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Public Lands and Resources
Mason Gaffney:  Oil and Gas Leasing: a Study in Pseudo-Socialism
Another form of Managerial Socialism is direct administration of public lands. Our National Forests are an example. The track record is not good. The Forest Service manages a national asset worth over $100 billions, from which it generates no positive cash flow. Latent surpluses die a-borning. At one time this was from an excess of ideological commitment to slow cutting cycles and "community stability," as exemplified by Congressman James Weaver's dedication to Roseburg, OR. More recently it is from internalizing profits and plowing them into roading submarginal forests for premature cutting. Either way it soaks in revenues from other sources, yielding nothing back. Even if one likes the model, it could not be universalized.

More commonly, public landlords lease lands to private firms, limiting their managerial input to dirigisme expressed in regulations and guidelines. The Bureau of Land Management (BLM) thus administers its vast empire as mainly a passive landlord. Its main task is just collecting rents. To the extent The Bureau does a good job, or Congress lets it do a good job, this evinces more of Distributive than Managerial Socialism. To the extent it does a bad job it is "Pseudo-Socialism," to be discussed presently. ...

Distributive Socialism also means administering public lands pro-actively, affirmatively, to maximize revenue, in the manner of private landlords. Not to do so is to let private lessees keep and privatize the surpluses generated by resources in the public domain. The NDP in B.C. earned its Socialist stripes by raising rents on Crown lands owned by the Province ("The Crown Provincial," in Canadian terms). The Minister of Lands did this directly by renegotiating timber and other leases, on a site-specific basis.  ...

Pseudo-Socialism is what happens when resources in the public domain are leased below a market rental, giving away part of the public interest. That has the effect of installing the lessee as though he were the owner. The BLM, leasing grazing privileges on Federal lands in the west, has fallen into this pattern conspicuously and notoriously, subject to pressure from western Senators who have the power of many votes in the U.S. Senate relative to their state populations. The dollar values are small, but the object lesson is visible, depressing, and cautionary.
  • Some other bad examples are school section lands in the middle states. These originated as Federal land grants intended to support local schools. Some of them are corruptly let to insiders in "sweetheart deals" for token rents.
  • Another bad example is the County of Los Angeles, which owns lands in the Marina del Rey district. One parcel lay idle for 25 years in the control of a politically well-connected developer who finally went bankrupt and walked away from it, leaving unpaid even the token rent charged.
  • A third bad example is ironic: Fairhope, AL, founded and chartered specifically as a "single-tax colony," to exemplify the principles of Henry George. The Fairhope Corporation owns the land and collects the ground rent for public purposes. However, when a new generation arose "that knew not Joseph" it proved politically impossible to keep colony ground rents up to market.

Here are four corners of an effective policy for socializing rent from public lands: participate in revenues; control time of lease sales for the seller's best advantage; participate in exploration; and participate in marketing.

A. Participating in revenues
1. Defer payments ...
2. Vary payments according to what is on the site, as that is disclosed by exploration and production. ...
3. Give credits for lessee inputs, writing these off against later royalties. ...
4. Leave a bid variable to soak up any advantage of the leasehold site that the lessor has overlooked in setting the parameter charges, but sharp or sanguine bidders detect.  ...

B. Timing lease sales

C. Participating in exploration
Public landlords today generally know less about their own property than do private firms. The firms have leave to range all over unleased lands, taking seismic soundings, studying satellite images, developing sophisticated, top-secret computerized models of the geology, even doing a bit of exploratory, pre-leasing drilling. When potential lessees know more than the public's agents, the latter's bargaining power is deeply eroded.

The public may protect itself in several ways. One is to do some drilling of its own -- it may hire the same contractors used by industry. Another is by checkerboarding followed by "drainage sales": sales of parcels abutting proved producing leaseholds. A third is by registering all well logs.

D. Participating in marketing
Royalties received by lessors are a percentage of wellhead price, but who sets the price? Transfer pricing scams are all too common in an industry whose dominant firms are vertically integrated. The public landlord may well want to take its share of production in kind, using its own marketing agency, to avoid being exploited. The mere threat of such a yardstick would have a profound effect on wellhead pricing.


Is there any chance that Distributive Socialism will make headway on the OCS, and other Federal lands? There is always a chance. The lands, after all, are public, as a matter of history. However conservative the administration, none would take pride in giving away its assets. A business oriented administration need not call it any kind of "Socialism." It prides itself on businesslike management of public assets. It is our little secret that businesslike management in this case is the essence of Distributive Socialism.

What about James Watt? He was the most unpopular figure in Reagan's Cabinet, just as Douglas McKay was in Eisenhower's, and Albert Fall was in Harding's. The public does not find giveaways and sweetheart deals attractive. On the other hand the public does not always recognize giveaways when there is some subtlety involved. The appearance of open bidding, and substantial bonus payments for leaseholds, may be enough to appease the public, the moreso when the appearance of true competition is reinforced by the endorsement of many respected economists.

What must be inculcated in everyone's thinking is the essential difference between competition with front money, and competition where payments are deferred.

    • The first is limited competition, with places reserved for an affluent few.
  • The second is evenhanded, democratic competition on a more level playing field, where preferential access to credit confers no differential advantage. This is the condition under which Distributive Socialism can coexist with, and reinforce, a free market economy. It is achieved on fee simple lands by subjecting them to heavy land taxes, whereby newcomers can buy in at low prices in return for paying more over time. It is achieved on public lands by writing leases with high lessor participation over time, and low bonuses required up front. Read the entire article

Jeff Smith: What the Left Must Do: Share the Surplus

The value of a parcel of land is initially based on the natural endowments of the location (“location, location, location”), created not by an owner but by whatever created all of us. Next, land value rises with the presence of society, and grows with the population of society. It’s highest where society is densest, in the city centers, typically 2000 times more valuable than sites in the boondocks. Land values as economic values disappear whenever society quits respecting one’s claim, as in a war zone; there, real estate offices nimbly shut down. And while land titles may be the holy grail of wannabe homeowners, they’re also the ticket to pocket unearned rent by absentee landlords, such as Donald Trump.

Making land public does not guarantee that the public end up with the rent. The public’s steward, the state, often lets public resources at “fire-sale” prices, unduly enriching Chevron, Arco, Kerr-McGee, Weyerhauser, etc. The state gifts enormously valuable licenses for TV, radio, and cell phones to GE, Disney, Time Warner, and Clear Channel. The metaphor, “field of knowledge”, lets us see patents and copyrights as flags; by excluding innovative outsiders, they not only skew techno-progress (thus addicting civilization to oil) but also enrich those few who can afford to corral them: GM, DuPont, and Microsoft. Similarly, a utility franchise lets AT&T pay investors, and Enron insiders, handsomely.  ...

Trillions are enough money that the present beneficiaries spend fortunes on electing their water boys to Congress and state legislatures. Why do public servants agree to let public assets go for peanuts? Partly out of habit, partly because the recipients contribute mightily to their political campaigns, but also.  
Read the whole article

Mason Gaffney: Land as a Distinctive Factor of Production

Much land remains untenured
Access to land is open by nature until and unless land is appropriated, defended, bounded and policed.  No one claims land by right of production; no producer must be rewarded to evoke and maintain the supply; and submarginal land is not worth policing, unless to preempt it for its possible future values, or to preclude anticipated competition for markets or labor.  Centuries of human customs have developed around regulating common use of lands with open access.

Tenure control of some land tends to drive the excluded population to untenured land (the "commons"), creating an allocational bias unless all land is either tenured or common.  Thomas N. Carver styled this the phenomenon of "The Congested Frontier", and he might have added backwoods.  Land which is partly common today includes parks and public beaches, streets and highways, water surfaces, wild fish and game, and some at least of the "wide open spaces" in less hospitable regions.  Today there are homeless people for whom life would literally be impossible without some form of access, however precarious, to untenured land.  Some of it, ironically, is near the centers of large cities, where the price of land is highest.

No great damage is done if submarginal land is untenured: it won't be used anyway.  There may be damage, however, when rentable land is untenured.  It attracts too many entrepreneurs with too much labor and capital, leading either to the use of private force to establish tenure - unjust, dangerous, and wasteful – or overcrowding and waste, called the "dissipation of rent," when the average cost of the average firm equals the average product of labor and capital.  Fisheries and open range are classic cases.

Some land of high value is untenured or underpriced because consumers resist paying for what they think of as "free" because it has no cost of production, and which nature continues to supply even though the price is too low to ration the land economically.  Examples:

  • water whose natural source is in southern California (it is tenured, but underpriced);
  • city streets for movement and parking space, even in New York;
  • air and water used for waste disposal in populated areas;
  • housing that is subject to rent controls;
  • popular beaches and trails;
  • oil and gas subject to field price controls; and so on.

When land is open to public access, so maybe the capital used to improve it, e.g. paving of rights-of-way.  Such capital may also suffer the "tragedy of the commons" of excessive congestion.  This open access to capital is mainly an incident to the lack of land tenure - a characteristic more of land than of capital as such. Remember, capital occupies space, but land is space.

It is also possible to legislate and subsidize open access to some kinds of labor and capital services, e.g. public health measures, and education.  These differ from common lands in that they are not open "by nature," but by art and public expenditure. ... read the whole article


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Wealth and Want
... because democracy alone hasn't yet led to a society in which all can prosper