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Land and Rent Costs to Business make Australia uncompetitive

Why doesn't the government cut land costs? High costs of land, and the resources it carries - energy and water - are responsible for our failing economy. The greatest costs to small and medium-sized businesses are the rents they pay for their shops, warehouses, and factories. The greatest costs to workers are the rents they pay for personal accommodation. Small and medium-sized businesses pay both for their business premises and for their personal accommodation. Manufacturing in Australia is losing out to high rents and housing costs. Wages must go up to satisfy the malignant effect of land-speculation, which government continues to encourage against our common welfare. But, why don't they just cut the land-costs? Stop pushing up property prices by reducing immigration and you won't have to put wages up. Business will become competitive on the world market again, because most of its profits won't go on rent of premises. Let's get rid of the property developers. Let's outlaw land speculation. [Title changed from "Cut land-costs, not wages. Down with property developers, Up with workers!" on 9 Oct 2011.]

We hear that over 90% of small businesses quickly go broke. Some of you may assume that this is because they are all incompetent. That would mean that you have a low opinion of your fellow Australian and that you haven't considered the costs that operate in our society and are causing our factories to close.

The greatest costs to small and medium-sized businesses are the rents they pay for their shops, warehouses, and factories.

Do we ever hear the Liberal Party or the Labor Party say anything about this?

No.

But land costs and rent costs erode profit margins and drive everyone except the major corporations out of business.

The major corporations (which include newspapers, banks and developers) invest in land and are responsible for high rents and mortgages. They constantly lobby against ordinary Australians for more immigrants to keep those costs high. They are in the business of putting the rest of us out of business.

Why is the government ignoring that land cost factors completely dwarf all the other factors causing Australian manufacturing and most other small business to founder?

The public service is bringing in contractors in order to keep wages down. Once they did not have the right to do this. Once they had to negotiate fairly.

We are losing our rights to decent wages and conditions at the same time that big business is forcing up rents and housing costs.

The mass media is full of nonsense about how the economy cannot afford for wage rises. The mass media has nothing to say about the huge iceberg our economy is running up against in rising land prices. It only talks about how a tiny minority of people who have invested in second properties are able to sell their houses for more money. It says nothing about how business fails and people become homeless due to these rising costs.

Now I hear of how state governments are talking about bringing in contractors to undercut cleaners' wages. Cleaners are arguably among the most poorly paid workers in Australian industry. They work very hard and have little status.

The same thing is happening to drivers, with local governments considering colluding to introduce strike-breakers in order to stop industrial action to negotiate small wage rises in another ill-paid industry.

Why is it always those who can least afford it who must bear the brunt of our ill-run economy, whilst the CEOs and head-kickers get huge wages for simply being mean and greedy?

Please send this cartoon to Julia and Wayne and your local politicians and ask them, "Why don't you just cut the land costs?"

Comments

Developers have had excessive influential buying-power within our State governments.
Both our Federal government and State governments are up-sizing Australia's population to a "big" one. We need, apparently, to keep up to the massive population sizes of Asia - for competitive wages, and defence.

This means denying all the science, and the technological evidence, that our natural resources can't keep up with human demands.

Governments need to keep up the facade that we must adjust to our population "boom" despite the fact that our population growth rate is not actually determined by our reproductive levels, or family sizes, but largely through government immigration policies.

Whether we want a "Big Australia" or not, and despite the fact that most people are being disadvantaged and overwhelmingly worse off, those with political and economic powers have the greater influence.

Big buildings, big projects, big debts and big donations is what our State governments are running on now. We are being run for the sake of the economy, rather than the contrary.

This addictive cycle must be broken, and government policies need to be returned to the people, the voters. Future generations will be handed a massively over-populated Australia, with debt and tremendous challenges - due to poor leadership and greed in these current times.

Land is an asset that should be considered to be the property of a nation. Henry George had some great ideas in this regard, but they are the opposite to what you propose. In essence we would introduce a better system of land value taxation based on the services society provides to a particular parcel of land (ie proximity to road & rail, water, power, population etc). People shouldn't be taxed for the improvements they put on land. People also should not be taxed on their income (land value taxation replaces income tax).

In this way, businesses are inspired to make the best possible use of the land they have available. Land speculation is eliminated or greatly reduced (being taxed on vacant land means you aren't going to hold that land in the hope of price rises). No income tax means people are more inclined to work harder, and they have more money at the end of the day.

Obviously this doesn't solve the population growth problem, which is one of the root causes of our troubles, but reducing property prices and rents certainly wont eliminate that problem either.

As for land costs to businesses exceeding wage costs as a factor in productivity, it doesn't seem very well considered. The productivity and profitability of any manufacturing operation will be related to individual unit throughput and the costs going into those units. Rent represents one component of the costs, but it can be reduced per unit by increasing the number of units produced. Wages on the other hand are tied to production, as you need more labour to increase the number of units produced.

Simplistically, produce 100 units and the rent component is 1/100th of rent. Produce 1000 units and it's then 1/1000th of that. Contrast that to wages, and if each person only produces 100 units per week, then increasing to 1000 units requires 10 people rather than 1, so your wages bill has just gone up tenfold. Labour per unit stays the same, as long as wages stay the same, but labour as a component of total profitability stays as a fixed proportion of any increase in production, in contrast to rent which is reduced as a component the more you produce. This seems to be at odds with your premise.

Cheap third world labour is always going to destroy expensive local manufacturing. The positive is that as the third world people see their incomes rise, and begin to demand ever greater incomes, and purchase more locally, and see prices rise locally as a result of their ever greater desire for higher wages they will soon price themselves out of manufacturing as well, and maybe we'll be in a third world state by then where we're happy to step in and make things for $3 a week wages.

Hi Geoff,

Feel free to continue this discussion. Debating Georgism requires quite a lot of skill and I can easily trip up. Here is how I see it.

It is not just third world rental costs that Australian business cannot compete against, it is average rent and housing costs in Western Europe, in countries like France. The system in those countries taxes land-speculation and the transmission of inheritances outside family and tends to keep people movements down, agricultural land intact and businesses local. The English speaking countries all pay ridiculous prices in land purchase and rent. They are all artificially stimulating population growth to keep those prices high, and they suffer from continuous, frenetic population movement.

You write, "Obviously this doesn't solve the population growth problem, which is one of the root causes of our troubles, but reducing property prices and rents certainly wont eliminate that problem either." However, while property developers can raise the value of their land and developments by importing customers, high land values cause population growth. If you reduce the opportunity to make money out of land speculation then population growth becomes a cost rather than a source of money. If land were no longer commodified, there would be no incentive to import more customers. Henry George does not tax that kind of land-speculation. He taxes the hoarding of 'undeveloped' land that might, if 'developed' yield financial returns. This method punishes leaving natural spaces alone wherever humans might turn them to some kind of financial profit.

Your point about raising production is problematic because it requires more and more production as pressure of population raises land-costs. That assumes that it is possible to endlessly leverage production on manpower or other fuels, but that is a game of diminishing returns and if it were endlessly possible there would not be so much chiseling over wages or much need for land speculation to acquire material wealth. We are all working harder and harder for less, and paying more for less land. People now work longer hours than they did in the 1950s, yet, in Brisbane for instance, only the very rich can afford the houses on generous blocks that working families once lived in. Also, did you understand that high wages are necessary for workers to pay for high rents? Thus land costs underly wage costs.

But it seems to me that Henry George did understand the problem of high rents and how they were undesirable. His idea was that any business that would pay high rents would do so because it made higher profits due to services that accompanied high rents (roads, electricity, many clients, government offices etc). When the rents exceeded the profits, the businesses would move further out. What would happen if transnational corporations came in and drove up the rents and then caused all the small businesses to crash? Did he say anything about that?

The Henry George system brilliantly utilises population density as a factor in land values but, as far as I can see, it unwittingly endorses a nightmare situation where people can be absolutely packed in slums by rentiers (people who get the rent) in the guise of productivity of land. The renters (people who pay the rent) must then work like slaves in the widget factories to pay the high rents that come with the higher land-values associated with the high population density. The theory is that the state will claw back those profits in land-tax and then somehow redistribute them to the rest of the population. This part of the theory is the best part, but, for me, suffers from the usual problems of governments removed from localities, which always seem to redistribute any taxes to their friends rather than to the whole community, so we need some kind of democratic input here.

Democracy and natural affection for locality and community seem to be disregarded under Georgism. Under Georgism, it seems to be okay to move little old widows out of the houses they were born in, artists out of cheap garrets where they compose misunderstood masterpieces, and dreamers out of backyard sheds, to make way for widget factories. My view questions widget factories and suggests we need relocalisation and for more people to produce primary products and consume less secondary adn tertiary ones, notably the mass-manfufactured ones. Georgist values are survival values for pioneer towns, (and the same as current Australian mainstream economics ones). Neither work to facilitate climax communities where people might simply enjoy life simply and intelligently according to the ideals of ancient Athenian philosophers as oil declines and the population balloon of the 19th, 20th and 21st centuries quietly deflates.

The Henry George perspective is pure economics and suffers from the problems of pure economics. That is, it seems to have no means of measuring values outside densely-populated areas and values which are barely commodifiable. For instance, it cannot take seriously intrinsic values of wild spaces, and positional values of natural ammenity. Nor does it understand the thermodynamic rules that are preserved in the natural world and on which our lives depend. Even if some very rich person or company is prepared to pay huge taxes to preserve a river or a stream, when that person dies or the company goes broke, under the Georgist system, that river or stream will inevitably be destroyed, heat islands will develop etc. Usually the stream has no chance and is the first thing to go. Georgism has no means to value other species and does not even count them. It gives materially productive output primacy at the expense of freedom not to work and freedom to enjoy life, ammenity and place. It suffers thus from the same problems of other forms of capitalism and of communism.

Its chief selling point is that it redistributes monetary wealth to the community, through the collection of taxes. Its chief downside is that it surrenders community, place, self-government and democracy to an abstract market that responds to rules that reward population density and infrastructure alone. In this it differs little from our current system.

You might point to systems that commodify trees and rare animals and tax companies to preserve them, as in Greenhouse tax schemes for locking carbon up or to promote the breeding of rare animals for legal trade. However these are very artificial and clunky solutions to problems which, in my opinion, would be much better dealt with by returning power locally, taxing land-speculation and land-commodification (see para one about inheritances.)

Henry George was right to say that his system presented a solution to poverty, but it did not return land and self-government to people who had been deprived of it in the first place; it merely made the best out of the monetized reinvention of the world as a commodity market.

It seems to me that Georgism will always nurture and defend growth. Growth is now a problem, as you say, and I don't think that Henry George would have stuck with his original recipe. He would have had to have allowed major importance for human rights and to have recognised the primacy of our ecological envelope over everything else. Pollution taxes don't do that either, by the way because people will pay to pollute and then charge their customers.

It may surprise you to hear that I used to be on the Board at Prosper Australia. It was an admirable institution in those days.[1] I have a great admiration for Henry George and Georgism. It is an intellectual challenge to work out why it does not satisfy ecologically. From the ecological perspective, it is flawed, in my opinion, because it is unable to give importance to anything that does not have monetary value and it will always preference higher monetary value over lower monetary value, even if that lower monetary value contains all the things that people love.

An example of this can be found in The Triangle Wars, by the way. The Triangle Wars is about a huge development for the Melbourne seaside suburb of St Kilda that was proposed and agreed to by the Port Melbourne Council against the objections of many residents of St Kilda. The residents objected because they valued the view that the development would block and they valued their continuing access to the remaining simple beach. They did not want to replace the relics of a 19th century Australian bohemia with a generic shopping mall. They were against higher density occupation of the area and they were against more shops. They said there was enough shopping. Henry George would have said that the residents of St Kilda should move out to Frankston (where similar developments are happening) or further out, to Hastings (where a huge development is happening). In the end under the conditions prevailing through high population growth in Australia, the residents of St Kilda would have had to have dispersed into the hinterland, half way to Culgoa to avoid major developments that sought to intensify the take from a captive population and to take advantage of established services. If they had done that, however, many of them might have lost access to their jobs and incomes. So Georgism in this case means that you have to wear the commercial impositions that accompany high population density. You do not have the right to say how your town will be run. (The residents won this battle for once in The Triangle Wars, by the way.)

Georgism needs an ecological and a democratic component that is just as strong as the land-tax concept to work. At the moment it has no such thing. It also has no respect for locality. We need to see Henry George's system in the context of when he lived. He was looking at the upside of growth at that particular time in America. We are looking at the absolute downside today. Growth is our biggest problem today. Georgism is a recipe for higher densification. It punishes the preservation of space and green. Every city in Australia is being ruined by high rates that stop people from preserving nature anywhere close to houses and businesses. And towns and cities are now linked by multi-lane freeways, lined by endless suburbs, devoid of kangaroos, devoid even of farmland. So, even if you buy a car and travel for fifty km you still may not be able to experience the refreshment of natural surroundings and the sight of birds and other creatures.

Geogism assumes that people will use land for 'production' (a thing that ecologists believe there is already too much of). However, under guise of 'production', landlords can simply rent out rooms to house dense populations at prices where the landlords will make a profit over the land tax. The people who rent the rooms will have to work harder in order to pay their rent. Making people work harder is supposed to be a 'good thing' if you believe that we need more 'productivity' but, again, I say, ecologists think we need less productivity.

To avoid greater ecological overshoot, to slow down oil depletion, to reduce pollution, we need to produce less and to become fewer. The way to achieve this is to work fewer hours and pay less for land so that we can live more peacefully, happily and less frenetically 'productively'. In Georgism services are associated with population density and you pay for the services via land tax. However, in conditions of high population density, as services become scanty, people have no choice (as in Melbourne at the moment), yet land-prices continue to rise.

I am sure that more dedicated Georgists will let me know what I have got wrong. It occurs to me that we cannot hold Henry George's theory responsible for solving everything. It is an economic tool more than a political system.

[1] Regrettably, Prosper Australia (a very wealthy NGO) was taken over by members of the Socialist Alliance, the Refugee Action Collective and The Right to Life, and promoted particularly as EarthSharing. The people involved in this takeover objected greatly to its association with Sustainable Population Australia (SPA) and threatened to demonstrate outside Prosper Australia if Prosper allowed SPA to continue to have meetings there.

A few questions to consider:
Henry George was writing in the context of population growth, railroad expansion, and rapid economic development and increasing manufacturing volumes. I can imagine that this would have been seen to bring wealth to U.S. citizens. He was writing at a time when population growth would have been considered a normal pattern as it is here and now in Australia. But how would Henry George’s system work with a stable population?
How does a stable population affect the cost of land?
What can make the cost of land go up?
Suggestions:
lots of people want to buy it or monopolize it
a for accommodation
b commerce
c manufacturing
b agriculture
c. forestry
d mining
d tourism
e ecological services

Where does the intrinsic value of the land fit in?

A house/land that was isolated but later is near the hub of a lot of services provided by the community becomes more valuable. Henry George would say that the owner should pay more to monopolize it. The owner then has the choice of moving on if he can’t afford the new rent, staying and enjoying it if he can or capitalizing on his block of land by densifying it and charging rent to others.
Economic rationalism- reduces everything to a dollar value
Is Georgism a form of economic rationalism?- or is it just about a fair way to collect taxes for necessary expenses for the community. It rewards industry and maximizes the $ yield from land

The areas that you mention - open space, nature, - are they areas of government responsibility where a boundary is made which says economic activity and exploitation of land and resources stops?

Can an economic system be made to take all this in? Is it reasonable to ask it to?

News Corporation's losses (The Age 21/8)1 are a drop in the bucket when compared to the 882 million dollar windfall News Corporation received from the long suffering Australian taxpayer in 2013. Using a little bit of creative accounting, Mr Murdoch was able to legally engineer a tax refund in Australia while making hundreds of millions of dollars profit from his extensive global empire.

The extraordinary aspect of what can only be described as legalised theft, is that the Federal Treasurer, Joe Hockey, refused to comment on News Corporation's windfall, the Australian Tax Office didn't bother to appeal this extraordinary decision by a single Federal Court judge, Mr. Abbott the man who promised to give up his last breath (during the super profits mining tax debate) to ensure some of the richest corporations on the planet did not pay one extra cent in tax, was missing in action and Her Majesty's Loyal Opposition was nowhere to be seen. What occurred last year has left an indelible stain on Australia's political, judicial and business community. Poor fellow, my country (apologies toXavier Herbert).

Dr. Joseph Toscano / Convenor Resist Murdoch's Minions Legislative Onslaught

Footnote[s]

1. Age story dated 21 August not found. Here's what seems to be the same story in the other Fairfax Daily newspaper, the Sydney Morning Herald: News Corp Australia chief Julian Clarke plays down poor results (21/8/14) - Ed