Georgism: Land Economics as the Way Out of Today's Economic Mess

Gordon Abiama

[Draft of an article submitted to Pambazuka News, a weekly forum for social justice in Africa, March 2005. Gordon Abiama is the Director of the Africa Centre for Geoclassical Economics, Nigeria]

Never in the history of the world has the prosperity paradox become as monumental as in this 21st century, making economic democracy the biggest political challenge. National economies, especially those of developing countries have been compelled to swallow one economic prescription after the other, yet micro and macro-economic imbalances persist. These are formulations drawn from the deep well of neo-liberal economics designed to teach poor nations the good old-fashioned fiscal discipline.

In Nigeria, we have had such IMF and World Bank imposed reforms as SAP (Structural Adjustment Program), PRSP (Poverty Reduction Strategy Papers) etc. and now NEEDS (National Economic Empowerment and Development Strategy). The aim of these policies we have always been told were to eradicate poverty. Apparently realizing that the achievement of this objective has proven elusive, our economic policy operators have instead settled for the politically safer objective of "poverty reduction". Poverty eradication has therefore been consigned to oblivion.

This century witnessed an overwhelming increase in labor saving inventions that have vastly improved production capabilities. The question is: Why is it that poverty still persists in spite of the great progress achieved especially in the field of technology? Why so much poverty in the midst of abundant resources? What an economic failure! It is therefore very pertinent to unmask the mystery behind the world's persistent economic woes and failures if developing economies must come out of the woods. This economic malaise is nevertheless not limited to developing economies alone.

There was one man 'who really saw the forest. He not only saw the forest but examined every tree'. His name is Henry George, an American philosopher whose classic bestseller Progress and Poverty (1879) identified the causes of poverty and proffered workable solutions to them.

George was able to unmask the founders of neo-classical economics - the paradigm embraced by world governments and taught in universities and colleges, accusing them of acting in bad faith. "As policy-makers", wrote renowned American economist, Professor Mason Gaffney in the book, The Corruption of Economics co-authored with Dr Fred Harrison, "neo-classical economists present us with "choices that are too often hard dilemmas".

"Here are some of the dismal dilemmas that neo-classicals pose for us today. For efficiency, we must sacrifice equity; to attract business we must lower taxes so much as to shut the libraries and starve the schools; to prevent inflation we must keep an army of unfortunates unemployed; to make jobs we must chew up land and pollute the world; to motivate workers we must have unequal wealth; to raise productivity we must fire people; and so on".

Leading exponents of Neo-classical economics - the dominant paradigm, Fred Harrison in his essay "Death Rattle of a Deadly Paradigm" noted "are expressing anxieties about the relevance of their theoretical apparatus".

Harrison went on to quote Nobel Laureate Wassily Leontief: "… econometricians fit algebraic functions of all possible shapes to essentially the same sets of data without being able to advance in any particular way, a systematic understanding of the structure and the operations of a real economic system."

To further drive home the point, Harrison declared: "Neo-classism has reduced economics to an empty formalism. It no longer exists to study "a real object - economics".

When leaders lack workable policies, what they resort to is call for more sacrifices on the part of the people. Nigeria's dictator for nine years, President Ibrahim Babangida himself admitted this much in a press interview with the Daily Times in 1992: "Frankly, I have kept on asking my economists why is it that the economy has not collapsed up till now? What is it that is keeping it up? …The Nigerian economy has defied all economic theories. …"

He failed to see that it was the informal sector of the economy driven by the propensity to survive whichever way that had kept the economy going. It is the informal economies that shoulder the burden of development while the formal economies controlled by the elites, as perpetual economic parasites, scoop up whatever wealth that is created by the informal sector. These groups of parasites, both local and international are referred to as RENT SEEKERS in economic parlance.

The alarming distortions of today's wealth distribution economics is as a result of the provision of special privileges and subtle monopolies to a favored few over land and its resources often through legal enactments. This has created a special class of privileged people who will do anything to maintain the status quo. It is sad that while many are struggling to eke out a living others are feeding fat on unearned wealth.

Why should people die of hunger and disease each year when there is enough to meet the basic needs of everyone? The obvious answer is that wealth is being controlled by a few privileged ones, and they usually are those whose footsteps regularly punctuate the corridors of power. These groups of people have come to see politics as a pathway to wealth acquisition.

Of the three factors of production - land, labor and capital - land is the source of all wealth without which man cannot exist. Today's neo-liberal economists have succeeded to treating land as private property thus giving it the status of a commodity, tradable within an expanding market system.

Land, by definition covers all naturally occurring resources like surface land, minerals deposits (gold, oil etc), water, electromagnetic spectrum, the trees, fishes in the seas and rivers. It is unjust to treat land as private property. Land is not a product of labor. Everyone should therefore be given equal access to such resources. Mankind has neglected this fact to its own peril.

All the bloody wars this world has experienced have been over the scramble for oil, natural gas, minerals, fishing resources, farm lands etc. We have seen how local communities in remote villages in Nigeria and other parts of Africa have wiped out rival communities in bloody conflicts over fishing rights, grazing rights as well as farming rights.

Land tenure system in most African countries is steeped in priority settlement - first settler syndrome. This means that a man and his nuclear family that migrated from his original village to a virgin territory could lay claim to as much land with the available natural resources as he wanted. But man being a social animal would always crave the company of others and so he welcomes with open arms others who may wish to settle with him in this virgin territory.

The families grow and the village becomes a big town with land values rising. Also there could be discovery of oil and other minerals in that territory which would attract several social amenities like roads and electricity. Land prices would go up. Then the problem begins. Who are the original owners of the land and who should control royalties from minerals and other natural resource exploitation? This becomes a very hot issue. Then litigations over who are tenants and who are the landlords begin, often ending up in blood shed and mutual destruction.

George saw all this and advocated for a common right to land and its resources while abolishing all forms of taxation save that on land as a means of public finance. All those denied free access to land have been forced to become wage laborers, thus making labor a tradable commodity as well. According to Henry George, when you open up the land by breaking up the monopoly, you relieve the pressure on every industry. By this, George asserted, it goes to improve the condition of people who have nothing but their hands and consequently you improve the condition of the whole community.

Senegal's new land policy under the decentralization policy which has placed land in the hands of local leaders in every community is worthy of commendation. Under this policy, any one who wanted land whether for building purposes or for farming only have to apply to the council in charge of land allocations and he is given as much land as he can use without prejudice.

Nigeria's land laws is also similar but here top government officials use it to allocate choice lands to themselves and their cronies while the rent from land including mineral royalties end up lining the pockets of corrupt officials.

Monopoly of natural resources is to the rural setting what land speculation is to any fast expanding town or city. Why do people buy up large tracts of land near large towns and cities and other government projects without developing them? The objective is to wait such a time when the land prices would go up so it could be sold at a great profit. This unearned increment or rise in land value is not as a result of anything the land owner has done. It is a socially created value and as such rightly belongs to the community.

Land speculation hampers development as land is held out of use. Those who need land are denied access. This evil strikes at every form of industrial activity. A manufacturer proposing to start a new industry will be forced to pay such a high price for land and this will hamper his competitive power in every market. In addition, in terms of settlement patterns, land speculation creates urban sprawl as people have to go beyond the land under speculation to acquire land to use or to build.

George's solution to the problem of land speculation is land value taxation to be used for the benefit of the whole community. When the land speculator sees the irrationality of paying taxes on land he is not making productive use of, will be forced to put it on the market for others to use, thus helping to unlock the economic activity of the unemployed and the economically disempowered.

Despite the increase in the world's wealth, the conventional tax base of all governments is falling as a proportion of national resources. And in their drive to beef up their tax base, taxation becomes punitive to business. Some governments are even known to embark on calamitous tax drives that have become barriers to wealth creation.

It is therefore necessary for governments to look beyond all these neo-liberal economic theories that have kept majority of mankind bound to poverty to this third factor that will help "liberate production from taxation, the earth from monopoly and humanity from poverty".

Nobody enjoys paying taxes and would gladly avoid paying them if they could. This hostility to taxes is a subject that practically unites everyone writes Dr Fred Harrison in his the prologue to the book "Land and Taxation" edited by Dr Nicolaus Tideman entitled "Rent-ability".

"This hostility is not based on irrationality; people know that society needs the resources to meet communal obligation. But there is something that rankles them about the tax system. Despite all talk of fairness with which fiscal policy is hedged, citizens intuitively believe that there is something fundamentally wrong with the system of public finance. Their instincts are correct. Public finance is based on principles of arbitrariness and oppression. There can be no doubt that society is in urgent need of reform of the system of public finance", wrote Harrison.

Henry George saw all of this when he advocated for land value taxation as the sole means of public finance. Under this policy, improvements on land will not be taxed, only the land value would be taxed. In other wards, the financial needs of the community would be adequately taken care of out of the economic rent of land. He was able to understand that if people were not "taxed on their wages and the returns to capital, there would be no involuntary unemployment; and incomes would be good enough for everyone, such that poverty would be a historical curiosity", wrote Harrison.

George was able to see land as a distinct factor of production for what it truly is based on the following facts as enumerated by Prof Mason Gaffney in his essay: "Land As A Distinctive Factor of Production": Land is neither produced nor reproduceable; land as a site, it is permanent and recyclable; land supply is fixed; land is immobile in space and uncontrollable in time; land does not turnover, it is recycled and is versatile; land is not interchangeable with capital; land rents are subject to market forces that differ from those that determine interest rates (the price of capital); land price guides investors and determines the character of capital, as capital substitutes for land; land is limitational; land value is not an economic fund.

The major economic consequences of land as a distinctive factor of production Gaffney continues, are: the origin and property of land is not economic; much land remains untenured; landownership imparts superior bargaining power; land rent does not evoke production, thrift or investment; land rent is a taxable surplus; uniformity in taxation between land and capital is not neutral; land values are hypersensitive to discount rates; land markets are dominated by access to long-term credit; control of land gravitates to financially 'strong hands'; land markets are sticky; land is a major basis of market power; land income ins much greater than the current cash flow; consuming land means pre-empting its time; land's rent is opportunity cost, regardless of use.

Land and the boom and bust cycle: Land value is used as the basis of credit and money; land valuation is subjective; land markets are prime causes of instability. These are by all means enough reasons why land should be treated as a distinctive factor of production. Without land freedom there can be no equity and without equity there can be no democracy.