8. Restoring Communities
A proper community is a commonwealth: a place, a resource, an economy. It answers the needs, practical as well as social and spiritual, of its members—among them the need to need one another. The answer to the present alignment of political power with wealth is the restoration of the identity of community and economy.
Every being on this planet is imbued with consciousness simply by virtue of their existence. Each being has an innate nobility, a dignity that can’t be tarnished, though the suffering of our human experience often blinds us to this reality. We’re all intimately connected to all that is, because we’re a part of life. When we seek to own a part of nature, we usually do so because we see ourselves as separate from nature. Yet we are deeply interconnected to one another and the Earth. And since every human being needs land in order to simply exist, doesn’t it follow that the value that land freely offers to all human beings would best be freely shared with all?
Aside from the ethical implications that arise when we don’t share the value of land with one another, we’ll continue to experience a host of challenging issues as long as the value of land remains privatized. Do we wish to solve poverty, reverse the process of cultural degeneration, and halt the cancerous destruction of nature? Then we’re wise to begin to share the gifts of nature with one another.
While it’s infeasible in practical terms for us to share every aspect of nature with one another, it’s entirely possible for us to share the monetary value that human beings assign to nature. Once we begin to share this value with one another, we have the opportunity to unleash a cultural, technological, ecological, and even spiritual renaissance that will liberate us in ways we can’t even begin to imagine! Once we truly begin to share these financial resources, we can create a world where everyone can have their basic needs met, where nature is no longer exploited, where people are given the greatest opportunities for self-expression, and where life is not just an array of setbacks, but a beautiful canvas that allows for a greater unfolding of human potential.
If we’re to share the value of land, it’s certainly not necessary to abolish the exclusive use of land. On the contrary, the forcible seizing of land from individuals by government without just compensation deserves to be called tyranny. The fundamental thing we need to abolish is the mechanism by which people unfairly profit from land. The solution is so simple that it’s most often overlooked: Property owners merely need to pay the communities from which they receive benefits through their exclusive use of land the exact market value of the benefits that they receive.
Property owners—and all those with a vested interest in properties, including, and perhaps even especially, financial institutions—benefit enormously from the communities in which their properties are located. Profits from land are not only unearned but also deplete community resources, which need to be replenished periodically. This replenishment can best be accomplished through a land leasehold model in which land is owned in common, even as it is privately used, since the rental value of land reflects the combined value of all the natural and social benefits that people receive through their possession and exclusive use of land. When land users pay significant portions of the rental value of land to their local communities, they rightfully reimburse their communities. When land users make such contributions to their local communities, they make what I call community land contributions.
Community land contributions are similar to so-called land-value taxes, a method by which property owners are taxed on the value of the land they possess. Unlike community land contributions, however, land-value taxes are still rooted in the paradigm of private land ownership: They use the selling price ownership value of land as a tax base to determine the tax obligation of the landowner; to reference the selling price ownership value of land instead of its rental value psychologically already implies private land ownership as opposed to community land stewardship that allows for private land use. The word tax also implies that the people being taxed have to part with something that belongs to them, since people pay taxes on their incomes, their sales, their capital gains, and so forth. The term land-value tax, therefore, implies that land users are being taxed on their land value, which, of course, is incorrect, because the value of land belongs to the communities that create that value. Community land contributions, on the other hand, appropriately emphasize that land is a community good and that people ought to contribute to their communities if they choose to use it exclusively.
A community land contribution model would allow us to move from a monopoly model on land toward a competitive leasing model in such a way that people can continue to use land exclusively if they so wish, except that now other people are reimbursed for their exclusion. When community land contributions are made at frequent intervals (for example, annually) and as a fraction of the market rental value of land (for example, 80 percent of rental value), land users begin to pay their communities for their use of land instead of other human beings or institutions (such as the seller from whom the land was bought or the bank that provides the mortgage). Such ongoing payments to our local communities have the effect of lowering the selling price of land in relation to the rental value of land: They tend to approximate the market rental value of land and will never be greater than what land users would pay had they otherwise leased the land on the open market.
Historically, there have been periods when people shared the value of land with their local communities due to the economic policies of the time. Too often, however, these economic policies didn’t go far enough, and the resulting wealth wasn’t always shared in ways that remedied poverty and decreased wealth inequality. One of the more modern examples is Hong Kong, a former British Crown colony in Southeast Asia. Since the end of the Second World War, Hong Kong has experienced an economic boom on a meteoric scale; within just a few decades, this small, relatively unknown city became one of the world’s dominant centers of high finance. Since all land was considered to belong to the British Crown, the British colonial government leased land to private entities. These leaseholds have allowed Hong Kong to collect a certain amount of land value and have also allowed the government to maintain relatively low tax rates.
Although it’s often cited as a model of laissez-faire economic growth due to its low income and corporate tax rates, its minimal interference in economic affairs, and its lack of sovereign debt, Hong Kong practiced, in effect, a form of conventional capitalism while simply preventing—at least to a small extent—its residents from profiting too much from land. Yet even though Hong Kong’s leasehold model represents a step in the right direction, it remains flawed since land-value assessments are not updated annually to reflect the current market value of land; leasehold revenues therefore bear little relationship to yearly increases in land values. On the other hand, because Hong Kong is a relatively small island of prosperity, it has also had to deal with massive immigration from mainland China, and because Hong Kong’s land values were not widely shared with all Hong Kong residents, this influx created massive poverty problems in Hong Kong as well. We can only imagine what kind of prosperity Hong Kong might achieve for all its residents if it were to fully share the value of its land.
In other examples, today every resident of Alaska receives a relatively modest Basic Income from the value of oil. Norway does something similar, though on a much bigger scale, with its Government Pension Fund—Global, a fund entirely financed through revenues from Norway’s petroleum sector and currently the largest pension fund in the world. The island of Taiwan was able to achieve rapid economic success without causing severe wealth inequality once it implemented land-reform policies. Central California’s transformation from dust bowl to breadbasket of America in the late 1800s is another example of natural wealth shared for public benefit: The State of California constructed vast irrigation infrastructures financed entirely through the taxation of resulting land-value increases. Whenever society chooses to safeguard nature for the benefit of current and future generations, the wealth that becomes available to society is immense: Every time the value of land is shared, the economy balances, nature is conserved, land speculation is inhibited, and society becomes more prosperous overall.
So how can we implement economic policies that share the value of land? The problem is that in most nations around the world the value of land is already privatized: If communities were to suddenly impose land contributions upon existing property owners, property owners would end up having to pay twice for their use of land—first to the previous owner (from whom they bought land) and then again to their local communities. It is a challenging ethical dilemma: On the one hand, no one should be asked to pay twice for something they only agreed to pay for once. On the other hand, it’s appropriate for property owners to reimburse their local communities for their exclusive use of land—if they don’t, everyone ends up being worse off in the end.
Of course, governments could financially compensate existing property owners with government bonds: Fred E. Foldvary—the aforementioned economist who correctly timed the 2008 recession in 1997—recommends this approach. To implement a compensation plan would require a large-scale societal transformation, however: All levels of government and society would have to work together to accomplish such a monumental undertaking. While it’s certainly possible, such a transformation is unlikely given society’s current lack of awareness regarding the underlying economic realities that drive our choices and behaviors. What other options might we have at our disposal in order to create social change? We demonstrate a deep understanding of the process of social change when we realize that it isn’t an idea alone that matters, but the practice of it, no matter how small the implementation of our idea may be at first. In other words, we are called to implement new models of land stewardship that render our existing model of land ownership obsolete.
One such new model was conceived by the late Adrian Wrigley, a Cambridge academic who envisioned a model based on land-use rights. What’s interesting about his model is that land-use rights enable communities to collect the value of land while also permitting private land use at the same time. In essence, land-use rights are voluntarily created between a community and a property owner: When real estate is put up for sale, either the local government or a community land trust advances funds to the new buyer to pay for the land-value portion of the sales price. In exchange for these funds, the buyer receives a tradable land-use right for the property. According to Wrigley: “The owner of the property is required to pay an index-linked sum to the community [for his land-use right] on a monthly basis in perpetuity. The land-value mortgage paperwork is handled by a bank, and when completed, the government pays the bank and the bank lodges the [land-use right] in return. The bank has no further involvement with the arrangement.” A property tied to a land-use right should be exempt from property taxes, and community land contributions made by the title holder should ideally be tax-deductible on state and federal levels as well.
Unlike taxes, which are enforced by governments upon property owners and tenants alike, land-use rights involve a voluntary arrangement between an individual and the local community to which the individual belongs. This creates a mutually beneficial bond for everyone involved: The community recognizes the voluntary nature of the transaction and tends to appreciate the willingness of the land user to reimburse the community for the exclusive use of land. And since land users will have to financially invest in their local communities on an ongoing basis through community land contributions, they’re more likely to become interested in maintaining the well-being of their communities. The land user, meanwhile, will no doubt appreciate the ability to use land without having to pay a substantial amount upfront.
We’ll look at land-use rights in greater detail in later chapters. But before we do that, let’s take a closer look at our current tax system, because taxes, as we shall see, profoundly influence the way we interact with one another. Currently, people pay very little for the benefits they receive through their possession of land to the communities that provide these benefits. And so, to pay for public works, governments are forced to tax the production and consumption activities of their citizens instead.
Since tax systems create behavioral incentives for billions of people worldwide, and since our economies by and large currently tend to incentivize the unequal sharing of land, we can effectively remedy a whole plethora of economic, social, and ecological issues by sharing the value of land. Once we do, we can effectively change how billions of people behave economically, socially, and ecologically. If this conclusion is indeed true, we can potentially make the greatest difference for our planet and for humanity by focusing our efforts on eliminating tax systems and encouraging people to share nature’s gifts instead.
- Henry George, Progress and Poverty: An Inquiry into the Cause of Industrial Depressions and of Increase of Want with Increase of Wealth: The Remedy, Book VIII, chap. 2, para. 12, 1879.The economic philosopher Henry George expressed it quite succinctly: “Let the individuals who now hold land still retain possession of what they are pleased to call ‘their’ land. Let them buy and sell, and bequeath and devise it. We may safely leave them the shell, if we take the kernel. It is not necessary to confiscate land; it is only necessary to confiscate rent.”
ILLUSTRATION 8-1: COMMUNITY LAND CONTRIBUTION AND LAND PRICES
- The above graph is a theoretical illustration that shows us how
community land contributions and rental values are connected.
Because land users have to reimburse their communities for their
use of land, land selling prices (signified by the dashed line Selling
Price) drop from their monopolized price; selling prices further
decrease the more community land contributions (signified by the
solid line Community Land Contributions) approach the rental value
of land (signified by the dotted line Rent).
Community land contributions tend to decrease the selling
price of land in relationship to its rental value; its actual rental
value remains unchanged, at least over the short term. However,
the efficiencies gained from community land contributions can
create so much wealth in any given area (and thus increase the
rental value of land) that land prices can even increase, but still
decrease in relationship to the rental value of land and to the
total amount of new wealth that has been created. Especially once
corporate, income, and sales taxes are removed, people’s paying
capacity for central locations will actually increase, and this can
boost land values in well-serviced neighborhoods overall.
Since the size of community land contributions is a fraction
of the land’s rental value, the absolute size of the payment will
always approximate the rental value of land; if community land
contributions were greater than the rental value of land, people
wouldn’t use that land (in fact, you’d have to pay them an incentive to use that land), which is why community land contributions are always less than the rental value of land. Therefore, since
community land contributions lower the selling price of land and
simultaneously increase its holding cost—up to but never greater
than its rental value—we see from this graph that community
land contributions help us move from a monopoly model on land
toward a rental model in such a way that the private use of land
can be retained. Since the rental price of land on the open market is never greater than what people are willing to pay in order to
generate a profit from their productive use of land, community
land contributions will always be lower than the amount at which
an entity that puts land to good use can still turn a profit, which
is why the community land contribution model represents a smart
approach to land use, both from a societal as from an individual
- Until 1997, at which point it reverted back to Chinese rule.
- Hong Kong Land Lease Reform, Part 1 (October 7, 2010).
- According to one study, the British colonial government was able
to recapture, through its leasehold arrangements, about 39 percent
of all the land-value increases that occurred during the period from
1970 to 1991 (Yu-Hung Hong, “Can Leasing Public Land Be
an Alternative Source of Local Public Finance?” working paper,
Lincoln Institute of Land Policy, 1996). In addition to leasing
out land, the government of Hong Kong also levied taxes on res-
idential and commercial rental income, which, together with its
land-leasing program, allowed the government to recoup, on aver-
age, up to 79 percent of its infrastructure investments. These revenues
also allowed the government to heavily invest in ambitious public-
housing programs and provide free public education for children
up to the age of fifteen (Catherine Schenk, “Economic History
of Hong Kong,” EH.Net Encyclopedia, edited by Robert Whaples,
March 16, 2008).
- I was born and grew up in Hong Kong and saw firsthand opulent
wealth existing next to immense poverty. Hong Kong is a flawed
example, I admit, but nonetheless one that stands out. Interestingly enough, these early childhood impressions stirred in me a desire
to help remedy wealth inequality and economic inequity.
- Alaskan voters approved a constitutional amendment in 1976,
which mandated that at least 25 percent of all mineral lease
rentals, royalties, royalty sales proceeds, federal mineral revenue-sharing payments and bonuses received by the state are placed in
a permanent fund called the Alaska Permanent Fund. In 2013 each
resident of Alaska received $900.
- In the case of both Alaska and Norway, however, public revenues only include revenues from oil and no significant revenues
- These reform policies were inspired by one of China’s spiritual
leaders, Sun Yat-sen. Sun Yat-sen, in turn, was directly influenced
by the ideas of the nineteenth-century economic philosopher
- For an excellent overview, see Alanna Hartzok, “The Wright
Act, California, USA SWOT Analysis,” n.d.
- When a person buys land, the property’s purchase price reflects
a one-time capitalization of all the future benefits the new property owner expects to receive from the newly acquired property.
The purchase price also reflects any expected charges that are to
be levied against the property in the future. If a community were
to unexpectedly charge the new property owner for ownership of
land, the new property owner would have to pay for land a second
time because the initial purchase price didn’t reflect those charges.
And since community land contributions decrease property values, property owners would be unable to recuperate a significant
portion of the money they paid to acquire their properties.
- While a compensation plan would be a costly endeavor, it would
help prevent the economic booms and busts that are driven by
the eighteen-year real-estate cycle. According to Foldvary, a compensation plan would allow the economy to be “so much more
productive that an ever-increasing income from land would en-
able the government to reduce its borrowing and eventually buy
back the bonds.”
It also makes political and practical sense to ensure that property owners won’t lose out financially in the short run by transitioning to an economy based on community land contributions. For
this, we have anecdotal evidence: When General Chiang Kai-shek
retreated to Taiwan after losing the civil war in mainland China,
General Chiang decided to reform the economy of Taiwan, which
at that time was mired in poverty and overpopulation: The major-
ity of people were landless, hunger-afflicted peasants, while fewer
than twenty families monopolized the land of the entire island
(Jeffery J. Smith, “Where a Tax Reform Has Worked,” September
15, 2011). When Taiwan enacted land reform and began col-
lecting land contributions, it compensated these landowners with
bonds (Fred Foldvary, “The Pre-existing Land Value Problem,”
The Progress Report, April 8, 2013). Everyone ended up benefitting from a smooth transition toward a more just and efficient
- In his work “The Ultimate Tax Reform: Public Revenue from
Land Rent,” Foldvary recommends ten steps for such a transition
(the term land rent can be used interchangeably with land contributions):
- Each county expands its register of all real estate and the title holders
to include all lands owned by governments and previously non-registered
- Local real estate taxes are split into two taxes, one on land value
and one on improvements.
- The county real estate assessment function is transferred to land value assessment boards, comprised of representatives from the federal, state,
county, and municipal governments as well as real estate professionals and
scholars. These boards appoint assessors and establish an appeals process,
similar to current real estate tax appeals.
- All land is assessed at its current market value.
- Over a period of years, depending on how much land values already
have fallen in anticipation of the shift to land rent collection, the tax on
improvements is reduced, while land rent collections are increased. (An immediate shift to land rent, with other taxes reduced or abolished, could
be compensated, for those with net losses, with special bonds whose face-
value interest payments would decrease over time; this would have an effect
similar to the gradual increase in land rent.)
- Sales taxes, tariffs, and excise taxes are reduced and eventually eliminated.
- The personal exemption in federal income taxes is raised each year,
until it eventually includes all income, at which time all state and federal
personal income taxes are abolished. The taxation of corporate profits is
also phased out.
- The rent of material land (minerals, oil, water, etc.), from the electromagnetic spectrum, from naturally growing forests, and from other elements of nature is collected at gradually increasing rates up to a substantial
amount, if not all, of the unimproved rental value.
- An amendment to the Constitution is enacted prohibiting any taxation of wages, sales, profits, value-added, or produced wealth and establishing the collection of land rent and other nature rents, along with
voluntary user fees and charges for pollution and congestion, as the only
sources of public revenues. The amendment also establishes a land rent
commission with representatives from the federal, state, local, territorial,
and indigenous-nation governments to divide the rents raised. Generally,
rents raised from offshore oil and water, atmospheric pollution, airline
routes, and other continental uses would be allocated to the federal government, and the rest would be allocated to the state, local, territorial, and
indigenous-nation governments. If the national government needs addi-
tional revenue, it is obtained from the state or territorial governments in
proportion to their land value, as was specified in the Articles of Confederation that preceded the U.S. Constitution.
- Top-down revenue sharing from federal to state and from state to
local government stops. Many services, functions, and agencies are trans-
ferred from the central government to the state/provincial and local governments.
- Adrian Wrigley called his concept Location Value Covenants
(LVCs). In the interest of making the material more accessible
to the reader, I’ve simplified the term to land-use rights. For more
information on LVCs, visit the Systemic Fiscal Reform Group’s
website at http://systemicfiscalreform.org [link broken as of 11/8/2015].
- Without proper legislation regulating land-use rights, a community land trust may be required to hold title to the land. It then
sells a tradable land-use right to the new land user. This permit
also extends to all subsequent land users, provided that they make
ongoing land contributions to the community land trust.
- Land-use rights can also be applied to existing homeowners who
don’t wish to be tied to a mortgage.