|Wealth and Want
|... because democracy alone is not enough to produce widely shared prosperity.
Sharing Natural Rents to Sustain Human Society
by Jeffery J. Smith, Portland, OR
(The following speech was presented at the annual conference of the US chapter of the Society of Ecological Economists, in Duluth, MN in July, 2001.)
To get rich, or more likely to stay rich, some of us can develop land, especially sprawling shopping centers, and extract resources, especially oil. While sprawl and oil depletion are not necessary, they are more profitable than a car-free functionally integrated city. Under the current rules of doing business, waste returns more than efficiency. We let a few privatize rent -- ground rent and resource rent -- although rent is a social surplus. As if rent were not profit enough, winners of rent have also won further state favors -- tax breaks, liability limits, subsidies, and a host of others designed to impel growth (20 major ones follow herein).
If we are to sustain our selves, our civilization, and our eco-system, we must make some hard choices about property. What we decide to do with rent, whether we let it reward our exploiting or our attaining eco-librium, matters. Imagine society waking up to the public nature of rent. Then it would collect and share its surplus that manifests as the market value of sites, resources, the spectrum, and government-granted privileges. Then we could forego taxing labor and capital. On such a level playing field, this freed market would favor efficiency -- the compact city -- not waste -- the mall and automobile.
Proposals to share rent have surfaced before - in antiquity by Moses in the West and Mencius in the East. In the modern era, the idea appears in a century cycle:
(An earlier version of this section appeared in Rhizome, newsletter of the Environmental Studies Association of Canada, 2001 winter issue)
Drawing their cue from the public, governments tolerate "rentention", the private retention of publicly-generated land values. Lacking this Rent, states turn to taxes. But to grow the economy, all governments -- left, right, or undecided -- hustle to stimulate development; they cut taxes and slop subsidies. Going beyond the call of duty, the state excuses producers' their routine pollution and limit liability, thereby cutting the cost of insurance. Companies that don't impose on nature, worker, or customer are not benefited at all but lose a competitive advantage. On this tilted playing field, one with the lumps of subsidies and the tilts of taxes, technologies lean and clean have a hard time competing as suppliers of materials, homes, food, rides, and energy.
Henry David Thoreau said the best thing government can do for business is get out of it. Nevertheless, some hope to shift subsidies from grey bads to green goods. Yet the state need not subsidize at all. It's dauntingly difficult to know whom to fund; a solar steam generator may be the most promising idea one day while photovoltaics are the next. Efficient alternatives don't need largesse but fairness. A handout shields new industry from the forces that compel efficient growth. The best thing government can do for the environment is exit environmental enterprise.
Now wipe out the taxes, subsidies, liability limits, and rent retention. Instead, replace all that with running government like a business. Charge full-market value for state acknowledgements (the seven secret subsidies):
Collecting rent for government-granted privileges would not only raise trillions but also whittle corporations down to a competitive size, less hazardous to democracy.
Besides charging what privileges are worth, government should also replace license with responsibility ("internalize the externalities"). To temper the temptation to use lands both fragile and valuable, society could impose surcharges - an Ecology Security Deposit, Restoration Insurance, Emission Permits, and fines when users exceed standards. To minimize all these charges, producers would seek sustainable alternatives. Getting and sharing rent from land titles is the centerpiece of this geonomic revenue reform. Each phase of such a revenue shift motivates sustainable choices in its own way.
1. Get the rent. Having to pay over rent to community makes speculation not worth the bother. So owners use their land and resources more efficiently. Using some land more intensely means using other land not at all. Plus, intense use augments the housing stock, lowering the housing cost. Pittsburgh, while taxing land six times more than buildings, enjoyed the most affordable housing of any major US city. More residents are owner occupants who choose to improve their homes, plugging heat leaks, etc.
The conserver ethic would have a context in which to grow, since community is the crucible for morality. Stable neighborhoods put Pittsburgh's crime rate on par with a small town, by far the lowest in the US. Where residents become owner occupants, they participate more in community, even adopt environmental values. Pittsburgh converted its most valuable location, where the three rivers meet, into a public park. Not bad for a working class town twice named America's Most Livable.
Noticing rent, realizing its social nature, accepting that it's to be shared, and understanding that wages and interest should not be expropriated, for most people that's a new way of thinking. Thinking such thoughts leads to a new way of conceiving economics, too. Ecological economics becomes not just a branch of economics but a whole new discipline, needing a new name. In geonomics we maintain the distinction between items bearing exchange value that come into being by human effort — wealth — and those that don't — land. Keeping this distinction in the forefront makes it obvious and non-controversial that speculating in land drives sprawl, that hoarding land retards Third World development, that borrowing to buy land plus buildings engorges banks, that so-called "interest" is quasi-rent, that the cost of land inflates faster than the price of produced goods and services, that over half of corporate profit, says the Urban Land Institute, is from real estate.
Summing up these analyses, geonomists offer a Grand Unifying Theory, that the flow of rent pulls all other indicators in its wake. Geonomics differs from economics as chemistry from alchemy, as astronomy from astrology. The acid test of any science is prediction, a test that economics fails and geonomics passes. Plugging in the land price cycle of 17+ years lets geonomists crank out predictions more accurate than those generated by "the experts" who missed, for example, the collapse of mighty Japan. When the land of the Rising Sun was on the market for four times the assessed value of all America, that's when a few geonomists, like voices in the wilderness, countered conventional wisdom by proclaiming that the Japanese boom would bust. According to these geonomic prognosticators, don't expect America's next downturn for at least another five years, despite the tech wreck or any other stock market fluctuations.
For real science, what works in theory must work in practice. Wherever tried, to the degree tried, applying geonomics has worked. Shifting taxes landward has broken up rural land concentration, prompted efficient use of urban land, spurred development, supplied affordable housing, raised employment, lowered inflation, and augmented income. Check out the record in California, Australia, New Zealand, Taiwan, Denmark, Johannesburg, Hong Kong, and elsewhere (see our "Where Tax Reform Has Worked").
Geonomics draws its power to predict and fix what ails economies by being grounded in reality. It holds to the notion that economies are not apart from but part of the embracing eco-system. As part of whole, economies self-regulate by the same natural feedback loops. The prey/predator cycle is mimicked by the pricing cycle, also known as the Law of Supply and Demand. This familiar pattern is found, too, in the Share Rent Cycle.
(1) Getting more rent, people work less, so output drops.
Thus, production is put into balance with consumption and work with play. Geonomics yields a policy that's not at war with but aligned with nature as model. Perhaps the most central feature of economics is price. Price is to production what DNA is to reproduction, the guides to growth. Rather than distort price with taxes and subsidies, with license (so-called "externalities") and rent-retention, geonomics respects the integrity of price, allowing it to accurately reflect our costs and values, by sharing rent. Then economies ("geonomies") can operate without the deadweight losses of taxation and rent seeking.
While constituting a shift of the paradigm, geonomics is winnable. It appeals to a broad constituency by being not left nor right but green, neutral, and effective. Not only is shifting the flow of public revenue winnable, it is doable at any level. In the locality, for example, reformers can shift the property tax from buildings to locations, as urges Sierra Club, Brookings, and a host of others (see our "Green on George: 122 Notable Environmentalists on Taxing Only Land"). With the collected rent, the locality could pay Housing Vouchers to residents. And not only is some variant of geonomics winnable at every level of government, it's being won now. The most recent victories are Allentown, Pennsylvania, and Mexicali, Mexico.
To sustain that which we love, we must transform our relationships to nature, to government, and to each other. We need to become geonomists in worldview, theory, discipline, and policy. Geonomics creates an economy that's not at war with but aligned with the natural world.
(Jeffery J. Smith is President of The Geonomy Society. He may be emailed at email@example.com.)
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Wealth and Want
... because democracy alone hasn't yet led to a society in which all can prosper