Q: I want to follow-up on what you had said some
months ago about land reform:
JES: "The main, underlying idea of Henry George is the
taxation of land and other natural resources. At
the time, people thought, "not really that too,"
but what was underlying his ideas is rent associated with
things that are inelastically supplied, which are land
and natural resources. And using natural
resource extraction and using land rents as the basis of
taxation is an argument that I think makes an awful lot
of sense because it is a non-distortionary source of
income and wealth.
Q: In Globalization and its Discontents, you
write (p. 81): "But land reform represents a fundamental
change in the structure of society, one that those in the
elite that populates the finance ministriies, those with
whom the internaitonal financial institutions interact,
do not necessarily like."
JES: Yes. Let me try to approach the question a little
more systematically. Once you take the perspective I just
gave, that means the managementment should be done ion
such a way that it maximises the amount of money
available to the US government from natural resources
because they are within its domain and control. So,
looking at the United States, one of the implications of
this is that a foundation such as yours [the Robert
Schalkenbach Foundation, created to promote the ideas of
Henry George, as expressed in Progress &
Poverty] ought to be very much against the policies
of the US government of giving away our natural
resources. Here is a case where we not only are not
taxing it much, we're actually giving it away.
Q: I assume you're speaking in particular of oil and
mineral rights, but would not Broadband Spectrum rights
also be included in that category?
JES: Yes, Broadband Spectrum rights as well. Now,
giving away rights such as those would be anathema to the
spirit of Henry George. And the second part is that when
you sell them, you want to do so in such a way as to
maximise the revenues. And whether you decide to sell it
or whether you decide to rent it, would be the question
of what is the way that maximises the extraction of
public revenues.
Q: And those revenues go to the people. Not to private
concerns.
JES: Exactly. So you're trying to say, from the
perspective of public management, how can we take this
inelastic supply of public resources and maximise the
rents that we can extract from it, consistent with other
public objectives? That is a very deep philosophical
approach, and requires a re-thinking of how we manage all
aspects of those public resources. However, much of what
we do is inconsistent with that. Now, the issue of land
reform is a little bit different. There, it's a two-step
analysis. My concern that I expressed about land is that
in many developing countries, you have most land owned by
a few rich people, and the land is relatively little
taxed. But the land is worked in a system of
sharecropping in which workers have to pay the landlord
fifty percent of their output. In a way, you can look at
that fifty percent as a tax. The sharecroppers are paying
a fifty percent tax to the landlord. But it's worse than
a tax. Because it's not a land tax, it's a tax on their
labour. And it's a tax that goes to the landlord rather
than to society. So the notion is that land reform could
take a variety of different forms. For instance, the
government could take over the land and rent it to the
people. Or give it to the people and have a land tax that
would not have the distortionary effect of land reform.
So, in a way, these systems of share-cropping are worse
even than anything that Henry George was worried about in
terms of misuse of land.
Q: However, when you speak of land reform, do you have
concerns about compensation as an issue in its
implementation?
JES: That is one of the key issues. And there's a
program at the World Bank that's been started in Brazil,
which is called "Market-Based Land Reform" where they buy
the land and give it or sell it to the workers. They use
government power to obtain the right to buy it.
Q: Has President Mugabe of Zimbabwe's misuse of
government power to return land to its so-called
"rightful owners" given land reform a bad name?
JES: That's true, but it doesn't have to be done that
way. Now, one of the things that is again in the spirit
of Henry George is that, if you have land taxes, then the
market value of land goes down. What you're willing to
pay for land is the difference between what you pay and
what you get to keep after paying your land taxes. So, in
a Henry George world, the amount of compensation would be
very low. So one couold argue that moving toward a land
tax would facilitate that reform. Once we raise rates on
land taxes, the market value will have to go down. The
government can buy the land and redistribute it to the
workers, and they then would be able to keep the fruits
of their labour. They will continue to pay the land tax,
but the product of their own efforts — their labour
— will be their own, as opposed to sharing fifty
percent with the landlord.
Q: Do you think land reform could possibly find a way
onto the political agenda in the United States?
JES: No. Lland reform is not a big issue in the United
States because we don't have a lot of sharecropping.
There's some, but it's very limited.
Q: What countries do you regard as the most
politically open to tax reform as a means of achieving
meaningful land reform?
JES: I think some countries in South America are
moving in that direction. They're beginning to do this
form of taxation because they want the land to be
utilised. Some people own land but make no use of it.
Q: You mentioned the World Bank's program titled
"Market-Based Land Reform." Is that the only
international forum in which there is a chance of gaining
politically-effective support for "land value taxation"
as an instrument for land reform?
JES: There's not a lot [of] discussion going on in
those circles about land reform. The World Bank is still
talking about it, as in the program I was talking about.
And certain countries are continuing to talk about it
within themselves. But the IMF is not, and I don't know
of any NGO (nongovernmental organisation) that is.
Q: What are the greatest political obstacles
confronting developing countries to the extraction of
economic "rent" for public purposes? Is it simply a
matter of "vested interests?"
JES: Yes, it's not very complicated. You know, in the
Clinton Administration, we tried to reform the
disposition of natural resources — mineral rights
— by saying the US Government should not be giving
this away to a few wealthy people. But the mining
interests were adamant in opposing this reform.
Q: In your opinion, would it be more effective to
attempt to achieve support from economists about the need
for such reform, or to bypass them in seeking to build
popular support independently from them, in that the
views of mainstream economists on the topic of land
reform might fairly be characterised as an
"intransigent"?
JES: There are some economists who are
interested in this. I think most economists would like
the idea, and would support it. But, economists spend
their time on things that they think have
marketability. So it isn't that they don't think
it's a good idea; they don't think there's any
resonance in it. President Bush is still talking
about the inheritance tax, and income tax, and they want
to get involved in what other people are talking about.
It's a social phenomenon, I think. So, if you
get a lot of other people talking about it, then they'll
join the fray.
Q: You are aware that Henry George was a critic of the
moral foundations of our economic institutions. What do
you think of reform efforts toward land value taxation
based on an appeal to morality?
JES: What it fits into is that there is a wide view
today that we should tax environmental "bads" such as
pollution and the like. And switch from taxing good
things like labour. So, in a way, that's where it comes
in: let's stop taxing good things like labour, and tax
things that are resources. So the argument is, "why tax
things that are contributing to society?"
Q: I'd like to move to topics related to globalization
because I read your book, Globalization and its
Discontents, and, like many other people, found it
fascinating. What has happened to the idealism that was
supposed to make institutions such as the World Bank and
IMF serve the inclusive interests of everyone in what was
then called the Third World? You make the point that
these have become institutions that serve the interests
of wealthy nations almost to the detriment of poorer
ones.
JES: The problem is that they believe that by helping
the rich you help the poor.
Q: The old "trickle down" theory?
JES: Yes, "trickle down."
Q: But that's been fairly discredited, hasn't it?
JES: Yes, it has. But as a general phenomenon, nobody
likes to think badly of themselves. They always end up in
arguments about why it's in the "General Good." But, on
the other hand, I think that self-interest is a very
strong force. That's what Adam Smith said, and I see it
all the time.
Q: But haven't these institutions detached themselves
from the grass-root interests of land-less people around
the world?
JES: The IMF never thought of itself in that way. It
began as a club of the rich countries to help each other
out. And when the colonies got released, and the
developed countries managed their own economies better,
they went in and became the new imperialist power. That's
an over-simplification, but they then became the agents
of the advanced industrialised countries.
Q: You criticised "The Washington Consensus." From
reading your book, I see that you summarise that set of
doctrines as "1) Fiscal Austerity, 2) Privatisation, and
3) Market Liberalisation." What are, in your view, the
central weaknesses of the policies that flow from the
Consensus?
JES: It didn't work. I mean, the weaknesses are not
that these are necessaily bad in their own right, but
it's the balance. Fiscal prudence is a good thing. But
they pushed it beyond where it ought to have been. Market
liberalisation is a good thing, but not if it's done too
fast.
Q: Would you say, then, that there is a structural
flaw in the market system?
JES: There are many limitations. We all know that
there are lots of examples where markets fail, and you
need a role for government. So where the structural
problem is, it's their belief that there's not a role for
government to play. And that markets can solve every
problem. That's the structural failure: "Markets are
perfect, and can solve every problem."
Q: For this interview, I also read George Soros' book,
On Globalization, which I know you reviewed in
the New York Review of Books. In it he states,
"It is market fundamentalism, which holds that the social
good is best served by allowing people to pursue their
self-interest without any thought for the social good
— the two being identical — that is a
perversion of human nature" (p.179).
JES: Yes, George and I are very similar in our
views.
Q: Don't you think we need to go deeper and look at
the rules that govern the unequal bargaining power
between the rich and the poor? Isn't that what really has
to be attacked?
JES: Yes, that's what I'm saying in the book. The
underlying problem is the way the rules are
made. If the rules are bad, you need to ask the question,
"how did those rules get established?" And it's the
processes by which the rules get made that is the
underling source of the problem.
Q: Do you think that changing the rules is
possible?
JES: I wrote the book because I believe that, in a
democratic society, pressure can be brought to bear on
the rule-making process. As you become aware of who's at
the table, why things are biased, they're responding,
criticising. Even if it doesn't quickly change, it
circumscribes the ability to continue with self-interest.
The World Bank is already changing enormously. That was
relatively easy. President Clinton appointed someone who
has a very different mind-set from previous World Bank
presidents. The rest is very hard. The IMF has not made
that kind of change. It's still a long, hard road for
both of them. In some ways the WTO [World Trade
Organisation] is in an even more difficult position. But
that's the great thing about democracy: we have so many
critics. We have newspapers, and people like me and
George Soros writing books.
Q: Aren't you also saying that the real impetus will
come from democratically-elected representatives with the
political power to make changes?
JES: But they also respond to public pressure. In the
last Presidential Debate between Bush and Gore, both
sides said that we had to change the IMF. Clearly, the
issue of the IMF had raised itself to a level —
it's still not in everyday talk in that it's not what
most Americans think about — that it got thirty
seconds or a full minute in a Presidential Debate between
Bush and Gore. Well, that's a big achievement from where
it was before. The IMF is a very important institution
for developing countries and most Amnericans have never
heard of it.
Q: I was at a conference recently on the French
concept of "mondialisation" as opposed to
"globalization." The French consider the spirit of
"mondialisation" to be more "generous" towards less
developed countries, in contrast to the American idea of
pursuing our national interest without regard to theirs.
Would you call yourself a proponent of "mondialisation"
rather than of "globalization"?
JES: It is interesting that my book has been selling
fantastically in France, so they obviously sense the
commonality on our views.
Q: Let me ask you about Russia. President Putin has
been a prominent advocate of the need to shift the fiscal
base away from people's wages and savings and on to the
rents of natural resources. But this strategy flew in the
face of conventional tax wisdom, which favoured a "broad
tax base" that included the use of "stealth" taxes. The
IMF, by its actions (if not its public declarations),
strenuously opposed the Putin strategy. What might
President Putin do to remain engaged in the process of
pro-market reforms while retaining the support of foreign
investors and at the same time shifting the tax base on
to the rents to be derived from Russia's natural
resources?
JES: Russia provides another good example of what I've
been talking about. The fact is that their economy has
been imploding. And it's become nothing more than a
natural resource economy as a percentage of the GDP
— about sixty to seventy percent. At that point,
natural resources become the only major source of
revenue. So they've been forced to move in that direction
by necessity. And, obviously there's a political economy
tension: the rich guys don't want to give it up. But
that's the distinction they're going to move in because
there's no alternative.
Q: Your academic work led you to formulate what you
called "The Henry George Theorem." This demonstrated that
public spending — where this was efficient —
generated additional rental value that surfaced in the
land market. Other distinguished scholars, such as the
late Nobel prize winner, William Vickrey, confirmed your
findings. You also noted in our of your books, co-written
with Anthony Atkinson, that the Henry George Theorem was
attractive both because it was the revenue-raiser that
did not distort private incentives and because "it is the
'single tax' required to finance the public good."
[Anthony B. Atkinson & Joseph E. Stiglitz,
Lectures on Public Economics, London:
McGraw-Hill, 1980, p. 525] Now, public investment, unless
of the wasteful kind designed to serve the privileged
interests of rent seekers (the classic type being a land
speculator), should be viewed as working in partnership
with the private sector and not a drain on the community.
How can the reputation of publicly provided services and
investments be rescued?
JES: That's a very good question. What we did when I
was at the Council of Economic Advisors was some studies
to try to show what the social returns would be to public
investment in R&D, etc. And we became convinced that
the rates of return of those investments are very high.
So you ask the question, "what can we do to restore
confidence in public investment?" We need to realise how
much we depend on them. I keep telling people, "The
Internet." That's one example. It was publicly funded.
It's now a public-private partnership. The government did
the basic research, and the private sector ran off with
it. But, arguably, we would never have had the Internet
if it were not for government expenditure. So I think a
major industry in the United States — biotech
— is based on NIH (National Institutes of Health).
NIH does all the basic research.
Q: From the conference on "mondialisation," I saw a
major difference in attitude among the French with regard
to public investment. The French believe strongly in
public funds for public works, whereas Americans believe
they shouldn't be taxed more in order to support public
projects. Which view do you agree with?
JES: There's been a lot of so-called "bad rhetoric" in
this whole area. The real point is that we need to
recognise that there are some things in the area of "the
public sphere." We're not having investment in
basic research; we need to have the government do it. And
that's what I've consistently been arguing; you don't
want the government building steel factories. But you do
want the government doing certain research, and the
relative size of that depends on the society. Right now,
we should be spending far more on basic
research. So what is the message. I think how much we
depend on the government. And the new economy, we take it
for granted, but it is the public sector. I think you're
right that we have the wrong view. But I keep saying,
"The Internet." How much as it changed our lives? An it's
[the result of] the government.
Q: And yet, in American society, the idea is instilled
that one ought to take for one's own benefit, so as to
have the big cars and houses, etc., that will impress
other people, rather than to give in order to promote a
public benefit. Aren't those the actual values of
American society?
JES: We need to realise that our livelihood today
depends on our innovation, and our innovation depends on
our sciences. Our livelihood depends on our global
position. For example, we have to be able to fly, to go
to the airports.
Q: I wanted to ask your view on the adequacy of land
as a tax base. At one time, as you know, there was a
"Single Tax" movement, for the purpose of deriving
revenues sufficient to run the government solely from
land value taxation. In your view, how feasible is that
today?
JES: Most economists would say that you cannot run the
US economy on the "Single Tax." In my mind, the "Single
Tax" is the wrong way to think about it. The question is:
"Would it be better if we had more taxation of land and
natural resource, and more revenue from natural resource
management, and I would include atmosphere and spectrum."
And less tax on income and savings. And I would say,
"Yeah." And I think many economists would agree with
that. So, if you want to sell it as a "Single Tax," then,
no, you won't get anyone to agree that there's enough
revenue there. If you look at is a more "central" tax,
then, yes, you will get most economists to agree with
you.
Q: A former Director of Robert Schalkenbach Foundation
was given a grant recently to research the adequacy of
land as a tax base. He's a professor at the University of
California, Riverside, named Mason Gaffney, and he wrote
a book titled, "The Corruption of Economics."
Are you familiar with his work?
JES: No.
Q: I'll send you a copy of the book. Basically, he
argues that the founders of neo-classical economics,
which, as you know, is the paradigm taught in schools
such as the University of Chicago, distorted the science
of economics to protect vested interests. For example,
Rockefeller money was spent to hire professors of
economics with a view to their discrediting the ideas of
Henry George. Did that happen?
JES: My general impression is that most donors that
give money to universities don't take a very strong view
of [who should be on] the faculty. Sometimes it ends up
on one side, sometimes on the other. It would have been
unusual [at Chicago], but it could have happened there.
What is striking about Chicago as a school of economic
theory is that it's very conservative. One would have
thought that Henry George was someone who would have been
liked by "Conservatives."
Q: In that George wanted to reduce tax on the fruits
of one's own labour?
JES: Exactly. An you want non-distortionary taxes, so
I would have thought that every "Conservative" would be
in Henry George's camp. Now, as far as I know, I'm one of
the few people who keeps emphasising that you ought to
view Henry George in a broader way, to include natural
resources. I didn't think that people thought about that
a hundred years ago. But if they had, and maybe
Rockefeller was smart — he realised that he
obviously didn't want a tax on natural resources.
Q: He wouldn't have wanted rents flowing from natural
resources to go to the people rather than to him.
JES: Yes, he obviously wouldn't like that perspective.
But I don't know if that view was at that time
recognised, and I just don't know whether he actively
intervened at Chicago.