I spent some more time going through the 2000 or so entries on the UK "Rich List," which starts at http://business.timesonline.co.uk/tol/business/specials/rich_list/rich_list_search/. (See the blog entry below for further comments.)
The top 25 entries, whose 2009 holdings range from £10,800m down to £1,400m, include 16 which came from
- oil
- steel
- property
- mines
- metals
- water
- diamonds and
- mining.
The combined value of the top 25 fortunes is £73.88 billion. At 5% per year, that produces £3.7 billion in income -- quite a sizable amount to be shared among 25 families! (£1,400m is $2.1 billion US; £3,700m is $5.6 billion US.)
Notice that each of these fortunes is fundamentally from natural resources. Yes, there is capital involved, and labor. But under the laws of most countries, natural resource holdings and extractions are taxed lightly if at all, and labor is taxed heavily.
Low taxes on natural resource holdings permit the holders of those resources to restrict others' access to those resources. They can afford to wait until it is to their own advantage to extract them. Those who labor must wait until the holder is good and ready. And if the holder has all the land, what are people who want to work to do? They must accept the wages offered, and obviously they are competing for a limited number of jobs -- limited to what the landholder makes available -- what is good for him, not for the community as a whole.
This is a miserable set of incentives, and it produces both concentration of wealth and the dependence of those who must labor on those who own the earth and its resources. It also produces boom-bust cycles, which are a plague on all of us.
The Duke of Westminster is #3 on the UK Rich List, and his holdings are described there as "property." He owns a great amount of extremely valuable land in London and in outlying areas. He holds the groundleases on spectacularly valuable land. To the best of my knowledge, he did not create any of it. Nor did his father, grandfather, greatgrandfather or any other of his ancestors. Included in his holdings are also a number of buildings. One might argue that a significant portion of what he receives in income is rent on buildings, rather than rent on land. That assumption bears examination. The inconvenient truth is that the vast majority is LAND VALUE.
Buildings, even with the best of care, depreciate. They become technologically obsolete as innovations produce heat and cool air more efficiently; as plumbing deteriorates; as electrical systems get older, as windows and roofs age. What rises in value is the location, the land. And it rises in value for reasons which have nothing to do with the landholder, even if he/it owns all the land in the neighborhood.
- We-the-people tax ourselves and invest in infrastructure: systems which deliver water, which handle sewage and stormwater runoff; transportation systems of subways, buses, trains, roads, bridges, highways, etc.
- We-the-people invest in services: street paving and patching; sidewalks; street-cleaning; leaf and Christmas tree pickup and composting; plowing; schools; police, ambulance and firefighting - emergency services for individual and mass emergencies; public health -- the list is much longer, but this is sufficient to make the point: WE make that land valuable.
- Finally, it rises in value because of increase of population, both local and more general. Population rises from increases in fertility; in better health with lower mortality; fewer accidental deaths; through migration and immigration, when people are drawn by amenities such as lovely views, appealing climate, efficient government providing services people value; an economy with opportunities for all.
You might take 9 minutes and watch Fred Harrison's short film entitled "Ricardo's Law: The Great Tax Clawback Scheme."
Back to the UK Rich List: in the second 25 entries, 10 fortunes fit into those categories.
Interestingly, there is a distinction made between "land" and "property." It appears that some of those whose names are start with "The Duke of ..." or "Baroness" or "Viscount" or "The Marquess of" or "Earl" have "land" which makes them wealthy, and others have what is called "property."
There is another category called "inheritance." Interestingly, many of the entries bearing that description are female. There is also "divorce." Proceeds from divorces, I suppose come under the category of "received via contract." Interesting that men don't seem to be listed for "inheritance."
There are a number of names familiar from the entertainment community ... but their holdings are far below those whose source of wealth is "land" or "property." (Andrew Lloyd Webber is the highest, tied for 52nd place, with £750m. J.K. Rowling is at £499m.) One might argue that they are spendthrifts, but it seems to me that the returns to labor and to talent are not as high as the returns to holding and using natural resources.
A fair argument could be made that many of the fortunes made in Finance and Insurance are also made at the expense of others.
To return to a comment quoted in an earlier post, many of these fortunes are not from building better mousetraps; they are from privileges we have permitted to be accorded to some -- and those privileges are not without cost to the rest of us.
Perusing the Forbes 400 list of America's richest people, it's
striking how few of them made the list by building the proverbial
better mousetrap. . . . Dozens of Forbes 400 fortunes derive from the rising value of land or other natural resources. These businesses are fundamentally different from mousetrap building. Land does not need to become "better" to increase in value, and that value increase doesn't produce more land. (Michael Kinsley in the Washington Post -- see an earlier post on this blog.)
The smallest fortune on the UK Rich List was £30m ($45 million US). At that level, there were 229 entries tied for 1771th place on the list. Looking at the last 25 (within ties, the names are alphabetized by first name), there are 17 new entries and 8 who were previously on the list. Of the 17 new entrants to the list, 4 made their fortunes in land, 5 in property, and 4 in finance. Interestingly, Joseph Cassano, the American who ran AIG's London-based Financial Products Group for 8 years, reaping $280 million (£188 million) in salary and bonus during those years, does not appear on the UK Rich List.
There are a number of surnames which are clearly from other countries. Few of their fortunes are from land or property. For the most part, they made their money the old-fashioned way: they earned it. On the other hand, the largest fortune is from Russian oil. Much of that is wealth which should belong to all the people of Russia, not a few. Depriving them of that is not moral or right or without consequences.
The question is, is this a system we should conserve and protect because it works so well for the privileged few, or ought we to seek to correct this system as it exists in America? Thinking a bit further, how much of the terrorism in the world is grounded in the poverty this system of privileges creates?
Landlords grow richer in their sleep without working, risking, or
economizing. The increase in the value of land, arising as it does from
the efforts of an entire community, should belong to the community and
not to the individual who might hold title.
-- John Stuart Mill
Men did not make the earth.... It is the value of the improvement
only, and not the earth itself, that is individual property.... Every
proprietor owes to the community a ground rent for the land which he
holds.
-- Tom Paine
Ground rents are a species of revenue which the owner, in many
cases, enjoys without any care or attention of his own. Ground rents
are, therefore, perhaps a species of revenue which can best bear to
have a peculiar tax imposed upon them.
-- Adam Smith
God gave the world in common to all mankind. Whenever, in any
country, the proprietor ceases to be the improver, political economy
has nothing to say in defense of landed property. When the "sacredness"
of property is talked of, it should be remembered that any such
sacredness does not belong in the same degree to landed property.
-- John Locke
The earth is given as a common stock for men to labor and live on.
-- Thomas Jefferson
The land shall not be sold forever; for the land is Mine; for ye are strangers and sojourners with Me.
-- Moses, in Leviticus XXV
Solving the land question means the solving of all social
questions... possession of land by people who do not use it is immoral
- just like the possession of slaves.
-- Leo Tolstoy
LANDOWNERS REAP WHAT THEY CANNOT POSSIBLY HAVE SOWN. WHAT THEY REAP DOES NOT COME OUT OF THIN AIR. IT COMES FROM THE LABOR OF OTHERS WHO SOW, AND DO NOT GET TO REAP.
OUGHT WE TO CORRECT THAT, OR DO WE CONSIDER IT AN ACCEPTABLE STATE OF AFFAIRS FOR THE 21st CENTURY? Should we be aiming to increase land ownership from, say, 66% of us to 70%, or should we look deeply at the effects of concentrated ownership, and GO TO THE ROOT OF THE PROBLEM?
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