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SCI LIBRARY

Land Monopoly

Fred Harrison



[Reprinted from Land & Liberty, May-June, 1983]


THE WORLD economy was crushed by exploitation in the land market.

Today's recession is nothing more than a continuation of the slump of 1974 which was caused by the global speculation in land during the previous three to five years.

That speculative boom occurred in every corner of the world. No country was immune - not even Japan, the "miracle" economy whose growth was also cut back when the supply of land was curtailed and its price pushed up to the point where the superstructure began to crumble.

Until the foundations are reformed, cyclical upheavels will continue to afflict the industrial economy.

The full evidence for this theory appears in my book, The Power in the Land.[1] This documents how the world economy was dislocated by a rise in rents and land values to unrealistic proportions; and by a shift in the share of national income to the landowning class, to the detriment of both labour and capital.

But if the land market could be used for the anti-social benefit of a relatively few monopolists, it is my contention that the power in the land also offers a unique prospect for salvaging the economy in a strategy that is free of economic risks.

I stress economically risk-free, because I am proposing a radical transformation of property rights that would entail political risks; but then, the present levels of unemployment (32m in OECD countries alone) and the cut-backs in welfare services, jeopardise the stability of the democratic world.

I do not believe that my proposals heighten the risks that are already latent: indeed, they would reduce the psychological tensions and social frictions that are bubbling away in the inner cores of all the major c of the western world.

INCOME redistribution is at the heart of all plans to solve the economic crisis.

The favourite target for surgical action is the worker's wage packet. Full employment and prosperity is predicated on a cut in the living standards of wealth creators.

A drop in wages is supposed to enhance profits. Nowhere in the national and international councils do we hear any talk of reducing the income of rent-receivers.

The orthodox plan would certainly cut back on private consumption, which in turn would curtail output and investment: hardly a prescription for regenerating the industrial economy when entrepreneurs badly need a larger market of consumers.

In The Power in the Land I argue that the correct solution is to redistribute income away from the owners of land. This would be achieved by taxing the annual rental income of land, in its unimproved state (i.e., exempting the value of capital investments upon land) while reducing the tax burden on labour and its products.

This fiscal reform would:

  • Stimulate both consumption and investment: lower taxes mean lower prices, higher profits and fresh capital formation.
  • Manufacturers and retailers would build up their stocks. The capital goods sector and the heavy steel industries would lead the economy out of the trough.
  • At the same time, speculatively-high rents would adjust downwards to levels that would become attractive to businessmen who want to expand existing operations or start new enterprises.

BUT THE WORLD cannot wait while preparations are made to implement a master plan.

Enabling laws have to be passed, land has to be valued separately from capital investment upon it, provision has to be made for selectively reducing existing taxes.

This does not mean that we are prevented from using the principles that underpin land value taxation in a rescue operation that would have an immediate impact.

We can advocate a fiscal-based plan that would not work by substituting additional problems -- for example, generating inflation through the Keynesian reflationary policies of the opposition parties of Europe and North America.

The overall problem that has to be solved was recently spotlighted by the Organisation for Economic Cooperation and Development, which gave as a major reason for the recession "the emergence of major imbalances in the share of aggregate income, and a shift in the tax burden to employment and investment."[2]

The new strategy should devise a transitional programme to lift the tax burden off labour and its wages, and off capital and its interest, by switching it on to the rental income of land. There are some obvious cases where this can be done in a direct way.

Britain exempts agricultural land from rates, the local property tax. A modest 2 per cent tax on the capital value of farmland would raise £800m, the sum needed by the government to abolish the one per cent National Insurance surcharge - the "tax on jobs" which deters an expansion of employment.

Mrs. Thatcher's government has articulated the general dissatisfaction with the property tax. Measures could be instituted immediately to grade the rates burden along the lines of the Pittsburgh model (see p. 48).

This would stimulate the building industry, which is crucial to economic recovery. At the same time, the 250,000-plus acres of valuable vacant urban land could be brought within the tax net. Owners could be required to pay taxes on a self-assessment basis, with appropriate adjustments at a later date when the published role of agreed valuations had been established.

This additional revenue would be offset by reductions in income taxes, thereby expanding the domestic market for manufacturers.

Taxes can be raised markedly on the products of firms or industries whose product prices are high in relation to production costs - i.e., where the rental returns are significant. Petroleum is a good example, but this attempt at capturing rental income is not a satisfactory one. It is very much a second-best solution, no more than a crude and indirect attempt to capture rental revenue.

A RATIONAL government should move swiftly to the direct taxation of land values.

This entails a planned reduction of existing taxes while carefully monitoring the ensuing transformation in the structure of prices to capture that part of the national product that would otherwise be funnelled into the pockets of land owners through higher rental income.

What are the consequences of not implementing this fiscal reform?

  • The industrial economy would not recover without suffering serious side-effects of an economic and, possibly, political nature.
  • And long-term prospects would be bleak, for when the economy finally recovered, we would have left a legacy for our children for which they would not thank us: a depression at the turn of the century of the proportions of the 1930s and 1980s.


REFERENCES


  1. Fred Harrison, The Power in the Land, London: Shepheard Walwyn, 1983.
  2. Economic Outlook, Paris: OECD, July 1982, p.6.