Collapsing Economies
and National Resource Rents
Bryan Kavanagh
[Reprinted from Progress, September-October
2005. The charts included in the original have been inadvertently
misplaced and are missing from this version of the paper.]
WILLIAM PETTY
After his bloody victory in Ireland (1649-1652), one of the first
things Oliver Cromwell did was to establish the annual worth of the
lands of Ireland. William (later Sir William) Petty won the tender to
value the newly-conquered land by using cheap labour in the form of
some of Cromwell's by then unemployed soldiers. He trained them in
valuation techniques, including how to chain-survey the whole of
Ireland, and oversaw the professional completion of the valuation
contract within thirteen months.
Petty was a larger than life character who some hold to be the father
of modern economics and its first econometrician. At one point he is
said to have commented on the extent of the Irish holding which Sir
Hierome Sankey. one of Cromwell's more formidable knights, had chosen
for himself following the invasion of Ireland. Insulted, the brawny
knight challenged the notoriously near-sighted Petty to a duel,
offering Petty the choice of weapons and location. When the purblind
Petty chose broad axes in a darkened cellar. Sir Hierome retreated
gracefully after finding reason to reconsider the seriousness of
Petty's offence.
Both Cromwell and Petty saw the need to know the annual value of
Ireland's natural resources, but the modern neoclassical economist is
all but clueless on the quantum of resource rent within the economy,
or for that matter to where it disappears. He is even heard to say
that as we no longer exist predominantly in rural communities,
land-based revenue systems are no longer appropriate; this, despite
the fact that the greater part of land rent is now located within our
large cities.
Whereas it was accepted in Petty's day that the annual rent of land
was a surplus that came about by the mere existence of community, and
its collection and use was the cheapest and most equitable source of
revenue, we are now educated to forget that as the annual value of our
natural resources are privately expropriated it becomes necessary to
levy myriad taxes on all sorts of productive activities. In 2002, only
$19.2 billion of Australia's $180 billion of publicly-created natural
resource rents was captured for public purposes. The $160.8 billion
foregone in resource revenues was gratefully received by Australia's
property owners, but the chart below indicates that this bonanza came
at enormous cost to the country. The graph provides evidence that the
growing quantum of Australia's resource rents and taxes has been at
the expense of the net incomes of labour and capital, especially since
1972 where, as a proportion of GDP, taxes have increased by 28%, the
nation's rent has escalated 125% and net incomes have declined by 35%.
Accordingly, it is possible to argue that the real battle is not
between capitalist and worker, but between most Australians and the
relatively few rent-seekers who capture the greater part of our
national resource rents.
Distribution of Gross Domestic Product: Australia
Kondratieff Long Wave Cycles
NIKOLAI KONDRATIEFF
The Russian economist Nikolai Kondratieff did not have any
explanation for the cause of the 50 to 60 year long wave cycles he
discovered in his studies of 140 years of the economies of the US,
UK, France and Germany. However, cycles of boom and bust seem to be
inextricably linked to the failure of economies to capture the
national rent for their coffers, and to the consequent escalation in
land prices and taxes levied on productive work. Where most modern
economic analysts don't like to acknowledge the existence of the
Kondratieff wave because it is suggestive of their impotence during
its deflationary downslope, the following three graphs of raw GDP
growth clearly show the inflationary, then deflationary, courses of
the fourth Kondratieff wave within the economies of Australia, the
USA and the UK. It is grim to remark that the end of each of the
three preceding longwaves was defined by economic depression.
Gross Domestic Product Growth at Current Prices: Australia
Gross Domestic Product Growth at Current Prices: USA
Gross Domestic Product Growth at Current Prices: UK
REAL ESTATE BUBBLES
The final chart displays the relationship of Australia's total real
estate sales to GDP. At the bursting of each property bubble (i.e.
those parts of the graph exceeding the empirical 19% 'bubble line')
the economy has declined into recession as the graph cut back below
the 19% mark. The period shown represents the second half of the
fourth Kondratieff wave, and it is apparent that as property sales to
GDP increased, GDP growth has tended to decline. So. whereas low tax
rates and deflated land prices had assisted post-war GDP recovery
until the outset of the 1970s, increments in taxation, inflation and
interest rates since that time have had the effect of taking
Australians' eyes off the ball. We began to follow the dictates of the
tax regime to play another game altogether, namely, that of real
estate speculation. We have now inflated the current residential
bubble to voluminous proportions and economic growth is primed to tank
into a major deflation.
Total Real Estate Sale Prices/GDP: Australia
AUSTRALIA'S FUTURE
In the week ended 3 June 2005. the Treasurer Mr Costello warned that
the Reserve Bank of Australia should not increase interest rates.
Early the following week, the RBA seemed to have listened. However,
Costello's advice may have been redundant in the current deflationary
environment, because the next adjustment of Australian interest rates
would more properly be downward. If we wish to arrest the decline into
financial collapse, it may be time for analysts and policy makers to
consider to what extent Petty's national rent offers potential to
slash the taxation of productive activity. Replacing taxes with
resource rents could also help to keep the lid on skyrocketing land
prices which have played such a destructive role in the Australian
economy during the second half of the fourth Kondratieff wave.
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