Georgism: Land Economics as the Way Out
of Today's Economic Mess
[This article was submitted to the
Pambazuka News, a weekly forum for social justice in Africa,
in February, 2005. Reprinted from GroundSwell, March-April
Gordon Abiama is the Director of Africa Centre for
Geoclassical Economics, Nigeria, and is also a volunteer instructor
of Political Economy with The Henry George Institute of New York. He
is a journalist and he is a member of the I.U. Abiama may be emailed
Never in the history of the world has the prosperity paradox
become as monumental as in this 21st century, making economic
democracy the biggest political challenge. National economies,
especially those of developing countries have been compelled to
swallow one economic prescription after the other, yet micro and
macro-economic imbalances persist. These are formulations drawn from
the deep well of neo-liberal economics designed to teach poor
nations the good old-fashioned fiscal discipline.
In Nigeria, we have had such IMF and World Bank imposed reforms
as SAP (Structural Adjustment Program), PRSP (Poverty Reduction
Strategy Papers) etc., and now NEEDS (National Economic Empowerment
and Development Strategy) The aim of these policies we have always
been told were to eradicate poverty. Apparently realizing that the
achievement of this objective has proven elusive, our economic
policy operators have instead settled for the politically safer
objective of "poverty reduction". Poverty eradication has
therefore been consigned to oblivion.
This century witnessed an overwhelming increase in labor saving
inventions that have vastly improved production capabilities. The
question is: Why is it that poverty still persists in spite of the
great progress achieved especially in the field of technology? Why
so much poverty in the midst of abundant resources? What an economic
It is therefore very pertinent to unmask the mystery behind the
world's persistent economic woes and failures if developing
economies must come out of the woods. This economic malaise is
nevertheless not limited to developing economies alone.
There was one man 'who really saw the forest. He not only saw the
forest but examined every tree'. His name is Henry George, an
American philosopher whose classic bestseller Progress and Poverty
(1879) identified the causes of poverty and proffered workable
solutions to them.
George was able to unmask the founders of neo-classical economics
-- the paradigm embraced by world governments and taught in
universities and colleges, accusing them of acting in bad faith. "As
policy-makers", wrote renowned American economist, Professor
Mason Gaffney in the book, The Corruption of Economics
co-authored with Dr Fred Harrison, "neo-classical economists
present us with "choices that are too often hard dilemmas".
"Here are some of the dismal dilemmas that neo-classicals
pose for us today. For efficiency, we must sacrifice equity; to
attract business we must lower taxes so much as to shut the
libraries and starve the schools; to prevent inflation we must keep
an army of unfortunates unemployed; to make jobs we must chew up
land and pollute the world; to motivate workers we must have unequal
wealth; to raise productivity we must fire people; and so on".
Leading exponents of Neo-classical economics - the dominant
paradigm, Fred Harrison in his essay "Death Rattle of a Deadly
Paradigm" noted "are expressing anxieties about the
relevance of their theoretical apparatus".
Harrison went on to quote Nobel Laureate Wassily Leontief: "....econometricians
fit algebraic functions of all possible shapes to essentially the
same sets of data without being able to advance in any particular
way, a systematic understanding of the structure and the operations
of a real economic system."
To further drive home the point, Harrison declared: "Neo-classism
has reduced economics to an empty formalism. It no longer exists to
study "a real object -- economics".
When leaders lack workable policies, what they resort to is call
for more sacrifices on the part of the people. Nigeria's dictator
for nine years, President Ibrahim Babangida himself admitted this
much in a press interview with the Daily Times in 1992: "Frankly,
I have kept on asking my economists why is it that the economy has
not collapsed up till now? What is it that is keeping it up? ....
The Nigerian economy has defied all economic theories........"
He failed to see that it was the informal sector of the economy
driven by the propensity to survive whichever way that had kept the
economy going. It is the informal economies that shoulder the burden
of development while the formal economies controlled by the elites,
as perpetual economic parasites, scoop up whatever wealth that is
created by the informal sector. These groups of parasites, both
local and international are referred to as RENT SEEKERS in economic
parlance. The alarming distortions of today's wealth distribution
economics is as a result of the provision of special privileges and
subtle monopolies to a favored few over land and its resources often
through legal enactments. This has created a special class of
privileged people who will do anything to maintain the status quo.
It is sad that while many are struggling to eke out a living others
are feeding fat on unearned wealth.
Why should people die of hunger and disease each year when there
is enough to meet the basic needs of everyone? The obvious answer is
that wealth is being controlled by a few privileged ones, and they
usually are those whose footsteps regularly punctuate the corridors
of power. These groups of people have come to see politics as a
pathway to wealth acquisition.
Of the three factors of production -- land, labor and capital
land is the source of all wealth without which man cannot exist.
Today's neo-liberal economists have succeeded to treating land as
private property thus giving it the status of a commodity, tradable
within an expanding market system.
Land, by definition covers all naturally occurring resources like
surface land, minerals deposits (gold, oil etc), water,
electromagnetic spectrum, the trees, fishes in the seas and rivers.
It is unjust to treat land as private property. Land is not a
product of labor. Everyone should therefore be given equal access to
such resources. Mankind has neglected this fact to its own peril.
All the bloody wars this world has experienced have been over the
scramble for oil, natural gas, minerals, fishing resources, farm
lands etc. We have seen how local communities in remote villages in
Nigeria and other parts of Africa have wiped out rival communities
in bloody conflicts over fishing rights, grazing rights as well as
Land tenure system in most African countries is steeped in
priority settlement -- first settler syndrome. This means that a man
and his nuclear family that migrated from his original village to a
virgin territory could lay claim to as much land with the available
natural resources as he wanted. But man being a social animal would
always crave the company of others and so he welcomes with open arms
others who may wish to settle with him in this virgin territory.
The families grow and the village becomes a big town with land
values rising. Also there could be discovery of oil and other
minerals in that territory which would attract several social
amenities like roads and electricity. Land prices would go up. Then
the problem begins. Who are the original owners of the land and who
should control royalties from minerals and other natural resource
exploitation? This becomes a very hot issue. Then litigations over
who are tenants and who are the landlords begin, often ending up in
blood shed and mutual destruction.
George saw all this and advocated for a common right to land and
its resources while abolishing all forms of taxation save that on
land as a means of public finance.
All those denied free access to land have been forced to become
wage laborers, thus making labor a tradable commodity as well.
According to Henry George, when you open up the land by breaking up
the monopoly, you relieve the pressure on every industry. By this,
George asserted, it goes to improve the condition of people who have
nothing but their hands and consequently you improve the condition
of the whole community.
Senegal's new land policy under the decentralization policy which
has placed land in the hands of local leaders in every community is
worthy of commendation. Under this policy, any one who wanted land
whether for building purposes or for farming only have to apply to
the council in charge of land allocations and he is given as much
land as he can use without prejudice.
Nigeria's land laws are also similar but here top government
officials use it to allocate choice lands to themselves and their
cronies while the rent from land including mineral royalties end up
lining the pockets of corrupt officials.
Monopoly of natural resources is to the rural setting what land
speculation is to any fast expanding town or city. Why do people buy
up large tracts of land near large towns and cities and other
government projects without developing them? The objective is to
wait such a time when the land prices would go up so it could be
sold at a great profit. This unearned increment or rise in land
value is not as a result of anything the land owner has done. It is
a socially created value and as such rightly belongs to the
Land speculation hampers development as land is held out of use.
Those who need land are denied access. This evil strikes at every
form of industrial activity. A manufacturer proposing to start a new
industry will be forced to pay such a high price for land and this
will hamper his competitive power in every market. In addition, in
terms of settlement patterns, land speculation creates urban sprawl
as people have to go beyond the land under speculation to acquire
land to use or to build.
George's solution to the problem of land speculation is land
value taxation to be used for the benefit of the whole community.
When the land speculator sees the irrationality of paying taxes on
land he is not making productive use of, will be forced to put it on
the market for others to use, thus helping to unlock the economic
activity of the unemployed and the economically disempowered.
Despite the increase in the world's wealth, the conventional tax
base of all governments is falling as a proportion of national
resources. And in their drive to beef up their tax base, taxation
becomes punitive to business. Some governments are even known to
embark on calamitous tax drives that have become barriers to wealth
It is therefore necessary for governments to look beyond all
these neo-liberal economic theories that have kept majority of
mankind bound to poverty to this third factor that will help "liberate
production from taxation, the earth from monopoly and humanity from
Nobody enjoys paying taxes and would gladly avoid paying them if
they could. This hostility to taxes is a subject that practically
unites everyone writes Dr Fred Harrison in the prologue to the book
"Land and Taxation" edited by Dr Nicolaus Tideman entitled
"Rent-ability". "This hostility is not based on
irrationality; people know that society needs the resources to meet
communal obligation. But there is something that rankles them about
the tax system. Despite all talk of fairness with which fiscal
policy is hedged, citizens intuitively believe that there is
something fundamentally wrong with the system of public finance.
Their instincts are correct. Public finance is based on principles
of arbitrariness and oppression. There can be no doubt that society
is in urgent need of reform of the system of public finance",
Henry George saw all of this when he advocated for land value
taxation as the sole means of public finance. Under this policy,
improvements on land will not be taxed, only the land value would be
taxed. In other words, the financial needs of the community would be
adequately taken care of out of the economic rent of land. He was
able to understand that if people were not "taxed on their
wages and the returns to capital, there would be no involuntary
unemployment; and incomes would be good enough for everyone, such
that poverty would be a historical curiosity", wrote Harrison.
George was able to see land as a distinct factor of production
for what it truly is based on the following facts as enumerated by
Prof. Mason Gaffney in his essay: "Land As A Distinctive Factor
of Production": Land is neither produced nor reproduceable;
land as a site, it is permanent and recyclable; land supply is
fixed; land is immobile in space and uncontrollable in time; land
does not turnover, it is recycled and is versatile; land is not
interchangeable with capital; land rents are subject to market
forces that differ from those that determine interest rates (the
price of capital); land price guides investors and determines the
character of capital, as capital substitutes for land; land is
limitational; land value is not an economic fund.
The major economic consequences of land as a distinctive factor
of production Gaffney continues, are: the origin and property of
land is not economic; much land remains untenured; landownership
imparts superior bargaining power; land rent does not evoke
production, thrift or investment; land rent is a taxable surplus;
uniformity in taxation between land and capital is not neutral; land
values are hypersensitive to discount rates; land markets are
dominated by access to long-term credit; control of land gravitates
to financially 'strong hands'; land markets are sticky; land is a
major basis of market power; land income is much greater than the
current cash flow; consuming land means pre-empting its time; land's
rent is opportunity cost, regardless of use.
Land and the boom and bust cycle: Land value is used as the basis
of credit and money; land valuation is subjective; land markets are
prime causes of instability. These are by all means enough reasons
why land should be treated as a distinctive factor of production.
Without land freedom there can be no equity and without equity there
can be no democracy.