PRIVATISATION IS USUALLY STEALTH THEFT, BY THE EXISTING CAPITAL RICH
 


A LANDLORD'S POINT OF VIEW -- Where resources are on offer, leases are the best strategy

An IEA fellow Sir Samuel Brittan (of the FT) suggests that landowners should return to paying for developing what they benefit from, (Wheels of Fortune IEA 2006).
This essay is also a robust rebuttal of bad-economist Hartwich's viewpoint that recycling land values is just a tax in disguise.

"Privatization" excites young economists. It suggests an opportunity in Bulgaria, Estonia, Latvia or Rumania, or even "empty" New Zealand to "invest" in a cheap property. Buy a wreck, tart it up for stag parties and then wait a few years while local peasants contribute income tax, state taxes and other IMF recommended taxes in order to improve the roads, up the drainage and electricity supplies and build schools and modernized communities.

Even if like in Wales there is a bit of a backlash and your shack is blown to smithereens, the effects of the locals treble, quadruple and can eventually make your land 10 times more valuable than when you (Years back I ran a scheme which for two package holidays to New Zealand, guaranteed a freehold home near Whangamomona. Most were 4000ft up in abandoned logging sites!)

Today my whiz is renting out lift top sites to O2, T-Mobile and Mercury around London Bridge at £ 11,000 per mast per year, not viable in remote Taranaki, New Zealand.
Morally and economically we should be sharing most of this rent, not with Stanley
Kubrick and Arthur C Clarke, but with the earthlings around us.
As a legitimate example of land privatization consider an area of roads around Victoria in London. My firm could get (as for mast providers), a ten year deal to rent the local road network. I then sub-rent out parking spaces: maybe build a few underground parking spaces and take out a block of spaces to create an outdoor mini garden and childs' play area. I also put up message boards and small, neat screens for local advertising and trading. I design access rules (no dogs!) and ensure users (owners and renters) pay their dues. There is a five year break clause in case either party wants to get out. Any incoming lessee will have to sub up for my improvement and there will be a rent review. Resident car owners will have to pay the market rent for the 20 sq metres their cars hog for weeks on end.

In China and Russia most land is let out by the local administrators for periods of between 20 and 50 years, depending on the zoned use. There seems no shortage of takers and a business associate has recently completed the design and fitting out of 800 bedrooms in two new Moscow Holiday Inns.

Around London Bridge where we operate, we have stated publicly that our firms are willing to recycle perhaps £ 200,000 every year into capital renewal -- of local services providing:
a) other landowners do the same in proportion to land size and use
b) we direct the investments -- the councils and Westminster facilitate
c) inheritance taxes, capital gains taxes and stamp duties are abolished (or we get offset credits)
Land is in very short supply in all the most useful locations.
Hartwich had a letter published in the F.T., April 21st 2006 in which he stated "High house prices are a curse, not a blessing" and then he advocated laxer planning rules as the answer. But in New Zealand, Australia and the US where it is easier to build, the high price curse also exists.
It seems that where the usual facilities for civilized living exist in town centres and posh suburbs, millions of citizens resemble pygmy oil sheiks who wish to limit supply i.e. the spread of more "civilized locations" by squatting and hoarding up "their rightful" property wealth.
Come on! like the tabby cat that got its head stuck in the jar pull your head out from inside the property bubble. (Independent, 27/1/07. Three police stand by as cat smashes jar on floor of police station).
Russia is growing at over 10% per year if unofficial growth is included and China even faster.
Their construction companies and property purchasers are getting use of the most valuable resource -- land on lease and happily paying the costs for a massive leap in infrastructure of all types including semi private schools and hospitals.
The Chinese commenced exporting this approach some years ago as predicted, and now to the alarm of the world's twelve largest mining companies, have become astute dealers with respect to hard-case Africa leaders.
They are not offering easy to launder cash, instead built in non-military hardware.
The Chinese have no need for land possession in Africa, so they are renting mining concessions in return for building dams, telecoms equipment, football stadiums, roads, railways and power stations across the continent (Times, 29th January, 2007 In return for these deeply discounted or gifted projects, the Chinese are winning rights to explore and exploit vast areas for the raw materials they need (e.g. copper, nickel and zinc)).
This wheeling and dealing by a former Communist country gives the lie to Heller's claims that African geo-political issues are so complicated surrounding the distribution of resource rents as to be seemingly beyond solution.
This depressing conclusion arises solely because the analysis is framed within conventional economic theory. Analysts end up by tying themselves in knots, which doesn't help the millions of people who live in regimes that are allegedly suffering from the "resource curse". In fact, as Heller notes, the primary problem is not with the resource endowment itself (or its absence) at all. The element that is missing is a coherent economic philosophy that identifies the legitimate use to which resource rents should be put.

The institutional and legal framework of the two models which Heller addresses are colonialism, and the conditions prevailing in the post-independence era. But wrestling with institutional and legal norms - whether democratic or not - will not get Africa out of its mess. For what is needed is a practical mechanism that applies the norms of the market in a consistent way. Fred Harrison, in his recent book (Riccardo's Law, 2006, Ch. 15), suggests how this would be achieved. Countries rich in natural resources including coastline, rivers and expanding cities need a pricing mechanism that integrates the charges made for both private and public goods.

The taxes that Heller endorses (corporate and personal incomes) are not part of such a pricing mechanism. They should be eliminated in favour of direct charges on the rental value of natural resources as determined in the market place. If this pricing framework were in place, the scope would be diminished for waste, corruption and internecine conflict between both political and commercial elites (all of which is ultimately funded out of resource rents). Under the rational pricing mechanism, resource rents are directly tied to funding those public goods that produce them in the first place. That one reality would do more to foster representative political and community-based institutions than all the preaching about democracy - by the likes of President Bush - in countries like Iraq.

 

 

 

 

 

 

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