern what they interpreted as Yeltsin's Russian nationalism and possible imperial aspirations.

Regardless of who would lead Russia and the other republics from state socialism into social democracy, the task of eliminating systemic corruption and decades of thievery was to remain overwhelming. An expert on Soviet mining of precious metals estimated that as much as $50 billion in gold, silver and diamonds had been deposited by Communist Party officials into Western bank accounts.[58] Yeltsin demanded these assets be turned over to the republics. News of investigations into the whereabouts of these assets coincided with an announcement by the Soviet Union's central bank that the nation's hard currency reserves were almost depleted. With the stakes so high, the U.S. proposed that International Monetary Fund officials work out a plan to stabilize the Soviet economy (despite criticism that IMF austerity measures would be certain to further destabilize the political situation). In April, the IMF accepted as members Russia and thirteen former Soviet republics.

For Russia, the next step was to establish the ruble as a viable and relatively stable currency convertible in the global currency markets. Russian economist Yegor Gaidar was dispatched to the U.S. to provide details of his government's plans. A real concern in the West was how to discourage the Russian Central Bank from continuing to print rubles. Those who had goods to sell automatically discounted the ruble (or refused to accept rubles altogether) because they were certain of its continued depreciation. However, with unemployment rising, workers were in no position to bargain when offering their labor. Real wages were falling and falling rapidly. Only those who managed to work outside the ruble economy were able to maintain their purchasing power and standard of well-being. As a result, many of Russia's best and brightest in many fields left for the West. American economist Steven Hanke (who had served as economic adviser to the deputy prime minister of Yugoslavia during 1990 and 1991) was quick to forecast the inevitable result of Russia's monetary problems:

The IMF-stabilization fund will flow from Western taxpayers into foreign-exchange speculators' pockets like water running downhill. Those foreign-exchange traders will get rich quickly, offending ordinary Russians, and providing the old communists, who have significant support in the Russian parliament, the popular anger they need to bring down President Yeltsin. Ironically, rather than assisting Boris Yeltsin and his friends, the stabilization fund will provide the parliament with yet another club to beat Mr. Yeltsin's government.[59]

In a bazaar twist of events, prices rose so fast in terms of rubles that Russians experienced a paper currency shortage. The annual rate of inflation was running at around 1,500 percent. At existing denominations, there was simply not enough currency to go around. This shortage did not bring down prices but did result in an improvement in the exchange rate. Foreigners who needed rubles to conduct business were bidding up the price. The Russian central bank finally answered by printing new, higher denomination notes. This did little more than exacerbate the already deep conflict between the Yeltsin government and the central bank. Yeltsin had entrusted the Russian economy to his reform-minded acting prime minister, economist Yegor Gaidar. Russia's monetary policy was, however, now controlled by Viktor Gerashchenko (the former head of the Soviet Union's Gosbank). Gaidar managed to prevent Gerashchenko from fixing the exchange value of the ruble, something Gerashchenko wanted to do despite the ruble's continued fall against the dollar. That accomplished, Gaidar negotiated new loans from the IMF and pressed forward the plans for privatizing State-owned industries. Then, in September, Yeltsin decreed that the bank answer directly to the president rather than to the Parliament.

On another front, Russian managers argued persuasively against allowing foreign companies to gain control of the country's natural resources. Late in November, Yeltsin chose a group of Russian companies to develop gas reserves in the arctic, setting aside an agreement the Soviet government had signed with Conoco Inc., along with Norwegian and Finnish-owned firms. Yeltsin was, to put it mildly, desperate for Russian businesses to succeed. Despite this fact, early in 1993 the Russian parliament imposed a 3% tax on all businesses in order to subsidize agriculture, where only 3.5 percent of the land had been converted to privately-owned farms. At the same time, the Russian government was also forced to extend large credits to State-run enterprises in order to keep them operating.

To ensure broad ownership of the new businesses, Russian citizens had received privatization vouchers with which they could acquire interests in some of the more than 50,000 small and medium-sized businesses freed of government ownership and management. A real struggle was underway, however, for the control of the large industrial complexes. Here, workers demanded control, managers resisted and regional authorities acted without regard to directives received from Moscow. In a society where productivity and competitiveness were concepts absent from industrial organization, privatization threatened the collapse of many inefficient state-run giants, the net result of which would be widespread unemployment in regions where there were no other employment opportunities being created.

The shift in power from Moscow to the regional governments accelerated during 1993. In the city of Nizhny Novgorod (formerly Gorky), for example, the governor announced his intention to adhere only to laws passed by the local legislature. Here, privatization was proceeding at a rapid pace, and the people expressed little faith in or concern with the central government.

Back in Moscow, Yeltsin took the provocative step of dissolving the sitting Parliament and calling for new elections. The Congress of People's Deputies, meeting in December, agreed to a referendum on the division of powers between the legislative and the executive branches. Some of Yeltsin's powers were scaled back to reduce the threat of rule by presidential decree. Elections were finally held in December and brought a large number of anti-reform conservatives into the Parliament. Despite this political set-back, Yeltsin declared his determination to continue to press forward on the reform agenda. Virtually all of Russia's foreign advisers, IMF and World Bank officials as well as Russia's leading economists argued that no progress could be achieved until the government gained control over the budget and established a disciplined approach to monetary policy. One of the great challenges was how to make the conversion without more deeply impoverishing the Russian citizenry.

U.S. political leaders were extremely concerned with the potential for political upheaval, fearing the return of a military dictatorship and a resurgence of Russian nationalism. In response to such pronouncements, Harvard economist Jeffrey Sachs warned that any backsliding by the Russian reformers would be even more dangerous. What was needed was a thorough overturning of the old system and not incrementalist change:

The reformers have had to struggle in a treacherous, populistic, and often corrupt political milieu, and without timely financial support from the West. At the same time, economic collapse, not of their making, has threatened to derail the entire reform process. Under these conditions, each step of reform has been hard won. ...

Long before the reformers came on the scene, the former Soviet Union was slipping into hyperinflation and economic collapse. Decades of militarization and brutalization had left the economy incapable of meeting basic human needs; had stranded millions of workers in heavy industry without a future; and had despoiled the natural environment. Collapsing oil production, heavy foreign debts taken on by Mikhail Gorbachev, and populistic and inconsistent budget policies had left the state in bankruptcy.

In these conditions, economic reformers won some of the levers of power in late 1991, and set about to head off hyperinflation and convert the economy to market principles. But unlike Eastern Europe, Russia has remained in revolutionary turmoil. ...

It is true that the reformers have fallen short of the goal of implementing a financially sound, targeted program of social aid. Perhaps they could have done better in the political brawl, but their conservative foes in the government, the Parliament, and the central bank have shown a truly reckless disregard for real social needs. To the communist old guard, the only safety net of interest has been huge subsidies for military-industrial enterprises and state farms, rather than for the dispossessed and vulnerable parts of the population. ...[60]

This was, Sachs warned, no time for those in the West to focus on the short run, to pull back their support of reformers because of existing instability. The only chance for lasting stability was in the wholesale adoption of new financial, economic, social and political institutions. The Soviet System offered nothing from which incremental change could be achieved.

At home the reformers faced a new coalition of nationalists and communists holding almost half the seats in the lower house of Parliament. Among them was the reactionary leader of the Liberal Democratic Party, Vladimir Zhirinovsky. Yeltsin was legitimately concerned and decided to proceed with greater caution. January brought the resignations of Yegor Gaidar and Boris Fyodorov. Fyodorov, Russia's minister of finance, finally tired of the incompetence and intransigence displayed by Russia's central bank head, Viktor Gerashchenko. Both Gaidar and Fyodorov concluded that Yeltsin had abandoned the appropriate course in order to buy peace from the reactionaries. They were committed to reform and knew they could not be a part of the government and fight against its policies at the same time.

In this turbulent atmosphere, the Georgist influence moved forward, if slowly and in the background. In August 1992, the Mayor of St. Petersburg organized a conference to discuss how to structure a land lease program to attract Western investors. A course on land valuation was then developed at the Research and Design Institute of Urbanism under the direction of Tamara Chistyakova. After attending a seminar explaining the long-term benefits of offering land under leases, a council official for the town of Sasnoviy (an hour by train west of St. Petersburg) convinced his other council members they should not sell public land. In the November/December 1992 issue of Land & Liberty, Fred Harrison brought his readers up-to-date on the work underway in Russia:

Sergei Say is deputy head of the land reform committee in St. Petersburg. His committee is a federal agency; there are 600 of them, scattered around Russia, all of them struggling to make sense of how to use land in a free society.

When he took up his job, he sought to formulate an approach on the basis of what he called "a Russian mechanism". But before Russia can define that mechanism, her technocrats need to understand what they are dealing with. The process of registering people's claims to land has barely begun, but of one thing Mr. Say was sure; today, in Russia, no person or organization has legal title to land. All they can claim is the right to occupy the land. The land, in fact, belongs to the state.

President Yeltsin created a challenging problem when he signed a decree ordering that people should pay a tax on land. The municipalities had no idea what land was worth, so the land reform committees prepared crude zoning maps base don the existing use of land, and distributed the tax accordingly.

"Everybody used land in an inefficient way, because it was 'free'," said Mr. Say. "That's why many industrial enterprises don't use it properly, and there was a lot of wasteland. …

Right now, no-one knows what the land is worth; which is not surprising, because rent was never measured before, and today there is barely a wealth-producing economy capable of generating surplus income (rent). But that is going to change; the economy will take off. And if Russia's Parliament refuses to alienate the freehold rights to land to existing holders, the nation will find itself enriched beyond imagination by the flow of rent into the public coffers. …

But as we all know, once there is private appropriation of land-rent, laws do not deter (they merely aggravate) the business of speculation; in doing so, however, they further distort an already destabilized economy. …

Initially, rents will be underestimated. Such mistakes won't matter, if Russia retains the legal right to correct them at an early opportunity. An immediate task is to get the land and buildings into the hands of users, to kick-start the economy, while reserving the legal right of the community to revise the rent charges in line with economic growth.

If the Russians handle that challenge correctly, they will develop something that is not available in any other country: a smoothly operating land market. Such a market can exist only if it is free of the rent-appropriators, who are the biggest drag on the wealth-creators in the other market economies. It also guarantees every citizen a direct stake in the riches of nature through the social expenditure of rent.[61]

A short time later Fred Harrison was back in Russia meeting with officials. Russian radio and television covered a three-day seminar on Georgist policy proposals held in St. Petersburg during January of 1993. One immediate result was the revision of the City's property leases to allow for periodic adjustments in rent based on changing market conditions. Pyotr Filipov, chairman of the Supreme Soviet's Privatization Sub-Committee stepped forward to take a leadership role in popularizing the economic ideas of Henry George and the socialization of rent, in particular. Through Filipov's influence, Fred Harrison was invited to be a guest on a broadly viewed economics news program. Interestingly, additional support came from a group of Deputies in the Supreme Soviet working together to advance the interests of managers of state enterprises. Other government officials sought out the Georgist visitors for advice on dealing with problems in the agricultural sector. A major objective of Fred Harrison and his advisory group was to distribute information, to bring to the attention of city officials the fact that land markets were everywhere rapidly developing in opposition to the public interest. Local governments needed to act quickly to capture rent as public revenue. Otherwise, the danger of land values coming under the control of a small minority was inevitable. Articles written by Harrison were picked up by the conservative newspaper Soviet Russia and the St. Petersburg-based magazine Panorama. Georgists from the West were also working in full partnership with the St. Petersburg-based economic institute, Eco-Grad. One of Eco-Grad's leaders, Tamara Chistyakova collaborated with a U.S. Georgist (and former chief assessor of Vancouver, British Columbia), Ted Gwartney, on a pamphlet titled Russian Land Reform, a thousand copies of which were distributed to key individuals all across Russia. In February, Filipov put Fred Harrison and others from the West to work drafting a new law on property he planned to present before the Supreme Soviet. Kenneth Jupp, a former judge in the British High Court, was recruited to provide the legal framework and by early 1994 his completed directive was submitted to the Russians.[62] Following a lecture at the Russian Academy of Administration, Harrison was approached by Ruslan Khasbulatov (chairman of the Supreme Soviet) and commissioned to prepare a detailed report on what economic strategy Georgists recommended for Russia. In the interim, economists at the Central Economic and Mathematical Institute within the Russian Academy of Science were developing sophisticated models that suggested the rental value of sub-surface minerals would not only meet the full budgetary needs of the Russian government but be sufficient to abolish or significantly reduce taxation of business and personal income.

In April, the Union of Russian Cities brought together in Moscow representatives from almost every city and town in Russia. Fred Harrison was invited to put together an educational workshop on the impact of forms of taxation on local economies. Georgists from the United Kingdom, the United States, South Africa and Canada participated. The result was an endorsement by the Union for the reliance on rent as the primary source of public revenue.

Georgists realized that virtually all the high profile economic advisers listened to by the Russian and other former Soviet bloc leaders were proponents of Hansen-Keynesian proposals or the Monetarist ideas of Milton Friedman. Their collective works largely ignored land markets or described the role of land in economic systems as minor. With a few notable exceptions, they made no attempt to analyze the advantages of shifting to rent as a primary source of public revenue or the consequences of allowing this societally-created fund to be privatized. For this reason, Nicolaus Tideman, head of the economics department at Virginia Polytechnic Institute, decided to directly confront officials at the IMF who had expressed opposition to the collection of rent by government. At a private meeting with George Kopits (head of the IMF Fiscal Affairs Division), economist Fred Ribe and other IMF staffers, Tideman ran into closed minds and a brick wall. One of their objections was that other underdeveloped countries that had adopted taxes on land could not get the owners to pay and so had to tax those least able to resist. They made the point that given the massive defaults and losses experienced by lenders during the 1980s, relative certainty of repayment of loans (with accruing interest) had to be considered in any program of public policy.

When banks make loans to government agencies, an important assumption is that the government will generate revenue for repayment - either out of cash flows generated by particular investments or out of tax revenue. There is typically no specific collateral involved. Thus, the rate of interest charged is to some extent based on the level of risk associated with the stability of a government. When a private individual or entity defaults on loan payments, the lender is more than likely to hold collateral, such as mortgage on real estate owned by the borrower. In such cases, the lender is able to initiate a foreclosure proceeding and acquire title to the land and whatever improvements have been made. What Professor Tideman could not get the IMF experts to understand was that the greatest likelihood of repayment occurred when individuals were encouraged to invest their labor and financial reserves in wealth-creating activities without being taxed for their trouble. Rent in lieu of taxation is potentially the most reliable source of revenue the IMF or any other international lender could ask for. Implementing and administering a rent in lieu of taxation system of raising public revenue in Russia was thought by Georgists to be a less difficult task because there was no landed oligarchy to contend with or a well-financed corporate sector in control of the nation's natural resource lands and prime city locations. This window of opportunity was quickly closing.

Despite Tideman's efforts, the IMF conditioned additional advances to Russia on implementation of its standard brand of austerity program. In a society where the overwhelming majority of enterprises were far from being able to operate on the basis of actual revenue from the sale of goods or services, the immediate impact was certain skyrocketing unemployment. In one Russian city at least, Novgorod, officials were moving to set up the infrastructure for offering publicly-held land for lease under an auction system. Those in Russia eager to capture land value for their own private benefit enlisted the assistance of Raymond Strike, program director of the U.S. Agency for International Development and Co-operation with Russia in Housing, in an attempt to discredit the Russian Georgists and their Western allies. A document signed by Strike and entitled, "Is Russia Ready to Accept the Theories of Henry George?" was distributed to a large number of municipal officials in Russia. Remarkably, the document described rather accurately the philosophical basis advocates used to promote the collection of rent in lieu of taxation. A number of legitimate but answerable concerns were raised about the efficacy of relying on rights obtained under a leasehold arrangement versus those carried with a deed. Yet, the core message of the document was that inasmuch as no other nation had adopted Henry George's fiscal model, Russia would be taking an extraordinary gamble in doing so -- and be separating itself (once again) from the remainder of the developed world. The Russians could look outward, however, and see rather quickly that the West - although comparatively much better off -- was no utopian paradise. Poverty and periodic economic downturns (some mild, some serious) were common denominators shared by all. Fred Harrison predicted that if Russia's leaders followed the direction of Western advisers (such as Jeffrey Sachs of Harvard), the "[b]illions of dollars slushed into Russia would increase demand without increasing the supply of goods. That means more inflation. And greater social discontent, which is a serious threat to the reform of the economy."[63] After Boris Yeltsin crushed Parliamentary resistance to his program of rapid privatization, Harrison concluded the IMF got what it wanted.

Toward the end of 1993, Pyotr Filippov gathered a team of officials in Moscow to draft a law calling for the collection of the rent of land, to be submitted to the newly-elected Duma. He received support from Russia's deputy minister for economics. Over the next several years the struggle continued, with growing support for the rent as revenue approach coming from the city officials.

Russia's environmental problems also provided Georgists with another forum and highly interested audience. As I have written earlier, the rental value of natural resource-laden lands and building locations will tend to be higher or lower depending upon the cost of adhering to whatever environmental (and other) regulations are imposed on the use of the land. Fred Harrison (now intimately involved with the campaign to assist the small contingent of Russians working to advice the rent as revenue case) made this case in a speech before the ecology committee of the Commonwealth of Independent States' Interparliamentary Assembly, meeting in St. Petersburg during March, 1995. A new land code passed the Russian Duma in May but was rejected by the Council of the Federation over the issue of whether the sale and purchase of farmland should be permitted. Dr. Vyachislav Zvolinsky, a Deputy, severely criticized the code and argued vehemently for a rent as revenue revision.

At the end of 1995, Prof. Nicolaus Tideman returned to Russia after delivering a paper on abolishing the corporate income tax at a conference held by the Lithuanian Free Market Institute. From there, he traveled by train to Kalingrad and was interviewed for a local radio program and met with supporters of the rent as revenue initiative. After arriving in Moscow a few days later, Tideman met with documentary film producer Radi Kushnerovich; however, because of a widespread breakout of the flu, lectures planned for at the Moscow University for the Humanities were cancelled. He then met with Andrei Pavlov, head of the newly-established Henry George Association of Moscow. Tatiana Roskoshnaia, of the research institute Ecograd, brought him up-to-date on her efforts to nurture a bill through the Duma granting localities greater fiscal autonomy.

Early in 1996, Fred Harrison returned to Russia to meet with Vyachislav Zvolinsky, who enlisted Harrison to bring a group of Western proponents of rent as revenue to appear before a congress of the Russian Duma he would organize. Zvolinsky served as chair of the Duma's Natural Resources Committee and was very interested in measures to capture for the State more of the economic value of Russia's natural resource-laden lands. Back in the United Kingdom, Harrison came under criticism from other Georgists concerned about the amount of time, energy and funds being expended on behalf of the Russians. He responded that "the people of Russia have been able to retain their ancient communal affiliation with the land, and they are willing to think laterally about their future. That is why we are not met with blank stares when we tell them that justice requires that the benefits of land should belong to everyone equally - an incomprehensible statement in the ears of our fellow citizens in the West."[64]

The proposal for a Parliamentary conference on the land question came from Deputy Zvolinsky to Fred Harrison in February. The irony was, of course, that Zvolinsky was not only chairman or the Natural Resources Committee but was a member of the central committee of the Communist Party. Not long thereafter, I received a call from Nic Tideman. Would I be willing to join the team going to Moscow to present our views to the Russian parliament? My first question was, "Why me?" I am not an economist; my experience is in the housing finance industry.

What I could explain to the Russians, as it turned out, was how banks have repeatedly exposed themselves to collapses in the speculative land markets in the West:

For lenders, the volatility of land prices is the source of serious problems. After the last U.S. speculative land bubble burst in the late 1980s, hundreds of banks collapsed when real estate developers defaulted on loans granted to acquire and develop land. Some bankers no longer provide loans for land purchases. …

Those who urge you to sell the land that is the birthright of every Russian do so either out of ignorance; or, they fear that in doing the right thing Russia will challenge the West's dominance in global markets. Russian banks could serve as the catalysts for sustained economic growth and rising employment if they are freed of losses traced to collapsed land markets.[65]

Bank credit is the fuel that drives speculative land markets. Eventually and inevitably, land prices are driven up so high that no one can profitably develop land. Developers of partially built office buildings and shopping centers suddenly find their revenue projections no longer work. They have to drop their prices to compete for reluctant tenants. They fall behind on their loan payments; the banks stop advancing construction funds, foreclose and try to dispose of the real estate to recoup some of what they loaned. Those banks that have concentrating their lending in now collapsing markets slide into insolvency and are taken over by the government -- at enormous cost to the taxpayers. In the U.S. and the West, generally, this cycle is repeated about every twenty years. This was the story I told the Russians. Unless they were far more careful than we had been in the West, allowing land to be bought and sold as a commodity carried heavy risks to the Russian economy and the stability of Russian society, generally.

During March and April the details of the trip began to take shape, although the impending election and the general uncertainty of Russian politics kept the conference dates up in the air until just weeks before we actually left. Fred Harrison was working feverishly with the Russians, traveling back and forth between London and Moscow to ensure the Russians did not falter. Early in April, he met with and gained support from Nikolai Ryzhkov, who had served as prime minister under Gorbachev. Finally, the dates were set. We would meet in London on May 18 to plan our presentations, then fly to Moscow the following day. In addition to Nic Tideman, the other American economists participating were Mason Gaffney (University of California), Kris Feder (Bard College, New York) and Michael Hudson (former balance of payments analyst for Chase Manhattan Bank and now a private consultant). We were joined in London by Kenneth Jupp (a former English High Court Judge and expert on property law), Ronald Banks (a property assessor and developer) and Duncan Pickard (a University of Leeds lecturer on agriculture and owner of a farm in Scotland). The final member of the team, former U.S. Attorney General Ramsey Clark, met us in Moscow.

Once in Moscow, our group assembled Sunday evening for a welcoming dinner with Deputy Zvolinsky at our hotel, a very large, government-run monument to the 1960s near the Kremlin. On Monday, Fred Harrison came to us with disturbing news; we would have only around four and a half hours for our entire presentations. This included the time required for interpreters to translate our English presentations into Russian. So, we began to cut back to the most essential points until all of our presentations blended together as if we were making one continuous speech. To have accomplished this task was, in my experience, rather remarkable in itself. In any event, by Monday evening we were ready for the conference, which was to begin Tuesday morning at 10:00 a.m.

As things turned out, the Russians -- supporters of our proposal and opponents -- took the opportunity Tuesday morning to speak their minds, at length. Fred Harrison, who opened our portion of the conference, finally stepped to the podium at around 11:45 a.m. Several of our group actually considered walking out in frustration. But, we persevered, and the remainder of the day largely belonged to us. Back at home, I received a communication from Fred Harrison that our presentations had been well-received and that next steps were already in the works. He later reported that a new organization, the Land and Public Welfare Foundation, had been established in St. Petersburg, with Tanya Roskoshnaya as Executive Director.

Nothing is yet resolved in Russia. Plagued by limited funding and demands at home, Georgists from the West continued to work in close collaboration with their friends and colleagues in Russia and elsewhere in the former Soviet bloc nations as best they could. One is reminded of the praise Winston Churchill gave to the brave men who piloted Britain's fighter planes against the German attacks on Britain during the Second World War. Great is the debt owed to the few who have given so much, so willingly, to the cause of justice and the quest for liberty. Fred Harrison was required to continually ask supporters for funds to carry on this work. Along the way, the Russian effort gained the strong support of Dr. Dmitry Lvov, head of the Economics Department in the Russian Academy of Sciences. After meeting with Dr. Lvov in mid-1998, Fred Harrison reported as follows:

Last Thursday one of Prime Minister Kiriyenko's senior advisors, Dr. Dmitry Lvov, sat me down in his office and asked for answers to specific questions on how he could sell the rent-as-public-revenue policy to the government by convincing the Prime Minister that the practical problems can be overcome. …

But bizarre is the only word for politics in Russia. The Prime Minister does not welcome Dr. Lvov's advice. Dr. Lvov, in turn, continues to insist, during their consultations - which the Prime Minister is obliged to hold, given Dr. Lvov's status - that Russia needs to restructure its public finances. …[66]

A team of dedicated and thoughtful people within and outside Russia continues to work at early level and wherever an opportunity arose to promote the idea that rent needs to be collected and used as a societal fund and not be permitted to become source of individual wealth. From the United States, considerable financial support was provided by the New York-based Robert Schalkenbach Foundation. In 2000, Fred Harrison and Nic Tideman (at the time President of the Schalkenbach board) were joined by Schalkenbach's Director, Ted Gwartney, and Prof. Mason Gaffney for yet another trip to Russia, this time to speak at hearings of the Duma Sub-Committee on Natural Resources. Attendance was greater than the hall could bear with over two hundred interested Duma members, government officials, public advocacy representatives and others pressing to hear and talk about the rent as revenue policy proposal. Conference Chair, Vyacheslav Zvolinsky, and Dmitry Lvov, strongly urged the shift in how the nation raised its revenue. Since then, dramatic changes have occurred in Russia. More may be on the horizon. As the year 2004 began, Fred Harrison reported on the situation and offered his perspective on what measures were required for a successful rent as revenue campaign:

Western reporters are failing to spot the story behind President Putin's re-election strategy. They view the Kremlin's attack on the oligarchs as evidence of a trend towards authoritarianism. The US government is leaning on the Russian authorities on behalf of the billionaire owners of resources, two of whom are in gaol awaiting a trial for tax-dodging. A third has fled abroad. A fourth has chosen to live in London; he passes time as the new owner of Chelsea Football Club.

This clique was behind Yeltsin's hold on power. He handed over gas and oil riches in return for the dollars they delivered to finance his re-election. When Putin was installed in the Kremlin, he owed a debt to Yeltsin. He was restrained from introducing the one reform that would equalise power among the whole population. On at least three occasions, Putin has declared the need to recover more rent for the public purse. His Prime Minister, Mikhail Kasyanov -- one of the pro-Western economists -- took not a blind bit of notice. Over the past year our associates, like Dmitry Lvov and Sergei Glazyev, kept up a dialogue with Putin to reinforce the imperative need to recover rent from the hands of the oligarchs if Russia was to raise millions of people out of poverty.

Resource rents would one day have to become the focus of a national struggle. Would it be an informed one, played out within the rules of democracy? In our Russian campaign, we spent 10 years educating policy-makers, scientists and the institutions of an emerging civil society on the virtues of rent as public revenue. Georgists from the four corners of the world freely gave their labour, flying into St. Petersburg and Moscow to address seminars and congresses. We documented the evidence in fine detail, and through Lvov -- the most senior economist in the Academy of Sciences at the time -- we left an indelible impression. But would the opposition play fair, come crunch time?

The first strike came late last year. Western reporters presented it as Putin's intimidation of the oligarchs. "Liberal" politicians have decided not to contest the presidential election. Sergei Glazyev, who now leads his own party, threw his hat into the ring. He won't win, but he has a national platform to publicise tax reform. He identifies the need for the reforms favoured by the president. Putin prefers to remain aloof from brawls on the hustings.

But Kasyanov, the Prime Minister, is reading the smoke signals and feels the need to try and squash the debate. Our colleagues in Russia have alerted us to the high-level machinations that are proceeding apace.

In a recent speech, Kasyanov claimed that, as an economist, he knows there is no rent for his government to recover. He claims that there is nothing in the textbooks on rent.

Expensively produced pamphlets are being circulated in the country, our colleague Galina Titova informs us, which purport to explain that rent is a myth. People are being told that oil and gas will be exhausted in the next 40 years, so the problem of rent will dissolve by itself. That, apparently, is supposed to be a reason for not treating seriously the Glazyev/Putin thesis that rent would make a difference to the levels of employment and investment in Russia.

To counter the black propaganda, the Russian Journal of Economics has requested permission from our Georgist activists to re-print the articles and speeches they delivered at public hearings; we had organised these with Glazyev when he was Chairman of one of the Duma parliament committees. Our permission has been granted.

Also now in circulation is a book compilation of studies by our economist colleagues from the US, which includes case studies such as the Alaska oil rents, and evidence from the UK. Taxes in Civil Society surveys the politics of resource rents. It leaves no fair-minded person in doubt that rents are sufficient to defray Russia's public services. Glazyev received the first copy in the Autumn. He stepped up his speeches on oil rent. The oligarchs know that he is deadly serious: in the early years of Yeltsin's administration, as Minister of External Economic Relations, Glazyev introduced a tax on the export of oil which ensured that, for a brief period, some of the rent was recycled back into Russia.

Galina Titova continues to fly our flag in Parliament's upper chamber through lectures and presentations, and distributing our publications.

How this all pans out, of course, is unpredictable. But we can say that our ground work laid the foundations for what is now turning into the first serious political struggle to restore rent to the people in the 21st century. This could not have happened without the fantastic support which we received from our Georgist colleagues around the world who chipped in the donations that made it possible for us to conduct a unique experiment in mass education.

We must treat as serious Kasyanov's claim that textbooks are silent on rent -- his argument to ridicule, and marginalise, fiscal reform. The lesson for us: Georgist reforms cannot be tip-toed in through the front door, or smuggled in through the back door. Our civilisation's structural pillars -- our language, law and logic -- are so constructed as to repel any threat of that philosophy.

We must shift the site of battle on to terrain of our choosing. We need a narrative that restates our points anew, in a way that is capable of attracting both the elites that shape public policies and the masses whose votes matter to politicians.

Our revisionism has to be a veritable onslaught of the intellect. We need a revised theory of history. There has to be a clean-up of language. Someone, somewhere, will need to challenge the legality of the privatisation of the public's revenue. These actions establish the pre-conditions for a radical re-think at the highest levels of power. Otherwise, Georgist reforms will remain on the back-burner until the Western economies have been torched by fires of the kind that decimated the Soviet Union. Improbable? A large slice of the American and European industrial base is being transferred to China and India. Come the Crash of 2010, how will our nations claw their way back without developing a "new competitive advantage? Short of cutting wages to the levels of coolies, what alternative will governments have but to restructure taxation?[67]

RESURRECTION OF POLITICAL ECONOMY:
The Challenge Becomes Personal

My own involvement with the community of Georgists and others working for just socio-political arrangements and institutions began in 1979, when I quite by accident learned of the Henry George School of Social Science, which had an extension operation in Philadelphia where I lived and worked. For several years I had given thought to completing a masters degree in history or economics. I had even taken several courses on a nonmatriculated basis at the University of Pennsylvania. My professional responsibilities in the real estate finance industry were at the time rather demanding, so I decided to ease back into an academic environment by first enrolling in the political economy program offered by the Henry George School. The course fees were nominal, and there were no tests or papers to be written. Classes were discussion-oriented, based on assigned readings from the works of Henry George. At that time I had only a vague familiarity with George as an historical figure and had never read any of his works.

As an institution of learning, the Henry George School was physically unimpressive. The classes were offered in a rather small, residential building located in one of the older neighborhoods of Philadelphia. I later learned that this building had been the birthplace of Henry George and had been acquired in the 1920s by adherents to George's philosophical ideals but not utilized as a school facility until the 1950s. In this cramped building, filled with photographs of former directors and other prominent Georgists, political economy came to life for me. My formal schooling in economics had consisted of a year in high school and two semesters during my undergraduate work. At the outset of my studies, very little about Henry George or the origins of the School was explained to me or my fellow students. For the first course, George's book, Progress and Poverty, served as the text.

Initially, I wondered what I could learn of importance using a book written in the nineteenth century by a person hardly anyone (I knew) had any knowledge of. Something kept me from leaving, and by the end of the first ten-session course, I had come to appreciate the unique contributions Henry George made to the field of political economy and by his analysis of the causes of poverty and injustice. Additional courses followed using George's books Social Problems, Protection Or Free Trade and The Science of Political Economy -- a full year of study and discussion. Another course followed, titled Democracy versus Socialism, based on the remarkable (and largely unknown) book by Max Hirsch.

The Henry George School's program was not formal or academic in the same sense as the standard courses are in a college or university program. How well a student absorbed the perspectives offered depended on his or her own initiative and reasoning powers. Discussions arose out of the reading assignments and a set of written questions to be answered prior to the class. To a degree, the approach was Socratic; however, the quality and form of instruction depended (as in all such structured situations) on the personality and ability of the discussion leader. At that time, the School's director was a person already mentioned above, George Collins, who had had emigrated from Jamaica to the United States as a young man in the 1950s. While living in New York City, he became a student and then a teacher at the Henry George School (the main branch was then located in a grand old mansion in Manhattan). In 1964, following the death of Philadelphia extension director Joseph A. Stockman, George Collins was hired to take over in Philadelphia, where he remained until returning to New York in 1989 to become the School's Executive Director.

Neither George Collins nor very many members of the School's faculty were formally schooled in economics. They came from rather diverse backgrounds but possessed a shared devotion to democratic processes and individual liberty. All had found in the writings of Henry George what they believed to be the primary solutions to societal problems. Most had inexplicably found their way to the School and wanted to pass on to others what they had gained from their own experience as a student. After my own year of study, I had the same feelings. George Collins invited me to become a member of the faculty, and in the Fall of 1980 I taught my first course at the School.

As much as I enjoyed the give and take of the classroom, I was also committed to activism. Most others associated with the School felt the same way and had been doing whatever they could to stimulate interest in legislation that would relieve wages, interest and natural property from taxation. The benefits of Henry George's core proposition -- of collecting the annual rental value of natural resource-laden lands and locations in lieu of taxation -- seemed so patently evident, I was sure we could overcome the opposition from land speculators and other beneficiaries of the status quo by getting the issue before the public. Doing so, however, proved to be far more of a challenge than I ever suspected. Georgists, after all, had spent the better part of a century at the task with only a handful of local government experiments at which to point for their trouble. Unsuccessfully, I attempted to educate and enlist support from a number of my colleagues in the mortgage banking industry. Over a three-year period, I attempted to arrange for a bank-sponsored conference on restructuring of the real estate tax based on the Georgist model. Other efforts included correspondence with journalist Bill Moyers, supply-side architects Arthur Laffer and Jude Wanniski and economists Mason Gaffney and John Kenneth Galbraith. Only Mason Gaffney offered much sympathy or encouragement.

Early on, my association with Georgists was limited to the stalwarts involved with the Philadelphia extension of the Henry George School of Social Science. Then, in the summer of 1980 I attended my first Georgist conference, which was held in New York City at the School's new headquarters near Grand Central Station. This was a location the trustees hoped would increase student enrollment for evening and weekend programs. Around a hundred people attended the conference. Most were up in years, but that took nothing away from their enthusiasm or the quality of discourse. The year before, Georgists had formed a new coordinating body, the Council of Georgist Organizations (CGO) to organize the annual conferences and act as a clearing house for information. At the CGO meeting, I was surprised to be nominated for the position of Deputy Chair, and the members (perhaps in an effort to cement my involvement and in recognition of my relative young age) elected me to the position. The important result was that I gained an opportunity to work with Robert Clancy, the CGO Chair, a former director of the School and now head of the Henry George Institute. I began to inundate him with copies of my rather voluminous correspondence, essays and letters to the editor I was writing as well as other materials I came across that seemed worthy of attention. Bob was always patient and sincerely interested. Equally important, he encouraged skepticism. He possessed a thorough understanding of Henry George's works and a familiarity with the larger body of work on political economy. His Georgism was never doctrinaire or orthodox. Over time, I came to understand why he was such a central figure in the Georgist community, both in the United States and internationally. During his years as director of the Henry George School, Bob produced the bi-monthly Henry George News, distributed to Georgists around the globe as a vehicle of keeping supporters informed of School activities and providing a place for exchanges of opinion regarding Henry George's writings.

Another association formed at the 1980 conference was with Steven Cord, professor of history at Indiana University of Pennsylvania -- and President of the Henry George Foundation of America. Steve was active in promoting the Georgist rent as revenue in lieu of taxation proposals and instrumental in providing information, testimony and assistance to municipal governments all across the United States expressing interest in the idea. Steve approached me after the New York conference about becoming co-editor of the Foundation's newsletter, Equal Rights. Despite an already heavy set of responsibilities and commitments, I agreed to come aboard. Sharing editorial and writing responsibilities with me was a Georgist from Delaware, Frank Nelson; and, as things turned out Frank took on the primary responsibility of attending to the mechanics of getting out the publication. My role was to submit lively editorials and information pieces.

An important event during 1981 was the CGO-sponsored Earth Day Conference (held at the Henry George School in New York). One of the key speakers was Malta's UN Ambassador, Arvid Pardo, who presented a strong case for passage of the Law of the Sea treaty - with language that could have been written by Henry George himself. Back in Philadelphia, I used the audio recording of Ambassador Pardo's speech to good effect with my students at the School. Another speaker with whom I found myself in substantive agreement was Kirkpatrick Sale (although not a Georgist), whose book Human Scale had just been published.

Franklin Pierce College in the State of New Hampshire was the location for the 1981 CGO conference. I was joined by David Asman of the Manhattan Institute and management consultant John Burger on a panel to provide a critique of Reaganomics. My comments were based on one of my first editorials in Equal Rights (entitled, "Reagan Economics: Great Expectations"), which appeared in the Spring 1981 issue. After briefly summarizing the rise and fall of Hansen-Keynesian demand management policies, I looked into the future from a Georgist perspective:

The one question I have not yet heard addressed by the supply-side economists is the method to be utilized for control over monopolistic appropriation of any increases in productivity achieved. I am quite positive that the member nations of OPEC and our own domestic corporate resource owners do, indeed, have "great expectations" for the Reagan plan![68]

Some months later, in a commentary[69] appearing in the Henry George Institute's Georgist Journal, I challenged Georgists to begin to think more like entrepreneurs. This was the first in a long series of discussions I held on the subject of forming a consulting firm to do econometric forecasting. The most impressive thing Georgists could do, I felt, would be to use the superior insights into political economy provided by Henry George to build a competitive model of the global economy. Corporations and governments would undoubtedly pay for analyses that were (even marginally) more accurate in forecasting the future. Moreover, other economists and market analysts would soon want to know the secret of how the Georgist model was outperforming their own. Little interest developed at the time, so I placed this particular idea on a back burner. After becoming acquainted with Mason Gaffney, I had a number of long discussions with him on the merits of the project; however, we realized that funding was a significant challenge, and none of the key decision-makers in the Georgist organizations showed any interest in the project at that time.

My involvement with the Henry George School was also taking on a deeper commitment than that of a volunteer faculty member. After learning more about the School's history and structure, I became sufficiently interested in the School's future that in February of 1982 I wrote a long letter to Phil Finkelstein, the School's director in New York. Among my recommendations was the establishment of a scholarship program that would encourage members of the School's faculty to pursue formal academic study. Additionally, I talked about the need for a modern text on political economy that would directly challenge the two-factor teachings of Samuelson, McConnell and other authors of introductory texts in economics. Later that month, I had an opportunity in New York to meet with Phil, who was gracious and seemed appreciative of my interest and willingness to be of assistance.

An educational project I then undertook was to construct a fictitious conversation between the great political economists of the past (with a few contemporary economists thrown in). The end result pulled quotations from Adam Smith, Karl Marx, Henry George, John Maynard Keynes and others to reveal how they might have responded to one another on various issues had they had the opportunity. At Bob Clancy's invitation, a reading of this exchange was held at the School in New York, with some forty people attending. At the School's extension in Philadelphia, I continually worked to improve my presentation and increasingly deviated from the question/answer format made available to newer teachers. One reason for doing so was that in teaching I came to realize that many students struggled with George's Progress and Poverty and Science of Political Economy because their own formal education gave them little or no frame of reference. In important respects, George wrote for an audience already familiar with socio-political concepts and more than a rudimentary understanding of history. Another reason for my departure in approach was my own sense of urgency about global debt problems and the high probability of a prolonged depression following on the heels of widespread debt repudiation. Henry George dealt with fundamental issues concerning systems of money and credit; however, not until after his death did the United States create the Federal Reserve System and the world's great trading nations adopt the so-called gold standard. I studied the global monetary crisis and suspected that things were about to get even worse. These were issues I included in my teaching.

During the early 1980s I managed to crank out a continuous flow of letters to activists, public officials, economists and journalists -- only a small percentage of which were ever answered or published. When I learned, for instance, that Robert Dederick, the U.S. Assistant Secretary of Commerce for Economic Affairs, was to speak in Philadelphia, I wrote advising him of my advocacy for the incremental adoption of the rent as revenue policy shift - what economists generally referred to as land value taxation, hoping he would include in his remarks some meaningful assessment of the wisdom of the measure. A short while later he responded:

Legislating significant alterations in local tax structure can be a complex and controversial undertaking; it is certainly one that must be approached with caution. The land value tax (LVT) in particular, despite its theoretical appeal, seems to have both strengths and weakness in practice which must be carefully weighed. For example:

• On the positive side, in an environment of rapid economic expansion, an LVT may add significantly to the local tax base without penalizing individual effort.
  
• In an area that is already growing, however, it is not clear that an LVT would accelerate development.
  
• If an area is not experiencing growth, it is not clear that a reduction in the tax on improvements would provide the stimulation needed to produce substantial growth.
  
• Moreover, failure to maintain or improve residential property in low income areas may not be a direct result of the disincentives associated with the current property tax. Rather it may reflect the lack of capital. This condition would not be directly ameliorated by conversion to a LVT.[70]

As I was to learn, few economists looked at the moral question of whether society ought to permit the private appropriation of rent. My correspondence file contains no further exchange with Mr. Dederick, and I do not recall the content of his speech later that month. I suspect that other priorities absorbed my attention. The point is, this type of exchange was about the best one could hope for. About this same time, James J. Tayoun, a member of Philadelphia's City Council, stepped forward to take the lead in introducing an enabling bill for the taxation of land values, and hearings were scheduled. Preliminary research by George Collins and others associated with the Henry George School indicated that even a modest shift in tax burden from the existing system of taxing assessed land and improvement values at the same rate would produce a meaningful savings to a large majority of homeowners in the City. Steve Cord presented extensive testimony on the experience of other cities in Pennsylvania that had adopted a two-rate real estate tax. Phil Finkelstein was also there to provide testimony. Under Phil's leadership the Henry George School had established a separate research institute called the Center for Local Tax Research (CLTR). Representing CLTR at the hearing was economist Larry Spancake, who made a gallant attempt to explain the theoretically-based reasons for capturing public revenue from land values. Phil Finkelstein, a powerful speaker and dominating presence in any group, followed shortly thereafter with a hard-hitting presentation that the Council committee members barely interrupted.

A short while later, I happened to read on the letters page of the Wall Street Journal a letter written by Joe D. Reid, a professor at Virginia Polytechnic Institute, criticizing the U.S. foreign policy establishment's proposals for land reform in El Salvador. His argument was that forming cooperatives or turning the land over to peasant farmers had nowhere proven effective or long-lasting. Yet, he offered no feasible alternative means of resolving the problems created by the concentration of land ownership. I wrote to him, sending along a copy of Fred Harrison's paper, Land Reform or Red Revolution. He soon responded, but with an expression of general disagreement with Fred's Georgist solution. This prompted me to write directly to Fred Harrison in London to enlist him directly in the exchange. Several additional letters followed. Professor Reid, Fred Harrison and I then moved on to other priorities. Our contact resurfaced briefly in 1983; however, maintaining this type of exchange is always demanding, even when there is good reason for doing so. And, that has been a pattern repeated over and over again.

CH 1	CH 2	CH 3	CH 4	CH 5	CH 6
1.1	2.1	3.1	4.1	5.1	6.1
1.2	2.2	3.2	4.2	5.2	6.2
1.3	2.3	3.3	4.3	5.3	6.3
1.4	2.4	3.4	4.4	5.4	6.4