Basic Income and the Paradox of Property
How should we think about land, and how does our concept of it effect our thinking on basic income? These are some of the core questions we delved into with Laurie Macfarlane, Senior Economist at the New Economics Foundation, recent speaker at TEDxTotnes, and co-author of the book ‘Rethinking the Economics of Land and Housing.’
Macfarlane frames the issue around what he calls the “paradox of property”: that private property is both theft and freedom. It is theft in that land is historically a communal resource, and the relatively recent advent of private property transfers land from the collective to the individual. It is freedom, because then that person is then able to use and occupy that land how they see fit, and the land may provide a stable source of food and shelter. Simultaneously, private property has utterly transformed the economy, becoming a huge store of wealth, as well as a central node of debt, banking activity and public policy.
Macfarlane, while painting a picture that turns bleak at times, sees hope for policy that could recapture the social benefit of land while maintaining the institute of private property, essentially by capturing the value added to land by the surrounding infrastructure, economy and community. The policy he proposes is modeled after the Alaska Permanent Fund, which collects and invests revenue from leasing Alaska’s oil lands, and provides a yearly dividend to every Alaskan. Macfarlane believes we could do the same thing with land, such that property owners pay royalties, which would create and grow a sovereign wealth fund. This fund could invest in socially beneficial projects or distribute a universal cash dividend.
Listen to the full episode or read the transcript below.
Owen: Hello, and welcome to the Basic Income Podcast. I’m Owen Poindexter.
Jim: And I’m Jim Pugh. We’ve talked about in the past that, while a universal basic income would really be a game changer on so many fronts, there are certain areas where it certainly wouldn’t solve the problem, and a big one of those is housing. Particularly here in the Bay Area with the astronomical prices of housing and rent, receiving something like $1000 a month really would not cut it for actually allowing people to be able to fully cover their basic needs.
So we thought it would be interesting to spend an episode delving more into understanding how we actually got to this place where housing has become so expensive and such a massive cost in certain parts of the country and around the world.
Owen: So here to help us think through those issues is someone who’s thought quite a lot about housing and land as a public resource. So today we’re joined by Laurie Macfarlane. He’s a Senior Economist at the New Economics Foundation, recent speaker at TEDxTotnes, and co-author of the book Rethinking the Economics of Land and Housing. Welcome, Laurie.
Laurie: Hey, thanks very much for having me.
Owen: So land and housing are major fields of study for you, and you trace much of the modern condition, both positive and negative, to private ownership of land. Could you explain why private land ownership, something most people take for granted, is so crucial to how the world works today?
Laurie: Yeah, sure. So, like you said, often people don’t realize that the idea that land can be owned as some kind of private property that can be traded, bought, and sold, and the right to exclude people from that land is actually quite a new idea in the history of humankind. It’s actually very, very recent. It only really came to the surface in the 16th century.
Before that, land couldn’t be owned. It was governed by rules of social custom and obligation and various other types of governance. But that transformation that took place, beginning in England, but then obviously spreading around the rest of the world, was really transformational on so many levels. And I think, for the purposes of this context of this discussion, I think the key thing is that it has a kind of a double-edged sword if you like.
So on the one hand, it really, as we know, gave birth the capitalism, transformed our whole economy, drove economic growth, technological advancement, living standards, and all the rest of it. But at the same time, it was inherently exclusionary. So by its very nature, as soon as you give some people exclusive rights over what was previously a commonly own resource, that inevitably involves taking away the rights of others.
And what happened in many countries is, whether it’s in the UK with the enclosures and the clearances or indeed in the US with the native population, millions of people were driven off the land violently, and those that were allowed to stay found themselves that they now had to pay rent to owners, to landowners to access what they previously could get for free.
And landowners effectively became the kind of gatekeepers, if you like, to this resource that we all need. You can’t live without land, you know, you need space to exist in. And therefore, it created this section of people who really were the gatekeeper to this essential natural resource.
And the way that we talk about this tension, this kind of what we call Paradox of Property is that private property is both on the one hand theft, which is the famous phrase that Proudhon, Pierre-Joseph Proudhon, used, the Socialist, that property is theft, but it’s also freedom, and that’s the kind of conception that you hear in the kind of classical liberal thinkers, that private property is key to liberal free society.
And we argue that actually both of these are true for different people, and the tension between them is really one of the dynamics that shapes modern societies. And that the way that this can manifest itself most obviously in modern advanced economies like the US, the UK, and Europe is actually through the housing market.
Jim: So, let’s delve into that a bit more because the history of housing in the UK, I think there’s a lot of parallels to the US as well, but over recent decades, the past century, how has the changes you talked about manifested in policy, and what has been the implication there?
Laurie: One of the things I think it’s really important to highlight when we’re talking about land is, although you can make comparisons between countries, certainly countries that have similar legal frameworks or whatever, what really determines the land economy most significantly is the rules, the politics, the customs, the laws, the history of each specific country.
It’s the rules of the game that really matter the most. And in the UK, we’ve had a significant transformation effectively over the past 100 years in how the land market in relation to housing operates. So if we first rewind back to the beginning of the 20th century, we had a situation where most of the population rented. They didn’t own any property at all, and they rented often in pretty horrible conditions in kind of slum landlord conditions in some of the growing new cities. And you had a class of people who owned lots of land and who basically rented out to renters.
Between the World Wars and after the World Wars, we had a change, quite dramatic shift where the government began to see it as a key role of government in response to some of the other conditions and the uprising that was happening with the people to really start providing low-cost affordable housing as a role of the state. And we had the extension, the building of what’s known here is council housing, which is public sector built housing rented out at affordable rates.
And this kind of continued after World War Two combined with taxes on property and, crucially, tight financial regulation. So in the post-war period, sometimes called the post-war consensus, there was really quite strict regulations on the financial sector. Many of them are legacy of the Great Depression when the dangers of a really laissez-faire financial sector were seen. And the effect of this was really to keep supply of housing and land up and the prices down more or less. They did a pretty good job of actually housing population, which is growing quite significantly at this point in time.
That all really began to change dramatically in 1960s, but particularly the 1970s and 80s. I’ll just very quickly paint some of the key changes that we can maybe then talk about because they were also mirrored in other countries as well.
Firstly, we had some of the taxes that were on property removed. We also had subsidies for home ownership introduced. And this was part of a political project sometimes referred to as the Property-Owning Democracy. That was the kind of brainchild of the Conservative Party in Britain. And the idea was really that they wanted to give more people a stake in private property and a road, this collective housing provision, that they saw as something that breeded kind of socialist mentality.
And there was also introduced a policy called Right To Buy, which was basically sold off a lot of the council housing. If you’re in public housing, you can actually buy it at a big discount, so you could own your own property for the first time. And that was something that was really popular because people liked getting, the idea of getting their own home, but also getting a discount to the market rate.
One of the most significant changes, though, as I touched on before was the liberalization of the financial sector, which really meant that whereas before if you wanted to buy a house and get a mortgage, you needed to save up for a really, really long time with what was known as building societies, which were mutual, almost like mutual associations that you had to be a member of. And you could only borrow quite a limited amount relative to your income.
But that all changed with the big bank and the deregulation of the financial sector, which liberalized mortgage credit markets and incentivized banks, big banks to come into the mortgage lending market. And that triggered a shift in the role that banks play in the economy, certainly in the UK and to some extent in the US as well, which was the tradition, away from the traditional view, which is they’re there to lend to productive business and finance investment. A shift away to effectively become real estate lenders. So effectively lending predominantly against land and property as collateral.
And this really unleashed a flood of new credit into housing, into the housing market, particularly in an environment where the supply side was pretty constrained as it was in this country. And when you have a really elastic supply of credit interacting with a fixed supply or near fixed supply of land and housing, the inevitable consequence was house price inflation and land price inflation was actually what was what was driving it.
And then, so what we’ve seen in the past few decades, is this feedback loop emerge. This interaction between housing prices and mortgage lending and levels of private household debt. And this feedback loop has been fairly prominent in driving the trajectory of house prices in many countries around the world.
Important to note: not all countries have gone through this. It’s important to highlight that. But certainly quite a few countries, particularly the Anglo Saxon countries that have all followed a similar trajectory in terms of financial sector, we’ve seen this take place.
Owen: So, some of that sounds like it’s firmly based in an ideology of homeownership and encouraging people into this system of private property, and some of that sounds like it’s unintended consequences or warped market forces at play.
I’m wondering, how should we think about land ownership? You mentioned that Paradox of Property, where it’s both theft and freedom, and that’s, you know, I think a lot of people get stuck there where they’re not sure which fork in the path to take. So, how should we think about land ownership?
Laurie: Yeah, so this is really the key issue because the way I think about it is, we can separate out ownership, which is basically a set of rights that you have to a bit of space, we can separate that out from the actual value that you can gain.
As a landowner, you’re in a very privileged position of being able to extract much of the value that’s being created in the economy around you, whether that’s through as a landowner charging out rents or whether it’s through just owning it and actually benefiting from the capital gains.
Because one of the differences, one of the things that makes land unique versus other types of asset is its value is essentially socially created. It’s not the product of the efforts of the individual landowners. So just to illustrate that, you can imagine if you own just an empty field somewhere in the middle of nowhere, it wouldn’t be worth very much because it’s not very useful. There’s nothing there.
But if you effectively fell asleep on that piece of land, and in the meantime, the government came in and built roads, railways stations, businesses popped up, and there was lots of activities, skills built all around you, you could can wake up in ten years time, and that land is suddenly worth quite a lot of money. And that’s not because of anything that you’ve done. That’s being socially created. It’s the result of the efforts of the surrounding community.
So the way I think about this is to separate out that value, in effect, that land owners can benefit from at the moment, and their actually ownership. And if we can capture that increase in the value of land that’s socially created, capture that and use that for public benefit while still allowing people to own land. We’re not talking about abolishing private property. We’re just talking about capturing the uplift in land that’s generated by the community at large, rather than land owners, and using that value, spreading that.
And what that then does is disappears, it kind of penetrates through this paradox, because the problem with, as I mentioned earlier, with land owners, with land value. It’s not that having valuable land’s a bad thing. It means that some people benefit at the expense of others. When land prices go up, that increases the wealth of one person, but then somebody else needs to pay higher rent. So it creates this wedge between two types of people. And if we can then capture that value of land and share it among the population, that then does away with this wedge, this kind of wedge that’s polarizing society, while still maintaining private property intact.
Jim: In your recent TEDx talk, you actually proposed a model that was in many ways akin to the Alaska Permanent Fund and their model of issuing universal dividends. Can you say more about what your idea is there?
Laurie: Yeah, sure. So funnily enough, the idea here really dates back to one of the earliest proposals of basic income, actually, which was Thomas Paine and a pamphlet he wrote called Agrarian Justice. And in that pamphlet, he identified what I just talked about, which is that it’s the value of, what he said the improvement only and not the Earth itself, that’s individual property.
And what he proposed is that the value accruing from land should be collected in a national fund and distributed via a one-off payment. And he was proposing it to young adults as a one-off annual payment and to pensioners as a way of capturing that value of land and then sharing it. And this was really one of the earliest formulations of what we now call a form of basic income.
And really, what I was proposing in my TED Talk is really a kind of updated version of that for the 21st century, and a similar way as the Alaska Permanent Fund today has recognized that oil is a natural resource, it’s a valuable natural resource that should be managed, the value of which should be managed in a way which benefits everyone. It’s really taking that idea but applying it to land and therefore, the basic idea being the anyone that owns land would be, would pay equivalent to a royalty just like oil firms have to pay royalties on the oil that they extract into a public fund.
And then that would then accumulate. It could be invested and other things, and the dividend of that would then be shared out equally among all of the population. And really what this is doing is meaning that the increase in the value of land that happens partly naturally just through progress is therefore captured and shared out, rather than just being concentrated in the hands of landowners. Meanwhile, everyone else faces higher rents in the rental market.
Owen: So, you’re not the only person who’s bringing up this sort of thing. The RSA recently garnered a lot of attention by calling for a serious look at bringing a universal basic income to the UK. How would you describe the current debate in the UK on basic income and shared wealth?
Laurie: Yeah, it’s interesting, actually. Basic income obviously is something that’s gained, I think, growing traction in recent years, and it’s started to be looked at more seriously in the sense that we’ve had a number of organizations here in the UK, policy organizations, actually crunch the numbers and look at this in a lot more detail. So there’s definitely a lot of interest.
The way that I see it, I think there’s two key issues. One of the key issues, I think, is this whole issue of, where is the money going to come from for it? And this is something that is always the question that comes up whenever you speak about basic income. And I think that really does matter, not only in a technical sense, but it matters also to the extent to which you can get public support for it.
Because if you, in the case where we’re talking about in the land stuff, if people can see that actually what we’re doing is collecting wealth that’s socially created and then distributing it, that carries with that a certain sense of justice, which makes it easier for people to support the idea of a basic income.
Whereas if we just say, oh, we’ll just get it from you know normal taxation or whatever, I think still there’s evidence that a lot of people still aren’t quite comfortable with the idea of giving people, of giving everyone money. So I think that whole debate around where does the money come from is an important one.
I think the other main challenge, though, and this is where the number-crunching has come into it, is the extent to which it is possible to implement a universal basic income in such a way that means that no one is worse off as a result of it. And obviously, this has quite a bit of complexity to it, in particular in a country like the UK where you have a welfare system that exists today with lots of different individual policies that affect everyone in different ways, and particularly when we’re talking about stuff like, you know, housing benefit and lots of these other welfare policies that exist today.
It’s challenging to have a universal basic income high enough to make sure that nobody is worse off, but I don’t think it’s impossible. But I think that’s where a lot of the work has been done. There’s been various modeling by different organizations that looks at how exactly this could work and how high it could be, and if so, where would that money come from?
Jim: We’ve been looking at here in the US, I mean, certainly we’re nowhere close to being able to pass a federal basic income or much of anything federally right now that would move us forward in that direction. But we’ve been looking at what we’ve called “stepping stone policies,” which take us some distance in that direction.
I’m curious, are there any current proposals or do you think that there is a decent chance of enacting new policy that does move us to some degree towards some of these bigger ideas in the relatively near future in the UK?
Laurie: Yeah, so I think there’s two things I would mention there which I think are relevant.
So firstly, you might be able to tell from my accent, I’m actually from Scotland. And Scotland has its own devolved Parliament and its own First Minister and various devolved powers. And the Scottish government has now launched trials of basic income in three different towns across Scotland that’s going to be happening over the next few years. And actually to try and trial some of the, tease out some of the practical issues around how it could work and how it could be implemented. So that’s a positive sign if their results from that are positive, then that will be a stepping stone, not just in Scotland, but actually across the rest of the UK.
The other way when we’re talking about the UK government as a whole, we obviously, firstly, we have a Labour Party who are in opposition to the government who are looking at this idea quite seriously and are doing some work in the background to look at how this could actually be implemented.
And actually, the current Conservative Government that’s in place just now has actually inadvertently made it slightly easier to implement a universal basic income because of the policies it’s undertaken in the past seven years. What the government has done since 2010 is introduce something called Universal Credit. And the idea was that, whereas in the past we’ve had lots of these individual welfare policies, they’ve basically tried to roll them all up into one single payment called Universal Credit.
Now the Conservatives have done this in such a way that basically reduces how much people get. It was done in a way to basically make cost savings, if you like, and cut back. But that could quite easily be, that process of consolidation could quite easily be taken, modified, expanded, and grown and turned into universal basic income. But a lot of that logistical IT systems work needed to amalgamate lots of payments into one single payment is actually being done by the government at the moment, which means that, which is in itself a helpful stepping stone. It’s just that it’s not currently being used that way at the moment.
Owen: Well, those are the questions we had for you. I’m wondering if there’s anything else you’d like to add?
Laurie: I mean, I suppose one of the things that’s probably worth getting your thoughts on is, there seems to me at the moment to be lots of different slight variations on universal basic income in terms of how it could be funded and how it could be applied. And I’m just wondering, do you think that there’s an idea, I don’t know if you’ve heard about it, called the Social Wealth Funds or Citizens Wealth Funds. And I actually did an interview with a team at City University in London who are looking at this as a potential way to fund a universal basic income.
And interestingly, what they’re looking at as a Social Wealth Fund is not only the kind of classic Social Wealth Fund of accumulating different financial assets and investments in a public fund that’s then used to pay for it, but they’re also looking at what they’re calling a Land Trust, which is also looking at how they can utilize land, all the public land that currently exist, but then also looking to build up land assets as well and use that to fund it.
So that was an interesting space where there’s this combination of ways of funding it. But I don’t know where at the moment, what the state of plays in the US. What’s the kind of state of debate in terms of where people think is the best route in there?
Jim: So, there’s a lot of different ideas floating around here. But both of the ones you laid out are being discussed. In particular, sovereign wealth funds that issue universal dividends. There’s starting to be more and more interest in that idea, not just from the universal payments perspective, but also motivated by the idea that this is a way to create commonly owned wealth, that we really don’t have to any significant degree in the way our economy is currently operating.
Owen: There’s also the idea of the Carbon Dividend, where you put a tax or a fee on carbon extraction, and that would add to the sovereign wealth fund or just be a dividend itself. So that, you know, there’s some crossover with the environmental movement there.
Jim: Yeah, there’s a lot of different ideas floating around as to what is the right / feasible way to actually fund this. Actually, just this morning, there was Chris Hughes, who runs the Economic Security Project, published an article in The Guardian advocating for a “data dividend” and applying a, really a fee or tax on companies that are profiting off data from a substantial number of people. I think there’s a lot of questions as to how do you, how does that actually work out policy-wise and implementation-wise. But there seems to be more and more, there seems to be growing interest in the idea that, let’s look at how, what is actually driving the concentration of wealth, and can we figure out mechanisms to actually allow that to be shared more broadly?
Laurie: Yeah, definitely. There was an article today, actually, and so I spent a bit of my time at an organization called Open Democracy. We’re running a project called New Thinking for the British Economy, and today an article by someone who is making the argument with UBI. The quote was, “Proponents of UBI need to go big or go home.”
I think what he meant is that by going big means that you need to take on this issue of ownership in the economy, kind of the root of the concentration of wealth. And that’s their agenda, and only by doing that will you really be able to get the UBI that is large enough, but also has acceptance that actually works.
And he was highlighting examples where he was quite worried that people are going straight in for the UBI or a halfway house UBI without touching the ownership stuff, and that, in his view, you could end up in not a very good place if you do that.
So you’re saying, yeah, go big and tackle the structural and make sure we go down that route. Otherwise, if it’s a kind of a halfway house UBI that doesn’t do that as well, then the outcomes you’re going to get aren’t going to be anywhere near as good. So it’s worth checking out, if you want to have a look at it.
Jim: That was Laurie McFarland, Senior Economist at the New Economics Foundation, recent speaker at TEDxTotnes, and co-author of the book Rethinking the Economics of Land and Housing.
Owen: So I always find it useful to zoom out and think about the power structures that we have inherent in our economy. And the one between land owners and renters and, you know, everyone else is so integral that we don’t even see it most of the time. But I found his perspective really helpful on that.
Jim: Yeah, it’s such an internalized idea that, oh, of course everyone should aim to buy their house, and we all get our private property, and that’s just the way it’s system works. And understanding that that’s not historically how the system has worked and that’s actually a relatively modern invention — I think it does, it forces you to then start to raise questions about, oh, if this isn’t an inherent model, is this the right model? Should we be thinking about differences there?
Owen: Yeah, and I also found his general proposal of, allow for land ownership because, I mean, the idea of going back on that, I know some people, that’s an ideal for them. It just seems so far-fetched to have a world where it’s all shared land, and I’m not even sure if that’s what we want exactly.
But anyway, to be able to capture the value of rising land prices, you know, of course, that’s something that has a history in the basic income movement, largely through Henry George. But you know, I like that he’s reviving that proposal.
Jim: Yeah, I think that there’s often a tendency to go to the extremes: either everyone fully owns what they have or we’re all sharing everything. I mean, it’s basically pure capitalism or pure communism.
But I think with the levers that we have through public policy, there often is an opportunity to find the sweet spot in the middle, saying we still want to encourage growth and progress. It’s great that we’re doing developments that make land so much more valuable. Let’s just make sure that everyone has a stake in that, and that is something that’s not incredibly exacerbating inequality in the process, but rather broadly growing our prosperity.
Owen: Yeah, and of course, we’re seeing that every day here in the Bay Area where there’s a ton of money flowing into the area, and it should be good for everyone, but it’s really exacerbating wealth inequality.
Jim: Yeah. I also think that this whole conversation is just a good reminder: universal basic income is a systemic policy. It’s aimed at everything, which means that even as simple as the policy itself is, how it touches everything, what funds it, what implications it has, what are the potential pitfalls that we are likely to face as we try to lift everyone in our society out of poverty, that connecting it back to these other big thorny issues like housing is important.
And helping us to understand what that relationship is and, as we talked about with Laurie, that it’s not just a separate thing. Not only does the cost of housing have major implications on how you design basic income, housing itself may actually be, the rising value of that may actually be a driver of the basic income.
Owen: Sure, and I think housing is the biggest thorniest issue, at least in terms of how it interacts with basic income. Almost everything else, I just think “basic income makes it better.” But with housing, you know, it is a lot trickier, and so to have a solution that incorporates both I think is a very sensible way to go.
Jim: Well, that’ll do it for this episode. Thank you for listening to the Basic Income Podcast. Thank you to our producer Erick Davidson, and if you like what you hear, please do make sure to rate and review us on Apple Podcast or to podcast service of your choice.
And please do tell your friends — we’re always looking for new listeners to help get the word out. We’ll talk to you next time.