The Best of Both Worlds

Heather Trexler Remoff, Ph.D.

[A Proposal for a Free-Market Economy That Would Combine
Elements of Socialist and Capitalist Systems]

American newspapers and magazines are filled with articles describing the U.S.S.R.'s rush to embrace a free-market system. I can understand Soviet enthusiasm. The incentives offered by a free-market economy result in the dramatic increases in productivity that are the backbone of a rising standard of living. The overflowing shops and supermarkets of nations characterized by free-market economies dazzle and delight those who have grown used to the scarcity that results when production quotas are determined by central planning rather than by human needs and desires. The wealth of goods and services available to average citizens living in countries where private ownership is the rule seems to refute the basic tenets of a socialist system.

But in the mad rush for Marlboros and VCRs and Levi jeans, the Soviet people must be careful to preserve the goals of economic justice that stood at the heart of the socialist system. It is understandable that people who wait in long lines for bread would be awed by the colorful abundance of tomatoes, plums, apples, avocados, pineapple, asparagus, and grapes, by an array of produce of such variety that one could fill a book just listing what is available in the simplest of grocery stores. Even the pet food aisle is characterized by dozens of brands competing for our attention. It is easy to be dazzled, but it is wise not to be blinded.

Our system is not without flaws. And yours is not without strengths.

Today, the Soviet Union and its people stand at a nearly unimaginable threshold of opportunity. You have all the ingredients necessary for economic triumph. You, more than any region in the world, have the elements necessary to design, an economic system characterized by both social justice and material plenty. The steps that you take over the next few months will determine whether you achieve a system that will be the envy of other countries or one that fails to realize the enormous potential inherent in your abundance of natural resources and the ingenuity and as yet untapped productivity of your people. I see the U.S.S.R. as being on the brink of economic greatness. This is not a view shared by most Americans.

Our newspapers are filled with articles detailing the shortages, the failure to properly allocate existing labor, to coordinate production and distribution. We hear horror stories of a record grain crop that never makes it to market, that never finds its way into loaves of bread. We catalog the corruption, the inefficiency, the deteriorating morale of your people, the political infighting. And we predict chaos. We fear that the move to privatization cannot occur quickly enough to correct for the failures of decades of central planning.

And so we rush in with our advice, well-intended all of it, and our expertise, enviable all of it. We are very very good at responding to the needs of the market. We know how to run businesses efficiently. We know how to produce and deliver the goods and services. We know how to attract, train, motivate, and reward our workers. The McDonalds in Pushkin Square is stunning testimony to what [Canadian] American ingenuity can produce.

Learn from our successes and repeat them. But also learn from our failures and avoid copying those aspects of capitalism that have led to a system characterized by a growing disparity between the rich and the poor.

Have you seen photographs of glitzy, gleaming Bloomingdales, an up-scale department store in New York City? What an abundance of furs and jewelry, designer clothes, perfume, shoes in every shape, color, style, size and composition. There is no end to the material wealth displayed in its mirrored aisles. But Bloomingdales is only minutes away from the awful slums of Harlem. How can such poverty exist in the shadow of such wealth? We are a nation committed to social and economic justice. What has gone wrong?

In a sense, the Soviets and the Americans have made the same mistake. We have confused the distinction between the private ownership of land and the private ownership of material forms of wealth. State ownership of the means of production was designed to ensure equal access to the means of production. However, state ownership of factories and other wealth produced by the application of individual human labor served only to destroy the human incentive to achieve. When humans are unable to experience rewards that are commensurate with their efforts, motivation is destroyed. We see the sad result of this destruction of human incentive in the scarcity and long lines that characterize economic exchange in the Soviet Union. The factories and businesses of the Soviet Union are not the ultimate means of production. Factories and businesses are the results of human labor. They are the expression of human labor. And the state cannot own human labor. That is the worst form of slavery. Human labor can be owned only by the individual doing the work. A person can sell his or her labor to someone else if he so chooses, but it must be his choice. The state cannot own human labor without destroying the inherent productivity of that labor.

What is the means of production that the state must own? It is land and only land. By land, of course, I mean the soil on which we stand and the naturally occurring resources within it. And why must the state own land? Because it is the only way to ensure equal access to this most central ingredient of production. There will be no true free-enterprise until each individual has equal opportunity to produce wealth by applying his own labor to the rich supply of natural resources contained on and within the basic element that is the earth. Land, water, and air - humans must have access to all three if they are to live. We would never allow private ownership of air and water. Why have we allowed it of land?

The founding fathers of the United States were believers in the private ownership of land. Many of the early settlers in America had suffered political, social, and economic injustices that were directly related to the inability to own land in the old country. Having been exploited by landholders, they were determined to protect the right of the individual to own land in the new country. And in a country as vast and undeveloped as America was in those days, the private ownership of land in no way interfered with the individual freedoms so valued in our social and political design. There was plenty of land for all. No person had to work for another for wages that were below subsistence level. The expanding frontier provided opportunity for all.

There is no longer an expanding frontier in the United States. A person working for minimum wage is a person living in poverty. In 1990 a person who is dissatisfied with life in the slums of Harlem does not have the option of going west. Oh, the land is still there. Anyone flying over the United States in an airplane can see the vast expanse of open space. But it is all owned by someone else. And those who don't own the land are forced to work for those who do. The rich will get richer and the poor will get poorer. We may be a country characterized by great wealth, but we are not a country characterized by equality of economic access. We are not a country characterized by economic justice.

The Soviet Union has a unique opportunity. Because the land is already state owned, it does not have to undo the damage created by the private ownership of land. The way to guarantee equality of economic access is to ensure that the state retain ownership of the land and the naturally occurring resources it represents.

Every other aspect of production should be privately owned. How would this work? The state would rent the land to those who wished to use it in productive effort. The factories, the airports, the buildings, the homes, that stood upon the land would be privately owned. The rental value of the land would be determined by a market system. Land in desirable sites would naturally command a higher rent than land less strategically located. This land rent would be similar to the property taxes levied on land in countries characterized by the private ownership of land. In the United States, if the property tax on an individual's home becomes prohibitively high, the homeowner is free to sell his home to someone more willing or able to pay the high tax. The original homeowner can then purchase a new dwelling in a location where the taxes are lower. However, in the United States we foolishly blur the distinction between taxes on the land and taxes on the buildings constructed on that land.

The ideal system is one in which only the land is taxed. As American economist Henry George pointed out over a hundred years ago, economic justice could be achieved in the United States by taxing land equal to its value in rent and removing all other taxes. Although this is theoretically possible, it would be extremely difficult to implement in the United States. So much money and power is concentrated in the hands of holders of large tracts of land that they are able to effectively block any challenge to their system of privilege.

In the Soviet Union, all the revenue necessary to run the government could be raised by the rental of Soviet land. Learn from our mistakes. Labor should not be taxed. Profits should not be taxed. Sales should not be taxed. Income should not be taxed. The endless debates over taxes are symptomatic of the economic injustices perpetrated by all of these taxes on human enterprise. A person ought to be free to keep the wealth generated by his own labor. It is only when such wealth can be used to purchase land and thereby deny others access to its resources that wealth becomes exploitive. When all the members of a society have equal access to the land, only then can we truly have a system of free enterprise.

The U.S.S.R. stands on the threshold of greatness. The Soviet Union has the opportunity to design a free-market system that captures the best elements of both socialism and capitalism. By retaining state control of the land, you can guarantee access to that land by all who want to use it productively. It is possible to have a free-market system that is not plagued by the growing discrepancy between rich and poor that characterizes the private-land ownership-capitalism of the United States.

A recent article in the Wall Street Journal described the reforms outlined in the so-called Shatalin proposals. According to the newspaper, this 500-day plan advocates strict fiscal and monetary discipline and the introduction of private ownership of property and the decentralization of virtually all government functions. I heartily support a free-market approach. I favor decentralization. But I hope your economic planners rethink the reported plan to cut the budget deficit through public sales of land and housing. The sale of housing is an important step, but if the U.S.S.R. wants to avoid the disparity between rich and poor that seems to come with free-market economies as we know them, it will retain control of the land and raise revenue not by selling state land, but by renting it.

Such a step should not be undertaken without study and thought. I've enclosed a list of people who are experts in the area of assessing rental ratios for scores of land-use classifications in various types of cities. All of these people are firm advocates of the free-market system, and all believe that the private ownership of land undermines the equitable distribution of wealth created by private enterprise. Any one of these people would be honored to offer technical assistance and advice on how to make the move to a free-market system and still preserve the uniquely socialistic strength that land rental rather than land sale would bring to such a system.