Amnesia Afflicts Free-Market Gurus

Johannesburg has a shortage of oxygen and no navigable rivers or harbours and it is well known that these factors inhibit people’s intelligence.


One appreciates that Gauteng Province in South Africa’s Highveld has a shortage of oxygen and Johannesburg has no navigable rivers or harbours. It is well known that these factors inhibit people’s memory. However recent BD articles by Ann Bernstein 8th May (The Future is Urban) and the 14th May Freemarket Foundation’s Leon Louw (Transfers of land can unlock ‘dead capital’) suggest serious bouts of amnesia in these two leading free-market intellectuals.

Anne Bernstein’s case that cities generate more wealth than arable land avoids the truth that, in a couple of years, any able-bodied illiterate can develop a garagiste wine estate and cellar by planting pips and hand-building a four bed mansion out of the earth; as people have been doing since biblical times.

Her qualification that Metropolitan cities must become more competitive is a worry for wage earners who remember that, since the industrial revolution, more job-seekers in the cities always means lower wages.

Her forgetfulness extends to the fact that people who migrate to cities do not do so voluntarily but to escape the arbitrary feudal governance of the chieftains in the former Homelands and the poor rural services and amenities. When they get to town settlers cannot turn back, like Dick Whittington, because they cannot afford to buy land settle themselves.

The Freemarket Foundation project to formalise ownership of land in the Freestate by funding the registration of titles is exemplary; if lions can stake out their territory then why not humans.

Mr Louw says this will unleash R1-trillion into the economy and compliments Free State Premier Ace Magashule for enriching voters ‘at no-one’s expense.

But Mr Louw forgets that there is no such thing as a free lunch. Was it not explained in his Economics 1 curriculum that land prices are a state subsidy, to the extent that the state fails to capture those recurring and unearned land rents which arise from nature’s endowment, population growth, governance and state funded infrastructure, services, and amenities, BUT instead chooses to collect personal taxes on earned salaries, wages, savings, profits, shopping and capital gains.

So that R1-trillion really belongs to all South Africans in undivided shares, it is our joint “dead capital” but only available to National Treasury if they would stop taxing people and instead tax the land. Then land also becomes affordable.

Tax havens like this are also top-notch job and wealth creators. Thirty five percent of Hong Kong’s budget is sourced from land rents and Hong Kong citizens are now the fourth richest citizens in the world in GDP per capita at purchase price parity, six times wealthier than South Africans, and without any resources or agriculture to talk of.

That has enabled Hong Kong to lower its personal and corporate taxes to less than 20% and there is no vat. Fifty years ago South Africans enjoyed the same standard of living.

One day perhaps Mr Louw will remember why he prefers being taxed on his efforts, initiative and savings and not just on the benefits which his land enjoys.

16 May 2014 by Peter Meakin

photo credit: _MG_5519_web – Marina Bay Financial Center, Singapore via photopin (license)

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