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Will Spain's Rescue Preserve a Broken System?
black economy demonstrate land market landowners inflated land prices

Spanish Apathy Turns to Anger at Corruption Epidemic

Anti-austerity demonstrations have been widespread in Spain, pro-revenue-reform articles have been prolific in Britain. We excerpt two 2013 articles from (1) BBC, Feb 11, on Spanish protest by P. Harter and (2) Centre for European Reform, Feb 13, on England's rigged land market by S. Tilford.

by Pascale Harter and by Simon Tilford

There is fury in Spain after accusations that politicians have been lining their pockets while ordinary people are making painful sacrifices in the name of austerity.

There is a phrase in Spain I used to find admirable for its infinite pragmatism -- "es lo que hay" -- which means, "that's what there is".

It is said with a shrug of the shoulders and it works on nearly any occasion.

For example: "I ordered my squid without batter."

Waiter: "Well, that's what there is."

Or: "The politician you voted for has embezzled millions in public money and your town hall is bankrupt."

Response: "Ah well, that's what there is."

But such an epidemic of corruption is now coming to light in Spain that it seems to me the national shrug of apathy is finally falling out of fashion.

Taking its place is a look of abject disgust and the spat-out words "que verguenza". This means, "the shame of it".

For the last few months the corruption scandals have been so numerous that the television news began lumping them together in a swift round-up, rather than reporting on each one. They had to leave room for other news items - like the effects of austerity cuts and rocketing unemployment.

There is now a regular spot on Spaniards who used to have a job and a home, but do not have either any more. One featured a man who now lives in his car outside his former home.

Spain's anti-austerity protesters call themselves "los indignados" (the indignant).

"We can't be indignant if the politicians steal," one explained, "because we're all at it. Take the man who came from the gas company to fix my boiler and offered to do it for me for half the price if I paid him personally in cash. Of course I said 'yes'."

It is hard to get a receipt in Spain -- from the taxi drivers who tell you the ink has run out of the printer they are legally required to have, to the eminently respectable estate agent, who had a framed photo of the king in his office.

From behind his spectacles he told me if I wanted a receipt for his fee, he would have to charge me 250 euros (£215) in tax. So, in Spain you have to pay if you want to be indignant - and righteous.

Economists say that without the black economy there would be rioting on the streets. People are getting by. They are just not telling the taxman.

People are angry that the king's son-in-law will only have some assets frozen if he does not pay his bail. His charitable organisation is accused of embezzling millions in public money that was supposed to be used to stage sporting events.

The former treasurer of the governing Popular Party (PP) has been operating a 20 million euro (£17.25m) Swiss bank account. The PP has strenuously denied that this money, from no-one knows who, was handed over in cash-stuffed envelopes to the party's top brass, in exchange for who knows what?

This time the politicians are being pressed to answer the questions. And they are not used to it.

Thousands demonstrated outside the ruling party headquarters calling for the prime minister, Mariano Rajoy, to resign. They are not satisfied with the party announcement that it is going to investigate the allegations while simultaneously dismissing them as certainly untrue.

Then documents were published in El Pais newspaper which alleged that the prime minister was among the party members who had received one such bulging envelope from the Swiss bank account.

To read more

JJS: The Spanish are responding to a corrupt institution -- the state’s confiscating and allocating of other people’s money. It’s been going on for millennia so people think it’s normal and people think normal is moral, but it’s not. People must come to understand that taxation itself is the corruption, not victims trying to avoid it. Also, subsidization itself is the corruption, not everyone trying to get a fair share. What people should replace politicians' spending revenue with is disbursing to everyone an equal share, and replace states taxing wealth with everyone paying land dues, an idea starting to take shape in the UK.

Spain and France suffer from inflexible labor markets, Germany from over-regulated product and services markets, Italy from both. Addressing Britain’s rigged market for land could provide an immediate economic stimulus.

The British have the least living space per head, the most expensive office rents and the most congested infrastructure of any EU-15 country. Thanks to a rapidly growing population –- the result of a healthy birth-rate and immigration -– these trends are worsening steadily.

Britain is generally considered a flexible, economically liberal economy, in which insiders have few opportunities to rig the system for their own benefit. Yet the UK’s market for land is essentially rigged.

Britain is small and densely-populated, but does not suffer from particularly acute land scarcity. Around 13 per cent of the UK is built on, a lower proportion than in countries with a similar population density such as Germany, Belgium, or the Netherlands. Alone among the countries that experienced a house price boom in the run up to the financial crisis, Britain had no construction boom. The number of houses being built picked up only slightly, despite UK house prices rising by more than in any other developed countries except Ireland.

Massive house price inflation has aggravated the UK’s already high levels of inequality by shifting wealth from the young (and property-less) to the old (and propertied). The poor availability of affordable housing undermines labour mobility -– people are unable to move to where jobs are available because they cannot afford accommodation. Those on welfare are discouraged from working (as they then lose access to subsidised housing).

The market for land is essentially rigged in favor of landowners, who pay no tax on their land holdings and hence pay no penalty for sitting on it, waiting for the artificially-created scarcity to push prices up further.

Many Britons have profited from land scarcity (and the tax-free property price gains it has led to), and are determined to defend those gains. They may complain about their children being unable to buy a house, but at the same time will staunchly oppose new development. For their part, landowners are a powerful and politically well-connected lobby; many of the biggest sit in the House of Lords. They have a big stake in inflated land prices and are well-placed to resist the taxation of land.

A land tax would involve property owners paying a percentage of the value of their land in tax each year. If the value of their property rose, so would the amount of tax paid on it. This would make it more expensive to speculate on future rises in land values, and some of those gains would be captured by the government. Construction companies would not be able to sit on large amounts of land (so-called land banks), and drip feed the market, maintaining prices at artificially high levels. Instead, land would have to be developed or sold, which would bring down the price of developing land and with it the cost of housing, commercial property and infrastructure.

Britain's is an economy in which speculation is rewarded and wealth is increasingly concentrated in the hands of those with property. Land taxes would make the tax system fairer by taxing unearned income. And by redistributing money from the wealthy (who save a high proportion of their income) to construction sector workers (who save little of it), it would provide a further boost to economic activity.

To read more

JJS: If citizens pay land taxes or land dues, such a system would both end the UK’s housing shortage and obviate austerity in Spain. Yet if Spain’s government is able to win bailouts and force the Spanish citizens to pay for it, a golden opportunity for fundamental reform will have been lost. Almost a century ago, Spain did have a geonomic movement, centered in Barcelona (then going by the name of physiocracy); if only they could resurrect themselves.

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Editor Jeffery J. Smith runs the Forum on Geonomics and helped prepare a course for the UN on geonomics. To take the “Land Rights” course, click here .

Also see:

Catalan rallies for greater regional autonomy
http://www.progress.org/2010/catalan.htm

Fighting Back Against Poli-Econ Tyrants
http://www.progress.org/2012/deanbake.htm

Betting with Trillions
http://www.progress.org/2012/easymone.htm

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