We would like to invite you to an exciting event in New York City on how natural resource policy has gone so wrong. Don’t miss the chance to be a part of this vital ethical and economic debate that will shape policy dialogue for years to come.
Friday, May 19th, 9:00 am – Noon 22 East 30th Street, New York, NY 10016
For further information and/or to attend email: email@example.com
“To make the economy work on behalf of citizens and nature, the special privileges of the past will have to be terminated.” The words of Frederic S. Lee, editor of the American Journal of Economics and Sociology, elucidate the powerful implications of a new piece of writing from Georgist economist Mason Gaffney.
Gaffney’s Nature, Economy, and Equity: Sacred Water, Profane Markets appears in the November 2016 edition of AJES and challenges the fundamental assumptions of even the most liberal economic dogmas of the past century. Lee says that by recognizing the tendencies toward capital accumulation inherent in laissez-faire capitalism and enshrining the sanctity of nature at the forefront of any policy discussion, Gaffney has produced “principles of universal relevance”.
To foster an ongoing public dialogue on Sacred Water, Profane Markets, the Robert Schalkenbach Foundation is co-sponsoring an event in New York on May 19, with the International Union for Land Value Taxation, a United Nations ECOSOC NGO, the Center for the Study of Economics and The American Journal of Economics and Sociology.
This event will explore how a just system of charging for nature’s services can not only protect nature from excessive use but also make the market for produced goods and services healthier by preventing the development of monopolies that impede economic efficiency and destroy social harmony.
FROM THE ORGANIZERS
Sacred Water, Profane Markets should be of particular interest and provide ground-breaking insights to any professional, NGO, or others with an interest in or responsibility for managing, funding, using or caring for substantial bodies of water for municipal, domestic, commercial, agricultural, industrial, amenity, leisure or hydropower purposes.
Two of our speakers, David Triggs and Mary Cleveland, will address the economics and management of water. They will describe how a just system of charging for nature’s services can not only protect nature from excessive use but also make the market for produced goods and services healthier by preventing the development of monopolies that impede economic efficiency and destroy social harmony.
Drawing upon many years of practical experience in both developed and developing countries and extensive academic research they will show how a healthy balance of demand management and market forces may be used to ensure both safe drinking water for all in water scarce cities and the optimum sharing of water between agricultural, industrial and commercial users of water. They will provide fresh thinking with regard to how the cost benefit analyses that underpin major water related capital projects throughout the world may be improved to avoid unnecessary waste of natural, human and financial resources. The principles underpinning this approach apply to wider economic and public revenue issues.
Our third speaker, David Michel, has researched and written about transboundary water governance, maritime resources management, and water conflict and cooperation. He is co-author of Toward Global Water Security: US Strategy for a Twenty-First-Century Challenge. He will share his views about the water ethics and policy presented by the first two speakers and how these might make a valuable contribution to a global water grand strategy formulation. The intention of Dr. Michel’s current work on global water security is to maximize the potential for civil society and the private sector to speak with a cohesive voice on water ethics and policy.
Following the three main speakers several designated respondents will draw on their own insights and experiences in water ethics and management in giving their input to the proposed reconciliation of Sacred Water and Profane Markets. The main speakers and the respondents will then participate in a plenary round table discussion on a number of key points and questions raised by forum attendees.
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. 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 To illustrate, Vikings, a popular historical drama on the History Channel (spoiler alert), features the fearless upstart Ragnar Lodbrok. Ragnar bases his legitimacy as a ruler on the idea that he can supply his people with not only new sources of loot but, most 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 believe the Vikings raided other parts of Europe principally out of a hunger for land.
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.
“Housing is at the centre of an historic structural transformation in global investment and the economies of the industrialized world with profound consequences for those in need of adequate housing.”
Adequate housing is a human right, and securing it for all people is not only a moral imperative, it is one of the 17 Sustainable Development Goals that have been developed by the United Nations and targeted for achievement by 2030. All signatory member states are bound to pursue this goal in earnest.
Leilani Farha is the U.N. Special Rapporteur on adequate housing, and she has reached some unsettling conclusions about the worsening of what she terms the “financialization of housing” in a report presented to the U.N. Human Rights Council at the beginning of the month. Prosper Australia’s (Earth Sharing Australia) Speculative Vacancies report is held up as a primary source of evidence regarding the scale of the issue, a study that EarthSharing.org is excited to replicate in the United States as well.
After the enormous losses incurred from the 2008 global financial crisis – by homeowners, banks, and taxpayers – it seemed reasonable to expect that any legislative response would crack down on the deficiencies in the system that had made such a crisis possible. In a nutshell, the opportunities for corporate finance to turn housing debt into a commodity were left unchecked, and the practice of packaging mortgage-backed securities into enormous bundles and selling them as an investment became widespread.
According to Farha, the resulting catastrophe of mortgage defaults and foreclosures actually ended up being a huge win for corporate finance, as companies were able to sweep up billions of dollars worth of property at fire sale prices from state governments who had been forced to assume responsibility for high-risk mortgages.
“Individuals and families who were affected by the crisis were often blamed for taking on too much debt and new rules and regulations were put in place to restrict their access to mortgages. Austerity measures cut programs on which they had relied for access to housing options, and the march towards the financialization of housing continued.”
There is a need now more than ever to reclaim housing as a social commodity and to disincentivize its treatment as a cash cow, an asset for the accumulation of wealth and an easy tax haven for the world’s super-wealthy.
Farha outlines the way in which a vast amount of investment properties are being left empty and suggests that even without occupants, a property can generate significant value for the owner. In Melbourne, a full 20 percent of investor-owned properties are vacant, equating to about 82,000 homes. In London, the wealthy suburbs of Chelsea and Kensington saw a 40 percent increase in vacant properties between 2013 and 2014.
“In such markets, the value of housing is no longer based on its social use. The housing is as valuable whether it is vacant or occupied, lived in or devoid of life. Homes sit empty while homeless populations burgeon.”
Farha says there is a “gross imbalance” between the resources that governments devote to assuaging the needs of the ownership class and what is a “complete deficit” of attention paid to those who cannot meet their needs for a safe, affordable place to live. The situation is likely to worsen with the proliferation of international trade agreements, which tend to have the effect of intimidating governments out of regulating investment in property and the development of luxury rentals. A precedent has already been set by cases of treaty arbitration wherein millions of dollars in damages have been awarded to foreign investors.
The human right to adequate housing is enshrined in the 1948 Universal Declaration of Human Rights and half a dozen other international conventions and covenants. This right, under our present system, is in constant conflict with the use of land as a store of wealth and a means of capital appreciation, and governments have made the problem worse by providing tax subsidies for homeownership, tax breaks for investors, and bailouts for corporate finance.
A system of Land Value Taxation would discourage such ubiquitous property speculation and exert downward pressure on prices. Confronted with tax bills that more accurately reflect the public value of centrally-located land, speculators and other stakeholders will find it much less attractive to hold onto housing as a deposit box for wealth. The revenue generated from this tax could be used to revitalize the stock of public housing, though this would simply be a cherry on top of the more significant shifts in incentives created by the Land Value Tax.
Over the last 60 years, dozens of studies on patenting, innovation and economic growth have found that patents foster ex ante innovation — meaning, they induce people to invent because of the prospect of reward. This causal relationship is widely accepted, and some studies have also shown upticks in metrics like foreign direct investment following implementation of strong patent laws.
The patent system is also one of the most effective tools for knowledge-sharing and technology transfer ever devised. A 2006 study by French economists Francois Leveque and Yann Meniere found that 88 percent of U.S., European, and Japanese businesses were reliant on the information disclosed in patents to keep up with technological advances and direct their own R&D efforts.
But neither profit nor innovation is enough to justify the full extent of the patent race; that is, a “first come, first served” approach to patent law that does not allow for the same discoveries to be made independently. It is also hard to argue for the way in which the current system encourages breaking patents down into smaller segments that can be exploited for gain on the basis of blocking further innovation.
Patent law requires careful reform that balances the need to keep U.S. innovation from disappearing overseas and the opportunities for boutique innovators to create without fear of excessive litigation.
The relationship between patents and innovation remains uncertain in some ways. One problem is that very often the measure for innovation is the patent itself, and there exists an assumption that a higher number of patents will lead to more innovation.
A 2009 study utilized an online game called PatentSim, developed to see how innovation was affected by different patent systems. It featured an abstract model of the innovation process, a database of potential innovations and a network through which users could trade and enforce patents. The software compared a traditional patent system, a “commons” system with no patent protection, and a system with a combination of patents and open-source protection.
The initial results of this study were “inconsistent with the orthodox justification for patent systems”, showing that full or partial patent systems generated significantly lower rates of innovation, productivity, and societal utility than a commons system. Even in repeat studies in which participants knew enough about patents to generate more innovation, the “pure commons” system still returned higher productivity and social utility. Interestingly, the creators of PatentSim decided to patent it.
In a 2013 Wall Street Journal article, Harvard Business School’s Rosabeth Moss Kanter said the patent system was “the innovator’s friend”, but not the friend to a general public that wanted innovations to be used for everyone’s benefit. In other words, innovation is a force for personal gain as well as social good, and often the balance is tipped in favor of one at the expense of the other.
“Industry giants can lock up ideas and sit on patents in order to discourage competition. We should favor “use it or lose it” rules that ensure that true innovators can’t be driven out of an industry because incumbents protect their turf,” Kanter said.
Under current regulations, patent holders are not penalized if they do not use their patents. This allows for the existence of entities like patent holding companies (PHC), patent assertion entities (PAE), and non-practicing entities (NPE). There are legitimate reasons for these kinds of organizations to exist, but many are what are known as “patent trolls”.
Patent trolls amass patents with the sole intention of filing infringement suits. The Patent Office has a habit of issuing vague patents, allowing the troll to threaten legal action against as many entities as possible and demand licensing fees running into tens or hundreds of thousands of dollars.
2015 was the biggest year to date for patent lawsuits, and two-thirds of these were filed by non-practicing entities. The prevalence of lawsuits of this nature drew attention from President Obama’s administration. A 2011 law, the America Invents Act, made it illegal to file a patent lawsuit against multiple defendants. President Obama also ordered the Patent and Trademark Office to require more specific information about patents and infringements to protect businesses that were “simply using off the shelf technology”, according to the New York Times.
Forbes writer Matthew Herper asks whether there is really a “need to ‘fix’ the legal system that has enabled America to become number one in the global biotech, software, hardware, medical devices, energy, genomics, and nanotechnology industries”. Herper claims that reforms to the patent system are “well meaning in their search to restrain patent trolls, but have created tremendous unintended consequences”, most notably in medical biotechnology research and development. “Let us be clear: investments in the biotech industry are based entirely on patents. Without strong patents, we cannot raise money to find cures for disease.”
Earlier this year, we published a discussion of how any attachment of property rights to elements of biology should be treated with extreme care. The patent system is not ideal, but it’s best elements are vital to our economy. This complexity is perhaps described best by two famous economists, Fritz Machlup and Edith Penrose, who stated:
“If we did not have a patent system, it would be irresponsible, on the basis of our present knowledge of its economic consequences, to recommend instituting one. But since we have had a patent system for a long time, it would be irresponsible, on the basis of our present knowledge, to recommend abolishing it.”
No new technology can be manifest in a vacuum. That is to say, every so-called innovator is dependent on the accomplishments of countless others who have come before them. The societal need for innovation, and its fundamental dependence on past innovations, illustrates the need to capture some of the value of intellectual property for private gain and leave some for public good.
Patents offer an essential safety net to small businesses with new ideas and to high-cost, R&D-intensive research companies. After accounting for cost recovery and preventing blatant appropriation, however, our system of patents has a lot of unintended consequences for which to answer. If these are to be addressed, some kind of Patent Value Tax and public auction of unused patents should be implemented; in the same way that a Land Value Tax would see land changing hands until the right person could maximize its value, patents could be exchanged so that those most useful to society do not sit idle.
It is also worth considering that patents only report a final, positive result of a larger research process, thus hiding failures that others will likely encounter as well. If we are talking about innovation we should recognize the importance of failure, and that understanding what doesn’t work is also a part of technological progress.
The United Nations Special Rapporteur in the field of cultural rights has concluded that while patents encourage innovative research and development, they are also “dangerous” in their power to deny access and limit public participation in science and culture. The report concludes: “Where patent rights and human rights are in conflict, human rights must prevail.”
We now know that sugar, particularly high-fructose corn syrup, is the leading cause of the U.S. obesity epidemic. Two-thirds of adults and a third of children are considered overweight or obese, and the dietary choices that have created this crisis are often the result of understandable thrift. Our tax environment offers market-shifting subsidies to conglomerate producers of some of the worst things we put into our bodies.
Co-opting Noble Wartime Policy
Agricultural subsidies were used to great effect during World War II, as a way to shore up supplies of corn and wheat to prevent a shortage of troop supplies. These policies served their intended purpose, but without a timeframe, they were allowed to become entrenched by farming businesses which stood to benefit. The foods we are encouraged to eat today, and what we are told about nutrition and cardiometabolism, are in no small part influenced by lobbying from within the system created by wartime pragmatism.
The justification for subsidies today is that the U.S. government wants agriculture to be competitive globally. However, the choices American consumers are making have turbocharged healthcare costs related to obesity. So, two opposing goals are being pursued simultaneously, all while the agriculture industry preys on vulnerable people with cheap, unhealthy foods. A common response is the suggestion to tax sugary foods, but this may not be the best way to optimize incentives.
A study of subsidized foods and their relationship to cardiometabolic risk measured that overall, 56 percent of calories consumed were among the major subsidized food commodities – corn, soybeans, wheat, rice, sorghum, dairy and livestock. The study concluded that higher consumption of calories from subsidized food commodities was associated with a greater probability of some cardiometabolic risks. Therefore, better alignment of agricultural and nutritional policies has the potential to significantly improve population health.
The majority of subsidies go to commercial farms with an average income of $200,000 and average net worth close to $2 million, according to a report by Heritage Foundation senior research fellow Brian Riedl. The reality of agricultural subsidies is incongruous with their intent; instead of raising farmer incomes with higher crop prices, they promote overproduction and lower prices further.
Smallholder family farms are largely excluded from subsidies, and instead they finance consolidation and raise land values to prohibitive levels. In the decade preceding 2007, many agricultural subsidies were distributed to Fortune 500 companies, celebrity “hobby farmers”, and sympathetic Members of Congress, including:
$2,849,799 – John Hancock Life Insurance
$1,183,893 – International Paper
$534,210 – Westvaco
$446,914 – ChevronTexaco
$553,782 – David Rockefeller
$206,948 – Ted Turner
$225,041 – Senator Charles Grassley (R- IA)
$45,400 – Senator Gordon Smith (R-OR)
$161,084 – Representative John Salazar (D-CO)
A 2006 Washington Post investigation discovered 75 acres of Texas housing for which the owners could claim agricultural subsidies based on “historical rice production.” Over the past 25 years, rice plantings in Texas have plummeted from 600,000 acres to 200,000, in part because people can now collect generous rice subsidies without planting rice. This illustrates that once implemented, even a seemingly sensible subsidy can become a useless bureaucratic burden that must be repealed or risk becoming ridiculous.
The Sugar Conspiracy
Robert Lustig, a pediatric neuroendocrinologist at UCSF, says a person increasing their sugar consumption is a big problem because “sugar both drives fat storage and makes the brain think it is hungry, setting up a vicious cycle.”
More specifically, Lustig confirms that it is fructose that is harmful. Fructose is a component of the two most popular sugars: table sugar and high-fructose corn syrup. High-fructose corn syrup has become ubiquitous in soft drinks and many other processed foods.
According to the World Health Organization, food marketing has been shown to influence children’s dietary preferences and behavior, increase the risk of becoming overweight and obese and form habits which persist into adulthood.
Amanda Long, Director-General of Consumers International, says that “the majority of adverts seen by children around the globe are for heavily processed foods high in fat, sugar, salt and calories.”
Research in the science journal Nature concluded thatyoung children are not responsible for their food choices, and are incapable of accepting personal responsibility in amongst so many influences including parenting, social factors, and advertising. Obese children are ostracized by their peers, and their quality of life, as measured by self-reported distress, is comparable to those receiving cancer chemotherapy.
In September 2016, NPR reported that for the past five decades, the sugar industry has been attempting to influence the scientific debate over the relative risks of sugar and fat.
That these documents are so old only serves to magnify the implications of this ongoing corporate behavior. A report published in the JAMA Internal Medicine journal highlighted ways in which these practices continue.
Report co-author Stanton Glantz told The New York Times this sugar industry strategy of sponsoring research was a smart one, “because review papers, especially if you get them published in a very prominent journal, tend to shape the overall scientific discussion.”
The response from the Sugar Association was to say that at the time of publication, “funding disclosures and transparency standards were not the norm they are today.” In one recorded study, a finding of health benefits from a diet of less sugar and more vegetables was dismissed, because such a dietary change was not considered feasible.
In the aftermath of these revelations, the sugar tax debate ignores the more fundamental forces that have given agricultural mega-producers so much influence.
Sweetening The Deal
Subsidies are either going to artificially inflate farmland values and rents, or wind up in the back pockets of supermarkets. If the farming of certain crops is supported by a failsafe government subsidy, supermarkets will see no need to reimburse farmers for the full cost of production, resulting in lower prices and stagnating incomes.
Under a system of Land Value Taxation, all production would be tax-free and, in a sense subsidized. Other foods could compete with corn, and we might experience a decrease in the ubiquity of high-fructose corn syrup in cheap, readily available processed foods.
Farmland is not particularly valuable in comparison to its urban counterpart, so many farmers could expect to be better off under such a policy. Nevertheless, a Land Value Tax would also encourage small-surface-area, horticulture as opposed to extensive, land-wasting monoculture that is subsidized by the public purse. Not only that, it would create a lot of jobs in sustainable farming, since taxes on labor would be removed in a pure Land Value Tax system.
In 1931, historian James Truslow Adams said the American dream mandates that “life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement”, regardless of social class or circumstances of birth. But what does that actually mean?
For some, the vagueness of the American dream concept makes it difficult to quantify. Identifying a more specific metric of focus would offer a clearer picture of American opportunity for prosperity and success, and an upward social mobility for all people.
TechCrunch.com journalist Kim-Mai Cutler delivered a presentation at Earthsharing.org’s BIL Oakland 2016: Recession Generation event on July 9, in which she focused on the intersection between opportunity, technology, and land. To address this intersection, she referenced the research of Stanford University economist Raj Chetty.
Chetty analyzed the family income records of 40 million children over the past 20 years and calculated the likelihood of a child born into the poorest 20 percent (lowest quintile) of society reaching a higher quintile in income. Isolating geography as a determining factor, Chetty found that, for example, the city of San Jose provides the best opportunities for a poor child to reach the 80th percentile in income distribution, compared to all other cities across the country. This is shown in Figure 1.
Despite this, Figure 2 shows a trend reflected statewide and across the United States wherein median wages are increasing, but poverty is also on the rise, and homeownership is falling.
This trend in Santa Clara County flies in the face of conventional thinking, whereby poverty should decrease as incomes and opportunities multiply. If people are making more money, yet are less able purchase a home, the home price must be rising faster than the wage.
Similarly, apartment rent is skyrocketing. There is a lot of job growth, which would tend to indicate that labor is more in demand and that incomes will be higher, but most of the new jobs do not pay well – most make less than 50 percent of the average median income (AMI), as seen in Figure 3.
To add insult to injury, Figure 4 shows that many lower-wage workers fall well short of average asking rents, and are therefore unable to work and live in the same area. These people must either cohabitate or commute long distances in order to secure housing that they canafford.
These are direct consequences of Proposition 13, which greatly limits property taxation in the state of California. Proposition 13 defines what a parcel of real estate can be taxed, how much that tax can grow annually, and when the parcel’s value can be reassessed. Over time, this has created severe market distortions, as developers have no incentive to build additional housing that is affordable. This ultimately limits housing supply, forces workers to commute further from the urban centers, and leads to additional sprawl.
How does this all affect upward mobility? For starters, family commute times correlate with a child’s future success and earnings. Figure 5, from Chetty’s study, shows that a transit time of 15 minutes or less significantly correlates with a child’s upward mobility.
If the American dream is precipitated by upward mobility from one income quintile to the next, it is becoming an unattainable dream for an increasing percentage of the population. Without significant policy change, it will become impossible for many families to escape wage slavery.
Remedies do exist – some to resolve the problem altogether, and others to mitigate it. Metro San Francisco has seen a significant growth of working professionals choosing cohabitation, as well as the tiny house movement of 100-400 square-foot spaces. Unfortunately, these behaviors do not address the structural inequities and land misuse created by the current policy environment and Proposition 13.
With this in mind, it would be sensible for new housing construction in the Bay area to occur where economic activity is most concentrated, namely downtown San Francisco. Downtown areas tend to have the greatest land values, but traditional strategies for construction in the city center tend to be very expensive, politically treacherous, or otherwise ineffective. While cohabitation and tiny houses might make the area more affordable for a few, government must incentivize urban development in high-demand areas to effectively turn the tide of this crisis. To this end, the city and state must consider a Land Value Tax.
The economist Henry George documented this phenomenon of market exclusion 137 years ago in his seminal work Progress and Poverty. George demonstrated how rent increases faster than wages, and to expedite new construction, he recommended eliminating taxes on work and consumption and shifting the source of revenue to Land Value Taxation. His idea was to encourage landowners and developers to increase residential and commercial space in order to pay the Land Value Tax, while generating a respectable return and providing value to others. Land Value Taxation naturally becomes even more effective wherever land values are higher, like the urban core of cities. Implemented in cities, Land Value Taxation leads to a substantial increase in both living and working space.
California faces a unique challenge due to the limits imposed by Proposition 13, and overcoming this would require a difficult voter-approved constitutional amendment to completely overhaul the property tax system. State legislators and regional and city planners would be remiss not to consider a Land Value Tax, which has had demonstrated success in increasing residential space in the United States and abroad.
Watch Kim-Mai Cutler’s presentation below:
Images: Keynote presentation by Kim-Mai Cutler at BIL Oakland: Recession Generation 2016
“He who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me.” -Thomas Jefferson
The Angelina Jolie Effect
In 2013, Angelina Jolie shocked Hollywood by announcing her decision to undergo a preventive double mastectomy. She cited a hereditary risk of breast and ovarian cancer and what she had been told was a 65 percent chance of breast cancer due to a mutation in her BRCA1 gene.
The discovery that certain mutations of the BRCA 1 and BRCA 2 genes increase risk of breast and ovarian cancer was made in the 1990s. The company that began the BRCA analysis test claimed that a mutation in either of these genes could increase risk to as high as 87 percent for developing breast cancer and 63 percent for developing ovarian cancer by age 70.
The ensuing publicity caused a surge in genetic testing in what has been named the ‘Angelina Jolie effect’. But the cost of a BRCA test is extremely prohibitive, at more than $3,000 in the United States. Jolie wrote in an op-ed that this was a huge obstacle for many women seeking tests for breast cancer, a disease that kills almost half a million people around the world each year.
When Myriad Genetics discovered the ‘breast cancer genes’ in 1994 and 1995, it managed to acquire 20-year patents for the very genes themselves, as well as any current and future methodologies for examining them. This monopolization was a boon for shareholders, and in 2013 the BRCA analysistest brought in 75 percent of Myriad’s total revenue of $613 million.
Should Biological Phenomena be Ownable?
Conversations about property rights typically involve things that people have built, bought, or otherwise created throughout their lives. But as technology challenges our fundamental understanding of biology and ourselves, we are faced with a decision about whether to update our institutions to reflect new opportunities for ownership in nature.
In 2009, a group of organizations including the Association for Molecular Pathology and the American Civil Liberties Union filed a lawsuit challenging the BRCA gene patents, arguing that they amounted to patenting human life, robbed every person of a piece of self-determination, and violated basic human dignity.
The case was supported by testimony from many women who had been disadvantaged or put at risk by patent restrictions, from being denied a second opinion on tests, to being unable to afford testing, and having insurance rejected by Myriad. After a four-year legal battle, theSupreme Court ruled in 2013 that human genes cannot be patented in the U.S. because DNA is a “product of nature”.
This ruling annulled the patents related to more than 4300 human genes, stripping monopoly status from Myriad Genetics and dozens of other companies and institutions that had profited from them. “Myriad did not create anything,”Justice Clarence Thomas wrote in the majority opinion. “To be sure, it found an important and useful gene, but separating that gene from its surrounding genetic material is not an act of invention.”
What the landmark ruling didn’t cover, however, were methods for testing BRCA genes, possible new patents of these methods, or the patentability of synthesized DNA. Myriad’s two-decade monopoly has left it with a massive database of genetic data, maintaining its dominant position in risk factor analysis for BRCA genes compared to any competitor.
The main importance of the Court’s decision was establishing this boundary between innovation and appropriation of biological phenomena. In the same way that natural resource extraction methods can be patented and monopolized, so too can techniques for analyzing and repurposing genetic material. But the mere existence of compounds in nature should not be ownable in a free and clear way, not without some sort of duty to use these natural opportunities, opportunities that hold the potential to free us of a great deal of suffering and unleash human potential.
It’s not just genes that have been captured for exclusive license and rent-seeking. Consider Joseph Merrick, a so-called ‘freak of nature’ known as the Elephant Man. He spent most of his short life in circuses, where many entrepreneurs made a great deal of money exploiting Merrick’s condition. Until recently his bones were on display at the Royal London Hospital museum, andthere is no evidence to suggest he consented to this.
The most famous case of this sort of appropriation is that of Henrietta Lacks, an African-American woman whose cancer cells were harvested in 1951 and used to create an immortal cell line for scientific experimentation. In the process of radium and x-ray therapy, tissue was removed from her tumor and secretly sent to a lab at Hopkins University to be grown in test tubes.
Lacks died at the age of 31, leaving behind a husband and five young children. The family never received any financial support, and found out by chance that their mother’s cells (called HeLa cells) have been used in ongoing research. HeLa cells were used in developing the polio vaccine, were sent into space, and have been used for cloning, gene mapping and in vitro fertilization.
The practice of patenting materials in nature and people or aspects of cultural tradition is given the derogatory term ‘biopiracy’, and agrochemical and biotech company Monsanto offers an illustration which once again distinguishes between innovation and merely appropriating what freely exists in nature. In 2016, the European Patent Office revoked a Monsanto patent for a virus-resistant gene found in Indian melons. Monsanto introduced the resistance to other types of melons and managed to patent this as its own invention. But the gene responsible for this resistance was discovered in 1961 and plants containing it have been publicly available since 1966. Conversely, Monsanto has won many of its own lawsuitsagainstfarmers who infringe on patent rights Monsanto has on its seeds.
Monsanto and other institutions have appropriated these materials without obtaining consent. It then has turned around and charged monopoly prices to the same people for the right to use these materials. And while cultural remuneration is tricky, privatizing these cultural products anyway has sometimes resulted in important advances in medicine and other fields. However, in the context of patents, there has more often been a very real reduction in scientific and social advancement, as patent holders merely speculate on their patent claims. This forces real innovators to pay large sums of economic rent or go through contortions to avoid patents, all in order to add to the intellectual stock of humanity.
For example, there are hundreds of patents on Agrobacterium techniques alone, which has been the most common vector for companies like Monsanto splicing genetic code into plants. The reason there are so many is the risk of patent infringement. Researchers have come up with brilliant workarounds for these problems, but developing new ways to do the same things has huge opportunity costs. For scientists, it’s a purely bureaucratic hurdle, not a chance for real scientific advancement. Thankfully, tools are being developed to help reduce confusion over this, but they are not enough to encourage entrepreneurship without an army of lawyers.
In the mid-’80s, molecular biologist Dr. Richard Jefferson pioneered a genetic research technique that helped illuminate where genes are expressed in plant tissue. He distributed this helpful technique immediately to more than 1000 labs around the world.
Jefferson said in an interview that the litigious way in which genetic patent issues tend to be resolved is not constructive, and that both parties “end up trying to promote their particular worldview based on a lack of evidence on either side”.
“So you’ll have businesses who will pound their wingtips on the table and say ‘we must have exclusive licenses, and… on the other side, you might have civil society or thoughtful social policy engagement that says ‘it’s all wrong, you shouldn’t do it that way, everything should be free’, but they may well not be aware of the very complex natures of risk mitigation businesses have to encounter,” he said.
“There’s no real evidence base that can guide real problem-solving for policymakers or for practitioners.”
One company might be better off if techniques for analyzing genes can be monopolized, but it is likely that the market for innovation and society as a whole would be better off if these medical techniques were somehow available to all. These returns to society could manifest as wealth creation, scientific innovation, and better health outcomes.
Open source success stories in the technology world – including operating systems, programming languages and web browsers – have not offered direct profit to its community of creators, but they have provided social value and a means to create wealth. Jefferson wrote in 2006: “Many ask, ‘How do you make money in open source?’ The answer: you make money not by selling open source, but by using open source.”
There are valid reasons both for patents as well as open source. However, might there be a synthesis, a solution that would give us the best of both worlds?
Incentives are Holier than Property
Friends of Earthsharing.org, Guido Núñez-Mujica and Joseph Jackson, had a great idea for helping poor people in remote areas of Latin America. They wanted to create a light and portable machine for copying DNA (PCR) so it could be used for all sorts of things, in this case testing for tropical diseases. A standard PCR machine is fairly heavy, at least as far as jungle treks go, so a light mobile version could have really helped a lot of people get tested and then obtain treatment. However, because someone had patented the mere idea more than 25 years ago, and done nothing with it, they could not patent it themselves. This vastly reduced the pool of investors due to the increased threat of competition.
Even if others have independently thought of the same idea on their own, they are restricted from using it by an existing patent. Such ideas should not belong exclusively to the person who merely filed the patent first, at least not in an absolute way. We can, for instance, say that a patent affords the holder the opportunity to invest more into creating their idea, but that right should be coupled with an incentive to use their monopoly privilege for productive purposes.
An innovative solution to this problem parallels that of 19th-century economist Henry George, who wanted to incentivize landlords owning prime real estate to make their land available to others. He proposed a tax on the value of urban land to invigorate landlords to use prime locations productively.
Where landlords have monopoly privilege over a particular geographic location, Myriad genetics and Monsanto had, and to some degree still have, a monopoly privilege over specific ‘nucleo-graphic’ areas of DNA, untouched by the artifice of human innovation. Just like landlords who own vacant urban lots for years and leave them undeveloped, patent owners should pay increasingly more to exclude others from developing ideas that will benefit humanity.
Patent Value Tax
Patents are important because the exclusive usage rights can often provide a predictable environment that can encourage production. Banks can feel confident that they can provide loans. Inventors can feel more confident that someone won’t just copy their work and get away with it. Patents are also important because it ensures that the discovery is publicly documented.
But as previously mentioned, patents also have drawbacks. Patent trolls use patents for idle speculation, holding valuable ideas for ransom. Patents contribute to a climate of high liability for new inventors, because with so many patents it is impossible to know when violations occur.
To ensure patents are only held by people who intend to use them, and only while they are intending to use them, a tax incentive system could be very helpful.
Patent values could be self-assessed by the inventor and changed at any time. The rate of tax will gradually rise over time, based on the self-assessment. If particular patent holders decide the taxes are too onerous, they can simply lower their assessment, or relinquish it into the public domain. Anyone is allowed to place bids that are higher than that self-assessed value, and this will initiate an auction. The proceeds go to the current holder.
Auctions would be open to anyone, including the government. This would provide a vehicle by which we can use the democratic process to incentivize scientific research. Since the government could buy the patent and release it into the public domain.
Some may argue that patents are nothing more than a right to sue for violation, and do not encourage innovation. This is particularly true today considering that many technologies require a combination of existing technologies, involving multiple patent holders who are often in it to speculate. However, this dynamic would vanish if patents had high holding costs and could be publicly auctioned at any time. Patent holders would have an incentive to work with others quickly because holding onto a patent would be like holding a very expensive hot potato.
Patents as a Privilege
Founding Father and third President of the United States Thomas Jefferson is the earliest authority on American patent law, but his view on the matter was characterized by skepticism unless patents were for the public good. He was generally opposed to any kind of monopoly, and believed that ideas were both unstoppably contagious and not fit to “be a subject of property”.
“Society may give an exclusive right to the profits arising from them, as an encouragement to men to pursue ideas which may produce utility, but this may or may not be done, according to the will and convenience of the society, without claim or complaint from anybody,” he said.
The attachment of property rights to biology, and all ideas for that matter should be treated with great care, both because the natural world was not created by any one of us, and because exclusive rights to innovate need to come with a duty to use the necessary natural resources well. It is not for us to plant our flag and claim ‘this is mine!’ but to consider ourselves stewards, with a duty to use natural resources in ways that will ultimately improve our lives and the lives of others.
Most of the wealth being generated in Silicon Valley is the result of advanced engineering, risky venture capital and cut-throat business acumen in the face of rapidly-evolving competition. Visa, HP, Intel, Adobe, Ebay, Apple, Google, Facebook – the concentration of multi-billion-dollar enterprises in this tiny pocket of Santa Clara Valley is staggering.
But not everyone making big money in Silicon Valley had to major in a STEM field or produce any real wealth to do so. For those who have speculated on rising land values, the last 40 years has been a gamble that keeps paying off. In the 1960s, when the land in Santa Clara Valley was producing prunes instead of circuits, John Arrillaga Sr. and Richard Peery could see the wheels of a new boom beginning to turn. These young entrepreneurs spent the next decade building the corridor through which much of Silicon Valley’s world-changing innovation would pass.
By constructing custom and cost-effective office units quickly for emerging tech companies, Arrillaga and Peery dominated the region and became its go-to developers. Their signature, low-slung concrete buildings called tilt-ups made for cheap and quick construction early on. The pair was also among the first to build before tenants were confirmed, in the hopes that immediate availability would be attractive to businesses. The land they had bought up as young men began to generate formidable returns, and the speed of technological progress coupled with an apparently insatiable demand for more space created today’s Silicon Valley, synonymous with skyrocketing land values. While this new value injected into Santa Clara Valley draws people to the area and creates prosperity for those in innovative industries, it also attracts speculation where it is possible to capture significant wealth simply by owning land.
Arrillaga is worth more than $2.5 billion, a fortune earned in part from unparalleled skills as a developer, but also because he was able to extract a great deal of unearned wealth. The contribution of pioneering land developers to economic growth is undeniable, but unfortunately, taxation structures have not kept pace with the rapid transformation of unproductive land into a cybercity of millionaires and billionaires. The wealth that has been obtained from constructing buildings is hard earned, but the enormous increase in rental income resulting from rapidly-increasing land values has not been earned. It’s not as if aging structures have grown more valuable, it’s the land underneath them that has skyrocketed in this hub of innovation, land values created by an aggregation of economic activity not attributable to any one person, developer, or tech company. The value of this land is indeed a socially-created value.
Today, the success of entrepreneurs starting tech companies has made Silicon Valley the most expensive place to live in the United States. As these tech giants grow, the reach of their impact on the housing market spreads, and migrant employees move with their money to suburbs farther and farther out from where they work. In so doing, they shape land values and make other lasting changes to the urban environment. The gains generated by developers like Arrillaga and captured by speculators can ripple out into the wider community and inflate the cost of living.
The incredible wealth now being generated by high-tech industries in Silicon Valley has put a premium on all surrounding land, both commercial and residential. Working-class residents can only hold on to rent-controlled accommodation for so long before the profit motives of private developers see them evicted, and their housing demolished. According to the Guardian:
Between 2000 and 2013, the number of low-income households in the Bay Area increased by 10 percent, but the region lost 50 percent of units defined affordable for this population, according to researchers at the University of Berkeley, California, who have closely studied gentrification and displacement.
The proliferation of wealth in our communities is a wonderful thing; the only reason it causes such polarization is because systemic inequalities go unaddressed.
We can have the best of both worlds. For men like Arrillaga and Peery to have the opportunity to create these cash cow business parks and bring thousands of talented professionals to Silicon Valley is incredible, it should be celebrated.
As people have come together to produce a great deal of wealth in the tech industry, land values have boomed. Those who were able to get on the property ladder before an oncoming swell in land values simply sell or rent for huge windfall gains, unearned wealth, while prior tenants are displaced. Incoming renters are squeezed or turned away entirely by the high rent.
The problem is not the tech companies or their workers, and it is not the vulnerable tenants; it’s not even the landlords who benefit from, perhaps unconsciously, playing the working class renters and the angry anarchists off the techies. It’s our system of property taxation. The best and simplest way to correct the imbalance, to give justice to everyone, is to implement a system of Land Value Taxation while reducing taxes that harm the poor and the production of new wealth.
From the developer’s’ perspective, a Land Value Tax would in no way detract from the incentive to build in the first place, as the taxes on buildings would be eliminated, after sales and wage taxes. Furthermore, the incentive to build on unused, centrally-located land would increase. They would have an even greater incentive to build immediately because owning the land without having tenants would leave them in the red after paying their Land Value Tax bill each month. The site would not be a speculative asset, but one that only yields a positive return if a developer uses it well to meet people’s needs.
For Arrillaga and Peery, the taxes due on their development portfolio would have grown with the unprecedented business success of their tenants, from dirt cheap taxes on empty lots to large tax bills on lucrative land accommodating high-end office buildings. This would have generated a massive amount of public revenue without harming incentives toward innovation. The seeds of gentrification are nurtured by insufficient housing supply, but Land Value Tax would mean that centrally-located land would be developed to accommodate increasingly more people at comfortable densities.
This policy encourages landowners to maximize the revenue they can generate by constructing and maintaining buildings of the highest caliber to attract tenants. As opportunity brings more people to an area for work, demand for housing pushes land values even higher, which increases revenue from the Land Value Tax even more. A landowner can then create more housing, often vertically, to cover the larger tax, or if they are unable or unwilling, sell to a developer who will. This applies not just to Silicon Valley, but to any in-demand area where the concentration of jobs forces living costs higher than many can afford.
Land Value Tax can be used as a source of revenue to fund great social programs, even while reducing wage and sales taxes -from health vouchers to housing for mentally ill homeless people, or even a universal basic income. Without a Land Value Tax, however, the benefits these social programs create will simply be captured by landlords through higher rent charges. Thus, the positive effects of these social policies would nearly be wiped out, funneled into the pockets of landlords as rent hikes. For example, if everyone was given a $10,000 basic income each year, all else being equal, what would happen to the cost of rent? It would go up by a comparable amount, and largely cancel out the benefits of basic income to the most vulnerable people. However, with Land Value Tax, incentives to increase housing supply would result in people being able to protect their basic income from rent hikes.
Governments will not be able to subsidize their way out of this housing crisis with palliative measures. Creating a system of incentives in which the market is enabled to correct itself is the most sustainable way forward, and offers the best hope of ensuring affordability for all while simultaneously giving a boost to incredible growth in future industries.
The San Francisco Bay Area is in the midst of a severe housing affordability and displacement crisis, the result of years of inadequate public policy, a clash of generational attitudes, and ubiquitous obstruction of new housing projects. At the BIL Oakland: Recession Generation conference, hosted by EarthSharing.org on July 9, a panel of four housing advocates shared their thoughts on where to go from here.
Zac Shore, Stephen Barton, Alex Lofton and Tim Colon described a multi-faceted crisis requiring concurrent and complementary solutions.
Zac Shore is the director of development for Panoramic Interests, a construction company focussed on affordable student housing, workforce housing and homeless housing in San Francisco.
The company has a modular construction ethos that crystallized when they traveled to the U.K. and witnessed the construction of 190 apartments in eight days using shipping containers.
“When we saw that, we were convinced, and now we’re starting to build with it on a large scale in San Francisco.”
Panoramic Interests has built hundreds of apartments for students and workers, and is now beginning to build for the homeless. Shore cited demonstrable cost savings associated with housing homeless, cutting down on chronic use of emergency services and offering an economic incentive alongside the humanitarian one.
Stephen Barton represented the Bay Area Community Land Trust and the Committee for Safe and Affordable Homes. Barton has a PhD in city and regional planning from the University of California, Berkeley, and was director of the Housing Department and deputy director of the Rent Stabilization Program in Berkeley, California before retiring recently. He has written widely on housing policy and co-authored Common Interest Communities: Private Governments and the Public Interest.
Barton argues that new construction does not have the ability to solve the Bay Area’s housing crisis.
“It’s not to say that increasing the housing supply is not important, because it’s desperately important,” he said. “But of course we have Prop. 13 here in California and its progeny designed to protect real estate investors’ windfall profits, and of course encouraging land speculation because people who own vacant and under-utilized land hardly pay anything in taxes.”
Using taxes to treat rental property like a business rather than personal real estate would be a step in the right direction, “to recapture through taxation the value that we and those who came before us have created,” Barton said.
“If you applied a two percent tax to rental property in the whole Bay Area, you would raise $500 million a year and it could lead to construction of as many as 50,000 affordable apartments.”
“About half of the rent that tenants pay in the Bay area is not, in fact, necessary to profitably operate and maintain the housing once it’s been built and the construction costs are amortized. Instead, it’s basically an admission charge – ‘welcome to the magic kingdom, here’s how much you have to pay to be here in the Bay area’.”
Alex Lofton is a co-founder of Landed San Francisco, a community-based brokerage organization that raises capital from investors interested in local real estate, and uses that money to support first home-buyers with down payments.
“Our whole system is set up on the intergenerational transfer of wealth: you’ve got to ask your mom or you dad, or brother or sister, or grandparents to help you buy your first house, especially in expensive places. So we just say ‘Why can’t there be other options than mom and dad…to borrow that money?’”
“You live in a place like this and you question if you’ll ever become an owner…the leap from renter to owner is just impossible.”
While affordability was the main problem with Bay Area housing, requiring greater supply and higher incomes, another way forward was thinking about the concept of ownership differently, and coming up with creative ways for whole communities to help people get started in the property market.
“There isn’t a silver bullet, it does take a lot of solutions.”
Tim Colen, at the time of conference, was executive director of the San Francisco Housing Action Coalition, an organization promoting well-designed and well-located housing. Prior to this, he was president of the Greater West Portal Neighborhood Association, and spent 25 years working as geologist.
San Francisco is cursed by having a red-hot economy, and highly-skilled workers flooding into a city that has a history of under-producing the amount of housing it needs.
“We have chosen policies for the last two or three decades that have led us to this position where our population is growing by about 10,000 residents per year… a city that has a historic production rate [of houses] somewhere around 1700-1800 units a year.”
“It’s already a city that’s become hostile to the young, young families, seniors, immigrants, the artists, the weirdos, the hippies, everybody. It’s going in the direction of becoming a luxury resort with a certain amount of housing we can afford to subsidize.”
In Sacramento, liberal democrat Governor Brown has taken a bold step by introducing “by-right housing”, whereby if certain conditions are met by developers then new builds cannot be obstructed.
“It’s the first tool we’ve seen in ages that says ‘you can’t appeal projects to death anymore’,” Colen said.
The dominant conversation around housing has been one of intergenerational change, and the desire of previous generations to keep things the way they are, Colen said, and this has tipped the balance of power toward those who say no to development and increase construction costs.
“We’re strangling ourselves,” he said. “There is not enough money in the world to subsidize our way out of this problem.”
This panel discussion highlights a struggle between established residents and newcomers, who should be joining forces against an entirely different threat. Renters are being squeezed out of the Bay as prices surge, while would-be newcomers, many of whom are tech workers, are kept out by the same phenomenon. Both blame each other, yet it is landowners who are making a killing off the skyrocketing costs for space in the Bay Area.
Yes, tech workers drive up the cost of land, but freezing new construction also makes apartment rents artificially high. Both groups are right, but it is unfettered and untaxed landlordism that is the real problem.
There is a way to help protect those in danger of being forced out of the Bay, while also giving access to newcomers in innovative industries: tax the rising value of land and reduce taxes on working and exchanging. A citizen’s dividend paid out of the revenue from a land value tax, what some call a basic income, should be given to everyone to be spent as they wish. They would use this money to subsidize their apartment, while construction could boom in downtown San Francisco and elsewhere in the Bay. With more people able to fill the new units in the central locations, this would take pressure off areas even slightly outside the central business district. This in turn would retard the rise in rent from what it otherwise would be, while putting more money in vulnerable people’s pockets to secure housing.
Significant changes to any system of taxation require significant upheaval, and perseverance from citizens in and out of government. EarthSharing.org spoke with land value taxation proponent Joshua Vincent earlier this month, in a conversation covering attitudes towards land value tax, its applications, and the activism required to advance it. Watch the interview below, broken into three parts.
Vincent has been executive director of the Center for the Study of Economics since 1997. He has consulted for more than 75 municipalities, counties, NGOs and national governments. He works with tax departments and elected officials to promote land value taxation, and has testified as an expert witness on its impact. Vincent is the editor and publisher of Incentive Taxation.
Best Valuation Methods
Vincent lays out best practices for calculating land values, most of which “rely on values that have already been established by the assessor.” By looking at sales prices in an area, particularly of vacant lots but also of derelict buildings set for demolition, a fairly accurate picture of land value can be obtained.
Building values are more complex, but still absolutely necessary for revealing land values: by subtracting building value from a property’s total value, the ideal taxable land value can be calculated. Vincent says that “if we want to help capital and labour escape taxation we have to figure out what the building is worth, because that’s where the labour and the capital goes.”
The most effective valuation systems are in states that “update their assessments on a fairly regular basis, and they also change the percentage of land value to building value to reflect essentially what the market is,” Vincent says.
Using the example of an Atlantic City casino, Vincent says that while 20 years ago the property value would have skyrocketed due to market dominance and profit levels, today that profit has been reduced substantially. “Right now the land value is half of the total parcel value, because the building has lost its revenue-generating capacity,” he says.
Approaching City Officials
A land value tax is not just an end unto itself to reduce inequities in wealth. Vincent says the focus of any campaigners for land value taxation should be its application to almost any pre-existing problems in a city.
“You have to identify a problem that the community suffers from,” Vincent says, whether it be blight, population loss, or perceived high taxes. City officials will usually tend toward enlightened self-interest, and the revenue-neutral tax abatements that a land value tax allow are attractive to public representatives whose priorities are job creation and citizen well-being.
“We would then propose: well how about a universal permanent abatement on all buildings, and not just new buildings, not just condos, but all buildings past, present and future?”
One discussion is not enough to effect real policy change, and Vincent says any correspondence should be followed up with a second meeting, further information, and a push for the council to crunch the numbers of what is a very practical, “nuts-and-bolts” policy.
“The mistake a lot of reformers of all types make is they march into a city council chambers or a mayor’s office and say ‘here’s a reform, do it’, and then they turn around and leave. I think what we are putting forward is something that is practical, it is doable, and you can demonstrate immediately how it is doable.“
Who Is Likely To Oppose Land Value Taxation?
Entrenched interests exist that have made fortunes extracting rent from populations without investing back into them, and these interests comprise the most likely and vigorous opponents of land value taxation. Vincent points the finger at speculative, “absentee owners who have a business model that depends on blight and the decay of the neighborhood.”
“A lot of people that oppose land value tax are people that have adopted business models and used tactics to thrive in a declining city,” he says. “You extract rent, literally, from the tenants but you don’t put anything into the property; you let it run down. That’s the successful business model. And they will oppose a land value tax, because their buildings have fallen apart to such a degree that they wouldn’t benefit from such a land value tax.”
Automobile-intensive businesses are another example, and in the past, owners of flat-surface parking lots have voiced opposition to changes of the tax structure. Vincent says these businesses feed off the value of urban land, itself the product of the people and the government, but “they’re doing nothing to create that value, and they’re doing nothing for the community”.
Vincent points out that some among these interests have actively funded anti-land value taxation campaigns, like in Allentown in 1997.