UNDERSTANDING THE DAMAGE WROUGHT BY RENT-SEEKERS

At the bottom end of the wages market, we’re hearing Australia Post and farming conglomerates have been using contractors to employ overseas ‘students’ at knock-down rates. Meanwhile, coffee shops try to get penalty rates reduced because their margins are too slim to open on Sundays.

In matters of tax reform, business in general says it is being squeezed, and that company tax rates have to be reduced.  The message we’re getting loud and clear, especially through widespread promotion of extending the Goods and Services Tax, is “Take taxes off businesses and put in onto their clients.”  Apparently, workers are not paying enough tax.

So industrial relations is once again shaping up as battle between business and workers.  This should not be.

The philosopher John Locke, The Apostle of Freedom, had some great insights.  He said that all taxes eventually come out of land rent, but as they do much damage by being passed on in prices along the way, why not put them on land in the first place where they CANNOT be passed on in prices? This was echoed by economists Adam Smith and David Ricardo.  Then along came an American by the name of Henry George, who not only agreed with these blokes but wrote “Progress and Poverty” to encapsulate their ideas AND respond to ALL criticisms that might be put against this idea. The book was so strong and clear that it couldn’t be refuted. So opponents had to adopt the dismissive argument “Oh, but that’s just Henry George!” It’s not: it’s just about every famous philosopher and economist! The idea is older than the Bible, where Levitcus dictated that land must be rented.

Here’s the nub that both labour and capital are currently missing.  Anybody who understands the following formula is a better economist than most, and has a greater understanding of modern society than all of Australia politicians put together.  Henry George said that production [GDP or “P”] comprises the sum of the incomes from land [land rent, “R”], labour [wages, “W”] and capital [interest, “I”].  Therefore, P = R + W + I.

Federal Treasury acknowledges this equation but, as it puts it in a more-complex algebraic form, i.e. Yt = rRt + wLt + iKt  let’s keep it simple, to P = R + W + I.

Henry George’s twist was to say that any time major capital works are undertaken by government, say, railways, roads or dams, this raises people’s land values and should be publicly captured back in instalments, as our municipal rates and State land taxes do.  As the rise in land rent is publicly-created, so it should be captured back publicly.

He therefore took land rent to the other side of the equation changing his formula from   P = R + W + I  to production minus publicly-generated land rent, leaves labour and capital, altogether untouched by arbitrary forms of taxation, viz, P – R = W + I.

The 1890s depression, following a land price bubble across the world in the 1880s, alerted people to the ideas of Henry George, and both Republican and Democratic presidents of the USA began to raise much of their revenues from land, as did Labor and conservative governments in Australia. For example, Canberra was founded on a land rental system and a federal land tax was introduced in 1910. This period accordingly became known as the Progressive Era and got much of the world back to work again.

So the fight between labour (W) and capital (I) is quite unnecessary. We have to set our sights on the rent-seekers (R).  Unfortunately, because out tax system has given all the wrong signals, and we fail to capture sufficient land rent back to the public purse, Australia has become a nation of rent-seekers – and both workers AND business are suffering as a consequence.

Remember, P- R = W + I has enormous import for taxation and industrial relations—because business and workers are really on the SAME side of the equation.  If we can keep a lid on private rent-seeking, both wages and profits will, and must, rise under this improved model.

However, I was momentarily moved to tears by the counter argument put by the Property Observer argument yesterday, i.e. that we need to get out of the rent-seekers’ way, because it’s legal, and these people are only trying to look after themselves. It’s unfortunate that Terry Ryder forgot to mention that their rent-seeking efforts come at an enormous cost to business and workers, both of whom the newly-emerging rentier class has now set at each others’ throats in a false industrial relations war.