Toward A Financially Stable Future: What Russia Must Examine in the U.S. Experience

Edward J. Dodson

[A paper delivered to the Congress on Land Relations and the Rational Use of Natural Resources, Moscow, April, 1996]

I have spent nearly all of my life engaged in an effort to mitigate the destructive consequences of public policy designed by and for the landed interests in my country. Democracy, progressive income taxation and fifty years of expanding government intervention have all failed to strip these individuals, families and business entitles of their privilege and economic power. if you, at this crucial point in your history, open the door to latent landed Interests, all that you have endured in your struggles to help your people will have been in vain.

At the dawn of the American System, the framers of our constitutional democracy compromised principIe in order to forge a national government with the powers sufficient to raise revenue and give the Old World powers pause in any decision to attempt the reconquest of North America. Two forms of license, both devastating, were incorporated into the system of law and sanctioned by those who governed. The first, slavery, was to many already recognized for its criminality; greater poverty among Americans of African heritage remains as a legacy of a people systematically denied access to land -- and even then having what they produced automatically considered the property of those who enslaved them. The second, the private appropriation of the rental value of land, had already become part of the great land grab mentality that destroyed the indigenous tribal societies of the Americas. Thomas Jefferson, who understood that the slavery and land questions were the Achilles heels of the American System, put his faith in the essential goodness of his fellow citizens, in democracy and in future generations to resolve these problems.

Jefferson could look out over the North American continent to a seemingly endless and bountiful frontier. Perhaps, he thought, African-Americans could one day have a homeland set aside for them to start their own new civilization. Instead, in less than a century, tremendous internal population growth combined with massive immigration to reduce and finally eliminate the frontier. Beginning in the 1870s, immigrants and newly-freed African-Americans increasingly found there was no room left for them unless they had sufficient money to buy or lease land from others. Tens of millions of landless people surged into urban slums and company-owned mining towns to toil at the bottom of the economic pile. With each passing generation, control over the land and the country's natural resources has become increasingly concentrated. Poverty, always there, and unemployment, always threatening, are now the Iife-Iong experience of tens of millions of people. Crime is rampant some would say out of control. Home ownership reached a peak of roughly two-thirds of Americans in the 1970, has fallen slightly. Hidden in the statistics is the fact that more housing units become uninhabitable each year than are constructed or rehabilitated. In the inner cities and rural areas, homelessness continues to climb because the mismatch between declining household incomes and rising costs for apartments and houses.

For us, the land question remains unresolved. Our society is now extremely stressed because so much land is controlled by so few who return to society only a fraction of the full ground rent. People who must work harder and harder for less and less are demanding change. They are rejecting the leaders of the two political parties that have made public policy for the last one hundred fifty years. My message to the Russian people is the same message I have struggled to bring to my own fellow citizens. Unless the land question is resolved, until all the people and not a few -- or even many -- individuals share equally the rental value of land, the Russian Republic will not prosper. Your national debt will continue to escalate, and external bankers and creditors will impose programs of austerity and the production of cash crops for export. Some will prosper, even become rich, but only at the expense of the majority.

Champions of the American System want everyone to believe we are practitioners of free enterprise capitalism, that any person can rise above his or her condition at birth to achieve whatever they out to do. If this ever was the case, and I must tell you it was not, opportunity for many has absolutely disappeared. Poverty is generational in America for many. And, only a small portion can be explained away by individual weakness and laziness. The American System is at fault. What has emerged in the U.S. -- and what is certain to emerge in the Russian Republic unless you act deliberately and soon -- is what I describe as agrarian and industrial landlordism. A smaller and smaller number of people will gain control over the land and natural resources of Russia and charge everyone else for access and use. Those who now earn their incomes by providing goods and services will divert financial resources into acquiring control over land; and, the wealthiest among you (and foreign investors) will begin to accumulate land, buildings, stocks, gold and currency. The Russian economy will have become a full partner in the group of economies dominated by speculations, and cyclical periods of boom and bust.

This is the Russian spring, your window of opportunity to establish public poIicies that will pull you toward a financially stable future. Reaching that goal requires, I believe, embracing a labor theory of property, which means simply that just law is law that protects the right of people to keep what they produce with their own labor. And, if they own tools or equipment or industrial plants or building things they either produced themselves or purchased from others (including the government), then the incomes they earn by using this property ought to be treated similarly. Ideally, this means dramatic reductions in income and property taxation. Notice that land does not fit into this definition of property. No person can claim to have produced land, nor is the rental value of any particuIar parcel of land the result of any person's efforts. A leasehold or title deed to land is a form of license, a grant of a monopoly over the use that land. Common sense suggests to me -- and I trust to you -- that the recipient of such a monopoly license ought to compensate his or her fellow citizens for the privileges granted.

Although by definition a market system for land is one that operates without subsidy, with access going to the highest bidder, the American System sanctions the private appropriation of this fund, capitalized into higher and higher sales prices as the demand for land increases (and those who hold titles without cost are free to hoard land for speculative purpose). Russia will avoid these destructive consequences by making sure that: (a) publicly-held lands offered for private use are leased to the highest bidders, with the ground rents adjusted periodically based on market data; (b) privately-held lands are taxed an amount equivalent to what the annual ground rent would be; (c) that houses and other structures are taxed as lightly as possible, including at the time such structures are sold from one party to another; (d) that other forms of licenses, such as radio and television frequencies, are offered for lease to the highest bidders in the same way as leases to land are awarded; and (e) that revenue earned from the sale of goods or income derived from services be taxed at low as possible. Combine these measures with sound monetary controls and balanced budgets and the Russian Republic will, indeed, realize its full potential as a leader among the world's nation-states.