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Mother Pelican
A Journal of Solidarity and Sustainability

Vol. 10, No. 3, March 2014
Luis T. Gutiérrez, Editor
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The Case for a Land Value Tax

Navin Singh


This article was originally published in The Hindu, 26 January 2014
REPRINTED WITH PERMISSION


NavinSingh.Hindu.March2014.jpg
Horizontal expansion of Mysore (India) is consuming large tracts of agricultural land.
Photo: M. A. Sriram

The real estate bubble will not burst anytime soon, but capital is being hit as nothing new is created

In a feudal society like India, land ownership has always been a source of wealth and power.

While the traditional feudal class has largely faded out, post-Independence, especially in the last decade, real estate prices have soared to vertiginous heights, bringing realty back to the centre stage of the Indian economy.

The fall in property prices in 11 out of 15 major Indian cities in 2013 as compared to 2012, has created a feeling that the overheated real estate sector is showing signs of correction. Some have gone on to speculate that this might be the sign of an impending real estate bubble- burst. But bankers see no reason to be worried as the Indian realty sector differs from that of developed world in many ways.

First, the mortgaged property’s market value is more than its book value as up to 50 per cent of the value of a property is paid by the buyer in “black”, and banks lend only by book value. So the sector can absorb considerable downward correction. Secondly, a major share of the investment in real estate is in undeveloped land, which is not financed by banks. Finally, money is parked in this sector usually to evade taxes, and this flow of unaccounted funds is not likely to slow down anytime soon.

It is a tragedy that the same factors which make this sector immune to a meltdown, are bleeding our economy. Black money, whether earned legitimately or siphoned off from government-spending, is getting sucked into a vortex of shady land deals, which provide not only anonymity but assured returns. It creates artificial scarcity, jacking up land prices for end-users. Moreover, it creates an incentive for the builder-politician nexus to delay clearances to residential or commercial building projects of individuals or communities without political patronage, leading to a mushrooming of irregular colonies, with non-existent infrastructure such as water lines and sewerage.

It has created a new feudal class of landowners which extracts a rentier’s income from the economy without adding any value. The overdeveloped real estate sector is worthless for India’s balance of trade, as construction projects, even if world-class, cannot be exported. Even if the real estate bubble does not burst, capital is still being destroyed and nothing new is created.

This is the neo-liberal blind spot which fails to see the Physiocrat’s wisdom of recognising that productive work is the only source of national wealth.

However, the productive work, the value added to the economy, is all that most modern economies tax. Real estate, on the other hand, gets its value from location, mostly a result of public utilities like transportation, water, electricity and drainage tending it, and jobs, schools and hospitals in its vicinity. All of this is financed by the community, either as taxes if built by the state, or as user-fees if built privately. So modern taxation is a clear case of taxing private wealth while doling out public wealth to a select few — those who are first-comers, inheritors, cronies or plain lucky.

The logical solution to this aberration would be to tax land at its value. The so-called land value tax was an idea considered by Adam Smith in The Wealth of Nations, but most famously and fervently advocated by Henry George. Ever since the 1868 Meiji restoration in Japan, it has been used in many parts of the world, as in the U.S., Australia and Hong Kong. It has been dubbed ‘the least bad tax’ by Milton Friedman as it does not lead to allocative inefficiency. From Paul Samuelson to Joseph Stiglitz, it has many supporters in the economists’ fraternity. Michael Hudson is a vocal proponent and he has suggested it for China as a way to avoid the fate of debt-ridden Western economies.

Land value tax, when applied to non-agricutural land, might turn out to be the game-changer. It will end speculative land hoarding and bring down prices for the end-user. The money saved thus will be spent on other commodities, increasing consumption and give the economy a boost. It will free a lot of undeveloped land close to cities, which can be developed by state or private players. These developed colonies will be affordable to lower income families which have been spending considerable sums for unapproved land till now.

This will provide the government revenues to develop urban infrastructure. Mining companies, which find it more profitable to squat on natural reserves sensing a rise in mineral prices, will not do that once they have to pay annual tax on the value of the mines. They will have to mine it to earn revenue to pay tax, or choose to return it to the government. Unused prime urban land, of closed mills for example, will be promptly returned to the government for the same reason.

This tax may not replace all other taxes, as Paul Krugman concedes, but may be a one-stop solution to all that ails realty sectors.


ABOUT THE AUTHOR

Navin Singh is an orthopaedic surgeon who is appalled by inequality in the Indian economy and believes that inequality in urban land distribution has created a new breed of feudal class in India, usually of politicians and their cronies. Dr. Singh can be contacted at drnavinsingh@gmail.com.



Universal Basic Income:
A New Tool for Development Policy?


Johanna Perkiö


This article was originally published in
Kansainvälinen Solidaarisuustyö, 31 January 2014
and
Basic Income News, 14 February 2014
under a Creative Commons License


SUMMARY: This report examines the potentials of basic income to serve as a new tool for social and development policy, drawing from the recent experiences from recent pilot projects. The structure of the report is as follows: Chapter two provides a brief literature review of cash transfer policies currently in place in many developing countries and assesses the potential advantages of universal and unconditional transfers over targeted and conditional ones. Chapter three presents the three country cases where universal cash transfer policies have been tested or gradually implemented. Chapter four concludes and explores the prospects of basic income as a part of the new development policy agenda. The empirical material regarding basic income experiments is collected from the projects’ own research reports and newsletters, as well as relevant academic and non-academic articles.

Johanna Perkiö, “Universal Basic Income: A New Tool for Development Policy?Kansainvalinen Solidaarisuutyo: International Solidarity Work, January 31, 2014.

Only the table of contents and the introduction are reprinted below.
For a direct link to the PDF version of the full article, click here.


TABLE OF CONTENTS

1. Introduction
2. The many faces of cash transfers
3. Experiences of basic income: case studies in Namibia, India and Brazil
3.1 Namibia: the BIG experiment in the Otjivero-Omitara village
3.2 India: Three Projects Piloting the Unconditional Cash Transfer
3.3 Brazil: from Bolsa Família to Citizen’s Basic Income?
4. Towards Universal Social Protection

INTRODUCTION

In recent years, social protection has risen high on the international policy agenda. It is becoming increasingly acknowledged that economic growth and conventional development policy measures alone are insufficient to combat poverty as far as the unjust economic structures remain in place.

Deepening inequality and slowly growing employment rates(1) accompanying rapid economic growth has led many countries in Africa, Asia and Latin America to tackle poverty directly by establishing social protection systems for their citizens. The remarkable progress in the social policy field has drawn enormous international attention and brought about the new global policy approach of Social Protection Floor (SPF) which was in 2012 endorsed by the ILO and other UN agencies, various NGOs, G20 and the World Bank. The Social Protection Floor initiative is an integrated set of recommendations for countries to guarantee income security and access to essential health care and social services for all their people across the life cycle. It emphasizes the need to implement comprehensive, coherent and coordinated social protection policies and seeks to re-establish the case for universalism within a development context.(2)

The Social Protection Floor is a broad policy framework that does not include recommendations on any particular measures to achieve its goals. Regarding income security, the measures currently in place vary from universal pensions or means-tested family and child assistance to guaranteed employment programs. Many of the new policies have taken the form of direct cash transfers, which have proved to be more cost-efficient and effective in reducing poverty than conventional forms of aid such as food aid or vouchers(3). In addition, they avoid the harmful effects on local markets and agriculture. Most of the newly implemented cash transfer programs are targeted only at the poor and often are conditioned on the recipient’s conduct.

Some of the social policy experts have come to argue that the social protection models based on outdated economic and labour market structures are not the most relevant in the post-industrial era(4), when the forms of employment, as well as lifestyles and family patterns, are becoming increasingly fluid and flexible. In this context, the idea of universal basic income has been brought up as a new alternative approach to social policy. Basic income as such is not a new idea, but it is becoming increasingly recognised as a promising alternative to the highly bureaucratic and complicated systems of targeted and conditional social security. The idea of basic income is to guarantee a certain minimum income to all members of society as a right without means-test or conditions. It provides each individual regularly with a determined sum of money, which is granted regardless of the recipient’s employment status, family relations or socio-economic position.(5) In most proposals, the basic income grant itself is tax-free, but all earned income above it are taxed either on progressive or flat-rate scale. Through income taxation, the government can charge back the equivalent of the given grant from higher earning individuals who do not need the income supplement. Few pilot projects of basic income with encouraging results in terms of reduction of poverty, improving health and nutrition and boosting economic activity have been carried out in Namibia, India and Brazil.

This report examines the potentials of basic income to serve as a new tool for social and development policy, drawing from the recent experiences from the pilot projects. The structure of the report is as follows: Chapter two provides a brief literature review of cash transfer policies currently in place in many developing countries and assesses the potential advantages of universal and unconditional transfers over targeted and conditional ones. Chapter three presents the three country cases where universal cash transfer policies have been tested or gradually implemented. Chapter four concludes and explores the prospects of basic income as a part of the new development policy agenda. The empirical material regarding basic income experiments is collected from the projects’ own research reports and newsletters, as well as relevant academic and non-academic articles.

The cash transfer schemes piloted in Namibia and India correspond to the ‘standard’ definition of basic income: the transfers were given to all residents of the selected area (in Namibia the recipients of the universal state pension were excluded) without any conditions regarding the recipients’ conduct, social status or use of the money.
In India the pilot scheme was called Unconditional Cash Transfer and in Namibia the Basic Income Grant (BIG). Brazil’s case differs from India and Namibia in that there has been only a minor NGO-run pilot project, in which the data has been collected less systematic, but Brazil as a whole and some municipalities have taken steps toward implementing a scheme called Citizen’s Basic Income.

In this report, basic income is examined as an alternative to conditional and targeted minimum income schemes. The contributory social insurance systems (e.g. earnings-related unemployment benefits or pensions) still hold their place as an additional system to minimum income guarantee. Basic income is not regarded as an alternative, but as a complement, to comprehensive social and health care services, education and employment generating policies.

Notes

1. Income and wealth inequalities have increased in most countries, as have inequalities based on gender, ethnicity and region. Between 1990 and 2000 ”more than two-thirds of the 85 countries for which data are available experienced an increase in income inequality, as measured by the Gini index” (ILO 2008, cited by UNRISD 2010, 65). Though employment is often treated as an automatic by-product of growth, in reality employment growth has often lagged behind GDP growth as a result of orthodox macroeconomic policies and technological development, which has led re-searchers to talk about ”job poor” or ”jobless” growth. Evenwhen employment is available, the vast majority of wage earners in poor countries do not earn enough to lift themselves from poverty (UNRISD 2010).

2. Deacon 2013; ILO/WHO 2011.

3. Hanlon et al. 2010; Standing 2012b, 28–34.

4. Most of the so-called developing countries are classified as pre-industrial countries. However, the problems of income insecurity are even greater in those countries, and it seems unlikely that their labour market will ever become corresponding to the western industrial era.

5. General Information and FAQ about Basic Income

ABOUT THE AUTHOR

Johanna Perkiö is a researcher at the Kansainvälinen Solidaarisuustyö - International Solidarity Works, Helsinski, Finland. She can be contacted via Laura Tuominen at info@kvsolidaarisuustyo.fi.


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