Henry George and the Crisis of Inequality Speaker: Professor Edward T. O’Donnell
College of the Holy Cross
Professor O’Donnell’s presentation will be based on his book on the topic, published by the Columbia University Press in 2015. Henry George played a key role in popularizing some of the foundational ideas of progressivism that shaped U.S. social and economic policy in the 20th century. This topic has tremendous relevance for contemporary U.S. society as it confronts similar questions about poverty, inequality, corporate power, etc in what some have taken to calling a Second Gilded Age. In addition to several books and articles, Professor O’Donnell has lectured widely and has been the featured presenter of several history programs in the widely acclaimed The Great Courses.
Monday, April 24, 2017 1:50-3:15 pm The Little Theater (next to Carnesecca Arena)
St. John’s University, Queens Campus 8000 Utopia Pkwy, Jamaica, NY 11439
This lecture is partially funded by a grant from the Robert Shalkenbach Foundation. For additional information, contact Dr. Joseph A. Giacalone, Henry George Chair.
Can inequality within and between societies be explained in terms of merit and intelligence, or are the most important determinants of inequality beyond individual control? Both economist Henry George and geographer Jared Diamond essentially asked this same question, examining the fundamental forces that have shaped human history. They come to startlingly similar conclusions. These similarities have not, until now, been connected and compared so directly. Vikings, a popular historical drama on the History Channel (spoiler alert), features the fearless upstart brothers Ragnar and Rollo. Ragnar bases his legitimacy as a ruler on the idea that he can supply his people with not only new sources of plunder but, more importantly, land. He dramatically demonstrates this mid-battle in an impassioned speech to his warring countrymen. Instead of fighting each other for land, says Ragnar, they should join forces in killing other peoples. Despite historical inaccuracies common in such dramas, scholars do indeed believe the Vikings raided other parts of Europe principally out of a hunger for new agricultural land. Later in the show, Ragnar and Rollo raid Paris. Rollo changes sides after the battles, and in return for defending Paris against further Viking raids is awarded the title of first Duke of Normandy. Historically, the Normans conquered England in 1066, and England later becomes the world’s largest colonial power, spreading its land tenure system with it. This system, as we will see when examining George’s ideas, sows the seeds for more war and expansionism in the places to which it spreads. Henry George, as an economist, had a view of history which emphasized the importance of the privatization of the economic value of land. Jared Diamond emphasizes the importance of the orientation of large land masses along an east-west axis in shaping history. What is common to both theses is the importance of land – the petri dish which supports human cultures. Diamond’s Pulitzer Prize-winning Guns, Germs and Steel is probably the most popular book ever written about the role of agriculture in the evolution of human societies. George’s magnum opus Progress and Poverty was likely the best-selling book in the world, after the Bible, when it was published in 1879. Princeton historian Eric F. Goldman described a society in which enormous numbers of people found that their “whole thinking had been redirected by reading Progress and Poverty in their formative years. In this respect, no other book came anywhere near comparable influence.”
Both books tackle such large questions that they are frequently attacked for being deterministic and for broad-stroking details. While the details are contentious, the core theses are straightforward and robust. Postmodernism has made many scholars afraid to distil general forces and has turned ‘generalization’ into a pejorative term. But among those seeking useful answers for the current state of the world, Diamond and George are responsible for paradigm shifts within many fields of inquiry. It is not my goal with this piece to defend all of these thinkers’ ideas with an exhaustive list of historical examples, but merely to compare their most defining ideas. Land Determines Human Progress
Diamond’s thesis is that Eurasia had ideal conditions for agriculture and the success of its people was not due to intelligence or merit. Essentially, crops that flourished in the fertile crescent (self-pollinating hermaphrodites) could move east and west much easier than they could move north and south. Globally, those who controlled land on this east-west axis were able to grow huge food surpluses and advance rapidly, inheriting selectively bred food crops, technology, and ideas at a much faster rate than areas not on this physical and intellectual jet stream.
Diamond writes that effective agriculture and food storage were “prerequisite for the development of settled, politically centralized, socially stratified, economically complex, technologically innovative societies. Hence the availability of domestic plants and animals ultimately explains why empires, literacy, and steel weapons developed earliest in Eurasia and later, or not at all, on other continents.”
Food surpluses freed people’s time and energy for innovative pursuits, supported dense hubs where people could exchange ideas, and supported large militaries to exact tribute and rent from traders and inhabitants. In other words, it was principally differences in access to well-located land that made it possible for some societies to advance to the point of being effective at conquest and colonization.
If George were aware of Diamond’s thesis, he might remark that there is a global privilege, or economic rent, associated with controlling land on this east-west axis. George mostly goes about describing this within societies – as opposed to Diamond’s sole focus on comparing civilizations – arguing that those who control the best locations and can charge rent for them have a return far beyond that which is justified by their individual merit. On the collapse of societies, both thinkers boil it down to sprawling and wasteful land use.
In Progress and Poverty, HenryGeorge discusses how sprawl and the inequalityit produced was the cause of the decay and fall of the Roman Empire:
“Rome arose from the association of independent farmers and free citizens of Italy. It gained fresh strength from conquests, which brought hostile nations into common relations. Yet the tendency to inequality hindered progress from the start, and it only increased with conquest.”
“Great estates—“latifundia”—ruined Italy. The barbarism that overwhelmed Rome came not from without, but from within. It was the inevitable product of a system that carved the provinces into estates for senatorial families. Serfs and slaves replaced independent farmers.”
George, firstly, notices that private property is a natural thing related to human production and in ancient times when the population was sparse “ownership of land merely ensures that the due reward of labor goes to the one who uses and improves it.” But over time, with the density of the population, rent increased forcing civilizational sprawl.
Conquests led to appropriation of land and slavery. The Roman armies moved outwards from Latium demanding land; victory gave more land to the farmers; excessive demands again brought exhaustion of fertility; again the armies moved outwards. Early 20th-century professor of economic history Vladimir Simkhovitch wrote: “Province after province was turned by Rome into a desert, for Rome’s exactions naturally compelled greater exploitation of the conquered soil and its more rapid exhaustion. Province after province was conquered by Rome to feed the growing proletariat with its corn and to enrich the prosperous with its loot. The devastation of war abroad and at home helped the process along.”
Diamond describes the way in which Middle Eastern and Mediterranean civilizations grew crops and grazed cattle in an irresponsible and wasteful manner. If land was plentiful for the dominant culture, who had subdued the inhabitants, they could afford to destroy the soil and move on. The only reason western Europe was able to survive similar irresponsible methods, according to Diamond, was its rainfall, unlike the drier Mediterranean and more inland areas of the Middle East, which were not always deserts.
In this way, George and Diamond agree on the importance of land and resource management in the rise and fall of civilizations, as opposed to the individual merit of those involved, but they describe very similar phenomena through unique and largely comparable lenses. It is difficult to compare thinkers from such different times on issues like the environment. However, one possible difference between George and Diamond are their views on population. George viewed humans, unlike other species, as capable of multiplying their productivity, using fewer resources to produce more wealth. Diamond’s theory that Easter Island, for instance, was a Malthusian (population) trap might put George’s and Diamond’s philosophies at odds. George was likely more of an optimist in terms of population and technology, if the land problem could be adequately addressed first. Resource Distribution within Societies According to George, when a society does not use its own resources well, it leapfrogs to others. He believed that the Western land tenure system creates extreme social stratification whereby the rewards of economic and technological progress go disproportionately to the owners of land. Fear of poverty and an emphasis on unearned wealth and status seeking surrounding this dynamic leads to militarization and a colonial leapfrogging mindset.
Contemporary Georgist economist Mason Gaffney referred to what causes this as ‘milking the core to feed the periphery’. The poor in the center of a society, like large cities, are paying a great deal of their earnings out as rent and those seeking to avoid this rent sprawl in a multitude of ways – from urban sprawl, to heading west during American expansion, to invading other countries for resources, as was the case with the Romans and Vikings as well.
Gaffney and Fred Harrison describe how land hunger drove millions of people to make the dangerous passage across the oceans to the Americas. Over the course of three centuries, those who came from the Old World gradually displaced or decimated the tribal societies of “First Americans” who occupied the continent for thousands of years. Such a huge, and resource-rich continent provided the oppressive Old World regimes with a safety-valve, or what Harrison describes as “a continental-wide bolthole to freedom.” At least for a time.
“When the land ran out in the 1890s,” writes Harrison, “the land of plenty turned into a hell of poverty.” The poverty that plagued the Old World had arisen with an equal vengeance in the New World cities established by the descendants of the first Old World migrants. Of course, the land did not actually “run out” in a literal sense; the commons was given away to the railroads, to politicians and their close friends, to land speculators, and to settlers.
After the Revolution, huge sections of land were bought up by rich speculators, including George Washington and Patrick Henry. As the veterans returned home, speculators immediately showed up to buy the land warrants given by the government. Many of the soldiers, desperate for money, sold their 160 acres for less than $50.
This kind of hoarding of land creates an artificial scarcity, and this can, in turn, be used to stoke public sentiment toward war. As was the case with Rome and other empires, George argued that this process is unsustainable; at some point, people become more focused on raiding and stealing the wealth others have produced than on creating real wealth themselves. The returns are just too low by comparison. Rent-seekers parlay their power, even if originally earned through productive means, into more rent-seeking and even buy political power to cement their positions. The social pact is destroyed as the society continuously undermines its productive base. This dynamic, which George viewed as cyclical, had happened long before the Viking raids of the Middle Ages. In Progress and Poverty, he wrote the following:
“In the history of every nation we may read the same truth: our primary social organization is a denial of justice. Allowing one person to own the land makes slaves of others. The degree, or proportion, of slavery increases as material progress goes on.
The effect of invention and improvement on the production of wealth has been precisely the same as an increase in the fertility of nature. What has been the result? Simply that landowners took all the gain. The wonderful discoveries and inventions of our century have neither increased wages nor lightened toil. The effect has simply been to make the few richer — and the many more helpless!”
Conclusion According to Diamond, people who were lucky enough to have come from land along the longest stretch of east-west land were able to parlay that ownership into more land, decimating those who got in their way. If these east-west cultures existed in environments with lots of water, they could withstand the assault of unsustainable agricultural practices and continue to conquer other parts of the world. If not, they collapsed. George thought that those lucky enough to own land within a society enjoy the same type of unearned luck and privilege. In this way, George describes the cause of poverty within societies, and Diamond describes reasons for inequality, poverty, and colonialism between societies. Both describe why this system of resource allocation and use are unsustainable and ultimately lead to social and environmental collapse, respectively. They also agree that land and location, both its geographic position and land policy, is the most important single factor in determining the fate of civilizations.
If George were alive today, he and Diamond might sit down together and decide that they liked the idea of a global system for sharing the value of land, perhaps as a citizen’s dividend (basic income), which would equalize the historically generated value of land with the descendants of conquerors and the descendants of victims of conquest alike. This would help correct at least the economic misfortunes of people disadvantaged by their geographic position. This would overwhelmingly help those in the global south, the people who not only did not benefit from being on the east-west axis but who were also colonized by those people who did benefit. If done correctly, it could eventually wipe out disadvantages due not to merit, but simply being born on the wrong side of the proverbial railroad tracks.
Simkhovitch, V. G. (1916). Rome’s fall reconsidered. New York: Ginn. Zinn, H. (2003). A people’s history of the United States: 1492-2001.
It is well known that tax systems around the world carve out all kinds of privileges for certain classes of people. Ordinary people, the largest class, pay a lot of tax. Then there are the privileged few who pay little or none. But how is it that so many have been out-foxed by so few to create these privileged classes of tax elites, or “tax smugglers” as Adam Smith use to call them? One need look no further than the first U.S. presidential debate on September 26th to find the answer. And it came from a source, Donald Trump, who does not appear to have a stellar reputation for insight into the complexities of modern life.
Secretary Clinton mused that the reason why Mr. Trump has not released his tax returns, unprecedented in modern presidential elections, was perhaps because he has not paid any taxes. Mr. Trump just about confirmed the allegation when he replied that he was smart not to pay taxes. Apart from the politically treacherous terrain of implying that if you do pay taxes you are stupid, or just not smart enough, it was an uncharacteristically insightful comment from the Republican nominee, even if he was not conscious of how insightful it was. It was about as close as Americans are probably going to get in this election cycle to a discussion about one of the most important things in their lives.
Now in the realm of tax professionals, or “tax techies” as the Nobel prize winner in economics William Vickrey liked to call them, no one was surprised by Trump’s comment. In fact tax lawyers and accountants will tell you that if you are in the real estate business and you paid income tax it is very likely you would have grounds to sue your tax lawyer or accountant for malpractice and gross negligence. There are all kinds of little known rules for those in finance, insurance, and real estate, the so called FIRE sector, which give them exclusive access to the elite tax clubs of the world.
Mr. Trump is probably a card carrying member of this club. If he is not, then I would not want to be his tax attorney. David Cay Johnston laid out the topsy turvy realm of real estate tax avoidance quite nicely on the PBS NewsHour on September 29th. Here briefly is how it works. If you are a real estate mogul like Mr. Trump you can depreciate lots and lots of buildings. This makes perfectly good economic sense because buildings, being created by humans, have a certain life span and need to be replaced. They have an economic life. If you devote fifteen hours or more a week to the “management” of these buildings or assets, then you get to deduct the depreciation of these buildings against all your other income. Mr. Trump’s income from selling ties made in China, or vodka, or fancy real estate courses can effectively be reduced to zero by means of the deduction of the depreciation of his real estate portfolio.
There are, of course, always wrinkles or flies in the ointment in the above scenario. Did he actually devote fifteen hours a week to the management of his real estate portfolio? Shifting through these regulations and their applicability to Mr. Trump is undoubtedly what animates the IRS auditors. It is hard to imagine Mr. Trump assiduously engaging in fifteen hours a week of management duties during a presidential campaign. But who knows? Maybe it can be done via Twitter. The tax attorneys are well paid for their imaginations.
Now it is unlikely the case that Mr. Trump thinks he is smart because he has read and memorized the Internal Revenue Code. Such a feat cannot be presumed of any law abiding citizen. Furthermore, surely he cannot think he is smart just because he has hired some very able tax professionals? There must be a something else afoot for the wily real estate mogul.
Now we know that Mr. Trump has a high opinion of his net worth. He puts a high value on his name and on his buildings. Real estate crumbles and falls apart as every homeowner knows. Mr. Trump’s buildings are no different. Nonetheless, they also keep getting better, more valuable. How can he have it both ways? Well, the realm of tax law and that of economic reality has created a two-world metaphysic and Mr. Trump is its philosopher-in-chief . The tax man lets him depreciate the buildings over and over again while society at large rewards him with tremendous, yes very tremendous, appreciation of what lies underneath the buildings, i.e. the land and the unique location of those lands, be they in Manhattan, or well situated golf courses, or even money losing casinos.
Wily two-world philosophers know how to have it both ways. They depreciate and they appreciate. It is not an easy dance. If you are good at it, like Mr. Trump, you get everything and society gets nothing. The tax subsidies of Americans allow Mr. Trump to defer indefinitely payments to the public treasury. The money he saves can be invested in whatever he wishes, even presidential campaigns. The tax system is rigged and everyone knows it.
The obvious question for Mr. Trump at the next presidential debate, hopefully from a tax abiding person in the town hall, is how he might “unrig” the tax system, or the “surrealistic pagoda of pestilent greed” aptly labeled by Ferdinand Lundberg in The Rich and the Super-Rich. A really smart two-world philosopher could suggest that what is underneath the buildings be taxed. And why is this smart? It would relieve Mr. Trump of his fifteen hours a week of portfolio management. It would relieve the tax man of endless audits. It would relieve ordinary Americans of their current obligation to subsidize the very wealthy. And it just might lighten the debt loads of all levels of government. Everyone, just about, is a winner.
Francis K. Peddle, J.D., Ph.D. Dominican University College Ottawa, Canada
This past July, Earth Sharing organized an event in Oakland, California entitled: BIL Oakland 2016: The Recession Generation. The aim was to help millennials navigate the uncertainties of economic life in the aftermath of the financial crisis. One of the speakers at the event was Kim-Mai Cutler, a technology reporter and columnist for TechCrunch, best known for her work on the intersection of technology and culture in the Bay Area. Cutler has worked for Bloomberg, VentureBeat, and the Wall Street Journal. In the talk below, she discusses the insights of history on the Bay Area housing crisis.
Special thanks to Robert Schalkenbach Foundation, BIL, Cohousing California, The Henry George School, Edward Miller, Frank Ortiz, Alex Wagner Lough, Raines Cohen, David Giesen, Alodia Arnold, Christine Peterson, Christy Fair, Patricia Mikelson, Betsy Morris, Nate Blair, and all of the speakers and amazing volunteers! If you don’t see your name added here or at the end of the video, we apologize. Please send us a note and we will add you. We just wanted to release the video as quickly as possible.
Richard Florida’s The Rise of the Creative Class posited that the clustering of knowledge-based, or “creative” occupations in cities and metropolitan areas drives urban economic growth. Florida now says, though, that such clustering also “generates distinct winners and losers both across and within cities and metros.” This is the central takeaway of the recently published study that Florida conducted in collaboration with Roger Martin, Melissa Pogue, and Charlotta Mellander, his colleagues at the Martin Prosperity Institute.
Florida’s work distinguishes between knowledge-based occupations in science, technology, and design and “routine” occupations in the manufacturing and the service industries. This most-recent study combines that approach with the work of Michael Porter, author of the landmark work The Competitive Advantage of Nations, published 25 years ago. Porter’s work, which looked at the role of industrial clustering in economic development, distinguishes between locally-oriented industries and traded industries—those that export goods beyond their immediate geographical areas. Florida and his colleagues at MPI have synthesized these two approaches to generate four occupational-industrial categories–creative-in-traded, creative-in-local, routine-in-traded, and routine-in-local. By analyzing data across 260 metropolitan areas comprising three quarters of the U.S. population, they have shed light on the role these four types play in innovation, economic growth, and inequality.
What They Found
There is a clear connection between traded and creative industries. 45 percent of those working in the traded industries are in creative occupations, compared with 36 percent in local industries. “Not surprising,” says Florida, “as traded industries compete on innovation and creativity.” These creative-in-traded jobs are distributed very unevenly around the country, with high concentrations, or geographical spikes, in a few cities, with the highest concentrations on the East and West Coasts. Creative-in-traded employment is a key driver of both innovation and economic growth and has the most positive association with higher wages. Of the four categories, creative-in-traded occupations have the highest wages by far, with average wages 31% higher than than the next highest category, creative-in-local, and 182% higher than the bottom category, routine-in-local—which makes up 45% of all workers. Both routine-in-local and routine-in-traded occupations fall below average wages, and the wage gap between creative and routine workers has grown over time.
What troubles Florida and his colleagues is the strong link between a concentration of creative-in-traded employment and economic disparity. The higher a metro region’s share of overall creative-in-traded jobs, the greater the income inequality. While all four categories see higher wages on average in metros with a higher proportion of creative-in-traded occupations, routine occupations do not see wage increases high enough to make up for the higher housing costs driven by a city’s desirability among those in higher-paying creative occupations. As a result, those in routine occupations, especially routine-in-local, are pushed to less advantaged metros with fewer high-paying jobs, creating a vicious cycle in which the disadvantaged sink lower and lower into poverty.
What can be done?
The most difficult challenge, according to Florida, is that there are simply not enough creative jobs to go around. The proportion of creative jobs is increasing, but only very slowly—at about 1.4 percent per year. The solution, says Florida, is the conversion of routine occupations to creative occupations. He calls on business and industry to lead this transformation “by increasing the creative content of what is currently routine work,” and says that there is much to be gained in doing so in terms of productivity, customer service, and quality. Those cities that are able to convert more of their workforce from routine to creative occupations, he says, will be more competitive.
The economist Henry George noted this puzzling phenomenon over a hundred years ago. He asked why it was that as production and density increases so, too, does poverty. You would think that as society is able to produce more wealth in cities there would be more wealth to go around. However, it is precisely because certain people earn more that landlords are able to charge more rent.
Unlike creative ventures, which require innovation and risk-taking, owning a vacant lot in the middle of a city requires relatively no effort or risk, as land values in these areas are continuously going up in value. If an urban property owner waits long enough, they can realize an enormous return without lifting a finger. The creative industries popping up around their rental properties will enable the slumlord to charge much higher rents. This slumlord needs neither assume the financial risk of building a new structure to house more of the new creative industry workers nor continue to house the routine workers. Rather, the slumlord will often just charge increasingly exorbitant rents to the routine workers, effectively forcing them out, and then house the creative workers in the same conditions for higher rents. The creatives are willing to pay these rents due to the desireable location and the short supply of rental units. Supply is suppressed because other landlords are also complacent and prefer to avoid the risk of developing their land to its highest and best use. Some will just knock down the buildings altogether to lower their property tax bills.
If, however, landlords were taxed on the basis of the value of their land, they would be incentivized to provide more housing units in order to pay the tax and make a profit. People would still move around based on the demand for particular locations, but there would be more housing for everyone. Thus, all things being equal, rent would be lower overall. What we think of as the peripheral areas of the cities, where the routine workers can afford the rent, would likely be twice as close to the city center as the areas they can currently afford to live in. We would not need other taxes if all or most revenue was coming from land. If we scrapped all of the taxes on routine workers’ wages, food, transportation, etc., these things would become more affordable, too, dramatically increasing creative employment and reducing poverty in cities. To see what that would look like, you can read our article Visualizing Earth Sharing.
Ammon Bundy and his cohort of armed protesters began their occupation of the Malheur National Wildlife Refuge in Burns, Oregon, one month ago. Eleven people have been arrested and one killed in connection with the occupation. At a roadblock stop on the evening of January 26, Oregon State Police arrested eight members of the armed group, including Ammon Bundy, his brother Ryan Bundy, Brian Cavalier, Shawna Cox, and Ryan Payne. Robert “LaVoy” Finicum was shot and killed. Some say that Finicum had his hands up when shot; authorities claim he reached down for the loaded pistol he was carrying on hip. Shawna Cox, who was in the vehicle with Finicum, confirmed he was carrying the weapon. She has also confirmed witness reports that Finicum shouted “just shoot me” in the moments before he was killed.
The roadblock had been set up on Highway 395 between Burns and John Day, Oregon. Authorities said they decided to make arrests after trying to end the standoff peacefully for 25 days. According to FBI special agent Greg Bretzing, the Oregon protesters “have chosen to threaten and intimidate the America they profess to love, and, through criminal actions, bring these consequences upon themselves.” Upon arrest, Bundy issued a statement to the remaining protesters urging them to abandon the refuge. “Let us take this fight from here,” Bundy pleaded. “Please stand down. Go home and hug your families.”
Finicum was a 56-year-old rancher from Northern Arizona. He was known as a soft-spoken person and was an active participant in the foster care system, reportedly opening his home to more than 50 boys in a years-long partnership with Catholic Charities Community Services. He was also known as a defiant co-leader of Bundy’s protest against the overreach of federal government, having his own brief history of conflict with the Bureau of Land Management. Inspired by rancher Cliven Bundy’s infamous standoff with federal officials in 2014 over BLM land rights, Finicum announced he would no longer abide by federal rules restricting the use of BLM lands. In 2015, BLM accused him of trespassing on federal land that was restricted to allow adequate recovery from cattle grazing.
Following Bundy’s lead, Finicum refused to pay the grazing fees levied by the US Bureau of Land Management. He joined the protest in Burns, Oregon, before that matter was resolved. Upon his joining the occupation at the wildlife reserve, a social worker removed the remaining foster boys from his ranch.
Despite Ammon Bundy’s pleas, several protesters remain at the compound and continue to defy the authorities. Jason Patrick, one of the protesters who remains on the refuge, expressed a combination of uncertainty and anger upon learning of Finicum’s death. “It’s hard to decide what to do,” he told a reporter in a phone interview. Finicum’s death, which Patrick described as “disheartening,” seems to resonate with the same complaints of government overreach that brought the protesters to Burns in the first place. The roadblock, he explained, was an example of the government’s “violent and coercive force.” He concluded, “A peaceful resolution is not dead people.”
As of Monday, four remained at the Malheur Wildlife Refuge. Funeral services for Robert Finicum will be held in Utah on Friday, February 5, according to family, and will be open to the public.
Consumer groups in Italy have banded together to file an anti-trust complaint against McDonald’s with the EU’s executive commission. The complaint alleges that McDonald’s has used its current strength in the market to gouge franchisees and, ultimately, consumers. The fast food giant is reportedly charging rents to franchisees that are ten times normal market rates. Additionally, they set 20-year franchise contracts with non-compete clauses that all but force the franchisees to stay with the brand. The coalition claims that these practices violate EU anti-trust rules. According to a December 8 statement by the EC regarding an anti-trust complaint against Qualcomm, “Under EU anti-trust rules, dominant companies have a responsibility not to abuse their powerful market position by restricting competition.” These monopolistic business practices are nothing new. Common consensus holds that McDonald’s financial success stems not from its food service business but rather land speculation. The corporation’s founder, Ray Kroc, once said, “Ladies and gentlemen, I’m not in the hamburger business. My business is real estate.”
Through its vast real estate fortune, McDonald’s has been able to leverage its formidable power. They can literally crowd out competitors from the physical landscape via their ownership and wasteful use of prime locations. More on that later.
Because of both the high rents it charges its franchisees and the restrictive contract terms, says the EC complaint, franchisees are forced to charge consumers inflated prices. In Bologna, 97% of menu items at McDonald’s franchise stores are priced higher than at corporate-owned ones. This figure is 68% in Rome and 71% in Paris. As for how much higher the prices are, the complaint cites the price of a small order of fries as 64% higher in Paris, 72% more in Marseille, and 25% more in Lyon.
In a joint statement, the groups said, “We urge the Commission to examine McDonald’s franchising system in detail, and take all appropriate action to ensure that the unfair burdens on the company’s franchisees end, and can no longer harm consumers.”
In response to the allegations, McDonald’s claims that the arrangements have worked well for both parties for many years and that they are transparent when it comes to the costs that are associated with being a franchisee, including the investment for equipment, signage, seating, décor, and rent as well as royalties for using the brand.
The complaint has drawn support from the Service Employees International Union, which has over 2 million members in Canada and the United States and is currently backing a campaign for raising the US federal minimum wage to $15 per hour. Scott Courtney, the organizing director for the SEUI, says McDonald’s abuse of its powerful position in the market hurts consumers and franchisees as well as workers.Several American fast food workers travelled to Brussels for the dual purposes of putting pressure on the European Commission to investigate the anti-trust complaint and to publicize their movement for increased wages for US fast food workers.
Currently, the European Commission is investigating McDonald’s tax arrangements in Luxembourg. The commission also believes that the US-based company may have avoided paying taxes in both the US and Europe on royalty profits from franchises in Russia and Europe.
The most expedient remedy for making sure that McDonald’s pays its fair share of taxes is to tax the value of its land holdings. This would make it very hard for McDonald’s to avoid the tax. If the company’s income is taxed, they can simply hide it in offshore accounts. Taxing the value of the land, however, would hit McDonald’s where it hurts and force them to give up some of their giant parking lots to accommodate competitors. These competitors would offer better deals for franchisees, employees, and consumers alike.
Coming from a family of West Texas and Eastern New Mexico cattle ranchers, I empathize deeply with the need to treat farmers and ranchers well. I also believe in the need for policies that create prosperity for all citizens.
Last weekend, Ammon Bundy, son of Nevada rancher Cliven Bundy, led armed demonstrators into a federal wildlife refuge in Oregon, where they began an occupation of a small federally-owned building. The ostensible reason was the imminent incarceration of two ranchers convicted of setting fires to public lands in 2001 and 2006. However, this extraordinary measure on the part of Bundy’s group is rooted in a much larger and complex dispute over the government’s right to regulate use of public lands.
Ammon Bundy justifies the takeover as “a protest of the unconstitutional transactions of land rights and water rights.” In 1993, the federal Bureau of Land Management (BLM) declined to renew the elder Bundy’s grazing permit, as the land had been declared a reserve for the threatened desert tortoise. Bundy disputed the legitimacy of the BLM’s ownership and right to regulation of grazing on the land. Bundy, without a grazing permit, continued to graze his cattle in the area, then refused to pay the resulting fines in excess of a million dollars.
Formed in 1946 for the purpose of overseeing public land, the BLM was a consolidation of two previously existing agencies. It manages a variety of natural resources and regulates mining, logging, and fracking practices all over the country. In 2014, it managed around 18,000 ranchers’ permits, which allow livestock to graze on federal land that is leased for this purpose. The BLM grants grazing rights permits to ranchers at rates substantially lower–as little as 93%– than market rates for private land. While the lease of grazing rights for public land might seem an inexpensive and reasonable requirement, the Bundys believe they should be able to use the land for free because their ancestors worked it before the bureau was established. What about Native Americans though? They were there before the ranchers. Nearly all land in the world was taken by force at some point. So, the argument in truth seems to be that might is right, except when you are on the losing side.
The Bundy case is only one instance exemplifying a larger issue. Ken Ivory, a Utah state representative, has stated, “It’s so much bigger than Bundy. There are issues . . . where the federal government is exerting control over things it was never supposed to control.” The government was not supposed to own the land, he says, but rather just be a trustee of the land. According to Ivory, the ownership of the land “should be transferred back to the states.”
Eighty percent of the land in the Bundys’ home state of Nevada is owned by the federal government, as is over half the land in Oregon. The government offers rates drastically lower than those of market prices and is willing to do so if ranchers are willing to accept the aid. As it turns out, grazing rights fees on government land cover only 15% of the cost of maintaining it, with taxpayers covering the rest.
The takeover of the wildlife refuge in Oregon and the Bundys’ refusal to pay fines for letting their cattle graze on protected land are just two conflicts within a complex controversy over who really owns the land, should has the right to use it, and under what terms.
Ideally, all land would be considered as held in trust for the wellbeing of citizens and the natural environments that support them. The best way to achieve that is to continually charge those who have been given the right of exclusive use of land the full rental value, and to protect certain areas for environmental purposes. This often goes by the moniker “Land Value Tax,” proposed by the economist Henry George. His rationale or the tax, which would equalize the benefit of natural resources is as follows:
“The equal right of all [wo]men to the use of land is as clear as their equal right to breathe the air — it is a right proclaimed by the fact of their existence. For we cannot suppose that some [wo]men have a right to be in this world, and others no right.”
A 1997 Mobil Oil ad in the New York Times and Washington Post read “Let’s face it: The science of climate change is too uncertain to mandate a plan of action that could plunge economies into turmoil.” It continued:“Scientists cannot predict with certainty if temperatures will increase, by how much and where changes will occur.”
But the question is -if the big oil companies don’t believe in global warming, then why are they preparing for it by protecting their equipment from rising sea levels?
A study done by Columbia University Graduate School of Journalism’s Energy and Environmental Reporting Project and the Los Angeles Times looked at how, in the 1980’s, Exxon publicly emphasized the uncertainty of climate change science and then secretly conspired with other big oil companies, spending a billion dollars to prepare their infrastructure.
The companies were protecting the pipelines from coastal erosion, raising decks for the offshore platforms, and adding roads and pipelines in the areas of the Arctic that are warming up. By the end of the 1980’s, groups of environmentalists and scientists were emphasizing the necessity to limit the emissions of fossil fuels because a growing consensus linked the emission of carbon dioxide to climate change, resulting in: global warming, melting glaciers, and rising sea levels. This caused governments around the world to take notice.
Democratic Senator Timothy Wirth called a congressional hearing in 1988 on the topic. It was stated with almost complete confidence that global warming was occurring. This caused the United Nations to form an Intergovernmental Panel on Climate Change to look at its future impact. This lead to a collection of energy companies, mostly from the coal industry, to form the Global Climate Coalition to fight regulations.
For ten years, this coalition, with a revenue of around $ 1.5 million, spent money on public relations and lobbying campaigns. They suggested that the higher levels of carbon dioxide were good for crops, and without it there would be a shortage in the food supply. It focused on the uncertainty of the changes in the climate and warned that regulations would hurt the economy.
The existence of global warming was never denied. However, they did see some holes in the ability of the models to predict the effects. The coalition was certain that any regulations to reduce emissions would have a negative impact on employment, energy prices, and the standard of living. Even though they used the predictions when building new infrastructures.
On numerous occasions, the big oil companies prepared for global warming while denying its existence or belittling the possible effects. As the science continued to provide further evidence, the oil companies continued to pump more and more money into the groups that questioned the science. Political and financial interests have made it hard for any real compromise to happen. The sea levels are continuing to rise, displacing many of the world’s poorest people.
In light of this hypocrisy, companies may claim that they are acting on the idea that, if they are wrong, they want to be prepared. There’s nothing wrong with that. However, why do they keep blocking legislation that would allow the rest of us to prevent and prepare for global warming too?
In light of the gridlock over accepting the notion that climate change is being caused by human activity, it would be helpful to not consider how accurate the models and projected timelines are, but to think instead in terms of risk management along Bayesian grounds, what these companies themselves are already doing. In other words, if there is even a small risk of existential catastrophe, it should be a top priority among governments to try and prevent it. That, combined with the fact that pollution is really harmful for a variety of other reasons, means that we all need to come together on this issue and design a plan to reduce pollution, especially green-house gases.
Here at Earth Sharing, it is clear to us that taxing pollution and the value of urban land is the best way to do that. These methods would not harm the economy. They would actually make it hyper-productive. It doesn’t require consensus on climate change to avoid the risks; we simply need to make companies pay large sums of money when they pollute, so as to incentivize them to reduce their pollution. By letting the debate be framed around absolute undeniable proof of the climate change models, we have allowed the big corporations to obfuscate the real issue, and they are putting us all at great risk as a result.
This weekend, the Paris Climate Summit marked more diplomatic progress on the issue than ever before. China, the United States, and other key nations pledged unanimously to greatly reduce their emissions. Of all the solutions discussed, there really is only one reform that has the chance of being a game-changer, and that’s heavily taxing pollution. Even if you don’t believe in global warming, or whether it is man-made, you can’t deny that pollution is harmful in lots of other ways and that we ought to reduce it. The most common objection to this is that it would somehow hurt the economy. The truth is, a tax on carbon and other pollutants would would actually give the economy a great boost. Just ask the Republicans; taxing carbon was the Bush administration’s official policy.
Whether you’re a conservative or a liberal, for higher taxes or lower taxes, it doesn’t matter. If we collected the same amount of revenue we do now, it would be better if it came from pollution than wages, sales, etc. By removing taxes from hard work and exchange, business would get a boost, and polluting would become expensive. Therefore, people’s behavior and technological innovation would shift to be more in line with the environmental cost of their actions.
President Obama said the following in Paris:
“I have long believed that the most elegant way to drive innovation and to reduce carbon emissions is to put a price on it. This is a classic market failure. If you open up an Econ101 textbook, it will say the market is very good about determining prices and allocating capital towards its most productive use — except there are certain externalities, there are certain things that the market just doesn’t count, it doesn’t price, at least not on its own. Clean air is an example. Clean water — or the converse — dirty water, dirty air.In this case, the carbons that are being sent up that originally we didn’t have the science to fully understand — we do now. And if that’s the case, if you put a price on it, then the entire market would respond.”
The agreement calls for rich countries to invest in clean energy infrastructure in poor areas of Africa and other regions, but who knows whether it will actually be spent well. That doesn’t make it a bad idea per se. One shouldn’t have a zero rule for misappropriation if the overall aim of the spending is achieved and these results are more beneficial than alternative investments. However, it would make more sense to take the pollution tax revenue and just give it to everyone as a global citizen’s dividend, or basic income as some call it, like Alaskan citizens get when companies extract oil from their state.
Government can be effective in the realm of basic research, but when it comes to creating final products that reduce pollution, the private sector is likely to do a better job. I’m not saying this because I’m some kind of crazy Ayn Rand fanatic, I’m just a pragmatic nerd who wants a clean planet with high living standards and lots of technological innovation. We don’t need to depend on government to come up with clean technologies if we simply give businesses the right incentives. There is no way that even the smartest in government can beat out the collective ingenuity of billions of people actively looking for ways to reduce their carbon footprint in avoidance of paying pollution taxes.
Take Tesla Motors for example. They have beautiful, fast, and completely electric cars already on the market. Sure, most people can’t afford a Tesla at present, but Elon Musk’s long term business strategy is to progressively make less and less expensive models at higher sales volumes, once Tesla’s costs are lower that is. If taxes were shifted off of companies like Tesla who make clean cars, and on to big polluters like Ford, it would naturally lead to more demand among consumers for cleaner vehicles, and car manufactures would need to follow suit to remain competitive. If you’re concerned about raising productive employment in the United States, providing such incentives would enable the US to compete with Asian car manufacturers. The problem at present is that not only do we not tax pollution, we actually subsidize a host of industries involved in a supply chain latent with pollution. If we end the subsidies and start taxing pollution, you’ll see lots of clean economic growth. They taxed energy in Denmark, a way to approximate taxing pollution, and the results have been greatly beneficial.