In the year 1879 the economist Henry George published his masterpiece Progress And Poverty. It proved to be a best-seller and the sales of this book in the United States, during the 1890’s, exceeded that of every book other than the bible.
Henry George’s key insight was fundamental: without a right of access to natural resources, people cannot live without working for others, and if the landless have no alternative, other than to sell their labour, then their negotiating position will be so weak and so desperate that the only wages which those who lack exceptional and scarce talents will be able to bargain for are those which afford them with only the barest subsistence. Henry George most articulately expressed this conjecture, of the effect that access to the value of land has on the bargaining power of labour, in the form of an economic principle that he termed, The Law of Wages:
“…what, in the condition of freedom, will be the terms at which one man can hire others to work for him? Evidently, they will be fixed by what the men could make if labouring for themselves [on free land]. The principle which will prevent him from having to give anything above this, except what is necessary to induce the change, will also prevent them from taking anything less. Did they demand more, the competition from others would prevent them from getting employment. Did he offer less, none would accept the terms, as they could obtain greater results by working for themselves.”
Progress And Poverty, Henry George, Wages And The Law of Wages, p212-213
Indeed Henry George predicted that the effect of the increased productivity by an increasingly specialised, rising population along with improvements in technology, while producing more wealth overall, would actually weaken the negotiating position of labourers through allowing the productive use of ever more barren land, thereby increasing its value and pushing labourers back to increasingly barren, marginal terrains. That is to say, in the absence of land rent redistribution.
His remedy was simple and elegant, at least in principle: collect the full proceeds of land rent and redistribute them evenly throughout the population. This would be equivalent to giving everyone equal access to the value of nature, to which all are equally entitled; this would enable anyone to productively apply their efforts to afford themselves a decent living without selling their labour and, by doing this, would radically improve the bargaining position of labourers and, hence, increase wages.
Progressive Politics And What Actually Happened To Wages
Fortunately, since the days of Henry George, some land rent, has been redistributed. This has been done through the use of many taxes that discourage productivity. Nevertheless, while far inferior to a Georgist system where the full value of land rents get redistributed evenly amongst all of society, progressive politicians have managed to redistribute some land rent. Landlords must pay income tax; large land owners must pay inheritance tax on their estates; corporations must pay business rates; homeowners must pay council tax and other property taxes (in many countries outside the U.K.); the sale of property incurs a stamp duty; corporations (some of their profits arising from imputed rents) must pay corporation tax; when wealthy individuals spend the proceeds of their rent on luxuries, they must pay VAT; minimum wage laws have some effect in protecting the wages of certain labourers in secure, full time, employment (although the protection they offer workers seems to constantly erode with time) and; finally, social housing has the effect of redistributing some imputed market rent to its poor occupants. All these revenues, within which rent forms a component, in turn are used to fund welfare benefits to the jobless, state pensions for the elderly, disability benefits to the infirm, child benefits (both universal and means-tested) for mothers, a health service that treats the sick for free, housing benefits for the poor, and free primary and secondary level education for the young.
This hodge-podge of taxes and benefits is a far cry from the elegant system that Henry George initially envisaged. Furthermore, because our state education system principally trains people with the skills they need to sell their labour to others rather than teaching people the skills necessary for self-provision, it promotes a dependence on employment and does not optimally maximize the bargaining power of labour and, hence, maximize wages; but, despite these many shortcomings, the net result of the implementation, by progressive politicians, of a system which successfully redistributes some rent has been to markedly improve the living conditions of workers in the 20th century when compare to those in the 19th.
Progressivism Is Unwinding
However, over the past few decades, the capitalists have responded with a host of counter-strategies that successfully undermine the hodge-podge of redistributive measures that were pioneered by progressive politicians in the mid-20th century to, once more, accumulate vast hordes of wealth for themselves. One could argue that capitalism has steadily become increasingly immune to progressivism. The two most powerful weapons wielded by capitalism are: globalization and automation.
Globalization ensures that if a country starts taxing the profits of capitalists who run a given industry too much, they can relocate their operation to a country that taxes them less. While the national government in question, could in principle, buy the plant and machinery and rehire the workforce, this presents two difficulties:
- Modern International Law consists of a vast number of international treaties that, together, create a global market in patents, copyright, etc., and turn them into globally tradeable assets. Since the company could rapidly offshore its IP, any national government that was a signatories to any of these international IP treaties, who tried to take over a company’s abandoned operation, would not be able to legally replicate all the production processes of the company without infringing their IP
- The competitive nature of the market means that being slightly worse at supplying the same service is enough to drive a business bankrupt. Any government that tried to replicate the business of a corporation, that left because they were taxed too much, will probably not be as good as the corporation at generating profits. Because of this, the corporation that located its operations offshore would undercut the government-run-enterprise, and the government-run-enterprise would not be able to export their products to other countries, as other countries would likely buy the cheaper, higher quality products manufactured by the corporation from its relocated base of operations
A great deal of capital is now composed of intangible assets (patents, copyright, brand value, etc.,), which a framework of international treaties facilitates the rapid transference across the borders of different countries with different tax laws. Because this intangible capital can be moved across borders so quickly, today’s national governments are increasingly reluctant to tax capital too much for fear of losing it.
Instead, national governments rely on income tax and sales tax to fund public spending and then use minimum wage laws to try and hold up wages.
Automation, in turn, is the ultimate weapon against minimum wage laws. If you don’t like how much the government is ordering you to pay your workers: buy robots instead. In addition to automation, corporations also make use of unpaid internships, outsourcing to countries with lower wages, temporary job contracts, where those contracted to do work when needed spend many unpaid hours of their life “on standby” waiting to work at a moment’s notice the instant a business decides their labour is needed. A further tactic is to put workers on a never-ending treadmill of “up-skilling” but insist that workers personally cover the costs of their retraining – even if they have to take out debt – including unpaid time spent in training as opposed to paid work.
Because of all these various counter-measures that businesses can (and do) take to avoid them, the hodge-podge of progressive redistribution measures to improve the lot of workers is steadily unwinding and we are slowly slipping back towards 19th century levels of social inequality.
Indeed, conditions for landless tenants could, in the future, deteriorate beneath even 19th century levels.
One of the most chilling sections in Progress And Poverty is the section where Henry George speculates that, in the absence of redistributed land rents, the full automation of work may result in the literal extinction of the workforce:
“…All
I wish to make clear is that… the progress of invention constantly tends to
give a larger proportion of the produce to the owners of land, and a smaller
and smaller proportion to labour and capital.
And, as we can assign no limits to the progress
of invention, neither can we assign any limits to the increase of rent, short
of the whole produce. For, if labour-saving inventions went on until perfection
was attained, and the necessity of labour in the production of wealth was
entirely done away with, then everything that the earth could yield could be
obtained without labour, and the margin of cultivation would be extended to
zero. Wages would be nothing, and interest would be nothing, while rent would
take everything. For the owners of the land, being enabled without labour to
obtain all the wealth that could be procured from nature, there would be no use
for either labour or capital, and no possible way in which either could compel
any share of the wealth produced. And no matter how small population might be,
if anybody but the land owners continued to exist, it would be at the whim or
by the mercy of the land owners – they would be maintained either for the
amusement of the land owners, or, as paupers, by their bounty.”
Progress And Poverty, Henry George, The Effect of Improvements in The Arts Upon The Distribution of Wealth, p250-251
One of the most astoundingly prescient predictions which Henry George made here, back in 1879, is that, as the economy approaches a state of full automation: interest rates will fall to zero. Reading his words today, can anyone in the 21st century now deny, the increasing automation of society has also been accompanied by a precipitous fall in interest rates?
Georgism: The Perfect Solution For A Globalized World
On of the most interesting features of the Land Value Tax, as proposed by Henry George, is that, unlike corporation tax, inheritance tax, or other kinds of capital gains tax, Land Value Tax is both immune to capital flight (you can’t move land) nor does it discourage businesses from setting up shop in an area, since, although they have to pay LVT to the government every year, LVT also reduces the initial cost – and the corresponding capital that must be raised – to procure the land in the first place. Indeed, by reducing the cost of land acquisition, LVT might enable businesses to stay nibble, concentrate on their core business, and avoid sinking costs into expensive assets that are unrelated to their core business. Yet, despite the fact that LVT is good for business, it also provides a source of public revenue to fund social welfare and public services.
LVT is the ideal tax for a globalized economy!
Challenge of Implementation
However, with the exception of a few small nations, such as Hong Kong and Singapore and arguably some oil producing nations along with the state of Alaska, few governments get significant public revenues from land and natural resources and even fewer distribute those revenues equitably among their citizens. Those who have campaigned to implement Henry George’s vision of a future of free trade and plentiful public spending and welfare, funded by land revenues, have generally met with little success – at least in Western democracies.
Perhaps one reason for this is loss aversion. We tend to be more averse to losing what we have than to getting less in the future. Most people on PAYE have their income tax deducted before they get paid, and even in countries where most people file tax returns, taxation is usually structured so the government initially overcharges tax on people’s weekly income so that most people get a tax refund from the government after submitting their tax return. Because we never get the money which the government deducts from out income in tax, we don’t feel it was ever ours, however, any system of Land Value Tax necessarily involves paying money from your savings account to the government, even worse, a Land Value Tax that was set sufficiently high to collect the lion’s share of site rent would suddenly reduce the assets of homeowners.
If you discuss the idea of land value tax with someone who owns their own home, they hate it. If you discuss the idea of land value tax with someone who doesn’t own their own home, but likely aspires to in the future, you will often be met with skepticism.
The fact that many people vehemently oppose it, few people strongly support it, and a sudden tax on land values would cause huge problems to most banks by massively devaluing many of assets which they have secured loans on their balance sheet against have all contributed to making campaigns to introduce land value tax, notoriously difficult to win.
Socibuild: A Pragmatic Approach To Georgism
Socibuild intends to be the real estate company dedicated to realising the ultimate vision of Henry George; a vision of a world without poverty, where the proceeds of land rents are shared equally among all people, everywhere.
The core principle, which Henry George devoted his life to promote, was the equitable redistribution of land rent between all the people of the world. Although his suggested remedy was a land value tax, levied by the government, the particular entity which redistributes the proceeds of land rent doesn’t really matter. So long as some entity or other does it, the end result for society will be the same.
It’s also worth mentioning that there is ambiguity as to the geographic extent over which rents should be redistributed. Should LVT be collected and redistributed municipally? Nationally? Globally?
In this respect, a private property owner, in a non-Georgist nation with absolute ownership rights, who chooses to redistribute the proceeds of rents, paid by tenants staying on his land, back out as a per capita payment to those tenants would produce a resulting society on his property that would be equivalent to if his private property was a country that collected Land Value Tax and redistributed it back out for the benefit of the community.
Socibuild intends to be that property owner.
Henry George predicted that levying and collecting Land Value Tax would give rise to unrivalled prosperity, would vastly reduce crime, through reducing want, and would create a harmonious civil society practically devoid of the suffering and social problems we now take for granted.
Would such a society, living in an area where land rents are redistributed, not be a desirable place to live?
If you had two choices, to pay £1,500 a month in rent to live in a society devoid of poverty and crime, where people lived harmonious lives and where commerce and culture thrived, and where you got some of that rent back in the form of a community income…
…or pay £800 a month to live in a society, filled with poverty, crime, junkies, alcoholics and homeless, where commerce limped along, where people were demoralized and unfriendly…
…then, assuming you could afford to pay £1,500 a month, would you choose to live in the first society, or would you choose to save £700 a month and live in the second instead?
If your answer is that, if you could afford it, you’d choose to pay more rent to live in the first society, as opposed to the second, then this would suggest that, if Henry George’s suppositions are truly correct, then by redistributing the proceeds of land rents back among their tenants which rent houses in their communities, landlords could cause rents on their property – along with corresponding land values – to skyrocket!!!
This implies that the redistribution of rent (or most rent) may, in fact, be a profitable business plan (under certain circumstances at least).
And, in the future, through both collecting and redistributing rent in Socibuild house-tokens, which the company may issue in unlimited quantities, it should be possible to redistribute the full proceeds of land rent collected.
Furthermore, it may, in fact, be preferable for a private real estate company to redistribute the proceeds of land rent compared to the government.
It is important for students of Henry George’s work to keep in mind the critical role that self-provision and the Law of Wages play in the arguments that are developed in Progress And Poverty. Without a significant portion of the population engaged in self-provision related activities, it is not clear that land value tax would have the dramatic effect of banishing poverty from society, which Henry George believed it would.
As I have stated in an article exploring the impacts of Socibuild on society, to banish poverty, destitution and unemployment, the following three policies must coincide:
- Community Income (by redistributing land rents)
- Self-Provision loans available at a low interest rate (3% or so)
- Self-Provision training
Without self-provision, the logic in Henry George’s thesis doesn’t add up. Some Georgists seem to see self-provision as a kind of “thought experiment” to prove that land value tax will have a beneficial effect on society. We at Socibuild take the view that, in order to truly realise Henry George’s vision for a world devoid of poverty, a real and sizeable portion of the population must occupy themselves with self-provision activities as a means of buffering the workforce.
This would imply that merely implementing Land value tax while neglecting self-provision loans and self-provision training would have disappointing, underwhelming results. Perhaps there might be slight benefits, but it seems likely that, without combining land rent re-distribution with self-provision loans and self-provision training, poverty would continue to exist, even in a nation that collected the full value of land rents as government revenue.
Land rents account for about 10-15% of GDP, that’s a similar fraction of the average wage. For that 10-15% of GDP to produce transformative results, the capital which the proceeds of land rents are used to purchase needs to be amplified by labour. This requires two things:
- The ability to use the income proceeding from redistributed rents to front-load capital
- Self-provision training on how to optimally deploy this capital, along with your labour, in order to maximize your quality of life
So we can see that land value tax will only truly produce revolutionary results if it is part of a wider policy framework. Lobbying to implement a single policy on a national level is hard. Lobbying to implement a coherent policy framework (including completely changing school curriculums) is practically impossible. When you combine this with the fact that, the instant land value tax is implemented on a national level, there will be a lot of very angry land-owners that will leap at the chance to criticise it and accuse LVT advocates of lying to people and presenting them with a rosy vision of false promises that haven’t materialised, you can see how, if the initial results of LVT are underwhelming, the parties which advocate it are likely to lose the next election to political parties who pledge in their manifesto to reverse the policy of LVT.
As a private company, however, Socibuild can implement the full policy suit of:
- Land rent redistribution
- Self-Provision loans
and
- Self-provision training
At a small scale where it can be refined and optimized and, once perfected, can rapidly be scaled up.
Furthermore, while national political parties can achieve change in one country, multi-national companies can achieve change across the whole world.
By operating across many countries, Socibuild will be able to effectively collect a global land value tax, redistribute it out as a global universal basic income and, in the process, put an end to global poverty.