Globalisation is fast becoming an unpopular process amongst the masses. Many ideological groups oppose it as one of the functions of neo-liberalism which produces unfair and unequal economic circumstances whilst showing a disregard for the environment. Whilst many political and economic ideologies have made their thoughts clear on the issue, Georgism may be a lesser known concept that could resolve the damage of Globalisation.
Georgism is an economic ideology with the general premise that states individuals own the wealth they create in its entirety whilst land and its economic value is publicly owned, revenue made from tax on this land then goes back to the people in the form of public investment or universal basic income. Followers of the ideology, therefore, believe the government should attain funds from a Land Value Tax (LVT), rather than unfair and inefficient levies such as Income Tax and VAT.
The claimed benefits of this system include the eradication of monopolies, increased wages that reflect the true cost of labour and the elimination of tax fraud and evasion which costs the economy billions of pounds per year. These issues have all been regularly linked with globalisation since the 20th century.
The definition of ‘land’ in this case is the nature and natural resources of a location. The amount of tax collected is determined by proximity to resources, climate and the level of commerce that takes place in relation to the land. It is important to note that the level of commerce is not referring to the number of goods produced from the land, Georgism does not support taxing capital goods and labour.
Fred Foldvary explains it best with the following examples,
“If a shop at the edge of a city sells 100 shoes per day, and a similar shop in the centre of the city sells 200 shoes per day, with the same amount of labour and capital goods, the land rent will be greater at the centre due to the economies of density,”
By ‘rent’ Foldvary is referring to the profitability of an area. He continues to say,
“Land in which 1,000 lb of grapes can be grown has a higher rent than land in which 500 hundred pounds can be grown, with the same application of labour and capital goods.”
Not only would this reduce the economic inefficiency of our current use of land and the tax system, but it would also have incredibly positive implications for the environment. Pollution would reduce the value of land and its resources and therefore would be financially damaging to society. Georgists propose taxing polluters, as pollution is categorised as an excess cost in the production of goods. The wealth produced from a tax on pollution would go back into public funds and be used to restore the damages caused by the polluters.
Supporters of LVT claim the tax encourages the appropriate use of land, as public revenue requires the efficient and sustainable development of a location. This would reduce deforestation as well as the urban sprawl that plagues most modern cities. This has incredibly damaging effects on the environment by destroying habitats unnecessarily and increasing air pollution due to increased vehicle use.
Of course, the model is not without its critics. If the system was to be implemented there is no answer to how current owners of private land would be compensated for the loss of their property. Critics say landowners would need to be involved in the process of system transition in order to not become victims of it. Convincing landowners to give up their land without decent compensation would be a negotiation process that would make the Brexit talks look easy.
In his reply to criticism of Georgism, Fred Foldvary challenges claims that Georgist principles have never been implemented in full. He uses the example of former German colony Kiaochow in China, a land tax from 1898 to 1914 allowed a massive increase in government revenue and allowed the capital, Tsingtao, to develop from a fishing village into a successful city. Foldvary also refutes claims that high taxes on land have been harmful where implemented, he says to the contrary countries such as Denmark and Japan have utilised a land tax to incredible economic growth.
This is a simple introduction to a complex economic philosophy. If you are interested in the concept I highly recommend reading the works of the Georgism’s namesake, Henry George, as well as Fred Foldvary who provides useful insights into the model. This relatively unknown ideology could be the answer to many of the issues of our modern world.