A Georgist Index of Economic Liberation

David Hillary

[Reprinted from a Land-Theory online discussion, 25 November 1999]

We need a Georgist index of economic liberation similar to the Heritage Foundation/Wall St Journal index of economic freedom. The Heritage index uses ten aspects of economic policy/outcomes as indicators of the degree of freedom and averages them to give a single score. They are:

1. Freedom to trade goods and services (internationally)

2. Freedom to invest capital and equity (internationally)

3. Freedom from tax

4. Freedom from inflation/oversupply of money

5. Freedom to set prices and wages (freedom from price controls)

6. Protection of property rights by effective government laws and efficient judiciary and the likelihood of appropriation of property by government etc.

7. Banking and credit (freedom to form banks, freedom to allocate credit, etc.)

8. Freedom from big government (based on % GDP produced by government, % GDP government consumption expenditure, existence of state owned enterprises etc.)

9. Freedom from excessive regulation burden on business (including speed and cost of starting new enterprises & found corporations).

10. Absence of black market activity and intellectual piracy as an indication of the degree to which citizens are forced by their lack of economic freedom in the white market to risk supplying and purchasing in the black market.

This index is very useful in assessing the degree to which markets are free. The list goes Hong Kong, Singapore, Bahrain, New Zealand, Switzerland, USA, Taiwan, Ireland, Luxembourg, UK ...

If a Georgist index of economic liberation were to be constructed I suspect it should include:

1. the average ratio of price to rent of land (that is the market price of land divided by the total cost of its rent (including any taxes or rates on land)

2. The distribution of land in terms of the market value of land held by the most wealthy 5% of individuals divided by NDP.

3. The (Heritage Foundation) index of economic freedom. Methodology: 1. 0-1 = 1 1-6 = 2 6-11 = 3 11-16 = 4 16+ = 5 2. 0-0.25 = 1 0.25-0.5 = 2 0.5-0.75 = 3 0.75-1 = 4 1+ = 5 1. indicates the degree to which rent and rent increments are privately collected. The higher the price-rent ratio the more rent and rent increments are privately collected. The higher the ratio the higher (worse) the score. 2. indicates how much the accumulation of land wealth makes the wealthy the landlords of the rest of the population, that is the degree of division of society into land-lords and tenants. Where land values are inflated and land is accumulated by the wealthy, the value of their holdings could exceed one year's NDP.

If land is more evenly distributed and/or less inflated in price the value of land the wealthest 5% of citizens hold should be much less than one year's NDP. The average of these scores would give the Georgist index of economic liberation. On that basis I suspect that Taiwan would come out on top with the most equal distribution of income in the world and I have heard that their distribution of land was very equal in 1960 and probably is today too. However I don't think they have much in the way of land tax and therefore suspect that land price-rent ratios would not be low. Any introduction of land tax would reduce price-rent ratios and the value of the holdings of the wealthest citizens (relative to NDP).