3 Aug 2018
ANDREW BRAITHWAITE, FARMER
RECENTLY, some local farmers and I attended the Expropriation Without Compensation public hearing at the Pietermaritzburg City Hall.
People who wanted to say something were given the opportunity of addressing the committee for three to four minutes. Needless to say, it wasn’t enough time to express what I wanted to during my time allocated, and thus this letter.
The chairperson handled the proceedings well, and had it not been for the emotional and largely intolerant crowd, it could have been a constructive process. Unfortunately, whenever somebody had a view that did not accord with particular popular opinion, there were those who drowned speakers out by hissing, jeering and various other expletives — a very low order of behaviour by some, befitting those who ride with noisy popular opinion instead of utilising their God-given natural intelligence.
I’m a farmer in South Africa and find myself having to grapple, like many others, with the conversation around the ownership of land. Arguments revolve around “stolen” land, forced removals, who was here first, and who are the original so-called owners of this land.
SOLUTION FOR ALL TIME
Clearly there has been injustice in the past, and these injustices need to be dealt with, and are supposed to be dealt with through the land claims system, but this has been a well-known failure. We will never reach an answer which satisfies everybody, as these arguments are subjective and prone to manipulation. We need a solution for all time, one in which ordinary people can see justice clearly, one that moves society forward socially and economically. That is the broad view. Locally, on our own farm, we have done a deal with the government whereby the land was sold to the state and we then formed a 50/50 partnership with our staff so as to lease the farm back from the state. I now farm with my employees, who are being upskilled to take more and more responsibility. They share in the ups and downs of farming, and we work the land together. The intention is to grow this business like any other farming business. This has been part of the 50/50 scheme developed by Minister Gugile Nkwinti, who has now been moved to the Department of Water Affairs.
There are many farmers in the queue to do similar projects, and there are about 10 or so projects that are operational at present. Sadly, all additional projects are on hold at the moment due to the departmental changeover and the lack of certainty on what the official view on land and this type of project will be. Nevertheless, wherever we find ourselves, we need to contribute in some way to greater inclusivity.
When I was at school we used to say grace. The head prefect would say: “The Earth is the Lord’s”, and everybody else would respond, “and the fullness thereof”. This principle is enshrined in our Constitution, and I believe that this is the way we should be looking at the ownership of land. If the land belongs to everybody, then everybody needs to benefit from its use.
In South Africa, there is a feeling of injustice and dissatisfaction in general, particularly among those who are feeling the very harsh grip of unemployment and poverty, and the popular idea is forming in people’s minds that the redistribution of land will solve this, that one needs land to be wealthy or happy.
This week, President Cyril Ramaphosa announced that the Constitution will be changed to allow for expropriation without compensation. No doubt this has become a necessary move to counter the EFF, as well as in the light of the general mood and opinions expressed at the EWC hearings throughout the country.
The exact nature of these amendment will determine the future of our country — change is needed, but will we be able to keep our balance?
Every person seeks a better life, every person would like to improve his or her situation, whether it be physically, financially, emotionally or spiritually, and people need an environment where they can work freely for themselves or for somebody else. This requires a safe and organised society and for this to be so, an effective justice system, police force and government need to be in place. Such a state requires money for infrastructure, hospitals, doctors, education and for social support so that old people can have pensions and there can be grants for the poor.
All this requires money, and the money for this comes from taxes. Taxes and jobs come from profitable businesses. Profitable business requires a stable operating environment and clear, predictable policy. You can’t conjure jobs and money — they come automatically from entrepreneurs in a good operating environment. This is obvious to most people but deliberately ignored by the populists because their aim is not a better country, but total control and power.
Somehow, negative sentiment has grown towards business, yet it is business, whether it be agriculture or other commercial activity, that allows a country’s wealth to grow, and for its people to be employed. What’s happened in Zimbabwe and more recently in Venezuela, where 80% of the people of a once very wealthy nation are now on or below the breadline, should be warning enough. The possibility of expropriation without compensation destroys business confidence, and is thus incompatible with a growing economy, jobs, and a state that can take care of its people.
We can’t have our cake and eat it. Clearly, we have an impasse, and some people think it better to turn the whole apple cart over and start again, no matter what the price. These are extreme ideologies, almost always with an agenda.
SO, WHAT TO DO?
Clearly, we cannot go on as we are. Perhaps there is another way.
Instead of expropriating land per se, let’s rather expropriate the value which accrues to land due to society. This might sound complicated, but here is an example. If the planners of the Gautrain decide that a new underground station will be built in a certain area, immediately all the land around that station increases in value due to their decision. Now, the landowners themselves have done nothing to enjoy this gain in wealth, but due to societal needs and responses, their land values have gone up. Here is another example. Let’s say a farmer sets up farming operation hundreds of kilometres from anywhere, where the land and water are cheap and easily available. Soon another farmer comes and sets up next to him or her and then another, and as this process continues, so there starts to become some competition for the land and water, and so the value of these natural commodities begins to increase. Then a farrier and a store keeper come along and need some area to setup on, and so land becomes a little more scarce and expensive, and so it goes. Then a speculator comes along and sees what is happening, buys a big piece of land where he or she sees the development moving, and keeps it unproductive, for sale at a profit in the future. Thus, over time, what we have found is that the most expensive land is in the middle of Sandton, and the cheapest land somewhere in the Karoo.
All this is human nature and is driven by the economic signals of the time. So, land which was once free, now has a value, and this value is due to society.
We call this economic rent, and it is the unearned value of the land. This can be “expropriated” by the state through rent collection, or in cruder terms, by a land tax. Importantly, the land tax should then be the primary source of revenue for the state, with income tax being not more that 10% (preferably zero) and no general taxes. This is the fundamental economic theory of Henry George, who was an economist in the late 19th century, and Winston Churchill and David Lloyd George, who managed to get this economic model through the House of Commons in the UK, but it was stalled at the House of Lords, and then also by the outbreak of WW I. Would this have gone through, the UK might be in a very different position today.
Two very successful economies in the world are to a large extent effectively run on this system, namely Hong Kong and Singapore. As a result, their tax is low, attracting business from all over the world, and every inch of the land is put to maximum use.
Most importantly, you are not taxing hard work and innovation. All you are doing is requiring that those who use the natural assets of the nation pay their due to those who are not directly using them. This balances the equation of economic justice.
WHAT ARE THE ADVANTAGES?
- Unproductive land is immediately forced into production as it is too expensive to own land and not use it.
This cost of ownership would be felt by all, including farmers, businesses, landlords, and indeed the various government departments which hold land. With land coming onto the market, prices will be driven down, making it more available to those who wish to shoulder the responsibility.
- There is a simplicity of tax collection and no tax evasion or avoidance.
- There is exemption from tax for the poor, as there will be no taxes like VAT.
- There is rapid job creation through investment. With a very low income-tax rate, investment into the country would be rapid, as jobs are created only through good policy and not through any direct government initiative.
- A new national narrative can be created — those who do not have land know that those who do are paying the state for its use, and that that money is benefiting them through the services they enjoy as a citizen. A regular citizen’s dividend from land rent is also possible. Developing this narrative and understanding would be pivotal to the success of such a change.
Much research has been done on this approach. In Stephen Meintjes’ book Our Land, Our Rent, Our Jobs it is clearly described as to how to effect this policy and what the outcomes are. This policy goes back to fundamental principles — as per the Preamble to our Constitution, the land of South Africa belongs all who live in it. Let those who are registered title holders (“owners”) or have custodianship over our land, pay society for its use. Practical implementation is simple, over a period of five years, income taxes could be reduced and rates or land tax increased, keeping the fiscus in balance. The mechanism and relative land values are already in place in municipalities. Note that it would be a tax on land, not land plus improvements. Meintjes took the 2013 fiscus year and worked out what the rate would need to be, using the municipal relative values, to collect the same fiscus. It works out less per person, as everybody, except the indigent, pays.
Title deeds could then be regarded as de facto lease agreements which could still be traded, and land values would come down over time.
The government becomes the land rent collector. As a nation we should be far more concerned about the state of our economy and the policies which determine the operating environment, and less about who is using the land. The feeling of “owning” some land is good, and title should be given to as many people as possible, and with land flooding into the market, this should be easy.
The voice of reason is very commonly drowned out by populists. As Socrates said many hundreds of years ago, the best type of rule was by an all-wise, having been rigorously raised, benevolent “philosopher king”, i.e. by a person who loves humanity and wants the best for the nation, and who has the power to implement rules for the good of all.
Unfortunately, today such leaders are barely seen. Until people who can’t envision how to create wealth for society and put their own desires aside are ousted from positions of power, we are all in trouble. If we look at our options, there are very few, and most have an outcome which nobody wants.
Due consideration should be given to the possibility of a Georgist approach. I wish Ramaphosa great strength and wisdom in his efforts to secure a stable future for us all.
“We can’t have our cake and eat it. Clearly, we have an impasse, and some people think it better to turn the whole apple cart over and start again, no matter what the price. These are extreme ideologies, almost always with an agenda.”