We've all seen the scenes of bony-looking children in some desert surrounded by makeshift huts that we wouldn't dream of living in, accompanied by some announcer's appeal to our sense of guilt. "For just $1 a day you can sponsor a child like this," they say. While such philanthropy may give us peace of mind with the sense that we're doing something about the problem, such gestures of kindness do little to address the wider causes of poverty and hunger. This individual child you sponsor may gain a competitive advantage over his peers, but he will still live in a poverty-stricken area, and his peers will be no better off.
So what is the cause of poverty? In the conservative mindset, poverty is the fault of those living in it. Many a cynic has implored that these poor hungry people might have a chance for success if only they would stop having so many children. In our own country, they claim that they are "lazy" and simply don't want to work. Sometimes they will claim that our welfare system has made them dependent and given them a disincentive to work. Without completely discounting all of these explanations, suffice to say they do not explain sufficiently the extent of poverty that exists in the world, nor its distribution.
Liberals, on the other hand, often take a conspiratorial view of poverty. They say it is caused by racism, by greedy corporations, or exploitation. Some take a zero-sum view of wealth and claim that other countries are poor because we are rich. Most who are educated in economics will understand the fallacy of the latter explanation. The other explanations may have some truth in them, but again, they do not reveal the whole picture.
In short, the conservative sees poverty as being caused internally, while the liberal sees it as external. There is truth in both views. An individual can elevate their socioeconomic status with the right tools available to them. However, poverty as a social phenomenon has social causes. Thus, in order to address poverty in a practical manner, we will have to view it as a social phenomenon, not an individual one.
Overpopulation
Let's start with overpopulation. The claim, as mentioned before, is that people go hungry because they have too many children. So why in God's name would they do such a thing? It boggles the mind what kind irrational person would starve themselves for the sake of having a large family. The fact is, however, that this line of reasoning is flawed. Because we live in a modern, post-industrial society, we tend to think of children as an economic burden. We have to feed them, clothe them, send them to school, pay for their college, get them medical care, and so on. But think about how the things on that list that a person in a third world country would not concern themselves with. Few people in such societies can get an education, so paying for books or college tuition is a non-issue. Health care, if it is available at all, would come from aid workers or a local herbalist. As for clothing, we wouldn't expect them to wear the expensive Nike sneakers or name-brand jeans that Westerners would wear, so this is also not a big expense for them. The one expense they really have to worry about is food. But then we are once again left with the question: why so many mouths to feed?
To understand this, we have to also understand that these countries have neither child labor laws nor social security. A child can be sent to work on the fields or in factories at a very young age, and thus, can be an economic asset after only a couple years of providing for them. Since some children will not survive to adulthood, families will have multiple children to ensure that some will survive to provide for them, especially in old age when they are unable to care for themselves, and have no pension or social security on which to survive.
The fact is that a lower fertility rate tends to follow economic development, rather than precede it. As people find themselves well fed and able to send their children to school, they find that they do not need to have so many children. As such, we cannot address poverty by addressing overpopulation. We must instead address overpopulation by addressing poverty.
The very term "overpopulation" tends to obscure the problem. People believe the world simply does not have enough resources to sustain the current population, or that it will soon reach that point. However, fertility rates around the world are already dropping, and current UN estimates say the world population will peak in 2050 at 9.36 billion, and stabilize thereafter. This is well within most experts' estimations of earth's carrying capacity. It should also be noted that future population projections seem to fall over time, so we may not even see that kind of population.
Exploitation
So what of the liberal charge that world poverty is our fault, or the fault of multi-national corporations? As we will see, there is some truth in this, but not in the same way that the Left generally thinks of it. They will often point to the low wages paid to third world factory workers by Western corporations. If the workers unionize or appeal for better wages, the company will simply set up a factory elsewhere. Liberals have proposed solutions such as global unionization or boycotting products from certain international corporations. There is much to be said for these approaches, but they fail to understand the economic cause of low wages.
Conservatives and libertarians are quick to point out that the wages offered by these companies are competitive for the areas in which they are located. The wages are low by our standards but not by their local standards. Otherwise, why would people work there instead of somewhere else? Wages will rise, they claim, as the country becomes more economically developed. However, a study of recent history shows that economic development in such countries is frequently lopsided, especially with the presence of export processing zones, which give foreign companies an advantage over domestic ones.*
The Key
So what is the cause of this uneven growth? What is the key to understanding the cause of poverty? You're standing on it. That's right: land. There is a finite supply of land on Earth, and only a fraction of that is economically valuable. Wealthy landowners buy up the most productive land and see their profits rise as others are forced onto less productive land. We see this in our own society with the housing bubble, but the situation is much worse in poorer countries. In Brazil, this phenomenon drives rainforest deforestation as a small group of wealthy landlords own much of the productive farmland, forcing poor farmers to cut down rainforest and use its poor soil to grow their crops until the soil is depleted, when they must cut down more forest to continue farming. Claims that there is not enough food to feed the population are undermined by the large amounts of productive farmland held out of use or underused by landowners in order to increase their land value. Thus, we see socioeconomic injustice and environmental injustice intimately connected.
But don't think that this is just an agrarian problem. It is every bit as much an urban dilemma, if not more so. Land values are much higher in urban centers than in rural areas, and as such, they attract even more land speculation. Owners often hold onto abandoned and underused buildings, anticipating a higher selling price. When the government provides services such as police and fire protection, or road and sewer maintenance, the value of these services gets capitalized into land values, essentially subsidizing these landlords. These vacant or underused force development to move outwards, contributing to sprawl, which further increases their land value, which in turn fuels more speculation, and so on. Meanwhile, in order to fund these services, the government implements confiscatory taxes, which drive businesses away, leading to more abandoned lots for land speculators. With a smaller tax base, the government has to raise taxes even more in order to keep its funding going.
The result is massive suburban sprawl and the degradation of the inner city. Crime runs rampant within the city, which lacks the tax base to improve law enforcement. Those with money usually live in the suburbs and commute to whatever good jobs there are in the city. Often cities will appeal for state or federal aid in order to stop the decay.
The Solution
The fact is that cities, rural areas, and even third world countries all have the resources to fix these problems. The problem is that those resources are kept out of reach for most people due to their heavy concentration in the hands of the wealthy few. Some are tempted to look to socialism to solve this problem, but socialism redistributes earned wealth as well as unearned wealth. At its worst, socialism gets rid of the market completely, which is essential for the efficient distribution of those resources. More moderate forms of socialism use heavy progressive taxation to redistribute wealth. However, as mentioned earlier, heavy taxation often drives business away, leading to fewer jobs, and thus a smaller tax base.
So how do we achieve a more efficient distribution of resources? To understand this, we must first understand that it is not all forms of wealth which require redistribution. Some wealth is produced through an individual's investment of time, effort, and capital. There is no reason to redistribute the wealth that an individual has produced. They should be entitled to all of it, and to do otherwise would be a disincentive for them to produce in the first place.
Recall that land is the key to all of this. It is the gifts of nature which should be evenly distributed among the population. So how do we do this? Land reform is often given a bad name by countries where this redistribution is done on the basis of political alliances rather than for the good of the people. For this and other reasons, the government should not take an active role in redistributing the land. Rather, they should reform the tax system such that it rewards efficient use of the land and penalizes land speculation.
How is this to be done? A 19th century social philosopher named Henry George proposed just such a solution. It is called the land value tax, a modified property tax. A normal property tax is really two taxes in one. It taxes the unimproved value of the land, or site value, as well as the improvements upon the land, such as buildings. When we tax improvements, that discourages efficient use of the land, as people are penalized for making better use of it. The land value tax would get rid of this aspect of the property tax. If taxing improvements is a disincentive for those improvements, does taxing land give a disincentive for owning land? Well, sort of. We all need land in order to live and to work, so we won't exactly see people stop using land. The real disincentive would be for land speculation, leading people to own only as much land as they need, and putting the rest up on the market. Thus, the land value tax would promote the most efficient distribution of land.
What I am proposing here is not a new tax to be added to numerous others. Instead, like Henry George, I support replacing all other taxes with a tax on nearly 100% of the rental value of land. This is bound to raise some questions and objections, and I will try to address some of the bigger ones in as little space as possible. To address them fully would require a full book on the subject.
Questions and Objections
First, how is the unimproved value of land determined? Real estate agents do this all the time. They have a simple expression to explain it: "location, location, location." A beach-front property in San Diego will be much more expensive than an equally sized property in rural Georgia. Proximity to schools, jobs, and services will all contribute to the land value. In other words, the unimproved value of land is determined by its utility relative to other plots of land. In order to ensure that land values are properly determined, there should be surveying committees who make land value surveys on some regular basis, such as every five years. The results of the surveys should be kept a matter of public record with easy access. This is another advantage of the land value tax: With an income tax, people's sources of income cannot be made public without an extreme violation of privacy. Land value, on the other hand, can be determined without any violation of privacy, and furthermore, it cannot be hidden.
Another objection is that the land value tax would raise the price of land, thus keeping poor people even further cut off from land ownership. This would seem to make sense, as other taxes raise the price of goods. When cigarettes are taxed, their price goes up in order to pay the tax. However, price is determined by supply and demand. Cigarette companies can change the supply of cigarettes to compensate for the added costs. However, land is in fixed supply. No one's making any more or less of it. So what of the demand? As we have discussed, the land value tax would discourage speculation, but would otherwise allow for more widespread land ownership. So the price of land would either stay the same or decline slightly in response to a land value tax. More to the point, the cost of land would be shifted from its sale price into the tax. Thus, the initial cost of buying land would be virtually nothing, and it would be in keeping the land that one's costs would be focused. Of course, this decrease in the price of land would only apply to new sales of land, and this would be problematic for existing landowners, for whom this would be an additional cost to the mortgage they are already paying. Consequently, any land value tax initiative should ideally have some sort of compensation for current landowners, either in the form of a rebate, or by only taxing further increases in their land value.
So what happens when we need to raise taxes? That's the beauty of the land value tax: the tax revenue grows automatically with society's needs and with increased public service. You will recall that I mentioned earlier how the value contributed by public services gets capitalized into land value. With a land value tax, this value can be retrieved. As a result, governments can fund public services with the land value they create. Of course, this is only true of those services which contribute to the public good. As such, the land value tax can be a good litmus test of other policies. If they can sustain themselves with the land value they produce, then they are sound policies. If not, we can consider it wasteful spending. This is an excellent tool for fostering better government.
Organic Policy
Maybe I'm just too much of a hippie, but I like to think of land value taxation as an organic tax. Not only is it related to nature, but fosters a more natural, organic relation between society and nature, between citizens and government, and between people within society. It restores our relationship to the earth as stewards rather than overlords. It creates a positive feedback loop between society and government, and truly helps government become an expression of society, as it is meant to be. By alleviating poverty and competition over resources, it improves human relations. It puts society into the same kind of balance which we find in nature itself.
