INTRODUCING THE UNSEEN THIRD PARTY
Industrial relations discussion is based upon the false premise that there’s an essential fight between workers and their bosses–between labour and capital–in order to ensure that each ‘side’ gets what’s owing to them.
Henry George’s “Progress and Poverty” rebuts this mistaken idea comprehensively, but it remains nevertheless fixed in the minds of both unions and employers – each of whom claim “Don’t try to tell us that we’re mistaken: they’re obviously our opponents in any industrial relations negotiations!”
So where’s the error?
The mistake is that there’s a third party who’s always overlooked and who’s stealing earned income from both workers and their bosses: namely, the rentiers. They have first claim upon national income – but of course they shouldn’t have.
Labour and capital, working hand-in-glove, end up getting what’s left over after the rentier has finished extracting the rent of land and resources, but as they appear to be at arms’ length and seem to have nothing to do with industrial relations negotiations, their theft is entirely overlooked.
If the starting point for both labour and capital is that the rentier’s income is earned justly, of course they must fight over what’s left! But let’s go behind the scenes to take a peep at what the rentier/landlord considers is his or hers by entitlement.
All the great religions have held that land may be exclusively occupied, but as it’s the common property of humanity, it may never be privately ‘owned’. The very word ‘owner’ derives from the Middle English ‘owerner’: he who owes the rent. Although religion seems to have repudiated this injunction that land may never be sold, the great philosophers and classical economists have held ground on the point, recognising the truism that land rent is humanity’s common dividend: i.e. it’s owed equally to all.
So, if the rent of land is common property, and ‘land’ in the economics sense connotes all natural resources, it’s valid that its rent be captured to the public purse, instead of taxing labour and capital. That would include site, mining, fishing, forestry and electromagnetic spectrum rents.
The landlord is certainly entitled to the rental on his improvements, but not on the land component. Nor, even more importantly, should banks be providing private debt against land prices which they help escalate into bubbles (with cheap finance) which then burst into recession.
Is this claim of rent being public rent just fantasyland? When were these rents ever collected? Well, if we ignore the feudal system, Australia did a pretty good job of it up to WWII, when most of our taxation at all three levels of government came from rates and land taxes. Income taxes raised less than 10% of all taxation.
OK, so how much of these publicly-generated rents are expropriated privately?
If unions and business were to look at the chart below, they’d see how their incomes (in pale blue) have been significantly diminished by private rent-seeking. The apostle of freedom John Locke made the statement, confirmed more recently by professor Mason Gaffney, that as all taxes come out of land rent (ATCOR), land is the logical source of revenue in the first instance. Australia’s total economic rent is the sum of taxes (red), privatised rent (dark blue) and capital gains (green), and has risen to 50% of GDP!
The chart below shows that workers and bosses are both being squeezed by taxation and privatised rents, and it is from that part of the economy where increases in wages and business profits must come in future. In fact, as taxes inject deadweight losses of some twice the amount levied into the economy, a transition from (a) the existing taxes on productivity to (b) public capture of these rents (which inserts no deadweight losses at all) has enormous implication for the future prosperity of both labour and capital, because there would likely be a significant surplus – for all, that is, except current rent-seeking leeches.