It is said that western societies are founded on Christianity; ideas like Christian charity and equal rights are woven into the fabric of society.
Is that really true? Are these ideas part of everyday life, part of the relationships between corporations and their employees – between politicians and their constituency?
Western countries are built on liberalism – individual freedom for all, in principle. Is liberalism built on Christian values? Well, freedom sounds good, but……
In reality liberalism means freedom for some at the expense of others. Liberalism and Christian values are only related when politicians defend their politics. The real world is quite different.
Let me use my home country, Denmark, as an example. Denmark is broadly regarded as a country that has succeeded in creating one of the most equal societies, where no one is left out – everyone is included. There is always help close by, paid by taxpayers.
That is not a true picture. Since 2008 the number of Danes living in poverty, and the number of children growing up in poverty has more than doubled. The Gini coefficient (measuring the degree of inequality) has increased markedly from 2008, peaking in 2013 with 28,5, and it hasn’t bounced back yet.
In Denmark some are more equal than others. Some have more access to the riches created by the development of society, giving them more freedom than others. Those at the bottom have had their freedom actively reduced by government intervention, cutting their access to social welfare, thereby pushing them even further down the social ladder. At the same time, governments have been cutting down on education, even though Denmark is in serious need of a qualified labour force.
The principle is the same in every other Western country: People at the bottom must put their lives at the disposal of a society, that actively chooses not to be equally accessible to all its citizens, top or bottom. That is what inequality and unequal right is all about.
That is definitely not Christian charity.
An attempt at a policy to solve these social problems is non-existent. The message to the bottom is simple: it is your responsibility to make yourself available; not so much to society, but to the elite at the top of the social ladder: They must be allowed to exploit you as a resource for their own wealth.
We should revert that principle 180 degrees: society should be made available to all its citizens on equal terms, not only the ones that have a job, but everyone.
As a member of the lower classes clawing at the social ladder to get at least some kind of grip you easily develop an attitude: why should I be available to a society, that is not available to me – a society that is actively bad mouthing me, especially during election campaigns.
Not even those that have a job is included on equal terms. It is quite common for public officials to be at the lashing end of the political whip whenever the elite claims to be in need of tax cuts. The political chorus claims that public efficiency needs to be improved; essentially employees need to work more within the same working hours. Constantly cutting the Budget to make room for tax cuts for the top of the social ladder, so THEY can feel more included than they already are – at the expense of public employees and those at the lower end of you-know-what.
The result is not only that public employees are physically or psychologically worn to the limit. Public service also suffer. It is as if liberals do not accept that public services like education, health care etc. play a central role in creating progress for the macro-economy. It is as if they only recognize the contribution from the private sector. But where would the private sector get access to qualified labour if they public sector did not provide it, both as education and as healthcare, helping those afflicted by illnesses back into the labour force; or social welfare helping the unfortunate ones caught in the slippery mud at the bottom of the ladder, to rejoin the labour force after having been educated. The private sector cannot provide these services to any significant degree.
Liberals would counter these arguments by stating that tax cuts are necessary to stimulate the economy. Each dollar, or Euro or….. spent publicly is a liability, while each dollar spent privately contributes to economic progress.
But that is simply not true: what is needed is a operational balance between public and private spending; to define what services to the macro-economy can best be provided by the public sector at any given time, and what services can best be provided by the private sector. This is by no means a constant balance: if a macro-economy shows signs of imbalance between different parts of the macro-economy, i.e. increasing unemployment and a resulting decrease in general consumption of products, then such problems can best be solved by the public sector increasing its investments in job creation. The private sector cannot contribute in starting the process of macro-economic rebound, but public investments will increase the general consumption of products, thereby making private investments profitable. It will be a political task to ensure that economic conditions are ripe for such investments – there are many aspects of this, among them education and social demarginalization.
The Liberal Society – where did it go wrong?
There are two main points:
The first point is that values generated as a result of improvement of conditions for economic activity caused by a developing society, ends up in the deep pockets of the elite and especially financial institutions. The development of society improves economic conditions as a result of the contribution of all the citizens of society; As consumers, as labour, as investors. They create added value from this joint effort, which is expressed as the capitalization of land values – when economic conditions are improved for all, land becomes more attractive, as any economic activity need access to land; Thus, the market price of land rises as a result of society’s development.
This added value will in theory end up in the pockets of landowners, but in reality a very large part will be channeled into financial corporations, as access to land requires debts and debt must be repaid with interest.
A distinction must be made between the productive economy, which creates services and products, and the speculative economy. The latter contributes only to a limited extent to the productive economy, and only through risk-taking capital. But most of the proceeds flowing through the speculative economy are labour-free profits and they all originate in the capitalization of land values.
Another point is the almost religious belief in market forces and their ability to create perfection.
My study of economics had taught me that the ideology of many conservatives was wrong; their almost religious belief in the power of the markets – so great that we could largely simply rely on unfettered markets for running the economy – had no basis in theory or evidence.
(Joseph Stiglitz: People, Power and Profits. Penguin Random House, UK, 2019).
The problem is the outdated capitalist (and neo-liberal) mindset, stating that if markets are kept free of political governance, market forces will automatically ensure that the macroeconomic machinery will run smoothly and seamlessly. Even if an economy shows recessive trends, market forces will by definition remove these recessive trends given time: Prices will fall, wages will fall, etc.; it will all happen by itself; no need for political intervention. It was this mindset that led to the Great Depression of the 1920s and 30s, where it was clearly proven that this is nonsense. It was also this mindset that have prevented the EU from fighting the crisis that started in 2008 as efficiently and quickly as, for example the United States, and is still hampering the recovery of European economy.
Liberalism is just old-fashioned concrete-capitalism. History has long proven that it is destructive, destabilizing and actively induces inequality. It creates periodic recurring crises, i.e. when an imbalance arises between inflated property prices resulting in a debt burden exceeding the real market value of those properties. This blow-up of property prices is due the easy access to fast and often large profits obtained from speculation in the capitalization of land values.
It means that the few who are able to maximize their work-free profits distance themselves from the weakest in society. It constantly increases inequality.
The freedom of the markets is not just about the balance between the production of goods and services on the one hand and the demand for them. It is also about the balance between the supply of jobs and the demand for them; the availability of a skilled labour force. But it is also about the freedom to achieve work-free profits, not least on the financial markets, across borders. These are the processes that create the immense riches of some and create poverty for the weakest.
Capitalism/Liberalism not only creates economic inequality due to a general “greed is good”-way of thinking. The same way of thinking is behind the extreme growth in resource consumption, which is behind all pollution, climate change, vandalism against natural resources, etc. Liberalism is a political-economic ideology that is devastating its own livelihood.
How do we create the inclusive society?
The first point:
All members of a society take part in the improvement of the conditions for economic activity, as this society develops, leading to a capitalization of land values, Land Value Rent. It is therefore logical that these values should be divided equally among all members of society.
It is equally logical that the values created by the work of each person should not be seized by others, including the state, by taxation.
The logical consequence is that the common costs of covering the services provided by the public are covered by the values we create together (the Land Value Rent), while the proceeds of the individual’s performance, is exempt from taxation.
The last part is Liberalist’s wet dream: that tax on work is removed. The liberalists simply forgot to think of something else as a substitute.
The principle is simple: A Land Value Taxation is implemented gradually, i.e. over 20 years, to replace any other form of taxation. When implemented fully this land value tax must have a magnitude that prevents workfree profits obtained by the de facto ownership of land – in other words the tax must redirect these capital gains into the public treasury. Income tax in any form is a tax on value creation, and therefore inhibits value creation. A tax on capital gains on land values averts workfree profits. These profits are but a tax on the productive economy by financial institutions and land owners; an tax on top of income tax.
A Land Value Tax must replace income taxation, and will therefore lower the tax burden. If the proceeds of the Land Value Tax exceeds public expenditure, this surplus must be shared among all members of the society as a general basic citizens income, an individual’s share of the proceeds of society.
It is inclusive because all citizens get their share of the values created by the efforts of society as a whole. It is inclusive because the salary of people is not taxed; the value of land on which your house stand IS taxed. The value of your house, your garden, your solar cell panels etc. is not taxed. If you start working 10 more hours a week, the extra salary is not taxed. Your tax burden will increase only when the value of your land parcel increase, due to the general development of society.
The same holds true for companies: The value of the land used by a company is taxed, but not the company buildings etc.. Its yield is not taxed, apart from what is paid in land value tax. If the yield increase, the tax does not. Expanding the business will not automatically “expand” the tax burden. It may be part of a general growth of the macroeconomy, which might lead to an increased land value, but this will not increase the tax burden, measured as a percentage of the yield.
It will become easier/cheaper to create new jobs. If society invests in social rehabilitation of the weakest and in education, this will potentially help a lot of people to climb the social ladder; to be included, to the benefit of us all.
It will only be the right to obtain workfree profits that will be taxed, hopefully to an extent that prevents workfree profits completely. Of course society will develop, and the conditions for economic activity will improve. This means that the potential for workfree profits will increase, and the taxation of land will also need to increase. But that is just a part of the general improvement of the macroeconomy.
The second point:
In the Great Depression in the 1920’s and 30’2 there was a shift from traditional capitalist thinking to more modern capitalism. The economist John Maynard Keynes entered the scene, with a completely different approach to economy than the traditional. His main thesis was that economic markets cannot function without political guidance. There must be the right balance between freedom and control:
- There must be government control to prevent monopolies from arising and prevent the market mechanisms from overheating, i.e. creating imbalances between different parts of the economy; an example could be when profits from capital gains exceed the real market values of the mortgages.
- There must be public services available to ensure the stability of the economy, in the form of a social service, a health service, education, physical infrastructure and many more.
- If, or rather when, an economy become recessive with high unemployment and social need, private corporation will be unable to kickstart the economy. The government must step in with increasing public investments in job creation, social rehabilitation and education.
Keynes’s analysis proved to be constructive. Public job creation kickstarted the economy and the increase in buying power led to an increase in the yield from private investments and production. Public control with the fiscal and financial policies prevented the growing economy from overheating again.
Without the analysis of Keynes and the implementation of his recommendations the Depression would not have been solved. Unfortunately his recommendations were quickly forgotten by politicians and business. Traditional capitalism in the form of neo-liberalism is back. Thanks to globalization greed is back as a central element in the economy. Macroeconomy is again dominated by speculative economy, and the quick and easy workfree profits are again creating havoc, in the form of international crises and overheating.
The EU is a prime example: The EU has implemented a harsh control of the economy, especially in the Eurozone. Normal macroeconomic tools like devaluation, public investments and adjustment of interest rates are strictly forbidden in the German-dominated Eurozone, resulting in member states having had a difficult time bouncing back after the crisis in 2008, much more difficult than the USA. Key numbers show some progress, but still there is a marked inequality, especially in the Southern- and Eastern European countries. The progress has not yet trickled down the social ladder.
In other words: the inclusive society can only be realized if “free movement” of market mechanism are severely limited; the free market does not create a near perfect balance between the different cogwheels of economy. This perfection is an illusion, perhaps rather a manipulation, covering a deliberate wish to maintain inequality, so that the rich can continue to skim the cream.
It is about limiting access to work free profits: the aforementioned land value tax to redirect capital gains out of the free financial markets, into public economy, is needed so that financial markets can be limited to deploying risk-taking capital.
This is inclusive because it dampens the mechanisms that create inequality. The top of the social ladder will no longer be able to exploit workfree profits to distance themselves from the bottom. The public should play a much more active and constructive role in helping the poorest to rejoin society, if not as part of the workforce then at least as consumers. This will be financed by revenue created by all of us, while revenue created by individual effort will be exempt from taxation. Perhaps – my assertion will be “probably” – there will be a surplus for a general basic citizens income, that will contribute to lowering inequality even more. This societal model is NOT the complete and final solution to all socio-economic problems. But it will constitute a foundation for a society that does not suffer from the automatic distortions created by a neoliberal society. It will also not suffer from those distortion that characterize the socialist society – socialism is in essence just a variety of the capitalist society: The state obtains the role as the strong monopolist holding all the riches, while all citizens are reduced to social welfare clients.
2 thoughts on “An inclusive society”
The Most Socially Just Tax
Our present complicated system for taxation is unfair and has many faults. The biggest problem is to arrange it on a socially just basis. Many companies employ their workers in a variety of ways and pay them differently. Since these companies are registered in various countries within a number of categories, the determination the general criterion for a just tax system based on earnings becomes impossible, particularly when it depends on a fair measure of the quality and amount of human work-activity. So why try to do this when there is a better means available for taxation, which is really a true and socially just method?
Adam Smith’s (“Wealth of Nations”, REF. 1) says that our natural resource of the land is one of the 3 factors of production (the other 2 being human labor and durable capital goods). The usefulness of a particular site is expressed by its purchase price and in the amounts that tenants willingly pay as rent, for its access rights. Land is often considered as being a form of capital wealth, since it is traded similarly to other durable capital goods items. However it is not actually man-made, so rightly it does not fall within this category. Indeed, the land was originally a gift of nature (if not of God), for which all the people in the region should have equal rights for sharing in its opportunities for residence, accessibility and use.
However over many years, as communities became established and grew, the land has been traded as if it was an item of durable goods and today it is often treated as a form of capital investment. It is apparent that for a particular site, its current site-value greatly depends on location, size and to the population density in its region, as well as the amount of natural resources that it can steadily provide. Such bounty is manifest in the exploitation of rivers, minerals, plants and animals of specific use or beauty. These are available only after local developments have made possible easy access to the particular locality. Consequently, much of the land value is created by man within his society, by his need and ability to reach it and take from it materials, growing plants and live creatures, as well as the opportunities it provides for working space near to people. These advantages should ethically and logically be justly returned to the community, as if for its general use within the government, as explained by Martin Adams (in “LAND” REF 2.).
However, due to our existing laws, the land is owned and formally registered and its value is traded, even though it can’t be moved to another place, like other kinds of capital goods. This right of ownership gives the landlord two big advantages over the rest of the community. He/she can determine how it may be used, or if it is to be held out of use for speculative reasons, until the city grows and the site becomes more valuable. Secondly the land owner enjoys the rent from a tenant or its equivalent if he uses the land himself. Speculation in land values and its rental earnings are encouraged by the law, in treating a site of land as personal or private property as if it were an item of capital goods, even though this is not true, see Prof. Mason Gaffney and Fred Harrison: “The Corruption of Economics”, REF. 3.
Regarding taxation and local community spending, the municipal taxes we pay are partly used for improving the infrastructure. This means that the land becomes more useful and valuable without the landlord doing anything—he/she will always benefit from our present tax regime from which the land value grows when the status of unused municipal land is upgraded and it becomes more fitting for community development. When the news of an upgrade is leaked, after landlords and banks corruptly pay for this valuable information, speculation in land values is rife.
There are many advantages if the land values were taxed instead of the many different kinds of production-based activities such as earnings, purchases, capital gains, home and foreign company investments, etc, (with all their regulations, complications and loop-holes). The only people due to lose from this different regime of taxation are those who exploit the growing values of the land over the past years, when “mere” land ownership confers a financial benefit without the owner doing a scrap of work. Consequently, for a truly socially just kind of tax to apply there can only be one method–Land-Value Taxation.
Consider how land becomes valuable. Pioneers and new settlers in a region begin to specialize and this slowly improves their efficiency in producing specific kinds of goods. The land central to the new colony is the most valuable, due to its easy availability and the least necessary transport of its produce. After an initial start, a graduated distribution in land values is created by the community. It is not due only to the natural land resources. As the city expands, speculators in land values will deliberately hold potentially useful sites out of use, until planning and development have permitted their more intensive use and for their values to grow. Meanwhile there is fierce competition for access to the most suitable sites for housing, agriculture, manufacturing industries, transport byways, etc. The limited availability of the most useful land means that the high rents paid by tenants make their residence more costly and the provision of goods and services more expensive.
Entrepreneurs find it difficult or impossible to compete with the big organizations who have already taken full advantage of their more central sites. The greater cost of access, or the greater expense in transportation from less costly outlaying regions, discourages these later arrivals. It also creates unemployment, causing wages to be lowered by the land monopolists, who control the big producing organizations, and whose land was previously obtained when it was relatively cheap. Consequently this basic structure of our current macroeconomics system, works to limit opportunity and to create poverty, see above reference.
The most basic cause of our continuing poverty is the lack of properly paid work and the reason for this is the lack of opportunity of access to the land on which the work must be done. The useful land is monopolized by a landlord who either holds it out of use (for speculation in its rising value), or charges the tenant heavily for its right of access. In the case when the landlord is also the producer, he/she has a monopolistic control of the land and of the produce too, and can charge more for this access right than what an entrepreneur, who seeks greater opportunity, normally would be able to afford.
A wise and sensible government would recognize that this problem of poverty derives from lack of the opportunities to work and earn. It can be solved by the use of a tax system which encourages the proper use of land and which stops penalizing everything and everybody else. Such a tax system was proposed about 140 years ago by Henry George, a (North) American economist, but somehow most macro-economists seem never to have heard of him, in common with a whole lot of other experts. (I would guess that they even don’t want to know, which is even worse!) In “Progress and Poverty”, REF. 4, Henry George proposed a single tax on land values without other kinds of tax on earnings, sales of produce, services, capital-gains etc. This regime of land value tax (LVT) has 17 features which benefit almost everyone in the economy, except for landlords, tax collectors and banks, who/which do nothing productive and find that land dominance and its capitalistic exploitation have their own (unjust) rewards.
17 Aspects of LVT Affecting Government, Landowners, Communities and Ethics
Four Advantages for Government:
1. LVT, adds to the national income as do other taxation systems, but it should replace them. The author has shown in REF.5, that taxation of any kind is beneficial to the whole country, due to its national income providing for more work too, but that when the tax applies to land the topology and spread of its effects are about 3 times as beneficial as when the same amounts of income are taken directly from labor.
2. The cost of collecting the LVT is less than for all the production-related taxes–tax avoidance becomes impossible, because the sites are visible to all and who owns each site is public knowledge. The army of tax collectors who are opposing a similar set of lawyers, are no longer busy with tax loopholes in the law, so the number of people more productively employed will grow and the penalty on the country of having complicated taxation is less.
3. Consumers pay less for their purchases due to lower production costs (see below). They can buy more goods and enjoy a raised standard of living. This creates greater satisfaction with the management of national affairs and more prosperity.
4. The national economy stabilizes—it no longer experiences the 18-year business boom/bust cycle, due to periodic speculation in land values (see below). The withholding of unused land is eliminated see item 7, so there is less need for the complications of frequent land sales, with developers searching and buyers hunting for unused sites.
Six Aspects Affecting Landowners:
5. LVT is progressive—this tax depends on the site area as well as its position. The owners of the most potentially productive sites pay the most tax per unit of area. Urban sites provide the most usefulness and their owners will pay at greater rates, whilst big rural sites have less value and can be farmed appropriately, to meet their ability to provide useful produce. Smallholder farming closer to population centers becomes more practical, due to local markets and reduced distribution costs.
6. The landowner pays his LVT regardless of how his site is used. A large proportion of the present ground-rent from the tenants (who do use the land properly), becomes transformed into the LVT, with the result that the land has less sales-value but retains a significant “rental” value.
7. LVT stops speculation in land prices, because the withholding of land from its proper use is not worthwhile.
8. The introduction of LVT initially reduces the sales price of sites, even though their rental value can grow over a longer term. As more sites become available, the competition for them is less fierce and entrepreneurs have more of a chance to get started.
9. With LVT, landowners are unable to pass the tax on to their tenants as rent hikes, due to the reduced competition for access to the additional sites that come into use.
10. Speculators in land values will want to foreclose on their mortgages and withdraw their money for reinvestment. Therefore LVT should be introduced gradually, to allow these speculators sufficient time to transfer their money to company-based shares etc., and simultaneously to meet the increased demand for produce (see below, items 12 and 13).
Three Aspects Regarding Communities:
11. With LVT, there is an incentive to use land for production, transport, or residence, rather than it being vacant and held unused.
12. With LVT, greater working opportunities exist due to cheaper land and a greater number of available sites. Consumer goods become cheaper too, because entrepreneurs have less difficulty in starting-up their businesses, and because they pay less ground-rent–consequently demand grows, whilst unemployment and poverty decrease.
13. Investment money is withdrawn from land and placed in durable capital goods. This means more advances in technology and cheaper goods too because the effectiveness of labor has been raised.
Four Aspects About Ethics:
14. The collection of taxes from productive effort and commerce is socially unjust. LVT replaces this national extortion by gathering the surplus rental income, which comes without any exertion from the landowner or by the banks–LVT is a natural system of national income-gathering.
15. Previous bribery and corruption for gaining privileged information about land, cease. Before, this was due to the leaking of news of municipal plans for housing and industrial development, causing shockwaves in local land prices (and municipal workers’ and lawyers’ bank accounts!)
16. The improved use of the more central land of cities reduces the environmental damage due to unused sites being dumping-grounds, and the smaller amount of fossil-fuel use (with its air-pollution), when traveling between home and workplace.
17. Because the LVT eliminates the advantage that landlords currently hold over our society, LVT provides a greater equality of opportunity to earn a living. Entrepreneurs can operate in a natural way– to provide more jobs because their production costs are reduced. Then untaxed earnings will correspond more closely to the value that the labor puts into the product or service. Consequently, after LVT has been properly and fully introduced as a single tax, it will eliminate poverty and improve business ethics.
1. Adam Smith, 1776: “The Wealth of Nations”, UK
2. Martin Adams, 2015: “LAND– A New Paradigm for a Thriving World”, North Atlantic Books, California, USA
3. Mason Gaffney and Fred Harrison, 2005: “The Corruption of Economics”, Shepheard-Walwyn, London, UK
4. Henry George: “Progress and Poverty” 1897, reprinted 1978 by the Schalkenbach Foundation, New York, USA
5. David Harold Chester, 2015: “Consequential Macroeconomics—Rationalizing About How Our Social System Works”, Lambert Academic Publishing, Saarbüchen, Germany
Thank you David for your comments and your interest in my writings. I of course totally agrees with your article.