YES – CHINA, TOO!

CHINA

If the Georgist case is valid–i.e. that we need to publicly capture the rent of land in its broader sense (i.e. the economic rent of all natural resources), if land rent is not to be increasingly privatised into bubbles that burst into recession and depression–it will not only apply to western-style capitalist economies.

It will also apply to communist China.

Jesse Rota Fortunae’s blog has been aware of this for some time, but when you think about it, natural laws do apply across the board: they won’t differ on the basis of the political system under which an economy operates. As I sometimes say, if you jump off the top of a tall building, you’re going to go splat at the bottom – although you might win a bet posthumously with an economist on the point.

Whilst I was at the seminar on land value taxation in Chengdu last November, I had the good fortune to be able to visit Dr Han Bing at the University of Sichuan who had been unable to attend the seminar.

Professor Han is both an economist and valuer, an unusual combination of disciplines in western economies. He informed me the country was well into producing land valuations on all properties in China, something achieved in Australia, but still not in America. Although Australia, New Zealand and South Africa have all been assessing site values on properties for well over a hundred years, professors of economics  are still to be found in the USA who argue that it can’t be done. [!]

My final inquiry with Professor Han was to ask whether China currently had a bubble in its land prices. “Of course!”, he replied simply.

This was a remarkable response, because I doubt you’d find an Australian economist, much less a professor of economics, who’d be prepared to say “Of course Australia has a bubble in its land prices”, because, unlike Professor Han, they’re ignorant of what’s really happening in the property market. The professions of economists and valuers are pointedly kept separate in Australia, as in the west in general.

Unlike western economists, Dr Han Bing was unable to dismiss the facts staring him in the face.

But at least China is trying to put a lid on its real estate bubble, although the measures it is applying, as in the west, are inadequate to the task. China’s municipal deed tax, urban real estate tax, the property tax, farmland occupation tax, urban land use tax, and land value increment tax have proven to be a pimple on a giant pumpkin.

These could all be rolled into a land value tax, struck at a significant rate in the dollar that would capture sufficient land rent to drive speculators out of the market but leave the genuine developer.

Professor Fu Shihe has suggested an alternative approach that would ultimately achieve the same result: capture the full capital gain on property transactions to the public purse (which we known in the west to be ‘the [JS] Mill tax’).

Short of these measures, it’s unfortunately certain that China is “going to go splat at the bottom”. See the BBC’s “China Debt Fears”.

THE PATHOLOGICAL SEPARATION OF THE ECONOMY FROM THE THEORY OF VALUATION EXPLAINS WHY “EXCESSIVE CREDIT” DOESN’T QUITE CUT IT

In the current world financial crisis, the final sentence in this quote from Dr JFN Murray’s “Principles and Practice of Valuation” is proving to be something of an understatement:

“The theory of [real estate] valuation is a pragmatical extension of economic theories relating to value and price, but it is remarkable to find that there is an almost complete dissociation between economic theory and the theory of valuation, although the latter from the materialistic viewpoint stands in the forefront of the social sciences. ….

The professional valuer with his insistence on demonstrative proof and acceptance of harsh realities has displayed intolerance of the tenuous abstractions of pure economics. His is a branch of applied economics, which takes into account all the complexities of land utilization and of commerce, and is closely aligned with scientific method, in that it depends upon empirical verification of hypothesis. ….

With some notable exceptions the principles of valuation are in general correspondence with economic theory, but a reintegration of the two sciences, which have been separated since the time of Adam Smith, would greatly advance learning.”  [My emphases and parenthesis.]