South Africa Needs Bold Actions, Not Bureacracies
How Private Ownership Shackles Us All
This important article recently appeared in Business Day (South Africa).
by Peter MeakinPresident Thabo Mbeki's new economic vision is hard to follow. One of his valid criticisms of the free market is the tendency for land to become unaffordable. This means landless citizens have to rely on landowners for jobs.
Apart from that being colonial, the free market idea of land ownership can have disastrous effects: for instance, residential land values in Japan grew seven times faster than wages between 1950 and 1988. This wrecked Japan's economy and it has taken 16 years to recover.
Ironically, however, land prices will also climb in response to government's public works programme.
Land prices depend entirely on nature's endowment, public infrastructure and services, public administration of zoning and title protection, and population growth. Raw land prices are literally the common wealth.
In the free market land system, which SA has inherited, this common wealth is captured by private landowners as in Japan. In a free-land economy, titles are free but the state reserves this endowment so land access becomes free but subject to annual user charges or rents. This is an economic system where land and resource values generated by nature or society are returned to the state.
We are so used to buying land it never occurs to us that there is no need for that. Do ducks, sharks, eagles or lions buy ponds, oceans, air and savannahs? No, but man who is no less umbilically dependent on land for his very life has to purchase his birthright.
Buying land in SA did not occur in precolonial times. In those days, there was enough land for all to enjoy a dignified life. People were also free. They were free not to accept conventional employment contracts from settlers and it is well documented they resisted jobs until Rhodes's "hut" tax sent them to the mines and plantations, where Chinese and Indians had also been brought in to work.
How would a free-land economy sit in SA today, where most resources are in the hands of whites who have also financed vast improvements in cities and mines? Put another way: what would have to occur for land to be freed for productive use by the very poor?
The answer is that no title deed needs be altered, no nationalisation needs to occur and no expropriation is needed. All that is necessary is for Finance Minister Trevor Manuel to substitute user charges on land and natural resources for his conventional taxes. Municipalities will collect the charges just like their current rates and taxes.
Under a free-land regime citizens will realise their exclusive use of natural resources is costly and will abandon whatever it is they are not using, or improve the land so that they can pay the charges.
The free-land economy is therefore a deal between rich and poor where the poor get affordable land and the rich continue to fill Manuel's pockets but on the basis of user charges that do not tax their skills, hard work, savings and trade.
The land question was not resolved in 1994 and it continues to itch.
Yet a number of important attributes are attached to any free-land economy, and we can briefly touch on some of the more topical here.
The free-land economy resolves the ownership issue by allowing affordable title to the poor without them having to wait for bureaucracies to buy land for them.
The willing buyer-seller formula disappears. It also halts the trade in the country's natural wealth which whites have monopolised for centuries.
Participants in a free-land economy understand that the annual charges the state appropriates from owners for the alienation of common lands (or minerals or water or the airwaves spectrum) for private use compensates South Africans for the loss of that resource.
This will also assuage the fear of foreign ownership because in a free-land economy they can take nothing more out of SA than what they bring in. The most startling topical benefit of the free-land economy, however, is that it will help save millions of mining jobs threatened by the strength of the rand.
This reduces mine revenue, but the current value added tax, pay as you earn, Site, corporate taxes and customs and excise duties are all based on higher rand revenue. This puts pressure on companies, which might have no relief except by closing.
It is easy to see if all of these taxes are withdrawn, the "royalty" user charge will become the only charge. Royalties are a function of the currency rate and can be adjusted monthly to ensure jobs are saved and profit continues.
Countries which have partly used free-land principles include, Hong Kong, Taiwan and China but in different forms than are explained here. Samuel Brittan, Joseph Stiglitz and Mason Gaffney are prominent international economists who back aspects of the free-land economy.
Locally, Brian Kantor is also well-versed. They will know this as the 'single tax.' Other Nobel Prize professors who endorsed the system were Franco Modigliani, James Tobin, Robert Solow and William Vickrey.
What about it, Mr. Manuel?
Peter Meakin is a professional value and director of the Centre for Land and Natural Resources Studies (SA).
Also see some examples of what we get when serious free-land reforms are NOT used:
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