TP17. The Scourge of Unemployment

Millions of people cannot get jobs, and yet there is an enormous amount of work which needs to be done. This paper points to a better way of managing things.

Take a short walk, almost anywhere in the country. Look at the jobs that await our attention. Everybody will have their own list: ranging from big public works like road improvements and rail electrification, through to the provision and staffing of more public lavatories, to matters like keeping streets cleaner, emptying dustbins more frequently and improving the postal service.

And yet there are numbers of people – around 2½ millions at the time of writing (Spring 2011) – who want to work, but can’t find jobs. The rest of us are required to pay to keep those unfortunate people in enforced idleness, because if we didn’t, they, and their families too, would suffer.

If we want to get rid of the lunacy of unemployment, we first need to understand its cause. Everything that human beings require comes from “land” – a word which we use here to include the whole of the natural environment: seas, rivers, air and cyberspace as well as solid ground; plants, animals and mineral deposits.

Nothing can be grown, reared or manufactured without use of “land”. No jobs can be performed without access to “land”. All the wealth that human beings create to satisfy their needs and desires is the result of human energy used on the raw materials of “land”. Even people who make a living by producing services for others need land to work on, and use equipment produced by others from “land”.

“Land” is fundamentally different from all forms of wealth – including what economists call “capital”. Capital, in that sense, means goods which are made not for their own sake but in order to make other goods more easily or efficiently. Everything created by people to help them in the productive process, from a spade to a computer or a great electrical generator, is “capital”. If people have access to “land”, they can create things in almost limitless quantities. If there is sufficient demand, a million machines, or garments, or cabbages, can be produced. But there is no way of creating “land”, whatever the demand. When much of the “land” which does exist is not available for human activity, unemployment results. People cannot use their labour to produce either “capital” or consumer goods.

The effect of adding taxes to the natural costs of running a business is to push those firms with only a small pre-tax profit margin into unprofitability and out of existence. Current taxes therefore mean less production, and fewer jobs on offer. Taxes increase the cost of running a business and make it more difficult for firms to make the profit they need in order to survive. To give one example, firms which use transport not only have to pay to acquire lorries to carry their goods, they also have to pay vehicle tax to be allowed to use them. They not only have to pay for the fuel required to run their lorries, they have to pay fuel tax as well. They not only need to pay people to drive their lorries, they also need to pay their drivers’ National Insurance contributions. In theory, no doubt, these taxes fall on the employee, but in practice they mean that the employer bears most of the cost, because if he does not so he cannot attract workers. The takings of every business enterprise have to cover not only the employees’ wages but their taxes as well. Thus the overall effect of taxes is to reduce the number of employees a firm can afford to take on – and in some cases to drive the firm out of business altogether.

To tackle unemployment effectively, we need a two-pronged attack: one which will at the same time give workers and employers access to land, and reduce the burden of harmful taxes which damage employment. There is a way to do this. It can be done by removing a great deal of taxation from goods and services, and shifting it on to the value of “land”. This is known as Land Value Taxation, or LVT.

The principle of LVT is simple. The value of a piece of “land” derives little or nothing from the activity of the person who owns it. Other people appreciate the view it commands, or its potential for raising crops, or the ease of access to schools, shops, offices and places of leisure. It is that demand from others which gives the “land” its value. It is surely both wiser and more just to tax a person on the basis of the value which he enjoys but did not create, rather than to tax him (as today) on the basis of the value of the work he performs, or the value of the goods which he seeks to buy.

The first step required if we are to switch to LVT is to have all “land” valued. That valuation would consider only the value of the natural site, and would exclude the value of everything, such as buildings or crops, put there by human activity. Professional valuers assure us that this would be a quick and cheap process. Then a tax could be levied on the basis of that valuation. At the same time, of course, other taxes which act as a fine on the production of goods and the provision of services could be reduced. LVT would be progressively increased until nearly 100% of “land” values are collected in this way.

Consider what would happen. The taxes which hinder production, and therefore make us all poorer, would be greatly reduced, and in some cases abolished. Full use would be made of available “land”, because the rate of LVT payable would be determined by its value, and not by the use to which it was put. People would then have every encouragement either to use the “land” to its full potential, or to dispose of it to somebody prepared to do so.

The root cause of unemployment is that most people have little or no share in the value of “land”. Great swathes of “land” which could be used productively without offending any environmentalist are wasted because this state of affairs suits the convenience of a tiny minority. Idle “land” would be brought into use, since nobody would benefit from holding it out of use for speculative purposes. Thus, by removing the causes of unemployment, LVT would be of major value in effecting a cure.

Other Topic Papers in this series amplify some of the points made here. In particular, we draw your attention to TP1 –“What is LVT?”, and TP7 – “Booms and Slumps”, which explains how the boom-slump cycle, (which is an important cause of unemployment) arises, and how LVT could play a major part in curing it.

Further reading

Henry George, Progress and Poverty, and The Condition of Labour

J S Cadman, Unemployment and the Revenue Problem (New York 1923)

Frank Geary, Land Tenure and Unemployment (London 1925)

Fred Harison, Boom, bust; house prices, banking and the depression of 2010. (Shepheard-Walwyn, London, 2005 ISBN-13:978-0-85683 214-3)