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.)
Rent rules
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 majors 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.
Past isms neither one or the other
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:
* In the 1600s, philosopher John Locke questioned
"the 'sacredness' of property". Biblical scholar Spinoza
proposed public ownership of land. Quaker William Penn and
Pilgrim William Bradford urged the shift from taxes to
Ground Rent.
* In the 1700s, the physiocrats, which included
Quesnay and Turgot, Thomas Jefferson and Tom Paine,
advocated taxing only land. One wise man, Mirabeau the
Elder, called the discovery of l'impot unique (the single
tax) as momentous as the invention of writing.
* In the 1800s Europe had J. S. Mill and America
Henry George, author of Progress and Poverty which outsold
every book but the Bible. Candidate for mayor of New York,
he was cheated out of his victory by Tammany Hall. George
inspired most of the real-world implementations of the land
tax that some jurisdictions enjoy today.
* In the late 1900s and early 2000s, the
environmentalists, including organizations like the Sierra
Club, push the Property Tax Shift from buildings to
locations and the broader tax shift from income to
pollution and from production to depletion. Many more
green groups fault subsidies. A few even call for a
dividend, a la Alaska's oil dividend. Even some
Libertarian groups have joined the chorus.
It's as if the issue of sharing Earth were nagging
our collective conscience (see our "101 Famous Thinkers on
Owning Earth").
Public policy! Front and center!
(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.
1, Materials - Extraction vs. Recycling
Rent: The light levy on the value of resources in
the raw, government vitiates that with depletion
allowances. Plus, government accepts under-market bids for
leases of publicly owned pastures and deposits. Getting to
keep Rent makes extracting virgin materials extra
remunerative; recycling used materials, wherein Rent does
not even exist, has no such gratis profit.
Taxes: The tax on sales complicates business. One
must do extra bookkeeping or hire an accountant; an easier
burden upon entrenched firms than upon startups, such as a
store to sell ap-tech (the products that consume fewer
resources) so every home can be an eco-home. Being
sneakily regressive, the tax nibbles away at would-be
customers' discretionary income.
License: The price of raw materials does not
include all the costs from the loss of habitat, other
species, sources of new medicines, the downwind and
downstream costs from tailings, etc, disadvantaging
recyclers.
Subsidy: Government logging roads and way
under-market leases favor loggers and miners, not selective
harvesters and recyclers.
2. Construction - Sprawl vs. Eco-City
Rent. This social surplus is why developers build
sprawl, not car-free villages. Rent, so-called "equity",
is what homeowners borrow against for a bout of
consumeritis.
Taxes. The property tax assessment is skewed
toward the building, away from the land, benefiting
speculators and developers, not owners. Localities often
abate the tax for years for developers and major
corporations who sprawl on new campuses.
License: The price of new homes too close to
streams or on freshly cleared hillsides does not include
the cost of washing out the homebuyers or their neighbors.
Subsidy: Where new homes go in, localities pick up
the tab for new schools and infrastructure, saving
developers $25,000 per home (Better Not Bigger, Eben Fodor,
1999). When people build on floodplains and get flooded
out, the federal government bails them out (National
Wetlands Newsletter, 1993, Scott Faber).
3. Agriculture - "Mechemical" vs. Organic
Rent. Farm owners, by retaining Rent, use land as
collateral to qualify for loans to buy big-ticket combines
and irrigators. Retaining Rent also raises the price of
land, precluding poorer farmers who might try the less
expensive organic methods.
Taxes. The tax on income makes labor more
expensive, especially at the margin, where youths entering
the workforce would seek jobs in recycling, reforestation,
organic agriculture, and deconstruction (what better outlet
for male adolescent energy). Having to pay wages plus
taxes on income and for social security, bosses, including
farmers, employ fewer workers.
License. The price of processed food does not
include all the costs from losses of soil fertility,
bio-diversity, collapsed aquifers, poisoned ponds, etc,
disadvantaging organic growers.
Subsidies. Price supports and limited liability
prop up mechani-chemical agri-business, not organic
gardening.
4. Transportation - Cars vs. a Mix of Modes
Rent. Not having to pay Rent to their community,
urban owners awaiting a higher future return under-use
prime sites, forcing development outward. Sprawl requires
cars, displacing buses, bikes, and people.
Taxes. The tax on income makes capital less
remunerative, so a blue chip stock, not quite so visionary,
becomes more attractive than a risky new start-up trying to
make money doing good. A hybrid electric car or a
fuel-cell light enough to power buses and trucks begs for
funds while a GM doesn't. Tariffs fall on imported
vehicles, which tend to be more fuel-efficient than their
domestic counterparts. Thus the market share of efficient
cars is kept smaller than it otherwise would be.
License. The price of gasoline does not include
all the costs from smog - damage to crops, lungs,
buildings, etc - disadvantaging bikes and buses.
Subsidy. Freeways, overly wide streets, highway
patrols, traffic courts, ambulances, and free military
chastisement of overseas suppliers that everyone pays for,
not just drivers, pave the way for car dependency, not an
integrated use of bikes and buses. Gasoline ought to cost
at least $7.00 per gallon figures the World Resources
Institute (Green Fees, 1992).
5, Energy - Fossil Fuels vs. Renewables
Rent. By taxing, rather than living off Rent,
governments can afford to lose land to a dam or its value
to a nuclear power plant. Clean energy, on the other hand,
would tred lightly on land values, the proper source of
public funds.
Taxes. The tax on property makes improvements to
buildings more expensive year after year. Some states do
exempt certain ap-tech improvements, which amounts to a few
dollars, but they also grant tax-free bonds to utilities,
which adds up to millions of dollars. States make up its
exemptions by raising tax rates. An ecologizer may pay no
greater property tax for solar panels, but like everyone
else will pay more to higher taxes on sales and income.
License. The price of AC electricity does not
include all the costs from inundated valleys, nuclear
radiation, acid rain, etc., disadvantaging safe power
producers.
Subsidy. The federal government pays a billion
dollars a year to oil companies to pump oil back into the
ground as a "strategic reserve" rather than just leave it
under Louisiana and Texas. Cost-plus contracts benefit
power utilities, not independent solar converters.
Rents, tax breaks, license, and subsidies total
trillions each year in the US. Destructive subsidies total
$1.5 trillion each year worldwide (The Natural Wealth of
Nations: Harnessing the Market for the Environment, 1998,
by David Roodman in The Worldwatch Environmental Alert
Series; he also suggests capturing the windfall rent-jumps
in settled areas.) Thus virgin extraction, sprawl,
mechani-chemical agri-business, gasoline car manufacture,
and fossil fuels look like bargains, making recycling,
eco-homes, organic gardening, mass transit, and solar power
look expensive. Low prices win over customers who string
along investors. As long as the economy is rigged against
the eco-system, guess which one is going to continue to go
downhill?
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.
Rent rewarding eco-sense
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): corporate charters, standards waivers, utility
franchises, monopoly patents, communication licenses,
resource leases/claims, and land titles/deeds. 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.
2. De-tax wages and interest. Removing such taxes
while collecting rent moves investment funds in the
opposite direction, from extraction and speculation into
advancing physical capital and hyper-training labor. The
resultant investment shift would accelerate
techno-progress, helping us get more from less.
3. De-subsidize favored producers. Besides giving
lobbyists a reason to contemplate a career change,
abolishing subsidies would force producers to cut waste, to
call on all the tools and techniques extolled by Amory
Lovins and other green industrialists.
4. Pay out the rent. Getting money for nothing,
would people still pursue mindless consumption of goodies
or switch to mindful consumption of leisure? The pressure
to consume stuff for prestige should be lessened by the
increased equality in society. Everyone would pay in land
dues equal to the value of the nature they claim and get
back rent dividends equal to everyone else. These dues and
dividends would narrow the income gap.
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.
Ecological Economics, the only economics
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.
(2) Less output lowers land values and deflates the
rent-share. (3) Getting less rent, people work more. (4)
More output raises site values and swells the rent-share.
(1) Again, ad infinitum. 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.
Clean break
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 geonomist@juno.com.)