Mission to Moscow
Edward J. Dodson
[Reprinted from
GroundSwell, July-August 1996]
Late In April, I received a letter from V.P. ZvoIinsky, an
influential Deputy Or the Russian parliament, inviting me to come to
Moscow in May. I was to be included in a group of Western advisers
making presentations to the Russians at a conference on whether the
land of Russia ought to be sold off Western style or -- as our group
would recommend -- awarded under leases to the highest bidders, with
the lease fees adjusted annually based on changing market values. We
were about to enter a debate that raged in the time of the czars but
had been taken off the agenda when Lenin and the Bolsheviks ascended
to power.
I was reminded by my activist friends and colleagues that Leo
Tolstoy, strongly influenced by the writings of Henry George, had used
what limited influence he had to warn Nicholas II that without
resolving the land question Russia was headed for revolution. Now,
some ninety years later, many of the same issues were facing a Society
also struggling with the creation of democratic institutions and
processes, as well as the privatization of its industrial foundation.
Already, at the urging of World Bank and International Monetary Fund
advisers, Russia's land was being sold off to private developers.
World Bank loans financed two large housing developments in St.
Petersburg and Novgorod with the promise of more to come. Officials In
Yeltsin's government announced their hope that these land sales would
be extended to other Russian cities. The Parliament, which is
dominated by communists, opposed the sell-off and passed legislation
in April to override the Yeltsin decrees and halt such sales. They
were joined by the much smaller Agrarian Party, whose members control
the agricultural affairs committee.
Virtually every economist and other adviser from the West (and, in
particular, from the World Bank and International Monetary Fund) has
been pressing Russia to privatize land ownership, arguing this is key
to conversion to a market economy. Several of the people in our group
had dedicated the better part or the last six or seven years pressing
any Russian who would listen to adopt the leasehold structure instead.
I was now joining in that effort, my participation orchestrated from
London by Fred Harrison, head of a government watchdog organization
called the Land Policy Council. Harrison's work in Russia goes back to
Mikhael Gorbachev and perestroika. Then, In 1990 he and a
number of U.S. economists (all strong advocates or market economies)
met In New York City with their counterparts from Russia and other
former Soviet-bloc nations to talk about the land question.
These economists took the incredible step or crafting a letter sent to
Gorbachev In November of 1990, with a warning:
It is important that the rent of
land be retained as a source of government revenue. While the
governments of developed nations with market economies collect some
of the rent of land in taxes, they do not collect nearly as much as
they could and they therefore make unnecessary great use of taxes
that impede their economies - taxes on such things as incomes, sales
and the value of capital.
The letter was written by economist Nicolaus Tideman of Virginia
Polytechnic Institute. Nearly thirty other economists, including
several Nobel Prize winners, signed the letter. Gorbachev did not
respond; understandably; his thoughts were on more pressing matters.
Sill, the New York conference had resulted in a number of
partnerships with various Russian organizations working on
privatization Issues. A working relationship was established with the
Eco-Grad Research Centre in St. Petersburg, whose principals were
eager to sidestep Moscow and work directly on land lease schemes with
Russian cities. By the end of 1992, Eco-Grad was working closely with
officials of St. Petersburg, where Mayor Valeriy Nekrasov gave his
full support to the leasing idea. A conference sponsored by Eco-Grad
in January, 1993, sparked additional interest from other officials,
delegates to a national organization called the Union of Russian
Cities.
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. 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 over-lent 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 ware 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.
Getting into and out of Russia these days is, I am sure, much easier
than in the past. That said, one must be prepared for a far more
spartan experience than we are accustomed to traveling in the U.S. or
most Western destinations. However, I saw nothing in Moscow that
approached the destitution that exists in some of the poorest
neighborhoods of Philadelphia and other U.S. cities. Nor did I see any
evidence that street crime is a widespread problem. Given the times
and what one reads in our newspapers, Moscow seemed incredibly quiet.
Its citizens, like people everywhere, were engaged in the everyday
struggle of trying to make a living.
Once in Moscow, our group assembled Sunday evening for a welcoming
dinner with Deputy Zvolinsky at our hotel, a very large, still
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. Were
we listened to? That, of course, is the $64 million question. The
Communists and others continue to oppose the Yeltsin privatization
initiatives. However, many are still committed to the public ownership
of what they view as essential national industries. Back in the United
States, I am once again a bystander. And yet, I feel privileged to
have had the chance to influence history, for that is what is at stake
in Russia.
In our own society, the land question has been well hidden
within the larger context of problems we accept as characteristic of
capitalism. Interestingly, many of the economists who signed
the 1990 letter to Gorbachev do not agree that the same public
policies recommended for Russia are desirable or workable for the U.S.
Not only do I believe they are mistaken, I am convinced that economic
nirvana - full employment and no inflation - is possible, but only
possible if we finally listen to the advice Henry George attempted to
give us a century ago in his book Protection Or Free Trade:
To secure to all the free use of
the power to labor and the full enjoyment of its products, equal
rights to land must be secured.
To secure equal rights to land is in this stage of civilization but
one way.
The only way to abolish private property in land is
by way of taxation. That way is clear and straightforward. It
consists simply in abolishing, one after another, all imposts that
are in their nature really taxes, and resorting for public revenues
to economic rent, or ground value.
And, so say I.
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