Q: I want to follow-up on what you had said some months ago about land reform:
JES: "The main, underlying idea of Henry George is the taxation of
land and
other natural resources. At the time, people thought, "not
really that too," but what was underlying his ideas is rent associated
with things that are inelastically supplied, which are land and natural
resources. And using natural resource extraction and using land rents
as the basis of taxation is an argument that I think makes an awful lot
of sense because it is a non-distortionary source of income and wealth.
Q: In Globalization and its Discontents, you write (p. 81): "But land reform
represents a fundamental change in the structure of society, one that those
in the elite that populates the finance ministriies, those with whom the internaitonal
financial institutions interact, do not necessarily like."
JES: Yes. Let me try to approach the question a little more systematically.
Once you take the perspective I just gave, that means the managementment should
be done ion such a way that it maximises the amount of money available to the
US government from natural resources because they are within its
domain and control. So, looking at the United States, one of the implications
of this
is that a foundation such as yours [the Robert Schalkenbach Foundation, created
to promote the ideas of Henry George, as expressed in Progress & Poverty]
ought to be very much against the policies of the US government of giving away
our natural resources. Here is a case where we not only are not taxing it much,
we're actually giving it away.
Q: I assume you're speaking in particular of oil and mineral rights, but would
not Broadband Spectrum rights also be included in that category?
JES: Yes, Broadband Spectrum rights as well. Now, giving away rights such
as those would be anathema to the spirit of Henry George. And the second part
is that when you sell them, you want to do so in such a way as to maximise
the revenues. And whether you decide to sell it or whether you decide to rent
it, would be the question of what is the way that maximises the extraction
of public revenues.
Q: And those revenues go to the people. Not to private concerns.
JES: Exactly. So you're trying to say, from the perspective of public management,
how can we take this inelastic supply of public resources and maximise the
rents that we can extract from it, consistent with other public objectives?
That is a very deep philosophical approach, and requires a re-thinking of how
we manage all aspects of those public resources. However, much of what we do
is inconsistent with that. Now, the issue of land reform is a little bit different.
There, it's a two-step analysis. My concern that I expressed about land is
that in many developing countries, you have most land owned by a few rich people,
and the land is relatively little taxed. But the land is worked in a system
of sharecropping in which workers have to pay the landlord fifty percent of
their output. In a way, you can look at that fifty percent as a tax. The sharecroppers
are paying a fifty percent tax to the landlord. But it's worse than a tax.
Because it's not a land tax, it's a tax on their labour. And it's a tax that
goes to the landlord rather than to society. So the notion is that land reform
could take a variety of different forms. For instance, the government could
take over the land and rent it to the people. Or give it to the people and
have a land tax that would not have the distortionary effect of land reform.
So, in a way, these systems of share-cropping are worse even than anything
that Henry George was worried about in terms of misuse of land.
Q: However, when you speak of land reform, do you have concerns about compensation
as an issue in its implementation?
JES: That is one of the key issues. And there's a program at the World Bank
that's been started in Brazil, which is called "Market-Based Land Reform" where
they buy the land and give it or sell it to the workers. They use government
power to obtain the right to buy it.
Q: Has President Mugabe of Zimbabwe's misuse of government power to return
land to its so-called "rightful owners" given land reform a bad name?
JES: That's true, but it doesn't have to be done that way. Now, one of the
things that is again in the spirit of Henry George is that, if you have
land taxes, then the market value of land goes down. What you're willing
to pay
for land is the difference between what you pay and what you get to keep
after paying your land taxes. So, in a Henry George world, the amount of
compensation
would be very low. So one couold argue that moving toward a land tax would
facilitate that reform. Once we raise rates on land taxes, the market value
will have to go down. The government can buy the land and redistribute
it to the workers, and they then would be able to keep the fruits of their
labour.
They will continue to pay the land tax, but the product of their own efforts — their
labour — will be their own, as opposed to sharing fifty percent with
the landlord.
Q: Do you think land reform could possibly find a way onto the political agenda
in the United States?
JES: No. Lland reform is not a big issue in the United States because we don't
have a lot of sharecropping. There's some, but it's very limited.
Q: What countries do you regard as the most politically open to tax reform
as a means of achieving meaningful land reform?
JES: I think some countries in South America are moving in that direction.
They're beginning to do this form of taxation because they want the land to
be utilised. Some people own land but make no use of it.
Q: You mentioned the World Bank's program titled "Market-Based Land Reform."
Is that the only international forum in which there is a chance of gaining
politically-effective support for "land value taxation" as an instrument for
land reform?
JES: There's not a lot [of] discussion going on in those circles about land
reform. The World Bank is still talking about it, as in the program I was talking
about. And certain countries are continuing to talk about it within themselves.
But the IMF is not, and I don't know of any NGO (nongovernmental organisation)
that is.
Q: What are the greatest political obstacles confronting developing countries
to the extraction of economic "rent" for public purposes? Is it simply a matter
of "vested interests?"
JES: Yes, it's not very complicated. You know, in the Clinton Administration,
we tried to reform the disposition of natural resources — mineral rights — by
saying the US Government should not be giving this away to a few wealthy
people. But the mining interests were adamant in opposing this reform.
Q: In your opinion, would it be more effective to attempt to achieve support
from economists about the need for such reform, or to bypass them in seeking
to build popular support independently from them, in that the views of mainstream
economists on the topic of land reform might fairly be characterised as an
"intransigent"?
JES: There are some economists who are interested in this. I think
most economists would like the idea, and would support it. But, economists
spend their time on things that they think have marketability. So
it isn't that they don't think it's a good idea; they don't think there's any
resonance in it. President Bush is still talking about the inheritance
tax, and income tax, and they want to get involved in what other people are
talking about. It's a social phenomenon, I think. So, if you get a
lot of other people talking about it, then they'll join the fray.
Q: You are aware that Henry George was a critic of the moral foundations of
our economic institutions. What do you think of reform efforts toward land
value taxation based on an appeal to morality?
JES: What it fits into is that there is a wide view today that we should tax
environmental "bads" such as pollution and the like. And switch from taxing
good things like labour. So, in a way, that's where it comes in: let's stop
taxing good things like labour, and tax things that are resources. So the argument
is, "why tax things that are contributing to society?"
Q: I'd like to move to topics related to globalization because I read your
book, Globalization and its Discontents, and, like many other people,
found it fascinating. What has happened to the idealism that was supposed to
make institutions such as the World Bank and IMF serve the inclusive interests
of everyone in what was then called the Third World? You make the point that
these have become institutions that serve the interests of wealthy nations
almost to the detriment of poorer ones.
JES: The problem is that they believe that by helping the rich you help the
poor.
Q: The old "trickle down" theory?
JES: Yes, "trickle down."
Q: But that's been fairly discredited, hasn't it?
JES: Yes, it has. But as a general phenomenon, nobody likes to think badly
of themselves. They always end up in arguments about why it's in the "General
Good." But, on the other hand, I think that self-interest is a very strong
force. That's what Adam Smith said, and I see it all the time.
Q: But haven't these institutions detached themselves from the grass-root
interests of land-less people around the world?
JES: The IMF never thought of itself in that way. It began as a club of the
rich countries to help each other out. And when the colonies got released,
and the developed countries managed their own economies better, they went in
and became the new imperialist power. That's an over-simplification, but they
then became the agents of the advanced industrialised countries.
Q: You criticised "The Washington Consensus." From reading your book, I see
that you summarise that set of doctrines as "1) Fiscal Austerity, 2) Privatisation,
and 3) Market Liberalisation." What are, in your view, the central weaknesses
of the policies that flow from the Consensus?
JES: It didn't work. I mean, the weaknesses are not that these are necessaily
bad in their own right, but it's the balance. Fiscal prudence is a good thing.
But they pushed it beyond where it ought to have been. Market liberalisation
is a good thing, but not if it's done too fast.
Q: Would you say, then, that there is a structural flaw in the market system?
JES: There are many limitations. We all know that there are lots of examples
where markets fail, and you need a role for government. So where the structural
problem is, it's their belief that there's not a role for government to play.
And that markets can solve every problem. That's the structural failure: "Markets
are perfect, and can solve every problem."
Q: For this interview, I also read George Soros' book, On Globalization,
which I know you reviewed in the New York Review of Books. In
it he states, "It is market fundamentalism, which holds that the social
good is best
served by allowing people to pursue their self-interest without any thought
for the social good — the two being identical — that is a perversion
of human nature" (p.179).
JES: Yes, George and I are very similar in our views.
Q: Don't you think we need to go deeper and look at the rules that govern
the unequal bargaining power between the rich and the poor? Isn't that what
really has to be attacked?
JES: Yes, that's what I'm saying in the book. The underlying problem
is the way the rules are made. If the rules are bad, you need to ask the question,
"how did those rules get established?" And it's the processes by which the
rules get made that is the underling source of the problem.
Q: Do you think that changing the rules is possible?
JES: I wrote the book because I believe that, in a democratic society, pressure
can be brought to bear on the rule-making process. As you become aware of who's
at the table, why things are biased, they're responding, criticising. Even
if it doesn't quickly change, it circumscribes the ability to continue with
self-interest. The World Bank is already changing enormously. That was relatively
easy. President Clinton appointed someone who has a very different mind-set
from previous World Bank presidents. The rest is very hard. The IMF has not
made that kind of change. It's still a long, hard road for both of them. In
some ways the WTO [World Trade Organisation] is in an even more difficult position.
But that's the great thing about democracy: we have so many critics. We have
newspapers, and people like me and George Soros writing books.
Q: Aren't you also saying that the real impetus will come from democratically-elected
representatives with the political power to make changes?
JES: But they also respond to public pressure. In the last Presidential
Debate between Bush and Gore, both sides said that we had to change the IMF.
Clearly,
the issue of the IMF had raised itself to a level — it's still not in
everyday talk in that it's not what most Americans think about — that
it got thirty seconds or a full minute in a Presidential Debate between
Bush and Gore. Well, that's a big achievement from where it was before.
The IMF
is a very important institution for developing countries and most Amnericans
have never heard of it.
Q: I was at a conference recently on the French concept of "mondialisation"
as opposed to "globalization." The French consider the spirit of "mondialisation"
to be more "generous" towards less developed countries, in contrast to the
American idea of pursuing our national interest without regard to theirs. Would
you call yourself a proponent of "mondialisation" rather than of "globalization"?
JES: It is interesting that my book has been selling fantastically in France,
so they obviously sense the commonality on our views.
Q: Let me ask you about Russia. President Putin has been a prominent advocate
of the need to shift the fiscal base away from people's wages and savings and
on to the rents of natural resources. But this strategy flew in the face of
conventional tax wisdom, which favoured a "broad tax base" that included the
use of "stealth" taxes. The IMF, by its actions (if not its public declarations),
strenuously opposed the Putin strategy. What might President Putin do to remain
engaged in the process of pro-market reforms while retaining the support of
foreign investors and at the same time shifting the tax base on to the rents
to be derived from Russia's natural resources?
JES: Russia provides another good example of what I've been talking about.
The fact is that their economy has been imploding. And it's become nothing
more than a natural resource economy as a percentage of the GDP — about
sixty to seventy percent. At that point, natural resources become the only
major source of revenue. So they've been forced to move in that direction
by necessity. And, obviously there's a political economy tension: the rich
guys
don't want to give it up. But that's the distinction they're going to move
in because there's no alternative.
Q: Your academic work led you to formulate what you called "The Henry George
Theorem." This demonstrated that public spending — where this was
efficient — generated additional rental value that surfaced in the
land market. Other distinguished scholars, such as the late Nobel prize
winner,
William Vickrey, confirmed your findings. You also noted in our of your
books, co-written with Anthony Atkinson, that the Henry George Theorem
was attractive
both because it was the revenue-raiser that did not distort private incentives
and because "it is the 'single tax' required to finance the public good."
[Anthony B. Atkinson & Joseph E. Stiglitz, Lectures on Public Economics,
London: McGraw-Hill, 1980, p. 525] Now, public investment, unless of the wasteful
kind designed to serve the privileged interests of rent seekers (the classic
type being a land speculator), should be viewed as working in partnership with
the private sector and not a drain on the community. How can the reputation
of publicly provided services and investments be rescued?
JES: That's a very good question. What we did when I was at the Council
of Economic Advisors was some studies to try to show what the social returns
would
be to public investment in R&D, etc. And we became convinced that the rates
of return of those investments are very high. So you ask the question,
"what can we do to restore confidence in public investment?" We need to realise
how
much we depend on them. I keep telling people, "The Internet." That's one
example. It was publicly funded. It's now a public-private partnership. The
government
did the basic research, and the private sector ran off with it. But, arguably,
we would never have had the Internet if it were not for government expenditure.
So I think a major industry in the United States — biotech — is
based on NIH (National Institutes of Health). NIH does all the basic research.
Q: From the conference on "mondialisation," I saw a major difference in attitude
among the French with regard to public investment. The French believe strongly
in public funds for public works, whereas Americans believe they shouldn't
be taxed more in order to support public projects. Which view do you agree
with?
JES: There's been a lot of so-called "bad rhetoric" in this whole area. The
real point is that we need to recognise that there are some things in the area
of "the public sphere." We're not having investment in basic
research; we need to have the government do it. And that's what I've consistently
been arguing; you don't want the government building steel factories. But you
do want the government doing certain research, and the relative size of that
depends on the society. Right now, we should be spending far more on basic research.
So what is the message. I think how much we depend on the government. And the
new economy, we take it for granted, but it is the public sector. I think you're
right that we have the wrong view. But I keep saying, "The Internet." How much
as it changed our lives? An it's [the result of] the government.
Q: And yet, in American society, the idea is instilled that one ought to take
for one's own benefit, so as to have the big cars and houses, etc., that will
impress other people, rather than to give in order to promote a public benefit.
Aren't those the actual values of American society?
JES: We need to realise that our livelihood today depends on our innovation,
and our innovation depends on our sciences. Our livelihood depends on our global
position. For example, we have to be able to fly, to go to the airports.
Q: I wanted to ask your view on the adequacy of land as a tax base. At one
time, as you know, there was a "Single Tax" movement, for the purpose of deriving
revenues sufficient to run the government solely from land value taxation.
In your view, how feasible is that today?
JES: Most economists would say that you cannot run the US economy on the "Single
Tax." In my mind, the "Single Tax" is the wrong way to think about it. The
question is: "Would it be better if we had more taxation of land and natural
resource, and more revenue from natural resource management, and I would include
atmosphere and spectrum." And less tax on income and savings. And I would say,
"Yeah." And I think many economists would agree with that. So, if you want
to sell it as a "Single Tax," then, no, you won't get anyone to agree that
there's enough revenue there. If you look at is a more "central" tax, then,
yes, you will get most economists to agree with you.
Q: A former Director of Robert Schalkenbach Foundation was given a grant recently
to research the adequacy of land as a tax base. He's a professor at the University
of California, Riverside, named Mason Gaffney, and he wrote a book titled,
"The Corruption of Economics." Are you familiar with his work?
JES: No.
Q: I'll send you a copy of the book. Basically, he argues that the founders
of neo-classical economics, which, as you know, is the paradigm taught in schools
such as the University of Chicago, distorted the science of economics to protect
vested interests. For example, Rockefeller money was spent to hire professors
of economics with a view to their discrediting the ideas of Henry George. Did
that happen?
JES: My general impression is that most donors that give money to universities
don't take a very strong view of [who should be on] the faculty. Sometimes
it ends up on one side, sometimes on the other. It would have been unusual
[at Chicago], but it could have happened there. What is striking about Chicago
as a school of economic theory is that it's very conservative. One would have
thought that Henry George was someone who would have been liked by "Conservatives."
Q: In that George wanted to reduce tax on the fruits of one's own labour?
JES: Exactly. An you want non-distortionary taxes, so I would have thought
that every "Conservative" would be in Henry George's camp. Now, as far
as I know, I'm one of the few people who keeps emphasising that you ought
to view
Henry George in a broader way, to include natural resources. I didn't think
that people thought about that a hundred years ago. But if they had, and
maybe Rockefeller was smart — he realised that he obviously didn't
want a tax on natural resources.
Q: He wouldn't have wanted rents flowing from natural resources to go to
the people rather than to him.
JES: Yes, he obviously wouldn't like that perspective. But I don't know if
that view was at that time recognised, and I just don't know whether he actively
intervened at Chicago.