Land rent flows in economic, political and environmental transitions: an inquiry into ownership rights in land rent

American Journal of Economics and Sociology, The, Jan, 1997 by David H. Smiley

I

Introduction

Development Economics deals with efforts to increase economic growth and reduce poverty, primarily by capital accumulation from external sources. In a now famous example, Marshall aid programs effected Europe's recovery from a post-war condition of destruction and poverty. Since then, much larger aid programs have attempted for much longer, but with far less success, to assist the transition of the third world from stagnation and poverty to growth with equity. Paradoxically, the successful transition of a few third world countries has not only far exceeded the performance of the others, but even that of Europe itself (World Bank, 1991: 3). A cardinal fact stands out in the notable cases of Japan, China, South Korea and Taiwan and, to a lesser extent, Hong Kong and Singapore. They all addressed their land problem as a precondition for economic takeoff and social justice.

This observation prompted a conjecture on the relevance of the usual capital-labor transition models to states where both growth and equity are institutionally constrained by a third factor, land. Anywhere its rent is appropriated by a small, traditional minority that place is hereinafter referred to as a feudal state. This conjecture was articulated in a critique of development economics and then explored in a pedagogical computer simulation model by the author in this Journal (Smiley, 1995 and 1996).

In that model each development simulation commenced with a stagnant feudal state. This state had been generated by driving a "golden age" economy down to subsistence, at which point land rent consumed 50 percent of Gross Domestic Product, simply as a result of rising population (see Samuelson, 1964: 726-27). From that point, surplus rural population migrated to regional cities whose public spaces it occupied. In spite of the informal economies which emerged and expanded there, all new all new urban economic growth was absorbed in rising civic infrastructure, law and order, and welfare costs. Thus all three sectors: rural, urban and informal, became economically stagnant. Using these results as the basis for the model (Smiley, 1996), all development strategies known to have been applied to the third world, such as coerced domestic saving, foreign loans (AID), and foreign direct investment (FDI) were then simulated and found to have unintended consequences in land rent flows between classes, with adverse implications for efficiency and equity.

The literature search for these simulations, and the simulations themselves, led to three observations which could not be explored sufficiently within the scope of the research project as then formulated. It is the intention of the present paper to address itself to a more detailed consideration of these observations.

1. "Land" defines the surface of the globe and all natural resources either side of this surface. The rent of this surface and associated resources change with economic, political and environmental transitions, invariably accompanied by secondary, often unintended, impacts upon efficiency and equity.

2. Economic transitions arise from changes in demography, technology or land rights. Many political transitions arise from conflict over actual or surrogate land rights. Adverse environmental transitions arise from uncertainty over land rent obligations.

3. Rent-seeking, an activity associated with all these transitions, is any attempt to capture an unearned surplus by persuasion, bribery or corruption. In economics, rent and rent-seeking are not confined to land, and the effects of rent-seeking can be large (see for example "The Rise and Decline of nations", Mancur Olson, 1982). In this paper rent and rent-seeking are confined to land and, in political transitions, rent-seeking will be referred to as "coercive".

These three observations raise two questions. First, does a property right in land which decouples public rental obligation from private rights of use encourage both efficient and equitable outcomes in any economic transition? And secondly, does such a property right encourage both efficient and equitable outcomes in political and environmental transitions?

Parts II and III attempt to answer question one. Parts IV and V attempt to answer question two. The conclusions from parts II, III, IV and V lead to a revelation of internal inconsistencies amongst the 30 articles of the Universal Declaration of Human Rights of the United Nations (UN). Since the Declaration should be, but is not, useful to UN initiatives in economic, political and environmental transitions, these inconsistencies are set down, together with supplementary articles seen as necessary to any resolution of these inconsistencies, in an Appendix.

II

Property Rights And Land Rent Flows

The Sovereign State consists of a population, a defined territory and a form of government maintaining property rights as they extend over the state's land, labor, capital, the goods and services created thereby, and related obligations imposed by law. While ethical theories on property rights range from "property is theft" to "property is sacrosanct," corresponding political theories range from advocacy of public ownership (Marx) to private ownership (Nozick). In the typical sovereign state substantial proportions of its labor output, land, and capital are public property. A state where at least the rent of land is public revenue has been suggested at various times, for example by James Mill, J. S. Mill, Marx, George, Tolstoy, Sun Yat Sen, and recently by Solow, Tobin and Modigliani (1991). The model of this state is derived from an analysis of the impact of property rights in land on efficiency and equity outcomes of production.