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Keith Rankin: Public Property Rights

Public Property Rights
Keith Rankin, 20 March 2001

There is a more sustainable, more relaxed, more free, route to egalitarian prosperity than the maximum growth maximum employment option. The key concept is that of public property rights.

There is no theory of public property rights to compare with the neoliberal theory of private property rights. But the many strands are all there, in some cases in triplicate. They cut across the left-right divide of western politics.

The most important strands have been there for a very long time. Some of the most important ideas came from a group of eighteenth century French political economists - indeed the first group of économistes - known to English speakers as physiocrats. They could be called advocates of "naturism" (physiocrat means 'rule of nature'); that would help us to appreciate the difference between them and the later Anglo-Scottish classical political economists who were advocates of "capitalism".

Unfortunately the word naturism has been seconded for other purposes. In a recent article I used the term "environmentalism" which has the advantage of including the social, economic and legal environments.

The physiocrats - founded by French doctor François Quesnay - have fascinated 20th century scholars of economic thought; scholars ranging from Marxists to Georgists (modern followers of Henry George) to far-right libertarians. It is the physiocratic theory that surplus value derives from the environment that has much to offer us today. Further, the physiocrats' theory of property rights was equally applicable to public property (the domain of the sovereign) as to private property (the domain of the private landlords).

An important addendum (in the laissez-faire spirit of the physiocrats) to this eighteenth century chapter in the annales of political economy lies in the writings of Thomas Paine. For our purposes, the most important of the writings of this refugee from British censorship is a pamphlet called Agrarian Justice. Paine claims that, in nature, all property was public. With "civilisation" came "privatisation", and with privatisation came capitalist economic development.

This process was half good, Paine claimed. 50 years later (1847) French socialist Proudhon reiterated such claims. "Property is theft", Proudhon said. Economic society built on private property was half bad. These writers did not advocate the confiscation of private property. Rather Paine at least claimed that a significant part of the revenues accruing to formerly public property should be returned, equally, to each member of the public.

For the physiocrats, this flow of revenue (the income of the sovereign) would represent 33% of the produit net, what we today would call gross domestic product less losses to the natural capital that we call the physical environment.

In today's context - given that both industrial and democratic revolutions separate us from the original physiocrats - we can say that at least (and probably very much more) than one-third of the global (and each nation's economic cakes) should be returned equitably to the public owners of property that is in the public domain.

(As an aside, New Zealand's chief engineer in the 1870s, John Carruthers, having finished building the Rimutaka Railway north of Wellington, published an important but little known communistic version of capitalism on his return to Britain. John Carruthers' project began with papers presented to the Wellington Philosophical Society in 1877 and 1878 and published in the Transactions of the New Zealand Institute. His analysis - which favours a 100% public distribution of the proceeds of capitalism - is a logical conflation of the "commercial" and "communal" systems that one British scholar, Professor Ian Steedman, has called "Victorian market socialism".)

The political economists of past centuries emphasised questions relating to the distribution of the "common wealth"; or, as with the classical school (within which many modern scholars include Karl Marx), the distribution of income between the classes.

In the twentieth century, big questions of income distribution became unfashionable. The more conservative elements of economic thought emphasised equilibrium and static efficiency, while the more progressive elements looked to the sources of economic growth and dynamism.

As a result, the substantial literature on entrepreneurship, uncertainty, intangible capital, ideas and knowledge - which by and large falls outside of the still dominant neoclassical (son of classical, purged of Marxism) paradigm - has so far had little to say about distribution to the public owners of the assets that this literature emphasises. The public domain (the physical, intellectual and social environments) continues to be treated, implicitly, as a free resource that renews itself naturally. (The reality is that the public domain is renewed and extended by something, still alive and well, called the gift economy.)

The most recent synthesis of these elements - new growth theory - continues the 20th century vice of analysing intangible assets as sources of growth only, and not as sources of income. But the connection between growth and income shares will soon be made. Indeed, we are coming to realise that, when the public can profit directly from the assets that are held in public ownership - as occurs with the Alaska Permanent Fund - then the assets are managed in such a way that maximises their contribution to sustainable economic growth.

The new paradigm - a paradigm that I believe will come to dominate 21st century economic thought - only needs more work done on the nature of the gift economy that parallels the market economy and a few good writers who can synthesise the strands of the paradigm in such a way that captures the imagination of a generally conservative public. The Internet is already starting to boost our appreciation of the gift economy.

The new paradigm will treat income tax as an economic return to property in the public domain.

Contrast with the existing paradigm of tax minimisation. The United States' knowledge economy has yielded trillion dollar tax surpluses by 2001. So the new unelected president plans to give it back to the people. Fine, it's theirs. But, thanks to a combination of class greed and a lack of recognition of public property rights, millionaires will get many thousands of dollars of public income as a "tax cut", while many poor people – equal co- owners of America's common resources – will get nothing.

I'll finish by quoting from two writers (Herbert Simon and Gar Alperovitz) who contributed to a "New Democracy" forum Delivering a Basic Income, led by Philippe van Parijs' A Basic Income for All, published in the Boston Review in October/November 2000. And from an article by Ted Halstead about Generation X published in the Atlantic Monthly in August 1999.

Herbet Simon (1978 Nobel Prize winner in Economics) in UBI and the Flat Tax: "When we compare average incomes in rich nations with those in Third World countries, we find enormous differences that are surely not due simply to differences in motivations to earn. Laziness is not a principal cause of poverty. A more plausible explanation for the differences, in fact the explanation that is universally put forward, is that much greater resources per capita are available to some countries than to others. These differences are not simply a matter of acres of land or tons of coal or iron ore, but, more important, differences in social capital that takes primarily the form of stored knowledge (e.g., technology, and especially organizational and governmental skills). Exactly the same claim can be made about the differences in incomes within any given society. In large part, these differences must be attributed to differences in capital ownership, of which the largest part is social capital…

"When we compare the poorest with the richest nations, it is hard to conclude that social capital can produce less than about 90 percent of income in wealthy societies like those of the United States or Northwestern Europe. On moral grounds, then, we could argue for a flat income tax of 90 percent to return that wealth to its real owners. In the United States, even a flat tax of 70 percent would support all governmental programs (about half the total tax) and allow payment, with the remainder, of a patrimony of about $8,000 per annum per inhabitant, or $25,000 for a family of three. This would generously leave with the original recipients of the income about three times what, according to my rough guess, they had earned."

Gar Alperovitz in On Liberty: "It is striking to note that Van Parijs highlights the model of the Alaska Permanent Fund, which in 1999 allocated almost $1,800 per year to each state resident (roughly $7,000 to a family of four). Alaska Fund income does not depend upon taxation but upon directly capturing returns from the public ownership of capital. Experiments of this kind–and the theoretical work of writers like Kelso, on the one hand, and John Roemer on the other–suggest a need to focus less on the tax/transfer system, and more on various forms of public democratization of capital."

In a Basic Income conference I attended in Vienna in 1996, Alperovitz estimated that at least 90% of the increase in our wealth since the 200 years since Thomas Paine wrote Agrarian Justice is due to public rather than private inputs.

Ted Halstead in A Politics for Generation X: "Generation X [has] been put to sleep by the current tax debate. Sooner or later Xers will figure out that America could raise trillions of dollars in new public revenues by charging fair market value for the use of common assets -- the oil and coal in the ground, the trees in our national forests, the airwaves and the electromagnetic spectrum -- and the rights to pollute our air. We currently subsidize the use of these resources in a number of ways, creating a huge windfall for a small number of industries and a significant loss for all other Americans. The idea of reversing this trend by charging fair market value for the use of common assets and returning the proceeds directly to each American citizen plays to a number of Xer political views -- it is populist, equitable, libertarian, and pro-environment all at once."

We avoid the bureaucracy of charging "fair market value" for the use of public domain assets by simply reinterpreting income tax as a royalty for the use of common assets. A "tax" rate somewhere between 33% and 39% would do for starters.

In the meantime, environmentally sensitive capitalist industries that constitute natural monopolies (eg electricity, water) should be run as profit- seeking publicly-owned enterprises (LATEs or SOEs). Restrained supply and higher prices help conserve the resource while returning a regular distribution of dividends that, for most members of the public, would more than offset any price increases that utility consumers might pay.

The scheduled payment of Vector dividends this month to the people of Auckland is a useful though limited example of public property rights in action. It is particularly interesting to see that the Department of Work and Income will be instructed to ignore Vector dividends when means- testing supplementary benefits. This is a recognition that, under the present paradigm, those on low incomes in practice pay the most tax on additional income.

© 2001 Keith Rankin

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