Lands and Resources
Mason Gaffney: Oil and
Gas Leasing: a Study in Pseudo-Socialism
Another form of Managerial
Socialism is direct administration of public lands. Our National
Forests are an example. The track record is not good. The Forest
Service manages a national asset worth over $100 billions, from which
it generates no positive cash flow. Latent surpluses die a-borning. At
one time this was from an excess of ideological commitment to slow
cutting cycles and "community stability," as exemplified by Congressman
James Weaver's dedication to Roseburg, OR. More recently it is from
internalizing profits and plowing them into roading submarginal forests
for premature cutting. Either way it soaks in revenues from other
sources, yielding nothing back. Even if one likes the model, it could
not be universalized.
More commonly, public landlords lease lands to private firms,
limiting their managerial input to dirigisme expressed in regulations
and guidelines. The Bureau of Land Management (BLM) thus administers
its vast empire as mainly a passive landlord. Its main task is just
collecting rents. To the extent The Bureau does a good job, or Congress
lets it do a good job, this evinces more of Distributive than
Managerial Socialism. To the extent it does a bad job it is
"Pseudo-Socialism," to be discussed presently. ...
Distributive Socialism also
means administering public lands
pro-actively, affirmatively, to maximize revenue, in the manner of
private landlords. Not to do so is to let private lessees keep and
privatize the surpluses generated by resources in the public domain.
The NDP in B.C. earned its Socialist stripes by raising rents on
Crown lands owned by the Province ("The Crown Provincial," in
Canadian terms). The Minister of Lands did this directly by
renegotiating timber and other leases, on a site-specific basis.
Pseudo-Socialism is what happens when resources in the
public domain are leased below a market rental, giving away part of
the public interest. That has the effect of installing
lessee as though he were the owner. The BLM, leasing grazing
privileges on Federal lands in the west, has fallen into this pattern
conspicuously and notoriously, subject to pressure from western
Senators who have the power of many votes in the U.S. Senate relative
to their state populations. The dollar values are small, but the
object lesson is visible, depressing, and cautionary.
- Some other bad examples are school
section lands in the middle
states. These originated as Federal land grants intended to support
local schools. Some of them are corruptly let to insiders in
"sweetheart deals" for token rents.
- Another bad example is the County
of Los Angeles, which owns lands in the Marina del Rey district. One
parcel lay idle for 25 years in the control of a politically
well-connected developer who finally went bankrupt and walked away
from it, leaving unpaid even the token rent charged.
- A third bad
example is ironic: Fairhope, AL, founded and chartered specifically
as a "single-tax colony," to exemplify the principles of Henry
George. The Fairhope Corporation owns the land and collects the
ground rent for public purposes. However, when a new generation arose
"that knew not Joseph" it proved politically impossible to keep
colony ground rents up to market.
III. ADMINISTERING PUBLIC
LANDS FOR JUSTICE AND EFFICIENCY
Here are four corners of an effective policy for socializing rent
from public lands: participate in revenues; control time of lease
sales for the seller's best advantage; participate in exploration;
and participate in marketing.
A. Participating in
1. Defer payments ...
2. Vary payments according to what is on the site, as that is
disclosed by exploration and production. ...
Give credits for lessee inputs, writing these off against
later royalties. ...
4. Leave a bid variable to soak up
any advantage of the
leasehold site that the lessor has overlooked in setting the
parameter charges, but sharp or sanguine bidders detect. ...
B. Timing lease
Public landlords today generally know less about their own
property than do private firms. The firms have leave to range all
over unleased lands, taking seismic soundings, studying satellite
images, developing sophisticated, top-secret computerized models of
the geology, even doing a bit of exploratory, pre-leasing drilling.
When potential lessees know more than the public's agents, the
latter's bargaining power is deeply eroded.
The public may protect itself in
several ways. One is to do some
drilling of its own -- it may hire the same contractors used by
industry. Another is by checkerboarding followed by "drainage sales":
sales of parcels abutting proved producing leaseholds. A third is by
registering all well logs.
D. Participating in
Royalties received by lessors are a percentage of wellhead price,
but who sets the price? Transfer pricing scams are all too common in
an industry whose dominant firms are vertically integrated. The
public landlord may well want to take its share of production in
kind, using its own marketing agency, to avoid being exploited. The
mere threat of such a yardstick would have a profound effect on
Is there any chance that
Distributive Socialism will make headway
on the OCS, and other Federal lands? There is always a chance. The
lands, after all, are public, as a matter of history. However
conservative the administration, none would take pride in giving away
its assets. A business oriented administration need not call it any
kind of "Socialism." It prides itself on businesslike management of
public assets. It is our little secret that businesslike management
in this case is the essence of Distributive Socialism.
What about James Watt? He was the
most unpopular figure in
Reagan's Cabinet, just as Douglas McKay was in Eisenhower's, and
Albert Fall was in Harding's. The public does not find giveaways and
sweetheart deals attractive. On the other hand the public does not
always recognize giveaways when there is some subtlety involved. The
appearance of open bidding, and substantial bonus payments for
leaseholds, may be enough to appease the public, the moreso when the
appearance of true competition is reinforced by the endorsement of
many respected economists.
What must be inculcated in
everyone's thinking is the essential
difference between competition with front money, and competition
where payments are deferred.
- The first is limited competition, with
places reserved for an affluent few.
The second is evenhanded,
democratic competition on a more level playing field, where
preferential access to credit confers no differential advantage.
This is the condition under which Distributive Socialism can coexist
with, and reinforce, a free market economy. It is achieved on fee
simple lands by subjecting them to heavy land taxes, whereby
newcomers can buy in at low prices in return for paying more over
time. It is achieved on public lands by writing leases with high
lessor participation over time, and low bonuses required up front. Read
the entire article
Jeff Smith: What the Left Must
Do: Share the Surplus
The value of a parcel of land is
initially based on the natural
endowments of the location (“location, location, location”),
created not by an owner but by
whatever created all of us. Next, land
value rises with the presence of society, and grows with the population
of society. It’s highest where society is densest, in the city centers,
typically 2000 times more valuable
than sites in the boondocks. Land values as economic values
disappear whenever society quits respecting one’s claim, as in a war
zone; there, real estate offices nimbly shut down. And while land
titles may be the holy grail of wannabe homeowners, they’re also the
ticket to pocket unearned rent by absentee landlords, such as Donald
Making land public does not
that the public end up with the rent. The public’s steward, the state,
often lets public resources at “fire-sale” prices, unduly enriching
Chevron, Arco, Kerr-McGee, Weyerhauser, etc. The state gifts enormously
valuable licenses for TV, radio, and cell phones to GE, Disney, Time
Warner, and Clear Channel. The metaphor, “field of knowledge”,
lets us see patents and copyrights as flags; by excluding innovative
outsiders, they not only skew techno-progress (thus addicting
civilization to oil) but also enrich those few who can afford to corral
them: GM, DuPont, and Microsoft. Similarly, a utility franchise lets
AT&T pay investors, and Enron insiders, handsomely. ...
Trillions are enough money that the present beneficiaries spend
fortunes on electing their water boys
to Congress and state legislatures. Why
do public servants agree to let
public assets go for peanuts? Partly out of habit, partly
recipients contribute mightily to their political campaigns, but
also. Read the whole article
Mason Gaffney: Land as a
Distinctive Factor of Production
Much land remains untenured
Access to land is open by nature until and unless land is appropriated,
defended, bounded and policed. No one claims land by right of
production; no producer must be rewarded to evoke and maintain the
supply; and submarginal land is not worth policing, unless to preempt
it for its possible future values, or to preclude anticipated
competition for markets or labor. Centuries of human customs have
developed around regulating common use of lands with open access.
Tenure control of some land tends to drive the excluded population to
untenured land (the "commons"), creating an allocational bias unless
all land is either tenured or common. Thomas N. Carver styled
this the phenomenon of "The Congested Frontier", and he might have
added backwoods. Land which is partly common today includes parks
and public beaches, streets and highways, water surfaces, wild fish and
game, and some at least of the "wide open spaces" in less hospitable
regions. Today there are homeless people for whom life would
literally be impossible without some form of access, however
precarious, to untenured land. Some of it, ironically, is near
the centers of large cities, where the price of land is highest.
No great damage is done if submarginal land is untenured: it won't be
used anyway. There may be damage, however, when rentable land is
untenured. It attracts too many entrepreneurs with too much labor
and capital, leading either to the use of private force to establish
tenure - unjust, dangerous, and wasteful – or overcrowding and waste,
called the "dissipation of rent," when the average cost of the average
firm equals the average product of labor and capital. Fisheries
and open range are classic cases.
Some land of high value is untenured or underpriced because consumers
resist paying for what they think of as "free" because it has no cost
of production, and which nature continues to supply even though the
price is too low to ration the land economically. Examples:
- water whose natural source is in southern California (it is
tenured, but underpriced);
- city streets for movement and parking space, even in New York;
- air and water used for waste disposal in populated areas;
- housing that is subject to rent controls;
- popular beaches and trails;
- oil and gas subject to field price controls; and so on.
When land is open to public access, so maybe the capital used to
improve it, e.g. paving of rights-of-way. Such capital may also
suffer the "tragedy of the commons" of excessive congestion. This
open access to capital is mainly an incident to the lack of land tenure
- a characteristic more of land than of capital as such. Remember,
capital occupies space, but land is space.
It is also possible to legislate and subsidize open access to some
kinds of labor and capital services, e.g. public health measures, and
education. These differ from common lands in that they are not
open "by nature," but by art and public expenditure.
... read the whole article